In the era following the decolonization of Africa, the economic performance of countries on the continent can be traced across three periods. The early postindependence years reflected moderate growth and policy variation, with occasional distress in some countries. From the 1980s through the late 1990s, the region was gripped by a sweeping crisis of growth and solvency shaped by a steep economic downturn and a slow, stuttering recovery. This was also a period of convergence and restrictions on policy space. By the early 2000s, accelerated growth buoyed most economies in Africa, although commodity price shocks and the global economic slump of 2008–2009 created episodic problems. Different approaches to policy and strategy once again marked the landscape. A number of influences help to explain variations in the occurrence of economic crisis across Africa, and the different responses to economic distress. In addition to structural factors, such as geography, resource wealth, and colonial legacies, middle-range political conditions contributed to these downturns. Key institutions, core constituencies, and fiscal pressures were domestic causes and external factors include donor convergence, access to finance, and policy learning. One framework of analysis centers on three factors: ruling coalitions, the fiscal imperative, and policy space. The ruling coalition refers to the nature of the political regime and core support groups. The fiscal imperative refers to the nature of state finance and access to external resources. And the policy space comprises the range of strategic alternatives and the latitude for governments to make choices among broad policy options. Applying the framework to Africa’s economic performance, the first period was marked by distributional imperatives, a flexible fiscal regime, and considerable space for policy experimentation. During the long crisis, regimes came under pressure from external and domestic influences, and shifted toward a focus on macroeconomic stabilization. This occurred under a tight fiscal imperative and a contraction of policy space under the supervision of multilateral financial institutions. In the 2000s, governments reflected a greater balance between distributional and developmental goals, fiscal constraints were somewhat relaxed, and policy variation reappeared across the region. While the early 21st century has displayed signs of intermittent distress, Africa is not mired in a crisis comparable to those of earlier periods. Developmental imperatives and electoral accountability are increasingly influential in shaping economic strategy across the continent.
Peter M. Lewis
Caner Bakir, Mehmet Kerem Coban, and Sinan Akgunay
The Global Financial Crisis, which originated in the United States, developed into a sovereign debt crisis in Europe, particularly the Eurozone. The Eurozone crisis was driven mainly by divergence in macroeconomic structures, fiscal indiscipline, and financial integration with fragmented regulatory and supervisory governance arrangements. The crisis also exposed flaws in the institutional design of the Economic and Monetary Union (EMU). The EMU lacked mechanisms of effective crisis prevention and management and fiscal coordination, had a centralized monetary policy despite divergence in the macroeconomic structure and institutional setting across member states, and adopted a “light touch” approach to financial regulation. In response, crisis-hit countries implemented structural reforms and public spending cuts. European Union (EU) leaders attempted to address these deficiencies with institutional reforms at the national and regional level. Policy responses and institutional reforms have led to populist backlash with declining trust in regional and domestic politics and organizations, with voters favoring more inward-looking, nationalist political parties. Within this context, the Eurozone and EU face further challenges to maintain macroeconomic and financial stability and to ensure intraregional policy coordination.
Bulgaria joined the EU in 2007, yet neither its road to membership nor its time in the Union have been easy. In the 1990s and 2000s, the accession process provided an impetus for political and economic reforms, but the EU’s famed transformative power worked unevenly. Bulgaria started its journey later than other countries in post-communist Europe, and had to deal with worse domestic and external political and economic impediments, and thus failed to close the gap with the wave of nations entering the EU in 2004. The sense of unfinished business paved the way to a post-accession conditionality regime, subjecting Bulgaria and Romania to special monitoring and regimenting them into a special category apart from other members. Despite efforts by successive governments in Sofia, the country has not made it into either the Schengen area or the eurozone’s antechamber, the Exchange Rate Mechanism (ERM-2). The limited progress in reforming the judiciary and combatting high-level corruption and organized crime has prevented Bulgaria from continuing its journey to the core of Europe, unlike some of the 2004 entrants from Central and Eastern Europe. Being part of the Union has not made a profound difference when it comes to deep ingrained ills such as state capture, and the lack of accountability and transparency in policymaking. Some critical areas have witnessed serious backsliding—notably the national media, where the EU has few formal competences or levers of influence. Yet, Bulgaria’s EU membership should not be written off as a failure. On the contrary, it has delivered enormous economic benefits: increased growth, expanded safety nets in times of recession (especially after 2008), improved economic competitiveness, new opportunities for entrepreneurship, cross-border labor and educational mobility, and transfer of knowledge and skills. As a result, EU membership continues to enjoy high levels of public support, irrespective of the multiple crises it has gone through during the 2010s. Political parties by and large back integration, though soft Euroscepticism has made inroads into society and politics. While the EU has had, caveats aside, a significant domestic impact, Bulgaria’s imprint on common institutions and policies is limited. It lacks the resources and political clout to advance its interests in Brussels. That generates risk in light of the growing divide between a closely integrated core and a loose periphery, likely to expand in the wake of Brexit. Bulgaria is affected by decisions in the eurozone but has little say over them. The absence of leverage is particularly striking in external affairs. Despite its geographic location, next to the Western Balkans and Turkey and in proximity to Russia and Ukraine, Bulgaria has rarely, if ever, been on the forefront of major decisions or policies to do with the EU’s turbulent neighborhood. At the same time, Bulgaria has been exposed to a series of crises affecting the Union, notably the antagonistic turn in relations with Russia after the 2014 annexation of Crimea and the influx of asylum seekers from the Middle East.
