Is there no alternative? Power And Discourse In Portuguese Austerity Politics. By Catherine Moury and Adam Standring FCSH-Nova University

Transcription

1 Is there no alternative? Power And Discourse In Portuguese Austerity Politics By Catherine Moury and Adam Standring FCSH-Nova University

2 "Aren t there any alternatives "? Power and Discourse in Portuguese Austerity Politics. By Catherine Moury and Adam Standring (FCSH-Nova University & IPRI) Abstract This paper analyses the margin of maneuver of Portuguese executives since the onset of the sovereign debt crisis ( ). To obtain a full understanding of what happened behind the closed doors of international meetings, we triangulate different types of data: 1) face-to-face interviews; 2) investigations by journalists; and 3) IMF and EU official documents. Lastly, we compare our findings to the official discourses of Prime Ministers José Sócrates and Pedro Passos-Coelho. We show that while the sovereign debt crisis and the bailout have limited the executive s autonomy, they have also strengthened their independence from other national actors. The perceived need for credibility in order to avoid a negative reaction from the markets - later associated with the conditions of the bailout - concurrently gave the executives a legitimate justification to concentrate power in their hands and a strong argument to counter the opponents of their proposed reforms. Consequently, when Portuguese ministers favored policies that were in congruence with those supported by international actors, they were able to use the crisis to advance their own agenda. Disagreement with Troika representatives implied the start of a negotiation process between the ministers and international lenders, the final outcome of which depended on the actors bargaining powers. Finally, contrary to our expectations, we did not find a wide gap between Prime Ministers official discourse and this state of affairs thus showing limited evidence of discursive depolitization. 2

3 We all know what to do, we just don't know how to get re-elected after we've done it, Jean-Paul Juncker, Introduction Following months of bargaining, and only one week after the Greeks voted against the conditions set for a rescue package of 7.5 billion Euros, the Greek Prime Minister Alexis Tsipras was forced to accept the much harsher conditions for a package worth 86 billion almost half of Greek GDP. This package was referred to by the Financial Times as the most intrusive economic supervision program ever mounted in the EU 1. According to different sources, Tsipras complied under the threat of a forced (allegedly temporary) exit from the Eurozone if he did not accept the offer. These negotiations are a paradigmatic illustration of a golden rule of deal-making: the more one has to lose if negotiations fail, the less one s bargaining power. In sum, what we have certainly witnessed this summer is a government that felt obliged to accept specific reforms against its will in return for bailout loans and/or ECB intervention; a phenomenon that had already been observed in many countries. However, another narrative is found in the literature: some scholars argue that the sovereign debt crisis has empowered governments to pass reforms they had wanted all along. So who is right? Are governments always forced to adopt austerity cuts and structural measures? Or can they sometimes exploit the crisis to implement reforms they had wanted all along? What determines the government s autonomy? Our response is that executives may indeed be able to take advantage of the sovereign debt crisis to pass their preferred policies. The state s autonomy is certainly limited by the difficulty they experience in financing themselves on the markets; but this situation simultaneously allows state managers to de-legitimate opposition and circumvent domestic veto players. Moreover, financial and sovereign debt crises internationalize politics, and thus move decision-making to international arenas - a second-level game - where domestic opposition forces are not represented. We therefore posit that the sovereign debt crisis has strengthened executives independence from other national actors; and we expect a discrepancy between this state of affairs and official discourse. However, we further argue that the executives' capacity to advance their own agenda also depends on their ideological orientation: this exploitation of the crisis is only possible when state managers favor policies that are in congruence with those supported by international actors. When this is not the case, executives and international lenders engage in a bargaining process, the final outcome of which depends on actors formal power, time horizon, preference intensity and availability of fall-back options where bargaining fails. 1 Eurozone leaders reach a deal on Greece, Financial Times, July

