European democracy in crisis ? Politics and Policies in the Great Recession

1. European democracy in crisis?Politics andPolicies in the Great Recession Klaus Armingeon University ofBerne 2013 10 26, CUSO Seminar Cully

2. The Problem • During the Great Recession the room of manoeuvre of democratic parliaments and governments has been considerable reduced due to • Decisions taken by inter- and supranational organizations; in particular the European Council • Decisions taken by international financial markets • Are these developments compatible with norms of a ‘government of the people, by the people, for the people‘ (Lincoln)? • Of the people: citizens have a fair chance to form and express preferences with clear political consequences • By the people: the executive is elected by, controlled by and accountable to the people; it is recruited from the people • For the people: policies are in the interest of the (large) majority of the people; the people has a choice between policies

3. This is no problem! • Governments are democratically elected. The treaties are accepted by national parliaments/the people. National governments operate within the framework of the treaties. • Even if there are some constraints on national policy making, sovereignty still exists partially. Parliaments may choose between a larger number of different policies and these policies are feasible. • Financial markets are driven by economic fundamentals. These fundamentals are well-known to policy-makers. If they opt for a certain policy with a predictable economic consequence, the markets will react in a predictable way based on economic data.

4. This may be a problem! • Are different policies feasible? What if there is empirically hardly any room of manoeuvre? • Do citizens distinguish between the national and the supranational level and do they attribute policy consequences to the relevant level? • Is there a national discourse about European issues, which is organized/embedded into established and working structures of political contestation, such as the left-right dimension and parties with different policy programs?

5. This may be a problem! • Is there a democratic discourse about the policy stances of national governments on the supranational level? Are the fiscal decisions of the European Council based on national debates giving legitimacy to the national government on the supranational level? • Are financial markets non-ideological? Do they just factor in economic and only economic developments/structures into decisions about interest rates? • A report on findings. Work done together with LucioBaccaro (Geneve), Marco Battaglia (Bern), BesirCeka (UNC/EUI), Sykler Cranmer (UNC/Konstanz), Kai Guthmann (Bern), David Weisstanner (Bern)

6. Are different policies feasible? • Data and methods • Regression of fiscal data on economic and political variables • Qualitative analyses of systematic country reports • OECD • Bertelsmann • EJPR • Findings: • Considerable but short-term variation between 2007 and 2010. No partisan effects, but structure of government • Little variation after 2010 (exception Japan). Austerity. Extent of austerity independent of partisan complexion of government or national political institutions. Extent of austerity is a function of problem pressure (interest rates on government bonds).

7. Do citizens distinguish between the national and the supranational level and do they attribute policy consequences to the relevant level? • Data and methods • Re-analysis of various Eurobarometer surveys. • Focus 1: Is the trust in the European Union a function of what the Union is doing? • Focus 2: Do citizens reduce support for national democracy since the supra-national level shrinks the room of manoeuvre? • Findings: • Well-known fact: Citizens know very little about the EU ( About one third answers correctly all three questions: Is the parliament elected directly, is Switzerland member, does the EU consist of 27 member states). • EU trust is a function of trust in national government. EU policy is of secondary importance for the evaluation of the EU. • Support for the national government is a function of national (economic) structures and developments. The impact of the EU on the national room of manoeuvre is secondary.

8. Is there a national discourse about European issues, which is organized/embedded into established and working structures of political contestation, such as the left-right dimension and parties with different policy programs? • Data and methods • Re-analysis of the German Politbarometer. Four items of European issues (Eurobonds, helping weaker MS, more support for Greece, haircut Greece) • Re-analysis of the Eurobarometer Spring 2011. Two items of European issues (more coordination of fiscal and economic policy/tax on financial transactions) • Regression on party vote (Germany) or left-right scale (EU)

9. Is there a national discourse about European issues, which is organized/embedded into established and working structures of political contestation, such as the left-right dimension and parties with different policy programs? • Findings: • A German consensus on European issues. No party effects –Social Democrats are not different from CDU-voters -- except the Greens and (in two out of four cases) the Linke. • German trade unionists are tough! (In case of two items – haircut; Eurobonds -- they significantly ask for more austerity.) • Stronger co-ordination of fiscal and economic policy is not a function of position on the left-right scale – except in Netherlands and Italy (the left is in favour of more coordination) and in Greece and the Czech Republic (the right is in favour of more co-ordination). • Tax on financial transactions is not a function of position on the left-right scale in 14 EU countries; in 13 countries there is a significant effect but with a very small magnitude (BE, CZ, DK, Estonia, Esp, Finl, F, Italy, NL, Romania, Sweden, Slovenia, Slovakia). In Sweden the magnitude of the coefficient is high.

10. Is there a democratic discourse about the policy stances of national governments on the supranational level? Are the fiscal decisions of the European Council based on national debates giving legitimacy to the national government on the supranational level? • Data and methods • Government press statements before meetings of European Council • Expert surveys in 24 countries : What was the government position on: Bail-out Greece, Eurobonds, initially and currently, Fiscal Compact, fiscal policy centralization (Commission proposal) before the respective meeting of the European Council? • Findings • No strong positions (i.e. no precondition for a national discourse) in 50 to 60% of the countries (except Fiscal Compact with 2/3 in favour and 20% no strong position).

11. Are financial markets non-ideological? Do they just factor in economic and only economic developments/structures into decisions about interest rates? • Data and methods • Regression of spreads (10yrs governments bonds / Germany) on economic fundamentals and policy and politics indicators • Regression of change in ratings on economic fundamentals and policy and politics indicators • Findings: After controlling for the economic fundamentals, there are significant coefficients for government outlays and left governments. If a nation opts for a large public sector and a left government it will have to pay higher interest rates on debts -- even if the economic outcomes of governmental policy does not differ from countries with a small public sector and a right government.

12. Conclusion: We have a problem! • The people has no/little choice about substantial fiscal policies with their consequences for social policy. • Citizens interpret EU policies in a national frame and hardly understand the interactions between supranational and national level. The EU is perceived as a branch of national government. • There are hardly any preconditions for a public debate about EU issues within the traditional left-right dimension. Neither citizens nor major political parties are prepared to lead campaigns over EU issues; in all likelihood EU elections will continue to be secondary national election.

13. Conclusion: We have a problem! • In most EU countries the public has no information about the policy stances of its national governments in negotiations in the European Council. Major decisions are taken without giving the national public a fair chance to form and express its preferences. • Interest rates and ratings are key for the room of manoeuvre of national governments. Financial markets are not only driven by economic fundamentals but also by ideologies.

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