Interview #40 — Lessons from the Great Recession

Catherine Moury has studied the effects of the last economic crisis and the subsequent Great Recession, the impact of the bailout on Portugal, the rhetoric used by political actors and institutions, the austerity measures imposed in name of the famous motto of Thatcherism: “there is no alternative”. This time, is there an alternative to austerity?

In this interview she explains whether the EU and its member states are responding in a similar way compared to the 2008-2012 crisis, she reflects on the use of Eurobonds and the European Stability Mechanism, and claims that governments are less likely to use the emergency to implement austerity reforms as it happened during the last crisis.

Enjoy he read.


To stay home you need a home. Lisbon, April 2020.

POP) The harsh austerity measures imposed on Southern Europe during the last economic crisis, including heavy spending cuts on their health systems, are making it more difficult for countries like Spain and Italy to face the current pandemic. You studied the management of the last economic crisis and the measures adopted during bailout programmes, and the rhetoric used by institutions and political actors. Now the rift between Northern and Southern European member states has been opened once again. Do you think that the EU and its member states are responding in a similar way compared to the 2008-2012 crisis? 

Catherine Moury) Yes, they are many similarities indeed. In 2009, there was a brief period of ‘neo-keynesianism’, during the EU ad its member states spent more to slow down the economic recession. It is what is happening today: states are increasing their spending to compensate for the economic losses of the lockdown and (limited) EU-level investment and pro-growth financial plans are being implemented. As in early 2009, the EU is now relaxing the rules on fiscal consolidation.

But things changed in late 2009 when interest rates became a problem. Today, the latter are still low, given that this time the ECB had been acting more promptly. That is a fundamental difference with the financial crisis, during which it took three years for the ECB to act in the secondary market. We have seen that its actions (or declarations) were crucial in keeping interest rates low during the crisis, and are still today.

We also know from the crisis that even countries that were pursuing healthy fiscal policies beforehand will not be protected from speculation: Ireland and Spain had a surplus when the crisis hit, and yet they were not trusted by investors.

At the moment, member states are also discussing at the European level the possibility of giving ‘cheap’ loans to Member states in difficulty, through the European Stability Mechanism (ESM). The discussion of whether to associate conditions to them is fiercely opposing Netherlands (and to a lesser extent Germany and Austria, which are in favour), to Spain, Italy, and Portugal. As it happened a decade ago, countries that would receive the loan are resisting conditionality while the richer ones are pushing for it (mainly for domestic reasons).


Lisbon is full of tiles like this, telling the story of evicted families. During the last crisis, the European Commission made the deregulation of the housing market a condition of its €78 billion bailout.

POP) War rhetoric is adopted by most leaders to justify the measures adopted to contain the pandemic, and as you show in your studies a classic ‘there-is-no-alternative’ — or TINA — rhetoric is often exploited to impose harsh measures. Do you think governments will use the emergency to introduce reforms that in “peace times” had been abandoned, softened or delayed?

CM) I think that is much less likely, for three main reasons. First, when we look at what has been done in bailed out countries, but also in countries like Italy that were subject to “implicit conditionality”, we observe that a lot of structural reforms had been implemented. There were few reversals after the program. Even though salaries in the public sector were often re-installed, many less visible spending cuts or tax increases were kept. Labour code is very different today than it was a decade ago in many countries. Pensions had been profoundly reformed in Greece and Italy for example. Banks do not give loans as easily as before. Many professions had been liberalised, rents had been cut, many institutions had been privatised. So I think that today there is a much shorter list of reforms that governments or international actors think are necessary than a decade ago.

Second, the experience of this past decade had shown that austerity was not helpful in stopping the increase in public debt or regaining market trust. What by contrast was determinant is the actions, or even declarations, of the ECB and other European actors. Most people – experts or not – have understood that.

Third, the rhetoric is not the same. You could blame – even if that was somehow unfair – the peripheral countries for spending too much or for letting private debt skyrocket; but it is much harder (and obviously even more unfair) to blame countries for a pandemic. Also because, sometimes, the incapacity to confront it had been created by spending cuts in the health or care sector that were required by international institutions during the last crisis.

On the other hand, the ‘markets’ are a powerful force – think for example that the spending for interest rates in some countries like Portugal were at some point higher than what is spent for education. It is therefore of fundamental importance for decision-makers to reassure investors that they will be reimbursed. For the moment, thanks to the actions of the ECB, interest rates are low, and smaller countries will benefit from the loans provided by the ESM (which are ‘cheap’). But those loans will not be enough for big countries such as Spain or Italy.

If investors panic, if the ECB does not or cannot prevent this panic, things might change as they did at the end of 2009. In that case domestic actors – even if they do not want austerity or conditionality right now – might be obliged to accept them. In that case, they will try to make the most of it. So I would say that austerity and structural reforms (and their possible exploitation) are possible but less likely than a decade ago. It will all depend on the evolution of interest rates.

Then there is another risk, of course: that autocratic leaders exploit the states of emergencies that have been installed in many countries. The risk there is that this status stays longer than needed. You can see that people accept much more easily limitations to their freedom in the circumstances of today, and it brings a risk to democracy, certainly. But I am not an expert on this.

POP)  The debate about Eurobonds or the European Stability Mechanism seems to, once again, reduce the European institutions to a technocratic apparatus that speak its own language, distant from the citizens’ needs. In this scenario, is it more likely that Eurosceptic actors will blame the EU (externally) and the government (internally) to win elections and propose referenda to leave the EU or the euro? Are Eurobond or any other tool of debt mutualisation something that Northern countries can accept, or do you think austerity will prevail once again?

CM) What was observed during the financial crisis is that, at the end, trust towards European institutions goes hand in hand with the economy. At the deepest of the crisis, euroscepticism was at its highest, but when the economy improved, so did the trust towards the European Union. Now we can already see that trust towards the European Union is deteriorating once again, especially in Italy, but I am not sure whether it will last.

But I would like to stress that the EU is what the Member states make out of it, because decisions – like the mutualisation of debts or large cheap loans – are taken by unanimity. And if just one country is against these measures, things won’t work. That is why I think that common bonds won’t happen. In that context, it is easy to blame the Netherlands here, but insisting on corona bonds like the PM of Italy Conte has been doing, when there are other solutions possible that would be more acceptable (like a larger cheap loan) is not constructive either. What I deeply believe, but it will be difficult of course, is that for the EU to work better we need to have less crucial decisions taken at unanimity (and a greater involvement of the European Parliament). But I know it is not likely.

I would also like to stress that the EU is doing a lot of efforts in coordination for masks and ventilators, for the repatriation of nationals abroad – those actions are left in the shadows and not reported in the media. So there is always a tendency to stress what is missing in the EU rather to show what has been made possible thanks to it.

Screen Shot 2020-04-17 at 15.49.32Catherine Moury is Associate Professor in Political Science at the NOVA University of Lisbon, Portugal. Her research focuses on comparative politics and institutional change in the European Union. She has published in the American Journal of Political Science, European Journal of Political Research, Comparative Political Studies, Journal of European Public Policy, among others. Her forthcoming book is ‘Capitalising on Constraint: Bailout politics in Eurozone countries’ (Manchester University Press).

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