4 In order to test our arguments, we conduct an in-depth case study of the process leading to reform in Portugal from This period allows for the variation of two factors (government ideology / bailout) that are likely to influence the explanatory variables (capacity to advance one s preferred policy and discourse). To obtain a full understanding of what really happened behind the closed doors of international meetings, we triangulated different types of data. We finally analyze the official discourses of both the former and current Prime Ministers and compare them to what really happened at the governmental level. The Paradoxical Strength of Executives in Times of Crisis Since the financial and economic crisis that started in 2008, managers of states with liquidity problems have had to take into account the rapid changes in the interest rates of their national bonds when drafting budget or structural reforms. These interest rates are, in turn, influenced by declarations and actions from international actors such as the European Commission, ECB or rating agencies. While this development undoubtedly limits the state's room for maneuver, we argue that it has also made the core executive stronger in relation to other national actors, for several reasons. First, public policy scholars have taught us that (economic) crises challenge existing policies and institutions and thus open windows of opportunity for networks of reformers to push forward their preferred policies (Birkland 1997; Baumgartner and Jones 2002). The government itself might capitalize on the situation to implement reforms that would otherwise be met with fervent opposition often simply because the public expect governments to do something during times of recession and rising unemployment (t Hart 2014). Thus, crises are moments of decisive intervention (Hay, 1999), i.e. times at which the state is perceived as having little option but to act. In this context, state managers are not limited to a responsive role but might instead be able to act strategically and manipulate the perception of structural settings and sets of failures to legitimize their own preferences notably by framing ideological responses as both neutral and necessary (Hay 1999, Mac Namara 2002). In the context of the recent sovereign debt crisis, the necessity to restore credibility to avoid a negative reaction from the markets has thus simultaneously given executives a legitimate justification for concentrating power in their hands and a strong argument against the opponents to their proposed reforms. Second, the sovereign debt crisis led to bailouts in many countries. In these cases, binding commitments further enable governments to implement unpopular but necessary reforms whilst shifting blame' onto the EU (Vasilopoulou and al. 2014), or the IMF (Edwards and Santaella 1993). Moreover, during a bailout most policies are decided in international arenas - a second-level game - where domestic opposition forces are not represented (Putnam 1988). Political economists studying the IMF have argued that governments use the IMF loan as a carrot (Drazen 2002) - and inversely the absence or termination of this loan as a stick (Vreeland 2003) - to entice opponents 4

5 to accept certain policies. Similarly, findings made previously by EU scholars can be applied to the current bailouts in which European institutions were involved. These have showed us that governments can take advantage of the need to compromise, the secrecy of the negotiations (Grande 1996), the legitimacy attached to the deals (Moravisck 1994) and the difficulty of reneging past commitments (Dyson and Feartherstone 1996) to enhance their power vis-à-vis that of domestic groups and other party members. Our theoretical premise is thus that although governmental actors facing a serious economic crisis undoubtedly lose some of their autonomy, at the same time they are more powerful when compared to other national actors than in normal times and hence might be in a better position to pass their preferred policies. To paraphrase Grande (1996), we are thus witnessing a paradox of weakness of governments. We are well aware that this concentration of power in the hands of executives is a not new phenomenon: there has been a clear trend towards the empowerment of core executives (and within it that of Prime Ministers) since the 1990s, notably because of the internationalization of politics (see for example Johansson and Talberg 2010). Our core argument is that this concentration has reached unprecedented levels since 2008 because of the escalating importance of a third-level game, the markets, that can be exploited by executives in dealing with potential veto players; and in bailout countries - due to the presence of conditions associated to the loans. Although this argument is not new (see Dubin and Hopskins 2014 for Spain; Dukelow 2015 for Ireland), it is not unanimously supported. Many scholars have claimed that governments have been forced to implement very specific reforms against their will in return for bailout loans (i.e. Featherstone 2014 for Greece, Gorjão 2012 for Portugal, Ladi 2014 for Cyprus) or after implicit blackmail by the ECB (Sacchi 2014 for Italy). In this paper, we propose an explanation for these different findings and further argue that the extent to which executives have been able to use the crisis to pass their favorite reforms depends on their partisan preferences. This assertion builds on findings that the direction of a policy reform pushed forward by international actors depends on the preferences of national political parties, whether the reform is required by the EU (Graziano 2011), the IMF (Pop-Eleches 2009) or by the need for fiscal adjustments in general (Tavares 2004). The question that remains to be answered is why would those empowered executives pursue their preferences when those are unpopular. After all, cutting the welfare state is potentially costly (Pierson). In recent years, many authors have proposed answers. First, not always unpopular if we control for the economic recession. Second, domain of loosses. Third, Thirdly, we also do not imply that government preferences are endogenous: in line with Chwieroth s (2014) idea that governments under IMF loans may use cabinet appointments to lessen the stringency of conditional lending, we assume that ministers and ministers advisors who are sympathetic to the IMF and/or the EC are increasingly appointed at times of crisis. Similarly, we believe in the possibility that the preferences of these top executives are in turn influenced by their interaction with international actors, as claimed by constructivist scholars (Borzel and 5

