0/-*/&4637&: *ODPMMBCPSBUJPOXJUI6OHMVFJU XFIBWFTFUVQBTVSWFZ POMZUFORVFTUJPOT UP MFBSONPSFBCPVUIPXPQFOBDDFTTFCPPLTBSFEJTDPWFSFEBOEVTFE 8FSFBMMZWBMVFZPVSQBSUJDJQBUJPOQMFBTFUBLFQBSU $-*$,)&3& "OFMFDUSPOJDWFSTJPOPGUIJTCPPLJTGSFFMZBWBJMBCMF UIBOLTUP UIFTVQQPSUPGMJCSBSJFTXPSLJOHXJUI,OPXMFEHF6OMBUDIFE ,6JTBDPMMBCPSBUJWFJOJUJBUJWFEFTJHOFEUPNBLFIJHIRVBMJUZ CPPLT0QFO"DDFTTGPSUIFQVCMJDHPPE Revised Pages In the Red In the Red explains why several prosperous developed countries accumu- lated so much public debt between the 1970s and the 2000s that they became vulnerable to sudden changes in financial markets and exposed themselves to the risk of default. It compares and contrasts the politics of debt accumulation in Belgium, Canada, Denmark, Greece, Ireland, Italy, and Japan since the 1970s to identify factors that differentiate coun- tries that accumulated dangerous amounts of debt from those that kept their debt under control. It challenges the received wisdom that per- sistent borrowing reflects the recklessness of governments who indebt their countries in order to please their voters in the short term. The book documents that policy makers invariably initiate painful adjust- ment measures to correct budgetary imbalances when debt grows at an alarming rate for several years in a row, but the success of adjustment attempts depends on the degree of social support for the spending cuts and/or tax increases proposed. In countries where existing fiscal policies generate intense conflicts of vested interests, mustering the necessary social consensus behind any adjustment package is exceedingly difficult, especially if large parts of society remain unaffected by the negative economic side effects of fiscal imbalances. In countries where existing fiscal policies are less polarizing and fiscal problems negatively affect economic performance, fiscal correction is swift. Zsófia Barta is Assistant Professor of Political Science at the University at Albany SUNY. Revised Pages Revised Pages IN THE RED The Politics of Public Debt Accumulation in Developed Countries Zsófia Barta University of Michigan Press Ann Arbor Revised Pages Copyright © 2018 by Zsófia Barta All rights reserved This book may not be reproduced, in whole or in part, including illustrations, in any form (beyond that copying permitted by Sections 107 and 108 of the U.S. Copyright Law and except by reviewers for the public press), without written permission from the publisher. Published in the United States of America by the University of Michigan Press Manufactured in the United States of America c Printed on acid-free paper 2021 2020 2019 2018 4 3 2 1 A CIP catalog record for this book is available from the British Library. Library of Congress Cataloging- in- Publication Data Names: Barta, Zsofia, author. Title: In the red : the politics of public debt accumulation in developed countries / Zsofia Barta. Description: Ann Arbor : University of Michigan Press, [2018] | Includes bibliographical references and index. | Identifiers: LCCN 2017053880 (print) | LCCN 2017056805 (ebook) | ISBN 9780472123469 (e- book) | ISBN 9780472130641 (hardcover : alk. paper) Subjects: LCSH: Debts, Public— Developed countries. | Developed countries— Foreign economic relations. Classification: LCC HJ235 (ebook) | LCC HJ235 .B37 2018 (print) | DDC 336.3/4091722— dc23 LC record available at https://lccn.loc.gov/2017053880 Revised Pages To my mother and the memory of my father Revised Pages Revised Pages Contents List of Illustrations ix List of Abbreviations xi Acknowledgments xiii ONE The Puzzle of Relentlessly and Alarmingly Growing Debt 1 TWO Fiscal Polarization, International Exposure, and Sustained Debt Accumulation 30 THREE Evolving Social Coalitions, Intense Polarization, and Moderate Exposure: Italy 60 FOUR Fiscal Discord and Accord in Open Economies: Belgium versus Ireland 85 FIVE Fiscal Discord in Closed Economies: Greece and Japan 113 SIX Variations on Three Themes: Social Coalitions, Fiscal Polarization, and International Exposure 150 Notes 179 References 189 Index 200 Revised Pages Revised Pages Illustrations Tables Table 1.1. Periods of debt growth in prosperous developed countries 1970– 2007 7 Table 2.1. The main parameters of the cases and case study design 57 Table 3.1. Overview of alternative explanations for the different phases of fiscal policy in Italy in the past four decades 73 Table 4.1. Overview of alternative explanations for the pattern of similarity and divergence between Belgium and Ireland in the 1980s 88 Table 5.1. Overview of alternative explanations for the similarities of fiscal patterns between Greece and Japan since the 1980s 117 Figures Figure 1.1. Summary of the polarization- exposure argument 5 Figure 2.1. Exports plus imports as a percentage of GDP in