While Latin America has augmented its tax effort significantly since 2000, tax revenues remain below the global norm given the region’s income per capita. Indirect taxes constitute a disproportionate portion of overall revenues, a manifestation of the political and technical difficulties inherent to taxing Latin American elites. Several structural factors characterizing the region hamper revenue collection, including mediocre economic performance, a large informal sector, high income inequality, the rentier status of some economies, and weak state infrastructural power, alongside feeble tax administration agencies, among other factors. Political scientists have deployed three main paradigms for understanding tax policy outcomes and tax reform: interest-based, ideational, and institutional accounts. Interest-based accounts, centered on the political power and resources that interest groups can wield, provide a useful first approximation to understanding tax outcomes; nevertheless, this theoretical lens under-predicts the prevalence of observed tax reform in Latin America. The ideational lens is indispensable to account for the overall contours of the taxation system in the region, because tax reform was informed by the neoliberal paradigm. In recent years, moderately progressive tax policy changes have been enacted by left- and right-wing governments alike, reflecting the increasing centrality of addressing inequality (the vertical equity objective) in the realm of ideas. Democracy, qua a system of institutions geared to enhance the public interest, has not spawned the taxation systems that the median-voter theory predicts in the context of high societal inequality, however. Democracy has not fulfilled the taxation and fiscal policy expectations placed upon it. Nonetheless, structural factors may yet produce a salutary fiscal result. The recent increase in the size of the region’s middle class has translated into greater societal pressures to enhance the quality and quantity of public services, which may portend the development of a more encompassing state–society fiscal pact.
Annette Bongardt and Francisco Torres
The Lisbon (2000–2010) and its successor, the Europe 2020 strategy (2011–2020), denote EU-wide exercises in economic policy coordination for economic and institutional modernization. They set an ample reform agenda with common targets to transform a host of common challenges facing the EU and its members (as varied as globalization, the paradigm shift to a knowledge economy, demographic aging, or climate change) into economic opportunities and quality growth. The economic and political economy arguments for EU-level coordination rested on positive spillovers from trade and peer pressure, respectively. The Europe 2020 strategy, a revised Lisbon rather than a new strategy, set a renewed vision of a European social market economy that also plays an important role in the global context (the 2030 Agenda for Sustainable Development). Built on the Lisbon strategy’s governance framework, Europe 2020 inherited a problem-laden legacy with respect to governance and ownership of reforms and in addition faced the impact of large negative transnational spillovers, which put in sharp focus that there was an as-yet-unaccounted-for euro-area dimension to the reform agendas. The sovereign debt crisis (2010–2014) added urgency to dealing with the EU’s structural weaknesses and economic governance building. The European Semester was set up as the chief instrument to help overcome compliance and implementation problems, inserted within broadened economic policy coordination, of which structural reforms under the Europe 2020 strategy constitute one of three blocks. The OMC method affords member states the possibility of finding their own consensual path toward agreed economic reform targets within the strategy’s adequate, 10-year timeframe. The central idea continues to be the promotion of reforms tailored to member states’ heterogeneous situations and preferences and that so are also politically sustainable. Without being framed and perceived in terms of desirable reforms in line with socioeconomic objectives and preferences, reforms carry potential for a political backlash. The Europe 2020 strategy also captures the fundamental and long-term issues for economic development and competitiveness, notably institution building, and outlines a forward-looking model of society with social and environmental dimensions. The European Commission came to base its assessment of the implementation of structural reforms on the broader objectives of the Europe 2020 strategy and also included the respect for the European social pillar in the European Semester. Nonetheless, Europe 2020 results have been mixed. The OMC does not feature sanctions for non-compliance. The sovereign crisis context added compliance-enhancing mechanisms that were absent before (market and peer pressure, conditionality in countries subject to adjustment programs) although those came essentially to a halt when financial market pressure subsided, and ECB actions had the side effect of relieving pressure. Efforts undertaken to improve implementation include a structural reform support program to make country-specific recommendations more effective. Yet, close to the end of its term the Europe 2020 strategy continues to be held back by member states taking insufficient ownership of reforms and not prioritizing the relevant ones from an EU point of view, a lack of visibility and ultimately, governance (the unanimity requirement).
Finn Laursen and Sophie Vanhoonacker
The Maastricht Treaty, which created the European Union (EU), was signed in Maastricht on February 7, 1992, and it entered into force on November 1, 1993, after being ratified by the then 12 member states of the European Communities. The Intergovernmental Conferences (IGCs) on Political Union (PU) and Economic and Monetary Union (EMU) where the member states negotiated the amendments to the founding treaties took place against the turbulent geopolitical background of the fall of the Berlin Wall (1989), German unification, and the end of the Cold War. The new treaty amended the Treaty Establishing the European Economic Community (EEC) and established the European Community (EC) as the first pillar of the Union. It also amended the Treaty Establishing the European Coal and Steel Community (ECSC) and the Treaty Establishing the European Atomic Energy Community (EAEC). It further added two pillars of intergovernmental cooperation, namely Common Foreign and Security Policy (CFSP) in a second pillar and Justice and Home Affairs (JHA) cooperation in a third pillar. Overall, the Maastricht Treaty constituted one of the most important treaty changes in the history of European integration. It included provisions on the creation of an Economic and Monetary Union (EMU), including a single European currency. It tried to increase the democratic legitimacy and efficiency of the decision-making process through empowerment of the European Parliament (EP) and the extension of Qualified Majority Voting (QMV). Next to introducing the principle of subsidiarity and the concept of European citizenship, it further developed existing policies such as social policy and added new ones including education, culture, public health, consumer protection, trans-European networks, industrial policy, and development cooperation.