6 Risse 2004). But here again, ideology matters because international actors effectiveness as disseminators of ideas is further enhanced by the presence of domestic policy-makers that share their policy preferences (Chwieroth 2007). Thus, we only expect governments to be able to push their favored reforms through easily when their views are congruent with those of the international lenders. When this is not the case, we further argue that governments bargain with the international lenders. We indeed know from power-based distributive bargaining theory that actors try to maximize their influence over policy outcomes; and the final outcome results from a bargaining process in which power takes center stage (Héritier 2007). The actors powers are defined by formal power, time horizon, preference intensity and availability of fallback options where bargaining fails (Knight, 1992, see also Moravcsik 1998). We thus posit the two following theoretical proposals: Proposal 1: When ministers favor neo-liberal reforms, they will be able to use the sovereign debt crisis as a strategy to overcome initial resistance to those reforms sometimes going far beyond what is required of them by the international actors. Proposal 2: When this is not the case, the content and type of the reforms will result from a bargaining process between the governments and the international actors (European Commission, ECB, and for bailed out countries IMF). These proposals thus suggest that governments are not powerless before international actors in either case. Finally, we aim in this paper to assess the distance between the discourse of policymakers and their actual room for maneuver. As noted below, economic crises and bailouts may therefore allow state managers to deny they have any agency or choice; hence avoiding the objections of strong domestic opposition or veto plays (Rogers 2009). Thus, we finally posit: Proposal 3: In countries suffering a sovereign debt crisis, discourse posits that policies adopted are beyond the government's control. If Proposal 1 is correct i.e. if the government strategically uses the crisis/bailout to pass measures they wanted all along then we witness a gap between discourse and the actual state of affairs something that has been called discursive depolitization or discourse of no alternative (see Flinders & Buller, 2006). This process enables state managers to minimize processes of deliberation and public accountability whilst at the same time stressing the need for decisive intervention and retaining control of the process (Crick, 2005, Rogers 2009). Before turning to the next section, three points should be clarified. First, our argument does not imply that the executive has been unconstrained since the outbreak of the global crisis: international actors and important EU member states have undoubtedly had an increasing influence over core areas of public policy of other states. What we in 6

7 fact imply is that the government's loss of room to maneuver coexists with a boost in its power within the national political system a state of affairs that could be strategically exploited by state managers. Second, we do not assume that the preferences of decision-makers are identical. As we will demonstrate below, ministers from the same government do not all share the same policy preferences. Moreover, we know that policy makers not only have distinct ideologies, but are also subject to different sources of pressure such as the need to keep voters satisfied, to maintain clientistic linkage (Afonso and al. 2015) or to avoid dissatisfying overly powerful lobbies (Miller and Harkins 2010). However, in our view it is reasonable to assume a government of the left and of the right will have different preferences and hence that the latter will be more willing to use the crisis and the bailout to pass its preferred policies. Thirdly, we also do not imply that government preferences are endogenous: in line with Chwieroth s (2014) idea that governments under IMF loans may use cabinet appointments to lessen the stringency of conditional lending, we assume that ministers and ministers advisors who are sympathetic to the IMF and/or the EC are increasingly appointed at times of crisis. Similarly, we believe in the possibility that the preferences of these top executives are in turn influenced by their interaction with international actors, as claimed by constructivist scholars (Borzel and Risse 2004). But here again, ideology matters because international actors effectiveness as disseminators of ideas is further enhanced by the presence of domestic policy-makers that share their policy preferences (Chwieroth 2007). The Portuguese sovereign debt crisis as a case study Shortly after the onset of the Greek sovereign debt crisis in the first quarter of 2010, Portugal was pinpointed as a high-risk investment: demands for bonds issued by the government shrank and the interest rate shot up. José Sócrates, the Prime Minister of the Socialist minority government, called in the international lenders in May 2010; and a Memorandum of Understanding (MoU) was negotiated during the electoral campaign. In the election of June 2011, a center-right coalition composed of the PSD and the CDS- PP obtained an absolute majority. In May 2014, as scheduled, the Portugal was able to return to the markets and exited the assistance program. In our view, Portuguese political decision-making in the period just before, during, and after the bailout ( ) constitutes an excellent case study to test our arguments. Indeed, it provides variation in two dimensions that are crucial in explaining the dependent variables (policy-making and discourse) namely the presence (2011/2014) and absence ( /2015) of international lenders and the ideology of government: center-left ( ) and center-right ( ). As noted above, our theoretical proposals imply that 1) the sovereign debt crisis has empowered the executives in their dealings with other national actors a process that is further strengthened with the bailout; and 2) ideology matters. 7

