The Ambiguous Consensus on Fiscal Rules in the Eurozone

Over the last three decades all Eurozone member states became bound by European fiscal rules through supranational requirements. At the same time, countries have also increasingly introduced national and sub-national fiscal rules. Fiscal rules put limits on public deficits and debt and thus considerably reduce the fiscal policy discretion of political decision-makers. This also affects the capacity of fiscal policy-makers to use budgets for macroeconomic steering and redistribution. Therefore, the implementation of fiscal rules generally runs contrary to the perspective of social-democratic and other left-wing parties, which have traditionally supported Keynesian fiscal policy-making, including an active role of the state in the economy. It is thus all the more puzzling that in a large majority of European countries, even stringent national fiscal rule reforms have recently been supported by social-democratic parties. In the proposed article I want to explain why this has been the case. The study is based on several qualitative case studies of Eurozone member states. The empirical materials include 80 semi-structured interviews with politicians, bureaucrats and experts, an analysis of parliamentary debates and electoral manifestos, budgetary data as well as newspaper articles. Drawing on this evidence, I show that it was the switch from nominal towards structural deficit rules as the central measuring stick for fiscal policy-making which allowed to overcome the prior rejection of fiscal rules by social-democratic parties, leading to the formation of an ‘ambiguous consensus’ on fiscal rules across the political spectrum (see Palier 2005, Béland & Cox 2016). I argue that the concept of structural deficit rules enabled fiscal policy actors with different (and often contradictory) sets of ideas and interests to agree on the same institutional solution. While conservative parties have, generally, already been supportive of fiscal rules in the past, I argue that social-democratic parties across countries needed the structural deficit concept to be able to link fiscal rules with their traditional thinking on macroeconomic policy-making and redistribution. First, in contrast to nominal deficit rules, structural deficit rules made it argumentatively possible to link budgetary constraints to Keynesian/countercyclical policies. At least in theory, structural budget balances correspond to Keynes’ notion of more expenditures during economic recessions and fiscal consolidation during periods of strong economic growth. Second, and related to the first point, center-left and left parties saw structural deficit rules as providing a protection against tax cuts from right-wing parties (especially during economic boom phases). In the view of social-democratic parties, structural deficit rules make it more difficult for other parties to reduce the size of the state towards a ‘small state’, thus ensuring the budget’s capacity to redistribute budgetary resources. In hindsight, it has been shown that structural deficit rules are substantially more procyclical than originally assumed (Heimberger & Kapeller 2017) and thus have neither fulfilled the intentions and expectations of social-democratic parties. Excessive austerity across Eurozone member states has been the consequence. The paper helps us to understand how an ‘ambiguous consensus’ on the concept of structural deficit rules led to this outcome.