Introduction
Portugal responded to the 2008 economic and financial crisis by following European Union (EU) directions to take a counter-cyclical approach, including expansionary labour market measures. As the crisis deepened in 2010, the need to tame fiscal deficits became paramount, spawning tax hikes and cuts in expenditure and social protection. Successive austerity measures could not prevent a bailout adjustment Programme and MoU (Memorandum of Understanding) in May 2011, signed by the Socialist caretaker government and a ‘Troika’ of creditors (European Central Bank, European Commission and International Monetary Fund), but enacted by a centre-right government after the June 2011 general elections.
Which factors shaped labour market policy (LMP) under conditionality during the Eurozone crisis? Baccaro and Howell (Reference Baccaro and Howell2011) and Armingeon and Baccaro (Reference Armingeon, Baccaro, Bermeo and Pontusson2012) argue that, due to powerful external constraints, debtor countries followed a common and homogeneous trajectory of liberalisation. Recent studies on Southern Europe show that this general liberalising trend took different shapes from country to country, and that the variation was driven by domestic politics (Picot and Tassinari, Reference Picot and Tassinari2017; Theodoropoulou, 2018; Cardoso and Branco, Reference Cardoso and Branco2018). Some of the latter studies suggest that the centralisation of power in the executive and/or its ideological preferences determine the extent and direction of reforms (Cioffi and Dubin, Reference Cioffi and Dubin2016; Moury and Standring, Reference Moury and Standring2017; Picot and Tassinari, Reference Picot and Tassinari2017). Seizing the opportunity presented by the crisis, centralisation would empower executives with neoliberal preferences to enact liberalising reforms.
While highlighting important factors, these approaches struggle to make sense of the Portuguese case. The partisan turnover from a centre-left to conservative government after the mid 2011 bailout and general election yielded continuity in policy trajectory and sustained political cooperation between governing and opposition parties and social partners. Significant change came only in late 2012, when the conservative executive had been in office for more than 15 months. Portugal shows variation in policy output during the implementation of the MoU, with a first phase in which liberalising measures co-existed alongside recalibration, followed by a second phase where recalibration was dropped and liberalisation went into overdrive. Why?
We argue that the answer lies in the changing coalitional politics underpinning LMP reform under conditionality. The relatively moderate policy in the initial phase was the result of a ‘bailout coalition’, a broad informal political coalition including the governing centre-right parties, the Socialists in opposition, the moderate trade union (UGT) and employer confederations. Policy outcomes became more radical after the coalition’s demise at the end of 2012, as the executive unilaterally deepened liberalisation, froze collective bargaining, and ended recalibration.
In addition to a fine-grained empirical analysis of reform outputs outlining distinct policy patterns over time, this article makes three theoretical contributions. It shows how cooperation in policymaking between government and opposition and government and social partners is possible during external conditionality. Also, it evinces how coalition politics affects the nature and direction of reforms, arguing that the broader the reform coalition, the more moderate the output. Finally, it highlights how political dynamics of blame allocation drive the process of coalition building and breakdown.
The article is structured as follows. First, we present the variation of interest and analytical frame. We then review existing explanations for LMP reforms during the crisis. As they fall short, we submit an alternative theoretical proposition based on coalitional politics. An empirical analytical narrative of Portuguese reforms is then presented, closely tracking and explaining how shifts in coalitional politics brought about changes in policy. The conclusion reiterates the main findings and sets out the key theoretical contributions and implications.
The Portuguese case: variation of interest and analytical frame
Labour market reform was singled out in the MoU as a crucial structural reform, a permanent focus of attention for the executive, the Troika, parties and social partners alike, from 2011 to 2014. The MoU sought to enhance efficacy and competitiveness through the liberalisation of various ‘rigidities’, including the deregulation of dismissal protection in standard employment and the decentralisation and limitation of collective bargaining. However, it also sought to combat dualism by focusing on insider-oriented segmentation, outsider and long-term unemployment protection and ALMP (Directorate-General for Economic and Financial Affairs, 2011: p.24-25, 51-52, 77).
