Economic Hardship and Policy Preferences in the Eurozone Periphery

• Author: Alexander Kuo,José Fernández-Albertos
• Published date: 01 June 2016
• Date: 01 June 2016
• DOI: http://doi.org/10.1177/0010414016633224
• Subject Matter: Articles

Comparative Political Studies

2016, Vol. 49(7) 874 –906

© The Author(s) 2016

Reprints and permissions:

sagepub.com/journalsPermissions.nav

DOI: 10.1177/0010414016633224

cps.sagepub.com

Article

Economic Hardship and

Policy Preferences in

the Eurozone Periphery:

Evidence From Spain

José Fernández-Albertos1 and Alexander Kuo2

Abstract

What is the impact of economic suffering on support for euro membership

and austerity policies in the Eurozone periphery? This article uses original

public opinion and firm surveys conducted in Spain in the midst of the great

recession to describe the structure of preferences toward the euro as a

common currency and austerity policies, focusing on the specific impact

of crisis exposure. We find that in spite of the depth and the duration

of the economic crisis, support for Spain’s membership in the Eurozone

is strong. However, while economic suffering divides the electorate on

support for the euro and austerity, it does not do so for firms. Surprisingly,

individuals who have suffered due to the crisis in terms of higher income

loss are more skeptical of tax and spend programs but are more critical of

the euro. Moreover, individuals who are skeptical of the euro and austerity

are demographically distinct groups of people. One implication of our joint

individual and firm-level findings is that a coalition to seriously challenge the

status quo policy coalition remains difficult.

Keywords

public opinion, political behavior, European politics, austerity, Euro

1Instituto de Políticas y Bienes Públicos, Consejo Superior de Investigaciones Científicas

(CSIC), Madrid, Spain

2Cornell University, Ithaca, NY, USA

Corresponding Author:

José Fernández-Albertos, Instituto de Políticas y Bienes Públicos, Consejo Superior de

Investigaciones Científicas (CSIC), Albasanz, 26-28, Madrid 28002, Spain.

Email: j.f.albertos@csic.es

633224CPSXXX10.1177/0010414016633224Comparative Political StudiesFernández-Albertos and Kuo

research-article2016

Fernández-Albertos and Kuo 875

Introduction

Since the onset of the Eurozone economic crisis approximately seven years

ago, many of the initially hard hit economies, particularly those in southern

Europe, have experienced dramatic reductions in real income, massive

increases in unemployment, and dim prospects of strong economic recovery.

Despite the fact that these countries are still undergoing the worst economic

downturn since the Great Depression, stark alternative crisis-response poli-

cies have yet to gain political traction. The long-standing large incumbent

parties have maintained commitments to stay in the Eurozone, even if this

entails the adoption of theoretically unpopular policies of public debt and

deficit reduction to comply with European Union goals (EU), commonly

referred as austerity. These policy choices in response to this severe recession

remain controversial among economists as many have advocated traditional

Keynesian stimulus instead of austerity and have documented the negative

consequences of countries being unable to unilaterally devalue their curren-

cies to regain competitiveness. While the logistics and net benefits or costs of

a Eurozone breakup are obviously complex, euro membership removes a cru-

cial macroeconomic tool to respond to the recession. For now, there is little

evidence that this set of policies in the crisis-afflicted countries will signifi-

cantly change, notwithstanding the rise of some protest parties in some states.

Despite the duration and depth of the ongoing recession, we still lack sys-

tematic evidence on the impact of economic suffering on the preferences over

policies that have been debated to address the crisis. This lacuna is important

as other research identifies both short-term and long-term impacts on prefer-

ences due to exposure to recessions (Giuliano & Spilimbergo, 2009; Hacker,

Rehm, & Schlesinger, 2013; Margalit, 2013). We ask in this study, what

impact has the economic crisis had on preferences for policies to address the

crisis? Are there different groups of supporters for different policy responses?

To what extent is there divergence in policy preferences within the electorate

and the business community? We use a mix of public and business opinion

evidence from one of the hardest hit countries, Spain, to address these ques-

tions. We study the preferences of both citizens and firms regarding the most

salient and controversial policy responses to the ongoing recession (euro

membership and fiscal adjustment) and focus on understanding whether

those individuals and firms who have suffered directly from the crisis have

different policy preferences from others.

Broadly, we find that among the public, there is far less euro-skepticism

than expected, given conventional macroeconomic critiques of the lack of

monetary policy autonomy during crisis settings, and that there remains much

support for government spending on social programs. We find notable effects

876 Comparative Political Studies 49(7)

regarding the connection between crisis exposure and these policy views.

Individuals who have greatly suffered economically due to the crisis are more

opposed to the euro but are less concerned with austerity, relative to those who

have not suffered during the crisis. Critically, we find among the general pub-

lic that the individuals who oppose the euro and support more government

spending (oppose austerity) are rather distinct groups of people, which could

explain why the political articulation of a coherent alternative policy package

to the status quo is particularly difficult in a country like Spain. Among our

sample of firm managers and owners, we find much conservative support for

staying in the Eurozone and for austerity. However, firm-level economic suf-

fering does not correlate with such support. That is, economic suffering

divides citizens among policies they support, but not so among firms.

Our findings indicate that those who have suffered during the crisis are not

necessarily the citizens demanding an end to austerity as it is currently prac-

ticed, and that among citizens who have not suffered as much, as well as most

firms, there is broad support for maintaining the euro. We suggest one impli-

cation of these results is that because citizens who have suffered from the

crisis are not necessarily demanding much more government spending (but

are rather less supportive of the euro), and that economic suffering does not

divide firms regarding current policies, mounting major challenges to status

quo macroeconomic policies is less likely to occur. Interpreting a story of

probable political coalitions is of course difficult, but we conjecture that a

coalition to “upend” the status quo might be particularly challenging because

the main policies of euro exit and ending austerity have different types of

supporters and conflictual interests.

The article proceeds as follows. The section “Policy Responses to the

Economic Crisis in Spain” describes the relevant background to the Eurozone

crisis as it applies to Spain. The section “Policy Preferences During the

Crisis” discusses the most relevant arguments regarding the role of crisis

exposure and preferences toward the euro and austerity. The sections

“Empirical Testing With Citizen Preferences” and “Evidence on Firm

Preferences” discuss the evidence from the public opinion survey and the

firm-level survey, respectively. The section “Discussion” concludes.

Policy Responses to the Economic Crisis in Spain

We first provide an overview of the ongoing economic crisis in Spain. Since

the onset of the economic crisis, average unemployment in the EU has risen

to 11% as of the end of 2015, while the average growth rate at the end of 2015

was 0.4% (Eurostat, 2015a, 2015b). European countries in the periphery

(Estonia, Ireland, Italy, Greece, Latvia, Spain, and Portugal) have been the