A Tale of Two Crises: The Supranational Determinants of Social Pacts in Europe

Abstract

Many European national governments responded to economic pressures in the 1990s with social pacts which brought business and labor to the negotiating table in search of mutually beneficial solutions. Despite the past successes of these pacts in reducing inflation and national debt, social pacts declined in use following the Eurozone Crisis. This study sets out to explain why so many countries left this tool unused despite the limited number of policy alternatives available in a post-Euro economy. Using a logistic regression, I find that being on the Euro significantly reduces the likelihood of a social pact being negotiated each year. A nested qualitative analysis finds that the underlying mechanism is that pressure from the European Central Bank drove national governments to act unilaterally. While pressure to join the Economic and Monetary Union (EMU) led governments to pursue social pacts in the 1990s, this study finds that the Euro is also the cause of their decline.

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