8 If governments wish to use the international lenders to facilitate the passage of reforms they desire while bypassing domestic opponents, they will obviously not admit this publicly; and hence the difficulty in testing our arguments. In order to ensure validity, we triangulate different types of data. First, we rely on a qualitative analysis of official documents from the IMF and the European Commission. Second, we examine two books by investigative journalists 2 that focused on decision-making in the bailout. Third, the first author of this chapter held 21 face-to-face interviews with ministers and junior ministers from both the socialist and right-wing governments. She also talked with officials from IMF (1) and EC (3) and with representatives of social partners (3) and with MP s from opposition parties (7) 3. Interviews were conducted from January 2014 to May Promising complete anonymity, she asked interviewees open questions such as: to what extent do you agree / disagree with the policies included in the MoU? To what extent are these reforms similar to what you/your party believe is good for the country? Can you give me examples of points of disagreement? Of agreement? Do you sometimes expressly ask for a specific reform to be included in the memorandum even though these were not specifically required by the Troika? Finally, we examined official discourses for each period, made by Prime Ministers Sócrates and Passos Coelho. Include appendix. What happened and what have we been told? The real story versus discourse 2008 April 2011: Before the bailout After the fall of the Lehman Brothers in September 2008, there was a dramatic slowdown in the Portuguese economy. Exchange devaluation was not an option, and the original approach taken by the first Sócrates government (Socialist majoritarian: ) was fiscal expansion. These counter-cyclical policies were taken in coordination with the EU s initial neo-keynesian approach to the crisis. A few months later, however, the European Council urged the country to rapidly engage in policies aimed at medium-term fiscal consolidation (De Giorgi and al. 2015), thus forcing national government to make a huge U-turn in their expansionary policies, taking back what they had just given. Interviewed Socialist ministers testified to the difficulty of such an exercise, which obliged the government to renege on past commitments and, when not possible, to make extra savings to compensate for the increased investment and spending of the year before. In April 2010, the Portuguese interest rates on government bonds soared to their highest level since entry into the Euro. As the incumbent PS had lost the absolute majority in 2 Pires, L. R. And Martins, N. (2015), Segredos de Estado, Editora Materia- Prima; Dinis, D. And Coelho H. P. (2012), Resgatados - Os bastidores da ajuda financeira a Portugal, Editora Arvore da Vita. 3 From all parties represented in parliament, PSD, CDS- PP, BE and Communists for the first period, and additionally with representatives of the PS for the second period. A more extensive analysis of the interviews with opposition parties can be found in De Giorgi, Moury and Ruivo

9 parliament in the September 2009 general elections, it needed the opposition parties collaboration to pass budgetary measures. Despite an ever critical stance towards the government, the PSD abstained and let the 2010 budget pass in March. In May and September 2010, the PSD abstained on another two additional austerity packages. In early 2011, with the yields on 10-year bonds consistently above 7 per cent, the government prepared a fourth package of policies. When asked about the extent of their autonomy when preparing these budgetary packages, all former Socialist Ministers we interviewed acknowledge the increasing influence of the European Commission. Even before the introduction of the European Semester that would strengthen the Commission s power to monitor national budgeting, Portuguese ministers were very anxious to placate the Commission when preparing budget plans. The reason is simple: disapproving feedback from the Commission is taken into account by investors and the ECB thus potentially increasing yields on sovereign bonds. To avoid criticisms when the austerity package was to be formally analyzed by the Commission, experts from the Commission and the ECB were even invited to draft the fourth austerity package together with government. Similarly, the need to calm the market was invoked by state managers as the main objective of an ambitious Labor reform ( the Pact for Employment ), that went to social partners for negotiation in May The discourse at the time justifying the new austerity measures and structural reforms was that of the need to avoid the attack on sovereign debt and to finance the state economy. While parliament s approval was not formally required, Sócrates announced he would resign if the opposition successfully proposed a resolution opposing the fourth austerity package. The program, he said, was the only alternative to the bailout. The PSD clearly in the lead in the polls at this time announced it would vote against the government. The Prime Minister immediately resigned; and the caretaker government asked for the bailout on April 6, at the beginning of the electoral campaign. All interviews with Socialist party members who were in power at the time of intervention insist that the Prime Minister did everything to avoid the bailout a story that is in congruence with the Prime Minister's declaration and journalists investigation of this period 4. For many ministers, this ultimate austerity package (and the official support of the European Commission) would have been enough to reassure the markets, and to convince the ECB to buy Portuguese bond on the secondary market. The discourse of the Prime Minister is certainly congruent with the interviewees' and journalists perception of the actual state of affairs. Indeed, Sócrates repeatedly insisted that the country should not be bailed out, that such an intervention would be detrimental to the country. For example, in a statement to television in March 2011 he said: Portugal does not need the IMF to resolve its problems and it would even be 4 Resgatados, op. Cit. 9

10 prejudicial to the country 5, and in the news: The measures imposed by these programs demand a liberal agenda that I am not willing to accept 6. On the PSD side, the members of the parliamentary group I interviewed admitted that they supported a possible bail out. The official discourse of the future Prime Minister and PSD opposition leader, Passos Coelho, was ambivalent though. For example, when announcing to the population in a press conference that he would not support the measures of Sócrates, Passos Coelho invoked his party s opposition to the additional sacrifices imposed on Portuguese citizens: The new measures, ( ) are again overburdening the people who have sacrificed the most, they attack the basic foundations of the welfare state and do not make any cuts in the vast expense of the State machine. (...). 7 However, speaking on television a few days later, he claimed that he voted against the last package on the grounds that it was not sufficiently ambitious: The reason we voted against this revision in the SGP is not that the measures went too far ( ). It is because it does not go as far as it should. 8 After the rejection of this fourth austerity package, an official letter was sent from the PSD to the Prime Minister and the President on 31st March 2011, in which they defended the bail out option. One day after, 1st April, the same recipients received another letter with exactly the same contents, but this time signed by the governor of the Bank of Portugal, Carlos Costa. On that same afternoon, the Jornal de Negócios published declarations from the Socialist Finance Minister Teixeira dos Santos saying that it was impossible, given the circumstances, to avoid bringing in the Troika. It was only then that Sócrates announced to the country that Portugal had decided to request international financial assistance. With regard to this first period, two points must be noted. First, the fact that the government negotiated the fourth austerity package directly with the Commission and the ECB nicely illustrates the mechanisms leading to the centralization of (budgetary) powers to the benefit of the executive. However, the defeat in Parliament of this package also shows the limitation of our argument: in some cases (such as when the government does not have a majority of seats), this centralization is resisted and defeated. Second, we observed that the Socialist Prime Minister was trying at all costs to avoid a bailout, while the center-right (together with bankers) encouraged it. This suggests clearly in line with our argument - that the center-right parties welcomed the conditions that would be associated with the bailout. Drafting of the bailout 5 Sócrates discourse in Parliament, 20 March Diaros da Noticias, 13 March Passos Coelho, Press Conference, 12 March Interview to SIC television, 25th March

