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POLITICAL ECONOMY OF THE GREAT RECESSION

Some analysts expected progressive politicians and policies to arise in response to the crisis which was caused by free markets, but this failed to come about. President Barack Obama, who was viewed as a potentially liberal politician, was a more center or center-right President than expected. Congressional liberals in the US were voted out of office in the 2010 mid-term election, while left-oriented governments in Portugal, New Zealand, and the UK lost their political base (Bartels 2013). Still, no consistent preference was shown for right- or left-wing governments in the five years following the crisis. Voters mainly sought to punish incumbents for slowing growth and other economic ills; voters acted much as they would under normal circumstances.

What was unique about this period is possibly the scale of political instability and public expressions of outrage, witnessed in protests and even riots. Discontent with the bailout packages, austerity measures, unemployment, and perceived favoritism toward particular groups or classes led to protests in the US, Iceland, Greece, Spain, Portugal, Italy, Ireland, Hungary, France, Belgium, and other nations around the world. Political instability in Europe arose as countries moved into crisis mode themselves, and as the eurozone debated whether, and how, to rescue Greece. Hostility toward austerity measures in particular, and the governments that accepted them, resulted in the rise of anti-austerity politicians.

The politics of the eurozone crisis were especially complex and has been the subject of entire books. Political leaders held different perspectives of how the eurozone should function, particularly between the core and periphery. The German core, led by Chancellor Angela Merkel, was devoted to fiscal discipline; while the debtor nation periphery tended to permit deficit spending. Germany was backed by the Troika of the European Commission, European Central Bank, and the IMF. Peripheral nations Italy, Greece, Spain, and Portugal protested against austerity measures that they felt punished taxpayers rather than those responsible for mounting debt.

Woodruff (2014) utilizes Polanyi’s theory that market panic can be used as a political weapon to describe the reaction of European Central Bank and German leaders toward providing a palliative to peripheral countries. The “Brussels-Frankfurt consensus” required debtor nations to institute ordoliberal policies, which included commitment to stable money, sound finances, and efficient labor-factor markets under state guidance. The European Central Bank threatened to withhold financial assistance until these policy changes were adopted.

The political economy of the Great Recession is too extensive to discuss in this volume, since it encompassed many countries over a relatively long time period. Suffice it to say that some politicians benefited from the crisis while others lost ground. The latter was especially visible in the widespread rejection of incumbent politicians in favor of those who promised better economic conditions, which is a normal outcome when voters suffer from real or perceived government policy ills.

 
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