The current economic crisis challenges the coalitional basis of politics across Southern Europe.  Budget austerity and the collapse of private sector demand force politicians to make difficult choices that destabilize and potentially undermine previous coalitional settlements. These choices are being taken against the backdrop of societies that were already among the most unequal European countries before the crisis, with severe insider/outsider divides in their labor markets, limited welfare safety nets that made the family a critical nexus for protection from social risks and oligopolistic circles of privilege in many non-tradable sectors.

Important institutional complementarities have long bound these three dimensions together. Deadweight losses associated with limited competition in many sectors generated high margins that facilitated compromise between labor market insiders and employers; job protections for labor market insiders and tax policies biased toward home ownership reinforced neo-traditionalist familialism, reducing pressures for greater public welfare investment; and flexibility on the margins of the labor market provided both firms and middle-class families with relatively cheap sources of labor.

This panel will analyze the extent to which these institutional complementarities and the coalitions that sustain them have been undone as governments juggle the demands of domestic constituencies and international stakeholders. While each paper will consider the evolution of a specific policy dimension since the onset of the crisis, all will focus their analysis on the implications of those changes for broader political economy and the institutional and political settlements that have sustained it.