11 While the main interlocutor of the Troika was the caretaker government, the international lenders also regularly consulted the two center-right parties. However, the radical left parties refused to enter into discussions with the Troika. The Financial Assistance Program of 78 billion was agreed between the Portuguese authorities and the European Union and the International Monetary Fund in May Two separate Memoranda (one with the EU and another with the IMF) were signed by the three mainstream parties: PS, PSD and CDS-PP on May 17 th When asked about their room for maneuver while negotiating the MoU, key participants from the government recognized that the rapport de force had changed from when the fourth austerity package (the so-called SGP IV) was being drafted and that consequently their margin of negotiation was smaller. For instance, a minister refers to the minimum wage as an example: When we negotiated the SGP IV, the European Central Bank and the European Commission wanted us to include a reference on freezing the national minimum wage. The government said 'no' various times until it was actually not included in the SGP 4. When it came to the memorandum of the Troika, this was an example of a measure that they said it was not even worth discussing, they told us to write the freezing of the minimum wage or they would not give us financing. The international lenders also exploited the division amongst the main political parties. A minister noted the way in which the opposition party insisted on reforms that the government successfully managed to take off the table: We knew when they had been negotiating with the PSD because, after we had an agreement, two or three days later the issue was back again on the negotiation table; tougher than what we had agreed on. However, in many instances the government was able to get its own way and successfully opposed measures such as the reduction of public servants' salaries, the cuts for lower pensions and the decrease in unemployment benefits for all contracts (the initial memorandum only reduced benefits in the case of new contracts). In fact, none of the participants saw the negotiation as a diktat from the international lenders. An agent from IMF also notes: It s not like the Troika comes with a list of things and says that they have to do these things and then get the money. It doesn t make sense partly because only the government knows how things work. Moreover, in many cases Socialist ministers recognize that the bailout opened a window of opportunity to make necessary reforms. For example, a Secretary of State remembers: The majority of the Troika's memorandum are things the government wanted to do, the vast majority. For example, in urban renewal, the Memorandum includes a rapid eviction process that takes place out of the courts; this is strongly contested by lawyers and the judicial professions because they make money from the processes and the lengthy proceedings. It was included in the Memorandum to give it the force of an agreement with the Troika and so something that had to be done. 11

12 Another, about the labor code reforms: In Portugal, the collective bargaining is done by the unions, not by the workers' commissions, ( ) and this makes it very difficult to reach an agreement. (...). So one of the things we wanted to do was to make it easier for the workers' commissions in the firm to do the collective bargaining so it wouldn't just be in the hands of the transversal trade unions. And this was put in the agreement ( ) because it was on the government s agenda, and it knows that it has more power to pursue its agenda it if it has a state obligation. The Trade Unions were not unaware of this state of affairs; and as a former leader recalls: In the first press conference the Troika gave, 4 years ago, their spokesperson spoke in detail about the Portuguese labor market. But they didn't know it, they had been informed by the government (...) The memorandum and the crisis were exploited by the government to do what they wanted ( ) When presenting the agreement to the public, Sócrates made a point of highlighting what the country had avoided 9 and hence rightly showed the public that the government had had some room for maneuver. He also stressed that most measures were similar to the last package that was defeated in Parliament, which is indeed the case. There are a few items of note in this section. First, that the bailout negotiated by the Socialist party was in no way a diktat by international lenders, but rather the result of a negotiating process albeit with power balanced on the lenders side. Second, that the Socialists ministers feel the bailout sometimes offered them the opportunity to pass reforms they deemed necessary (as expected in proposals one and two). Third, and in contradiction with our third proposal, the Prime Minister did not deny agency in public when dealing with the troika. As a matter of fact, Sócrates insisted that the bailout was very similar to the package that was defeated in Parliament. We thus find no evidence in this period of discursive depolitization. Bailout II Center right government (PSD and CDS-PP) In the June 2011 general elections, the right-wing parties PSD and CDS-PP obtained an absolute majority of seats and, as the head of the PSD, Passos Coelho became the new PM. Just after the elections, Passos spoke to journalists and declared that he would go further than the program. For example, on 6th June 2011, he said to the national press: I promise to uphold the commitments made in the memorandum of external aid. I will even surprise by going further than the Troika demanded 10 ; And a week later to the journalists of the Financial Times: 9 See Santana and Freire Reuters, Entrevista do Leadero PSD, 6th June