Belgium, Canada, Denmark, Ireland, Greece, Italy, and Japan from 1970 to 2007 55 Figure 3.1. Gross consolidated general government debt in Italy as a percentage of GDP from 1960 to 2015 61 Figure 4.1. Gross consolidated general government debt in Belgium and Ireland from 1975 to 2015 86 Figure 5.1. Gross consolidated general government debt in Greece and Japan from 1970 to 2015 114 Revised Pages Revised Pages Abbreviations AMECO Annual Macro-economic Database of the European Commision’s Directorate General for Economic and Financial Affairs DC Democrazia Cristiana (Christian Democracy in Italy) EMS European Monetary System IMF International Monetary Fund IMF WEO International Monetary Fund World Economic Outlook LDP Liberal Democratic Party (of Japan) OECD Organization for Economic Co- operation and Development PASOK Panhellenic Socialist Movement (of Greece) SMEs Small- and medium- sized enterprises Revised Pages Revised Pages Acknowledgments Of the many lessons I learned while writing this book, the one that will stay with me longest is how generous people are around me with their time, support, encouragement and love. I cannot thank mentors, colleagues, friends, and family enough for all they did to make this book possible. First and foremost, I would like to express my gratitude to my “aca- demic parents,” Waltraud Schelkle, at the London School of Econom- ics and Political Science, and Erik Jones, at the Paul H. Nitze School of Advanced International Studies, who have tirelessly advised and encour- aged me ever since I embarked on my research on public debt ten years ago. I could always count on them, no matter what obstacle I encountered on the long road from starting a doctoral dissertation to writing a book as an independent scholar. I can only hope to be able to pass on the insight, kindness, and support I received from them to new generations of students, as I can surely never repay them for it. I am also truly grateful to Pep- per Culpepper and Sven Steinmo for discussing my work with me during my time as a Max Weber Fellow at the European University Institute in Florence. I learned a great amount from both of them. I would also like to thank my mentors at my new academic home in the Department of Political Science at the University at Albany. Patty Strach and Julie Novkov were instrumental in helping me to get the manuscript finished. Patty not only read and commented on several drafts but she was also immensely helpful with advice on the practical aspects of finishing and publishing the manuscript. Julie organized a workshop for the manuscript that generated crucial suggestions for final improvements. RevisedMaster Pages Pages xiv Acknowledgments Many people helped this book with their comments and questions. I am truly grateful to Bruce Carruthers from Northwestern University and Jeffry Frieden from Harvard University for taking the time to come to Albany to discuss the manuscript and for providing invaluable sugges- tions. I also thank my colleagues in the Department of Political Science at the University at Albany— Peter Breiner, Cheng Chen, Johannes Kar- reth, Greg Nowell, and Stephan Stohler—for reading and commenting on various chapters. I am also indebted to Dermot Hodson and Daniel Wincott, who both provided feedback on my project at a very early stage, and to two anonymous reviewers whose generous comments were crucial in finalizing the manuscript. I thank Meredith Norwich, Danielle Coty and Mary Hasham at the University of Michigan Press for managing the publication process. I am also grateful to friends for the support they provided through- out this project. From the first day of research at the London School of Economics, Alison Johnston, Bryon Fong, Andreas Kornelakis, and Léna Pellandini- Simányi have been there for me with both scholarly and per- sonal advice. Since I arrived in Albany, I have often relied on the kind help of Torrey Shanks, Ambarish Chandra, Kat Carlton, and Lewis Davis. My deepest debt of gratitude I owe to my family. My son, Andor, is too young to read this book yet, but his patience at crucial turning points of the writing process was remarkable. I truly appreciate that. Finishing the manuscript would have simply been impossible if it was not for the dedi- cated support of my mother, Éva Orbán, who helped me reconcile schol- arly ambition and parental responsibilities. I cannot thank her enough for all she has done. It is to her that this book is dedicated and to the memory of my father, György Barta. I will never stop missing him. Revised Pages ONE The Puzzle of Relentlessly and Alarmingly Growing Debt Why do some countries flirt with fiscal disaster? Why do prosperous, advanced industrial states with democratic governments and reasonably well- organized bureaucracies