Economic Adjustment in New Democracies Lessons from Southern Europe Diane Ethier INTERNATIONAL POLITICAL ECONOMY SERIES General Editor: Timothy M. Shaw, Professor of Political Science and Inter national Development Studies, and Director of the Centre for Foreign Policy Studies, Dalhousie University, Nova Scotia, Canada Recent titles include: Pradeep Agrawal, Subir V. Gokarn, Veena Mishra, Kirit S. Parikh and Kunal Sen ECONOMIC RESTRUCTURING IN EAST ASIA AND INDIA: Perspectives on Policy Reform Solon L. Barraclough and Krishna B. Ghimire FORESTS AND LIVELIHOODS: The Social Dynamics of Deforestation in Developing Countries Steve Chan (editor) FOREIGN DIRECT INVESTMENT IN A CHANGING GLOBAL POLITICAL ECONOMY Edward A. Comor (editor) THE GLOBAL POLITICAL ECONOMY OF COMMUNICATION Paul Cook and Frederick Nixson (editors) THE MOVE TO THE MARKET? Trade and Industry Policy Reform in Transitional Economies O. P. 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Please contact your bookseller or, in case of difficulty, write to us at the address below with your name and address, the title of the series and the ISBN quoted above. Customer Services Department, Macmillan Distribution Ltd Houndmills, Basingstoke, Hampshire RG21 6XS, England Economic Adjustment in New Democracies Lessons from Southern Europe Diane Ethier Associate Professor of Political Science Universite de Montreal Quebec, Canada Translated by Roy Cartlidge tt M First published in Great Britain 1997 by MACMILLAN PRESS LTD Houndmills, Basingstoke, Hampshire RG21 6XS and London Companies and representatives throughout the world A catalogue record for this book is available from the British Library. ISBN 0-333-69556-9 t£ First published in the United States of America 1997 by ST. MARTIN'S PRESS, INC., Scholarly and Reference Division, 175 Fifth Avenue, New York, N.Y. 10010 ISBN 0-312-17368-7 Library of Congress Cataloging-in-Publication Data Ethier, Diane. Economic adjustments in new democracies : lessons from Southern Europe / Diane Ethier. p. cm. — (International political economy series) Includes bibliographical references and index. ISBN 0-312-17368-7 (cloth) 1. Europe, Southern—Economic conditions. 2. Europe, Southern- -Economic policy. I. Title. II. Series. HC244.5.E78 1997 330.946—dc2i 96-52879 CIP ©Diane Ethier 1997 All rights reserved. No reproduction, copy or transmission of this publication may be made without written permission. No paragraph of this publication may be reproduced, copied or transmitted save with written permission or in accordance with the provisions of the Copyright, Designs and Patents Act 1988, or under the terms of any licence permitting limited copying issued by the Copyright Licensing Agency, 90 Tottenham Court Road, London W1P 9HE. Any person who does any unauthorised act in relation to this publication may be liable to criminal prosecution and civil claims for damages. The author has asserted her right to be identified as the author of this work in accordance with the Copyright, Designs and Patents Act 1988. This book is printed on paper suitable for recycling and made from fully managed and sustained forest sources. 10 9 8 7 6 5 4 3 21 06 05 04 03 02 01 00 99 98 97 Printed in Great Britain by The Ipswich Book Company Ltd Ipswich, Suffolk Contents List of Tables and Figures vii Acknowledgements xii List of Acronyms ix Introduction: Democracies and Successful Adjustment 1 Part One Economic Policies of Southern European Democracies 1 The Economic Context of Democratic Transitions 13 2 Spain: An Early and Durable Process of Adjustment 19 The beginnings of reforms by UCD governments: 1977-82 19 The deepening of reforms by PSOE governments: 1982-96 23 3 Portugal: A Late but Accelerated Process of Adjustment 35 The conflicting economic policies of the first democratic governments: 1974-83 35 The achievement of reforms under socialist and social-democratic governments: 1983-95 38 4 Greece: Timid and Fruitless Attempts at Adjustment 45 The expansionist policies of ND and PASOK governments: 1977-85 45 The sporadic and limited adjustment measures of PASOK and ND governments: 1985-95 47 5 Comparative Results of Southern European Economic Policies 52 The reduction of inflation 52 The decrease in public debt and deficits 53 Improvement in the external trade balance 54 The implementation of structural reforms 57 Conclusion 60 v VI Economic Adjustment in New Democracies Part Two The Determinants of Successful Adjustment: Lessons from Southern Europe 6 The Governments' Commitment to Undertaking Reforms 65 Non-decisive determinants 65 Decisive