13 I will go beyond the requirements of the rescue agreement, for example, by accelerating the privatization program ( ) and meeting deficit-reduction targets ahead of schedule. The rescue program is a unique opportunity to implement essential reforms that previous governments have avoided for the past 30 years. ( ) The serious difference between the PSD and the Socialists of José Sócrates is that the PSD believes in the changes we have to make. 11 The government indeed started to implement the program right away. Every six months, he received visits from the Troika aimed at assessing compliance with the MoU. Their general assessment was very positive: according to the lenders, Portuguese authorities had been exemplary in their application of the MoU. There is not surprising, given the strong congruence of views between the ministers and those of the international lenders. For example, a minister from the center-right government, when asked whether he would have done anything differently without the presence of the Troika in his sector (health), answers: No, probably no there is here a window of opportunity that allows us to bypass the resistance of stakeholders, professions, industries, pharmacies, of our administration, to make reforms that were necessary. ( ) For example, Portugal had the biggest per capita spending on medicines in Europe something wrong in a country with a relatively low GDP ( ) we all knew something had to be done; but we could not pass reforms, doctors opposed them, the industry was blocking them We asked to have this measure inserted in the memorandum. And this time the law was passed by parliament with all parties voting in favor.. an absolute case study!. About the labor law, another minister explained: Sometimes it's difficult to have the political strength to do certain things and the Troika helps justify it. For example, there are some things in the revision of the labor legislation, like reducing severance payment, that are hard to discuss with the social partners and so it's useful to have pressure from the Troika to be able implement it. We, in the government, agree that it is necessary to do it but recognize the political difficulty. Interestingly for our purpose, significant revisions to the memorandum were agreed upon at each of those visits. These post-mou measures included higher taxes, even on the lowest incomes and pensions; as well as on corporate profit, goods and services. Wages for public employees and all pensions were reduced considerably. However, the Constitutional Court s decisions prevented the government from going too far in this direction. A first obvious reason for these revisions was the difficulty in lowering the public deficit to meet the initial target (3%) due to the very sharp rise in unemployment, and the worse than expected decline in economic growth. A second was the fact that the constitutional court cancelled many measures, obliging governments to find alternative 11 Financial Times 15 June

14 ways, mainly on the revenue side, to balance the budget. However, there was room for maneuver in deciding where to find the extra money. For example, journalists reported that members of the IMF were concerned about the effects of these measures on the poorest and suggested introducing a tax on inheritance (which is non-existent in Portugal) a suggestion that was allegedly quickly dismissed by the government. These new revisions also include budgetary-neutral structural reforms. Most importantly, a whole section (around 1000 words, 2 pages) on de-regulation was included in the fifth reform. Among other things, this section prohibits the government from creating new regulations generating costs for businesses without the elimination of an existing regulation with an equivalent cost. Similarly, while the Memorandum initially included pledges to flexibilize the labor market, the second revision of the MoU in December 2011 added a clause that collective contracts of wage setting would no longer be automatically extended. New measures were added such as a detailed reform of the penal code and of the code of criminal proceedings, a decrease in public-private investment and a comprehensive reform of the pension system. All these reforms were followed by governmental actions implementing them. Ministers in interviews recognize that governmental actors sometimes asked the international lenders to insert certain policies that they favored into the memoranda because this would decrease the strength of the opposition. For example, a Secretary of State notes: this government (...) has a policy of increasing competitiveness by cutting salaries; and the sooner the economy is put in order, the sooner it will start growing, so all these cuts in salaries, ( ) putting an end to various things that public companies were doing ( ), and so on, all this was put into the memorandum of understanding and it wasn't there in the first version. Another, in the Justice department: The government had a lot of freedom to reform the Justice system With the troika, we were able to do what we had been wanting to do for twenty years. This interpretation was also confirmed by officials from the European Commission, one of them even confessing his embarrassment at the introduction of a whole new section on de-regulation in the Memoranda: The measures on licensing were added at the initiative of the government on the fifth review( ) For me, it is very tricky Usually, there s a bit of a reluctance to come up with completely new measures, because there s an initial program that needs to be worked out. Lastly, it is interesting to recall as has been noted before (Lutz and Kanke 2014) - that the view of the international lenders is not homogenous. An IMF official put it succinctly: We have three different institutions, with different backgrounds. The European Commission, for example, watches if the Euro rules are respected, like competition rules. The IMF has a different mandate. They essentially look at the balance of payments, debt sustainability issues. The ECB has a much stronger focus on financial issues, and financial stability issues. Nor do we find homogeneity in the 14

