Distributive Conflict and Interest Group Preferences in Deficit Countries

Abstract

Abstract The politics of adjustment in deficit countries were characterized by strong domestic discontent, leading to significant political upheaval. Why did policymakers in these countries nonetheless implement unprecedented austerity and painful structural reforms? Zooming in on the domestic drivers of this adjustment choice, this chapter highlights mechanisms by which internal adjustment grew more politically feasible in deficit countries. The chapter draws on original survey data on the policy preferences of 359 economic interest groups in Ireland, Spain and Greece. It finds that while groups were consistently negative to a full range of scenarios by which external adjustment could be achieved in deficit countries, their preferences toward austerity measures and structural reforms varied much more widely. This variation, it is argued, facilitated the formation of pro-internal adjustment coalitions in deficit country contexts. Moreover, the chapter shows that opportunity costs mattered. While opposed to internal adjustment in absolute terms, a large majority of interest groups in deficit countries grew pliable to the prospect of it when faced with a choice between this and the alternative of abandoning the euro; even if internal adjustment programs were comprised of policies that groups themselves distinctly opposed.