Austerity From the Left: Social Democratic Parties in the Shadow of the Great Recession (PhD Thesis)

Austerity has come to define the post-crisis European political economy as the predominant policy response to the Great Recession since 2010. After a brief period of “emergency Keynesianism” from 2008 to 2010, even social democratic parties abandoned plans for deficit-spending and accepted austerity as the dogma of the day. Most of the existing literature attempts to explain this outcome either by pressures from financial markets or by the influence of external institutions, for example, the European Union or the International Monetary Fund. However, social democratic parties also accepted fiscal orthodoxy in countries where the pressure from financial markets and external institutions was weak or absent and thus these pressures are not a sufficient explanation to explain austerity from the left. My thesis instead shifts the focus towards the popular coalitions that underlie macroeconomic policy by examining both the elite and the popular politics of austerity. It argues that social democratic parties had both electoral and ideational reasons to support orthodox fiscal policies during the crisis. On the one hand, social democratic parties believed that there was a high public support for fiscal consolidation. Influenced by the differentiation of interests among their traditional constituencies, they attempted to increase their economic credibility in order to appeal to center-left voters from the expanded middle class. On the other hand, social democratic parties were influenced by mainstream economic ideas. They drew on New Keynesianism, endogenous growth theory, and the social investment paradigm, which had become popular among social democrats at the end of the 20th century, to legitimize their support for the “austerity settlement” during the Great Recession. This combination of electoral and ideational forces created powerful pressures for social democrats to support orthodox economic policies over Keynesian deficit-spending, which many failed to resist. To make this argument, this thesis combines qualitative and quantitative methods and draws on a wide range of empirical evidence. It uses quantitative content analysis, survey experiments, and evidence from more than 40 elite interviews with leading social democratic politicians and policy-makers in Germany and the UK in order to study both the demand- and supply-side of politics in Western Europe. In this way, the thesis provides a new account of social democratic austerity and contributes to a growing literature on the politics of macroeconomic policies.