15 government. After the resignation of the CDS-PP leader Portas in July , intraparty coalition was particularly obvious; and the CDS-PP leader Portas frequently opposed (often unsuccessfully) further cuts to salaries and pensions. However, what very clearly emerges in this section is that the center-right government plainly took the opportunity of the bailout to pass reforms it wanted all along. By binding themselves to the MoU and its amendments, ministers have indeed been able to play down opposition to these reforms. Indeed, the relative ease with which the government managed to pass these reforms is particularly striking. With the exception of the mass demonstrations of September 2012, protests were relatively tame in Portugal and most of the measures during the first two years were passed with the abstention of the Socialist Party (De Giorgi et al., 2013). The official discourse was, again, ambivalent. When speaking to their constituency, the government did not shift the blame of the unpopular reforms to the Troika. For example, in August 2011, in a party meeting the Prime Minister stated: "The Government was ambitious and decided to go further (than the memorandum) and as a result Portugal has not suffered the same consequences as Greece ". 13 However, in 2012, which was the year of many painful austerity measures, Passos appeared on television and claimed that the need to respect the financial targets was the main reason for the introduction of such painful measures, and that non-fulfillment would lead to chaos: In order to obtain the result in the public accounts that we are obliged externally to have, we must do more than was initially envisaged (...) If we were deprived of external aid, ( ) we would be facing the immediate closure of many of the State's activities, non-payment of salaries, a chain of defaults in the economy that would lead to mass bankruptcies (...) 14. At a party meeting a few months later, he reaffirmed PSD's ownership of the measures taken: «The implementation of this memorandum of understanding is not the result of some heavy obligation that is met simply to feel that duty has been done ( ) The opinion of the European Union and the IMF is in line with our conviction of what needed doing. 15. Two important points emerge from this section. We first observe during the bailout that center-right ministers often went beyond what had been negotiated in the initial memorandum; and privatively admitted to having exploited the bailout to pass unpopular measures that were congruent with their preferences. This finding strongly 12 In July 2013, the Minister of Finance Vitor Gaspar resigned; and Maria Luís Albuquerque, the Secretary of State for the Treasury and right hand of Gaspar, was nominated as his successor. Following this, the CDS- PP leader resigned on the grounds that this nomination would not bring the right break with the previous budgetary policies. The issue was finally resolved with the nomination of Portas as Vice- Prime Minister, an unprecedented figure in Portugal, and as responsible for relations with the Troika. 13 Speech given at party congress in Pontal, in Algarve, Lusa 14 August Speech on RTP; 13 th September Speech to PSD party members, 19 April

16 supports our first theoretical proposal. We finally observed the Prime Minister stressing many times that they was no alternative to his actions, given the need to restore credibility. However, and in partial disagreement with our third theoretical proposal, the Prime Minister often publicly acknowledged his desire to go beyond the troika, thus valorizing rather than denying his freedom in relation to international lenders. After the bailout: August 2014 September 2015 In May 2014, Portugal exited the three-year Economic Adjustment Program; and on 4 th October 2015 legislative elections took place. Since then, and until the repayment of 75% of the financial assistance, Portugal has been put under post-program surveillance and receives six-monthly visits and recommendations from the EC and the IMF. During this last period, we have observed a certain inconsistency on the part of the government, in terms of discourse and policies. On the one hand, government certainly desired (and were pressured) to keep the reforms and cuts previously made. On the other, however, they were in an electoral campaign and were also willing to show voters an end to their sacrifices. Moreover, recommendations of the Post-Surveillance program do not have the binding force of bailout conditions; and the actors that had been successfully silenced began to be more assertive. This is particularly the case of the Trade Unions and the Deputy Prime Minister and leader of CDS-PP, Paulo Portas. As a result of these pressures, the government reversed some austerity measures. For example, in August 2014, the constitutional Court vetoed the cuts in pensions in the 2015 budget. The government decided not to propose alternative measures, despite the great dissatisfaction of the international lenders. Similarly, in November 2014, the government ceded to pressure from the Trade Union to increase the minimum wage by 20 Euros; and corporate taxes were lowered. Nevertheless, there are also strong elements of continuity. Most reforms and taxes were kept, and the government went ahead with the ongoing reforms. For example, the government managed to privatize the national airline company; and did not reduce taxes on wages (but announced that expost tax rebates might be put in place depending on the growth in 2016). The PM's discourse at first focused on the government s ownership of the reforms. For example, in May 2014, when speaking to party members: Many of the people who think that as the Economic and Financial Assistance is over, ( ) we can discuss everything again without any kind of constraint, (...) they have no idea what is at stake (...). What we have done in the last three years is not because the 'Troika' made us do it. We did what we had to do in a country that was on the brink of bankruptcy (...) 16. A few weeks before the election, however, official discourse changed. For example, during an electoral debate, the socialist party leader Antonio Costa, made a very similar argument to the one presented in this paper. He accused Passos Coelho of having called 16 Opening of the meeting of the National Council of PSD, 29 May

