Sunday, September 12, 2010

Domestic Political Cover, Policy Change and Greek Debt

. Sunday, September 12, 2010

An absolutely fascinating piece by Michael Lewis in the latest issue of Vanity Fair on Greek debt, Greek monks, Greek civic life, corruption, fraud and how the Greek budget deficit came to be 15% of GDP (and not the reported 3%).

Towards the end, Lewis engages how the new Greek government has sought to implement policy change in the face of a domestic crisis.
The day before I left Greece the Greek Parliament debated and voted on a bill to raise the retirement age, reduce government pensions, and otherwise reduce the spoils of public-sector life. (“I’m all for reducing the number of public-sector employees,” an I.M.F. investigator had said to me. “But how do you do that if you don’t know how many there are to start with?”) Prime Minister Papandreou presented this bill, as he has presented everything since he discovered the hole in the books, not as his own idea but as a non-negotiable demand of the I.M.F. The general idea seems to be that while the Greek people will never listen to any internal call for sacrifice they might listen to calls from outside. That is, they no longer really even want to govern themselves.
It's not necessarily that the Greeks don't want to govern themselves, nor that they will "listen" to calls from the outside. IPE research specifically, and IR research generally, has provided a good explanation of why politicians use this strategy to implement policy change. Political Scientists Todd Allee and Paul Huth discussed how politicians use international courts and other international bodies to push through domestic reform in "Legitimizing Dispute Settlement: International Legal Rulings as Domestic Political Cover" (APSR, 2006 - ungated).

From this research, we can see how politicians strategically use external pressure from intergovernmental organizations like international financial institutions such as the IMF to push through domestic legislation that would otherwise be incredibly unpopular. These politicians claim that "their hands are tied" by these external pressures and that they have no choice but to implement a change in policy (policy that they see as being absolutely necessary, but that the public may not). These international financial institutions provide political cover for politicians and allows them to deflect blame for the policy away from domestic politicians and towards external actors. It's not that the domestic audience will listen to outside actors, but that they will not necessarily blame domestic politicians for implementing these types of policies.


Thomas Oatley said...

Don't need to go outside IPE for the importance of external pressure on adoption of unpopular policies. See Vreeland's book "The IMF and Economic Development."

Alex Parets said...

Yes! I couldn't remember/find which book/article used that argument on Sunday when I was writing the post. I was going through Vreeland, Stone, and others and couldn't pin it down. Thanks for pointing that out.

Domestic Political Cover, Policy Change and Greek Debt
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