Commandeering Crisis

Abstract

The Eurozone crisis has triggered profound political and economic changes across the debtor member states. This article shows how the crisis and the imposition of austerity policies by the Troika have (1) forced Spain (and by extension other Eurozone debtor states) to pursue internal devaluation as a means of economic adjustment through the reduction of real wages, (2) increased pressure for liberalizing labor market institutions, and (3) given Spain’s conservative government the opportunity and cover to pursue radical neoliberal labor law reforms. Spain’s 2012 labor law reforms went well beyond external demands. The crisis and the Troika’s policy demands generated mass unemployment, devastated Spain’s Socialist Party, and created the enabling conditions for economic reforms. But domestic partisan considerations led the conservative People’s Party (PP) to commandeer the crisis to weaken unions as the electoral and organizational base of the center-left opposition. The PP channeled reform into an attack on labor that decisively shifted power to employers. As organized labor relations were reduced to concession bargaining, real wages have plummeted for the vast majority of Spaniards, even as mass unemployment and economic stagnation persist. Analysis suggests the emergence of a winner-take-all economy that will have lasting consequences for the Eurozone and the European Union.