Divergence via Europeanisation: rethinking the origins of the Portuguese debt crisis

ABSTRACT

A founding myth of the euro was that profound economic convergence could be achieved across the core and periphery of Europe. Scholarship from within Comparative Political Economy (CPE) has compellingly pointed to this myth of convergence as the fundamental mistake of the euro project (Regan, “Imbalance of Capitalisms”). Economic and Monetary Union was applied across a range of incompatible varieties of capitalism with little appreciation for how difficult it would be for peripheral economies to overcome long-standing institutional stickiness. Yet, while institutional stickiness tells us much about the causes of declining competitiveness, it tells us much less about the origins of brand new patterns of debt-led growth. This article modifies this CPE account by drawing attention to the much overlooked case of Portugal. In contrast to CPE’s emphasis on institutional stickiness, this paper explores the ways in which negotiation of European integration has been generative of institutional transformation leading to debt-led growth in Portugal. By combining Europeanisation with CPE, this article shows that, far from an inability to do so, in the case of Portugal, it has been the attempt to ‘follow the rules’ of European Integration that explains its damaging patterns of debt-led growth.

KEYWORDS:

• Eurozone crisis
• Europeanisation
• Comparative Political Economy
• Periphery
• Portugal

Acknowledgments

The author would like to thank Paul Taggart for his helpful comments on an earlier draft of this article. He would especially like to thank two anonymous peer reviewers for their excellent and valuable comments on earlier drafts of this article. All mistakes remain my own.

Notes

1. Featherstone, “Introduction,” 6–7.

2. Hall, “Varieties of Capitalism and the Euro Crisis”.

3. Delors, Report on Economic and Monetary Union, 11. Italics are the authors own.

4. See Triandafyllidou et al., “Introduction”.

5. Antoniades, Producing Globalisation, 69.

6. Clerc, “Entretien Avec Mário Soare,” 3.

7. Hancké, Unions, Central Banks, and EMU; Johnston and Regan, “European Monetary Integration”.

8. Notable exceptions include Rodrigues and Reis, “Asymmetries of European Integration”; Lagoa et al., “Financialisation and the Financial and Economic Crises”; Royo, “Portugal and Spain in the EU”; and Rodrigues et al., “Semi-peripheral Financialisation”.

9. Arnold, “Boosting Export Performance”; Blanchard, “Adjustment within the Euro”; Brazys and Hardiman, “From Tiger to PIIGS”, 31.

10. Giavazzi and Spaventa, “Why the Current Account Matters”.

11. Clift, Comparative Political Economy.

12. Nölke, “Economic Causes of the Eurozone Crisis,” 5; and Clift, Comparative Political Economy, 199–200.

13. Hall, “Varieties of Capitalism and the Euro Crisis”; and Nölke, “Economic Causes,” 7–8.

14. Höpner and Schäfer, “Integration among Unequals”, cited in Nölke, “Economic Causes,” 9.

15. Royo, “The Europeanization of Portuguese Interest Groups,” 163–71.

16. Távora and González, “Reform of Joint Regulation and Labour Market Policy,” 324.

17. Royo, “The Europeanization of Portuguese Interest Groups,” 139; Távora and González, “Reform of Joint Regulation and Labour Market Policy”.

18. Távora and González, “Reform of Joint Regulation and Labour Market Policy,” 326; and Royo, “The Europeanization of Portuguese Interest Groups,” 139.

19. Távora and González, “Reform of Joint Regulation and Labour Market Policy,” 327; and Royo, “The Europeanization of Portuguese Interest Groups,” 176.

20. Royo, “The Europeanization of Portuguese Interest Groups,” 153.

21. Ibid., 159.

22. Ibid., 160.

23. Ibid., 160.

24. Ibid., 161.

25. Johnston, “Convergence to Crisis”; Hancké, Unions, Central Banks, and EMU; and Hancké et al., “Comparative Institutional Advantage”.

