When ‘the people’ meet ‘the pact’ – populism and compliance with EU fiscal rules

Since the late 1990s, the Stability and Growth Pact (SGP) has anchored the EU’s regime of rules-based fiscal governance, centered on deficit and debt limits enforced through the Excessive Deficit Procedure (EDP). At the same time, populist parties have moved from the fringes into the core of government in many EU member states raising the question whether they display a distinct, systematic pattern of transgressive behavior in this key domain of EU governance. While both fiscal non-compliance and populist participation in government have become common, we still lack a systematic analysis of their interplay. Consequently, this paper asks: to what extent do populist-led governments comply less with the SGP than non-populist governments, and under which conditions? Theoretically, the paper combines insights from the populism literature and postfunctionalist accounts of European integration, viewing fiscal rules as an elite constraint that populists have electoral incentives to contest. At the same time, rationalist compliance theories suggest that market discipline, euro area membership and the threat of EU sanctions may limit open defiance. First, it is hypothesized that the higher the level of populist participation in government, the larger the deviation of the structural budget balance from the country’s medium-term objectives (MTOs). Secondly, it is anticipated that populist-led governments are more likely to be placed under, and to remain longer in EDP than non-populist governments. Thirdly, the non-compliance effect is expected to be the same for right- and left-wing populist governments. Finally, the effect of populist government on non-compliance is expected to be weaker among euro area member states. Empirically, the paper constructs a county-year panel for EU member states from 1999 to 2023. Compliance is measured through (a) structural budget balance relative to the MTOs, (b) EDP status duration, and (c) rule-by-rule compliance scores from the European Fiscal Board’s Compliance Tracker. Populism in government is captured using the PopuList dataset to identify populist parties and their share of cabinet power, supplemented by continuous populism scores from the POPPA expert surveys. The analysis employs fixed-effects panel models and event-study designs around the entry and exit of populist governments with robustness checks for euro versus non-euro members and right- versus left-wing populists. The paper contributes to both European integration and populism research by offering the first systematic quantitative test of whether “breaking the rules” is genuinely a populist hallmark in EU economic governance and by tracing its consequences for the politics of the reformed fiscal framework.