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Frankenstein or Machiavelli? The European Elite-Driven Forced March Towards Austerity

Elites
Governance
Policy Analysis
Political Economy
Euro
S25
Guillaume Gourgues
Sciences Po Grenoble
Clément Fontan
University of Gothenburg

Endorsed by the ECPR Standing Group on Political Economy


Abstract

Since the bankruptcy of Lehman Brothers in 2008, the political and economic structures of financial capitalism did not substantially change. Worst, its structural tendencies, which have been causing the “great recession”, are reinforcing. Some examples are particularly striking : the amount of structured financial products (CDO, ABS) is higher now than its pre-crisis level, top income shares are still rising in the EU and the size of the banking and financial sectors as percentage of GDP is very far from shrinking. In the political economy academic field, there is today a global consensus that the “great recession” has been caused by the activities of the banking and financial sectors rather than by fiscal profligacy from the states. Yet, the eurozone political and economic elites have been framing it as a crisis caused by public overspending and a lack of competiveness due to rigid labour markets. This discrepancy is especially noteworthy since the Keynesian paradigm did not survive to its own crisis at the end of the 1970’ and seems to be unable to take advantage of the economic orthodoxy’s dilemmas; the Popperian approach of economic paradigms cycles is thus empirically misleading. Accordingly, the eurozone crisis resolution process has been mainly oriented towards a large diffusion of austerity policies among the whole continent despite adverse recommendations from international partners such as the US government, the IMF or the OECD and the lessons drawn from the Japanese “lost decade”. The imposition of this economic order has been triggering dire consequences on the quality of democracy, economic performances, social cohesiveness and even the health of citizens in the EU. Political economy scholars have established a large body of work on the discrepancy between the academic consensus on the causes of the crisis and its framing by the European elites; they explain it by focusing on the resilience of neo-liberal economic ideas, the constraining role of institutions and financial markets on political choices as well as the hegemony of the German ordo-liberal model. Yet, the role of political contingency has not been investigated thoroughly. The starting point of this section is to consider that there were many other alternatives for the resolution of the crisis which could have been implemented by the EU political and economic elites. We propose two main scenarios to investigate the choice of austerity: an elite debacle or a well-crafted strategy aimed at protecting and enforcing the interests of a very narrow social group. The first scenario (Frankenstein) relies on the historical institutionalism notion of unexpected consequences from past political choices: drawing on a popular metaphor, the Drs. Frankenstein from the past have conceived autonomous creatures they cannot control anymore (such as too big to bail commercial banks, independent central banks and automatic budgetary sanctions). The second scenario (Machiavelli) states that political elites are well aware of the social and economic consequences of austerity policies which are nonetheless implemented. This can be explained either by a capture of the political elites by business interests or by a sociological logic of protection of class interests. This section is endorsed by the ECPR Political Economy Standing group. It aims at exploring the political economy of crises in general, and the Frankenstein and Machiavelli scenarios in particular, from a critical multidisciplinary perspective including public policy, international political economy, political philosophy and/or political sociology approaches. Besides, comparative perspectives with other regional contexts (such as Latin America, Japan and South-East Asia) would be appreciated. We welcome all types of contribution focusing on these issues (panel proposal 1), specifically with one of the two following angles of approach. • The political economy of crises. This perspective aims at exploring the intertwining of austerity mechanisms with political elites decisions. Is the financial apparatus now beyond the control of policy-makers? Or, should we understand the crisis macro-economic policies as framed and wanted by specific elites coalitions? We invite thus contributors to open the black box of macro-economic decisions and to focus on items such as central banks’ monetary instruments and their redistributive consequences as well as the financial sector reforms (panel proposal 2, coord. Peter Dietsch and Clément Fontan), and the negotiations of austerity terms between the troika expert groups and the national/local administrations in the rescued EU countries (panel proposal 3, coord. Hélène Caune) • The socio-economic consequences of crises. The aim here is to investigate the unexpected consequences and strategic uses of financial crises within ‘real economics’ and public space. For instance, we are wondering how multinational companies (such as Fiat or Boeing) have been exploiting market failures as windows of opportunity to deteriorate working conditions as shown by the recent uses of ‘referenda’ and ‘factory-level’ agreements (panel proposal 4)? More generally, we would like to explore how the “great recession” has worsened the power gap between the two modern constituencies (People and Markets) to which contemporary governments should answer. We focus here on the struggle between these two constituencies, in other words, the weapons, tools, tricks, threats, arguments used on the battlefield of economic and social reforms (panel proposal 5).
Code Title Details
P040 Central Banking in Uncharted Waters View Panel Details
P135 Existential Threat to Common Values or Turn to Sustainability? Scrutinizing the Implications of Austerity for the State, the Society, and the Individual View Panel Details
P376 The Politics of Bailouts Negotiations with the Troika View Panel Details
P414 The Political Machinery of the Eurozone Crisis View Panel Details