determinants 73 Conclusion 87 7 The Governments' Ability to Implement Reforms 89 Main determinants 89 Their respective impacts in Southern European countries 90 Conclusion 110 Appendix: Tables and Figures 117 Notes 145 References 165 Index 176 List of Tables and Figures Table 1: Greece, Spain, Portugal: Socio-economic Indicators (1960-75) 117 Table 2: Spain: Economic Reforms Under Democratic Governments (1977-95) 118 Table 3: Spain: Examples of Privatizations of INI Companies (1984-90) 119 Table 4: Spain: Restructuring Programmes (1980-91) 120 Table 5: Spain: Net Foreign Investments (1982-89) 120 Table 6: Portugal: Economic Reforms Under Democratic Governments (1976-95) 121 Table 7: Greece: Economic Reforms Under Democratic Governments (1975-95) 122 Table 8: Attainment of EMU Convergence Norms (1994) 123 Table 9: Greece, Spain, Portugal: Inflation Rates (1980-94) 123 Table 10: Greece, Spain, Portugal: Consumption, Growth and Interest Rates (1980-90) 124 Table 11: Greece, Spain, Portugal: GDP Growth Rates (1980-94) 124 Table 12: Greece, Spain, Portugal: Net Direct Foreign Investments 124 Table 13: Greece, Spain, Portugal: Total Public Debt/GDP Ratio (1980-94) 124 Table 14: Greece, Spain, Portugal: External Public Debt/GDP Ratio (1980-94) 125 Table 15: Greece, Spain, Portugal: Central Government Debt (1980-94) 125 Table 16: Greece, Spain, Portugal: Central Government Deficit (1980-94) 125 Table 17: Greece: Expenditures and Revenues of Central Government (1980-94) 126 Table 18: Portugal: Expenditures and Revenues of Central Government (1980-94) 127 Table 19: Spain: Expenditures and Revenues of Central Government (1980-94) 128 Table 20: Greece, Spain, Portugal: Balance of Payments (1980-94) 129 Table 21: Greece and Spain: Volume of Imports and Exports (1980-90) 129 Table 22: Greece, Spain, Portugal: Trade Balances (1980-94) 130 VI1 Vlll Economic Adjustment in New Democracies Table 23: Greece, Spain, Portugal: Distribution of Value-added Within Industrial Sector 130 Table 24: Greece, Spain, Portugal: Contribution of Equipment Expenditures to Internal Demand (1986-94) 130 Table 25: Greece, Spain, Portugal: Evolution of Labour Costs (1980-94) 131 Table 26: Greece, Spain, Portugal: Structure of GDP (in %) 131 Table 27: Greece, Spain, Portugal: Distribution of the Labour Force 131 Table 28: Results of the Parliamentary Elections in Spain (1977-96) 132 Table 29: Results of the Parliamentary Elections in Greece (1974-93) 133 Table 30: Results of the Paliamentary Elections in Portugal (1976-95) 134 Table 31: Greece, Spain, Portugal: Total Resources Devoted to ESCPs (1988-99) 135 Table 32: Greece, Spain, Portugal: Total Community Grants (1988-99) 136 Table 33: Spain: Social Agreements (1977-92) 137 Table 34: Greece, Spain, Portugal: Unemployment Rates (1980-94) 138 Table 35: Greece: Comparative Influence of Political Parties Within Main Interest Groups (1990) 138 Figure 1: Greece, Spain, Portugal: Geographic Distribution of Imports (1980-92) 139 Figure 2: Greece, Spain, Portugal: Geographic Distribution of Exports (1980-92) 140 Figure 3: Greece, Spain, Portugal: Value of Imports and Exports (1980-92) 141 Figure 4: Greece, Spain, Portugal: Structure of Imports (1980-92) 142 Figure 5: Greece, Spain, Portugal: Structure of Exports (1980-92) 143 Figure 6: Southern European Governments' Capacity to Implement SMs and SCMs 144 List of Acronyms AD: Alianca democratico AFM: Armed Forces Movement AP: Alianza Popular BBV: Banco de Bilbao et Viscaya BCA: Banco de Credito agricola BCI: Banco de Credito industrial BCL: Banco de Credito local BEE: Banco exterior de Espaha BHE: Banco hypotecario de Espaha BP: balance of payments BT: balance of trade CAB: current account balance CAP: Common Agricultural Policy CC.OO: Commissiones obreras CDS: (Spanish) Centro democratico y social CDS: (Portuguese) Centro democratico e social CEOE: Confederacion espanola de las organizaciones empresariales CET: common external tariff CGTP-IN: Confederacion general de los Trabalhadores Portuguese- Intersyndical CID: customs import duty CiU: Convergencia i Unio CNT: Confederacion nacional de los Trabajadores CP: Coalicion Popular CPF: Confederation of Portuguese Farmers CPI: Confederation of Portuguese Industries CPM: Confederation of Portuguese Merchants CPU: collective production units CSF: community's support frameworks DC: democratic consolidation DCG: durable consumer goods DFI: direct foreign investment DGPE: Direccion general del Patrimonio Espahol DT: democratic transition EA: Economic Adjustment IX
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