26. Johnston, “Convergence to Crisis,” 22.

27. Ibid.

28. Ibid., 5.

29. Reis, “The Portuguese Slump.” Although Reis cautions that the case of Germany is not representative.

30. Blanchard, “Adjustment within the Euro,” 7.

31. Ibid.; and Jones, “Competitiveness and the European Financial Crisis,” 93.

32. Blanchard, “Adjustment within the Euro”, 7.

33. Nölke, “Economic Causes”.

34. Ibid., 10.

35. Ibid., 10.

36. Távora and González, “Reform of Joint Regulation and Labour Market Policy,” 324.

37. Arnold, “Boosting Export Performance”; and Corkill, Development of the Portugese Economy, 158–64.

38. Banco de Portugal, “Portuguese Export Performance,” 208.

39. Banco de Portugal, “Portuguese Export Performance”.

40. Leão and Palacio-Vera, “Can Portugal Escape Stagnation?” 11.

41. Jones, “Competitiveness and the European Financial Crisis,” 92.

42. Ibid.

43. Streeck, “Re-forming Capitalism”; Streeck and Thelen, “Beyond Continuity;” and Thelen, “Institutional Change.”

44. Thelen, “Institutional Change,” 473.

45. Featherstone, “Varieties of Capitalism.”

46. Thelen, “Institutional Change,” 473.

47. Ibid., 473.

48. Royo, “The Europeanization of Portuguese Interest Groups.”

49. Vink and Graziano, “Challenges of a New Research Agenda.”

50. Featherstone, “Varieties of Capitalism,” 32.

51. Radaelli, “Europeanisation: Solution or Problem?” 3; Bulmer, “Theorizing Europeanization,” 52; Börzel and Risse, “Conceptualizing the Domestic Impact of Europe”; Heritier et al., Differential Europe; and Knill et al., “Neglected Faces of Europeanization,” 519–37.

52. Wessels, Fifteen into One?; Heritier et al., Differential Europe; Vink and Graziano, “Challenges of a New Research Agenda,” 9; and Radaelli, “Italian State and the Euro,” 33.

53. Vink and Graziano, “Challenges of a New Research Agenda,” 9.

54. Laffan, “Core Executives”.

55. Vink and Graziano, “Challenges of a New Research Agenda,” 10–11; and Wessels, Fifteen into One? xv.

56. Radaelli, “Whither Europeanization?”

57. Radaelli and Pasquier, 39(italics added).

58. Just as Wessels, Fifteen into One? and Heritier et al., Differential Europe do.

59. This section draws on the discussion in Dooley, “Portugal’s Economic Crisis”.

60. Teixeira, “Introduction,” 25.

61. Figures cover the period from 1986 to 2000.

62. Decressin and Mauro, “The Portuguese Banking System,” 5; and Leão et al., “Financialisation in the European Periphery,” 6.

63. European Commission Occasional Paper 11; and Banco de Portugal, “The Portuguese Economy,” xxi.

64. Dooley, “Portugal’s Economic Crisis”.

65. Rodrigues et al., “Semi-peripheral Financialisation”.

66. See Decressin and Mauro, “The Portuguese Banking System,” 7 for a detailed summary of these measures.

67. Decressin and Mauro, “The Portuguese Banking System,” 7–9; and Dooley, “Portugal’s Economic Crisis.”

68. Rodrigues et al., “Semi-peripheral Financialisation”.

69. See Decressin and Mauro, “The Portuguese Banking System,” 10 for a list of selloffs.

70. Honohan, “Consequences for Greece and Portugal,” 3. The discussion of this paragraph draws on the detailed account of Decressin and Mauro, “The Portuguese Banking System”. See pages 5–10 especially.

71. European Commission, “Portuguese Economy after the Boom,” 57; and Lagoa et al., “Financialisation and the Financial and Economic Crises,” 17.

72. Lagoa et al., “Financialisation and the Financial and Economic Crises,” 7.

73. Ibid., 9.

74. Rodrigues et al., “Semi-peripheral Financialisation”.

75. European Commission, “Portuguese Economy after the Boom,” 57.

76. Ibid., 58.

77. Lagoa et al., “Financialisation and the Financial and Economic Crises,” 16.

78. Banco de Portugal, “Portuguese Export Performance,” 66.

79. Dooley, “Portugal’s Economic Crisis.”

80. Rodrigues and Reis, “Asymmetries of European Integration,” 197.

81. Corkill, Development of the Portugese Economy, 43.

82. Rodrigues et al., “Semi-peripheral Financialisation,” 495.

83. Ibid., 496.

84. IMF, Country Report, 8.

85. Reis, “The Portuguese Slump,” 156.

86. Lourtie, “Understanding Portugal,” 6.

87. Ibid.

88. Leão et al., “Financialisation in the European Periphery,” note, from the period 1993–2007; Decressin and Mauro, “The Portuguese Banking System.”

89. Lourtie, “Understanding Portugal.”

90. Cardoso, “Household Behaviour”.

91. IMF, “Country Report,” 9.

92. Ibid.

93. Ibid.

94. Selassie, “Portugal’s Economic Crisis,” 5–7.

95. Lagoa et al., “Financialisation and the Financial and Economic Crises,” 12.

96. Ibid.; and Dooley, “Portugal’s Economic Crisis.”

97. Regan, “Imbalance of Capitalisms,” 6.

98. Teixeira, “Introduction,” 18–19.

99. Ibid., 18–19.

100. I thank an anonymous reviewer for directing me towards this quotation; see Gasper, “União Europeia.”

101. Smith, “Introduction”.

102. Bache et al., “Metatheory and Europeanization Research”; See also Featherstone, “Varieties of Capitalism”.

103. For instance, see Rodrigues et al., “Semi-peripheral Financialisation” for an excellent account of Portugal; see also Engelen et al., “Geographies of Financialization.”

104. Soares de Pinho, “Impact of the Single Market Programme”, quoted in Rodrigues et al., “Semi-peripheral Financialisation,” 488–9.