This paper seeks to explain the contestation of adjustment programme implementation during the recent sovereign debt crisis in Europe. Specifically, it asks the question, why programme implementation, and the institutional change induced by it, was politically far more contested in Portugal than in Ireland. In both cases the government that had to implement the programme “inherited” it from a previous government of different political colour. In Ireland the programme was implemented without prompting much resistance by interest groups, parliamentary opposition or the public. In Portugal, however, interest groups soon took action and a decisively liberal and reformist government soon confronted resistance in parliament by their ideological counterparts who since then have turned back many programme measures. This is puzzling in that the adjustment programmes brought about far-reaching institutional change and inflicted economic losses on much of the public in both countries.
This puzzle is best resolved by applying Baccaro’s and Pontusson’s “growth model perspective” to the two cases under investigation. I argue that the more pronounced a specific economic growth model is, relying either on exports or on domestic consumption, the less room there is for political contestation. In the case of a “pure” growth model there is a much broader consensus on macroeconomic policy-making because the main drivers of the economy are known and internalised by most actors of the political centre (interest groups as well as politicians and voters). What is also known is that any policy that aims at changing these drivers, is running the risk of substantially hampering economic growth as opposed to measures that are supposed to strengthen the existing growth model. The opposite holds true when neither consumption nor exports are clear drivers of a national economy. In that case policy-making is more a question of partisanship since different political parties can be expected to prefer different macroeconomic orientations. Bridging a theoretical gap, this paper identifies causal mechanisms between economic institutions and the contention of policy-making. I thus allows for a more country-specific as well as less equilibrium-oriented assessment of macroeconomic policy and institutional change, without lacking the theoretical parsimony of the Varieties of Capitalism Approach.
Drawing on more than 40 interviews with government officials as well as representatives from interest groups and troika institutions, I compare economic adjustment in Ireland and Portugal. I find that Ireland’s growth model, relying on exports and the attraction of foreign direct investment, is much more pronounced than Portugal’s, which is more or less driven by domestic demand. Whereas the Irish government used the economic adjustment programme to reinforce an already existing growth model, the government in Portugal intended to reorient the Portuguese economy and to establish a new type of growth model. These findings have important implications for the analysis of conflict and the determinants of policy-making as well as for our understanding of institutional change.