17 in the Troika and gone beyond the initial deal so as to advance his ideological agenda. Passos Coelho answered that austerity was necessary because governments had no money ; and that it was the PS, not himself, that must take full responsibility for calling the Troika in. In this last period, we observed that the return to the market and the exit from the bailout renewed opposition from inside and outside of the government to the reforms that had been made. The government, which was deprived of the loan conditionality, ceded to this pressure but only to some extent. Finally, a few weeks before the elections, we observe the argument of going further than Troika being abandoned in favor of the battle of who was to blame for calling in the international lenders. Conclusion In this paper, we depart? from the assumption that the sovereign debt crisis, while limiting the room for maneuver of state managers, at the same time gave them more power vis-à-vis other national actors. The perceived need for credibility to avoid a negative reaction from the markets concurrently gave the executives a legitimate justification to concentrate power in their hands and a strong argument to counter the opponents of their proposed reforms. According to our reasoning, when a country is bailed out, the executive is strengthened even more again in relation to other national actors - due to the need to respect the conditions associated to the loan. Based on this assumption, we expected that when the preferences of the executives are congruent with those of the international actors (IMF, EC, ECB) state managers are able to exploit the crisis to push through the reforms they wanted all along. Where there is disagreement, we further expected that the result of the negotiations would depend on each player's bargaining resource. Using an analysis of official documents, mass media accounts and nearly thirty in-depth interviews, we find strong support for this argument. Already before the bailout, during a period of strong pressure on the sovereign debt, the center-left government of José Sócrates saw a window of opportunity to pass a series of reforms it deemed necessary. That said, the government was simultaneously more constrained than in the past mainly by the European Commission whose budget assessment had a strong influence on the interest rates (directly or indirectly through European Central Bank actions). Moreover, the minority government s last package of reforms were eventually defeated in Parliament thus illustrating that in some cases (such as when the government does not have a majority of seats), centralization of power to the benefit of executives can be resisted and defeated. Another interesting finding is that all sources converge to testify that the Prime Minister of this center-left government tried at all cost to avoid the bailout. By contrast, the center-right government led by Passos Coelho welcomed (in private) the international intervention, and made the Socialist government fall in the hope that it would allow them to govern with the Troika. 17

18 The terms of the bailout were not seen as a diktat by international lenders but rather as a negotiation in which the 'rapport de force' depended on preference intensity and cohesion within each side. The government had to cede on some aspects, but on others it successfully opposed the international lenders wishes. Moreover, many reforms were requested by the Socialist government as a way of exploiting the window of opportunity and passing reforms it deemed good for the country but that had encountered opposition in the past. As soon as they were in power, the center-right ministers started to implement the program, often going beyond what was required of them. Many measures were changed in the revisions of the memorandum and new measures were sometimes added. Ministers from the center-right acknowledge a strong congruence of views and could rarely remember disagreements - between the international lenders and themselves; and they admitted that the bailout allowed them to pass desired reforms with little opposition. We thus find a textbook case of the exploitation of a window of opportunity by rightist ministers to pass measures they themselves favor. However, after exiting the program and one year before the elections, Trade Unions and the junior coalition partner became more assertive and the government was obliged to step back in some instances. This illustrates that conditionality not only serves to bypass opposition but also, just as Ulysses with the sirens, to tie state managers' hands to the mast and make sure they will not renege on their commitment when faced with internal pressure (Giavazzi and Pagano 1988). A second objective of this paper was to compare the real state of affairs to the discourse. Here, our expectation of finding a wide gap between discourse and facts is not confirmed. With the exception of the PSD decision to vote against the austerity package when the desire to call in the international lenders was not made public we find a surprisingly strong congruence between private and official discourse. While Sócrates frequently expressed his reluctance to govern with the international lenders, Passos Coelho repeatedly admitted in front of different audiences particularly international or partisan the congruence of his view with that of international lenders as well as his desire to go further than was agreed. After the exit, he reiterated that the reforms achieved had not been imposed by the Troika but were made because they were good for the country. However, the discourse surrounding reforms was one of necessity, the lack of alternative to gain credibility while, in fact, the government had alternatives to balance the accounts; and room for maneuver as regards the structural reforms. We thus find evidence of discursive depolitization, albeit not in the forms originally expected. We must remember, however, that our analyses exclusively focus on Prime Ministers discourse and hence only partially represent official discourse. For example, the discourse of the Deputy Prime Minister of center-right government, Paulo Portas, was much more in line with the discursive depolitisation thesis (suffice it to say that he calls the bail out a protectorate and its exit a liberation ). 18