The Societal Bases of Fiscal Adjustment: Responses to Fiscal Crises in Belgium, Ireland and Italy in the Past and Present

Heavily indebted and in the throes of drastic austerity programmes, Italy and Ireland find themselves much in the same situation as a quarter of a century ago. In the 1980s and the early 1990s, the two countries carried out successful fiscal and economic stabilization programmes that elicited intense attention from scholars of economic adjustment. The recurrence of the two countries’ troubles provides an exceptional opportunity to put theories of economic adjustment to test. Comparative analyses of the earlier instances of stabilization concentrated on the similarities between the two cases and converged on emphasizing the importance of social pacts in allowing successful reform. In contrast, this paper focuses on the large differences in the speed with which the two countries reacted to the pressing fiscal problems they faced from the early 1980s. It argues that different levels of redistributive polarization and different levels of economic openness account for differences in the two countries’ ability to swiftly renegotiate extant redistributive arrangements and thus to carry out successful adjustment then as now.Lack of redistributive polarization and large exposure to the international economy allows Ireland to address its fiscal problem more promptly than redistributively more polarized and less open Italy. The two countries' experience is also compared to those of very open, but redistributively polarized Belgium, which represents a middle ground between Ireland and Italy in terms of its fiscal adjustment capacities.