Altered Europeanisation of Pension Reform in the Context of the Great Recession: Denmark and Italy Compared

Abstract

This article analyses the Europeanisation of national pension systems in Denmark and Italy. Through the analytical framework of a ‘two-level’ game, it analyses pension reforms in the two countries, which, in the wake of the crisis, breached EU budgetary requirements, and shortly after reformed their pension systems. The EU affects pension reform in both cases, but in distinct ways. When Denmark’s economy was financially vulnerable, the EU’s excessive deficit procedure affected the decision to reform pensions indirectly, by triggering a rapid political decision to speed up a pension reform. By contrast, the Italian economy’s critical vulnerability and the consequent risk for the whole Eurozone led to a situation whereby the European actors entered the domestic political scene and thereafter more forcefully induced reforms. The findings from the two cases show that the EU’s role in pension reform has been significant during crises, but through interaction with domestic actors. Furthermore, from a theoretical perspective, the intervening variables – domestic and EMU vulnerability as well as EU and domestic politics – are crucial to understanding the reform decisions through two-level games.

Notes

1. In 2010, the ‘European Semester’ was developed in order to coordinate ex ante the budgetary and economic policies of member states and to increase coherence among different policies. EU-level discussions take place on a broader palette of policy areas compared to before the crisis: macroeconomic imbalances, financial sector issues and structural reforms. The European Semester is launched by the European Commission (directorate-general of economic and financial affairs) via an Annual Growth Survey (AGS) after which country-specific recommendations are made to member states on the basis of a DG ECFIN proposal that must be approved by economic and financial affairs council and then endorsed by the European Council.

2. A sovereign debt crisis is a term coined in 2010 which refers to the perseverance of a recession that has made it difficult or impossible to refinance debt without assistance.

3. Anders Fogh Rasmussen of the Liberal Party was Prime Minister from 2001 until April 2009, after which Lars Løkke Rasmussen, also from the Liberal Party, took over the post.

4. The Danish government forecast a budget deficit for 2010 of 5.4 per cent of GDP, while the government gross debt was estimated at 45.1 per cent of GDP, below the maximum reference value of 60 per cent, but on a rising trend.

5. Own translation

6. In November Commissioner Olli Rehn (Vice-President of the Commission) sent a letter containing a list of additional measures in order to reach the target of budgetary balance in 2013.