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Why left and right still matters: Public opinion on international bailouts and austerity policies

The financial crisis wreaked havoc throughout the world economy and required governments to take significant, in some cases unprecedented, actions to curtail the damage. The EU-funded CRISIS_POLITICS project has focused on two main types of policy responses to the crisis: the use of international bailouts and the pursuit of domestic austerity programmes.
Why left and right still matters: Public opinion on international bailouts and austerity policies
In Europe, the financial crisis that began with the collapse of Lehman Brothers in September 2008 rapidly led to the European sovereign debt crisis that saw Portugal, Spain, Cyprus, Ireland, and most notably Greece, receive big international bailouts. A prerequisite for receiving these vast sums was a commitment to a programme of economic austerity, with public budgets slashed. Even European countries that did not receive international bailouts, such as the UK, also launched far-reaching austerity policies.

Understanding public opinion

Both international bailouts and austerity policies, the two main policy responses to the global financial crisis, led to sharp divisions within the general public. These divisions centred on whether these policies were justified, as well as on the question of how best to execute them. The CRISIS_POLITICS (Sharing the Pain? Mass Politics and the Policy Responses to the Financial Crisis) project set out to offer new and rigorous data-driven analysis on the factors and dynamics that have shaped public opinion on these important policy debates that continue to this day to shape political discourse in Europe.

“On the basic question of why voters agree to bear the costs of bailing out other countries, we found that people’s own economic standing, such as their income bracket or their profession, has very limited explanatory power in accounting for their specific position in the debate,” comments project coordinator Professor Yotam Margalit of Tel Aviv University. “In other words, the debate is not simply a reflection of people’s material interest and how it would affect their pocket books.”

Instead, the project team highlights how social dispositions, such as cosmopolitanism, correlate much more strongly with support for international bailouts. More broadly, they conclude that the bailout debate is best understood as a policy issue that pits economic nationalist sentiments versus greater cosmopolitan affinity. “In short, it’s not about distributive lines separating domestic winners and losers,” states Prof. Margalit.

Grexit and left-right surprises

The project also undertook a detailed study on the divisions across Western European countries regarding whether or not to support the exit of Greece (‘Grexit’) from the European Monetary Union (EMU) and whether to use taxpayer funds to finance the Greek bailout. They found that the key factor explaining the public divide was the traditional split between left and right. “Suffice to say, I was surprised by this,” comments Prof. Margalit. “The key question then became how does a political cleavage that tends to delineate debates over domestic policy questions come to structure people’s position on a foreign policy issue, namely the possible default and exit of an EMU Member State?”

Probing further, the team’s analysis showed that the left-right divide over the Grexit question was not driven by differences in attitudes on redistribution, levels of empathy to the plight of the Greeks or differences in general support of the EU project. Instead, they found that the primary mechanism is that left and right voters have dramatically different expectations about the impact of a Grexit on the European economy as a whole. “Our conclusion is that these expectations largely reflect differences in core beliefs about the promise of a free-market approach,” explains Prof. Margalit. “Those on the right viewed a massive bailout as a case of government intervention in the natural operation of the market, and as such, a course of action that is likely to fail. In contrast, amongst those on the left, there was a much stronger belief that a bailout, i.e., an EU designed large-scale rescue package, would ultimately produce a better outcome than letting the Greeks default.”

Room to manoeuvre

What is surprising, Prof. Margalit reveals, is the fact that there is a substantial level of agreement between left and right voters regarding the composition of austerity policies when they are told that spending cuts are necessary. Using an experimental method called ‘choice-based conjoint’, the project showed that cuts in pensions create the largest backlash amongst both left and right voters and that income tax increases and cuts in social spending and education are also unpopular. However, divergence occurs around the issues of public sector redundancies (acceptable to the right, unacceptable to the left) and defence spending cuts (acceptable to the left, unacceptable to the right).

“Overall, I think the main takeaway from our research is that in terms of voters’ preferences, policymakers actually have more room to manoeuvre in crafting a post-crisis response than what the discussion in the popular media suggests,” concludes Prof. Margalit. “The idea that the public is categorically opposed to austerity is very problematic – we’ve shown that the policies voters are more or less willing to back are actually highly sensitive to specific features of the package on offer. Crafting a policy response that takes account of these specific sensitivities can therefore lead to a policy response that attracts much broader public support than policymakers might think if they relied on the conventional accounts offered in the media’s coverage of the debate.”

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CRISIS_POLITICS, austerity, bailouts, public opinion, Grexit, left-right, spending cuts
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