Eurozone Crisis, Euro-Austerity and Europe's Welfare States: Lessons from the Maastricht Decade

This paper aims at drawing lessons from the impact of the first decade of Euro-austerity on Europe’s welfare states for the current episode of Euro-austerity following the Eurozone crisis. Despite draconian austerity policies implemented in the name of EMU during the 1990s, evidence on welfare state restructuring showed that Europe’s welfare states had largely averted across-the-board downsizing. This came as a surprise for scholars, policy practitioners as well as European citizens who were absolutely convinced that Euro-austerity would directly bear down upon their welfare states. The paper argues that the gap between popular apprehensions and empirical evidence compels us to make our conclusions more cautious and tentative in interpreting the consequences of external constraints. In building this argument, the paper presents evidence on quantitative indicators of welfare state change (based on OECD’s SOCX) and comparative case studies on welfare reform in EMU-candidates required to undergo dramatic budgetary cutbacks, Greece, Italy and Belgium. Both sets of evidence show that domestic reform outcomes in EMU candidates were characterized less by systematic retrenchment than recasting, recalibration, restructuring, and reorganization. Based on these insights, the paper shows that the relative stability of European welfare states is testimony to the enduring primacy of political economy of domestic reform over economics of rule-based external constraint. For the current episode of Euro-Austerity, the paper concludes that the extent to which pressures may be modified, muted or even fully mitigated by counter-pressures has been, and will continue to be, contingent on the very political economy of reform.