Zsófia Barta - In the Red: The Politics of Debt Accumulation in Developed Countries

Page i

In the Red explains why several prosperous developed countries accumulated 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 countries that accumulated dangerous amounts of debt from those that kept their debt under control. It challenges the received wisdom that persistent 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 adjustment 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.

Zsfia Barta is Assistant Professor of Political Science at the University at Albany SUNY.

Page ii Page iii

Zsfia Barta

University of Michigan Press
Ann Arbor

Page iv

Copyright 2018 by Zsfia 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

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, PublicDeveloped countries. | Developed countriesForeign economic relations.
Classification: LCC HJ235 (ebook) | LCC HJ235 .B37 2018 (print) | DDC 336.3/4091722dc23
LC record available at https://lccn.loc.gov/2017053880

Page v To my mother and the memory of my father

Page vi Page vii Page viii Page ix

AMECO Annual Macro-economic Database of the European Commisions 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

Page x Page xi

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 academic parents, Waltraud Schelkle, at the London School of Economics and Political Science, and Erik Jones, at the Paul H. Nitze School of Advanced International Studies, who have tirelessly advised and encouraged 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 Pepper 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.

Page xii 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 suggestions. I also thank my colleagues in the Department of Political Science at the University at AlbanyPeter Breiner, Cheng Chen, Johannes Karreth, Greg Nowell, and Stephan Stohlerfor 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 throughout this project. From the first day of research at the London School of Economics, Alison Johnston, Bryon Fong, Andreas Kornelakis, and Lna Pellandini-Simnyi have been there for me with both scholarly and personal 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 dedicated support of my mother, va Orbn, who helped me reconcile scholarly 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, Gyrgy Barta. I will never stop missing him.

Page 1

Why do some countries flirt with fiscal disaster? Why do prosperous, advanced industrial states with democratic governments and reasonably well-organized bureaucracies keep borrowing in times of peace and prosperity until they become excessively vulnerable to changing conditions in financial markets and expose themselves to the risk of debt crises and default? The practical relevance of heavy indebtedness hardly needs to be emphasized today in the wake of the wave of sovereign debt crises that engulfed Europe in the recent years and in view of the challenges that many European and non-European developed democracies face in regaining control over their debt. Remarkably, many countries that are currently burdened with the largest debt stocks got into this predicament in the absence of major wars or economic cataclysms, as a result of sustained fiscal imbalances over the course of many uneventful decades. While in countries like Ireland, Spain, or the United Kingdom public debt skyrocketed overnight as a result of the global financial and economic crisis, Japan, Greece, Italy, Belgium, or Canada got dangerously indebted by persistently borrowing heavily for several decades.

Next page