This analysis indicates that the MoU was an asymmetric mix of a major liberalising element – defined as a weakening of workers’ protections in standard and non-standard employment (Baccaro and Howell, Reference Baccaro and Howell2011) – and a minor recalibration component – defined as the favouring of non-standard workers vis-à-vis those in permanent contracts through mending gaps and inequities in employment and unemployment protections and improved ALMP (Ferrera and Hemerijck, Reference Ferrera, Hemerijck, Zeitlin and Trubek2003).
In order to assess the orientation and extension of policy output, we employ a moderate to radical axis to probe the relative depth of liberalisation and salience of recalibration. This framework captures whether or not reforms included recalibration measures, as well as liberalisation; and also whether concrete measures go beyond (more restrictive, liberalising) or fall short of (are more generous) the MoU, in either liberalisation or recalibration components.
From June 2011 until autumn 2012, policy output combined major liberalisation with minor recalibration. In this first phase, alongside significant liberalisation for insiders, there were some recalibration measures, other measures fell ‘short of the MoU’, while others that would have been ‘worse than the MoU’ were defeated. Conversely, policy outputs from late 2012 until the end of the Programme in May 2014 were more radical in pushing liberalisation while disregarding recalibration. A bargained, relative moderation was followed by a more unilateral, radical period when recalibration evaporated and liberalisation went ‘beyond the MoU’.
We use Portugal as a qualitative case study to check existing theoretical explanations or generalisations and as a theory-developing case able to produce new explanatory arguments. We base our analysis and arguments on a close examination of labour market reforms, accomplished through in-depth analysis of 13 interviews with actors involved with the Troika negotiations and ensuing policymaking (7 of which are directly used in the text, while the remainder provide background information; see the full list in the Appendix, Supplementary Materials). The interviews were conducted between 2014-15 and 2017-18, duly recorded and transcribed, under the promise of anonymity so that interviewees could speak more freely regarding a highly contested political issue during the bail-out. They are cabinet members from both the socialist and right-wing governments, politicians, and representatives of business and labour confederations. Such interviews provided first-hand accounts and rationales from key actors, which we then critically triangulated with original documents in order to contextualize viewpoints and control for distortions in the reporting of facts. These documents included labour legislation, parliamentary debates and motions of censure; social pacts; public speeches and documents by parties and social partners; and secondary literature. We also analysed documents authored by the EC, the ECB and the IMF, such as the financial assistance agreement and the Troika’s regular policy evaluations and studies assessing labour market reforms.
Next, we turn to existing explanations for variation in LMP reforms under conditionality and assess how they fit the Portuguese case.
Existing theoretical explanations for labour market reforms under conditionality
The explanations for LMP reforms during the Eurozone crisis put forward in the literature can be grouped according to four main factors: external constraints, centralisation of power in the executive, government’s ideological preferences and the state’s fiscal capacity.
Armingeon and Baccaro (Reference Armingeon, Baccaro, Bermeo and Pontusson2012) point to external factors in deregulating Southern European labour markets. The EMU (European Monetary Union) narrowed the scope of adjustment strategies available to national governments. With monetary policy set by the ECB (European Central Bank) and fiscal policy constrained by the Stability and Growth Pact, labour market liberalisation and wage moderation became the main adjustment mechanism available to improve competitiveness through internal devaluation. In countries under formal or informal conditionality (such as Cyprus, Greece, Ireland, Italy, Portugal or Spain), external factors proved even more decisive because specific labour market reforms were expected in return for bailout loans. Governments of varied political hues and parliamentary strength would enact similar structural adjustment programmes bringing about a convergent liberalising pattern.
Others have argued LMP reforms varied across cases and that this variation is explained by domestic factors, especially the government’s ideological preferences. More precisely, the partisanship hypothesis holds that the policy objectives of political parties consistently differ according to the perceived interests of their respective constituents. Therefore, left-wing political parties are more favourable towards the expansion/limited retrenchment of the welfare state, the redistribution of wealth, and relatively more protective of labour standards than right-wing parties. Partisanship plays an important role under conditionality because, paradoxically, the executive is empowered in such a context. Pro-reform ministers in bailed-out countries shield themselves, at least partially, from the electoral costs of unpopular measures by shifting blame to external actors. In this sense, an empowered right-wing executive liberalises the labour market more than a left-wing government (see Cioffi and Dubin, Reference Cioffi and Dubin2016 for Spain; Hick, Reference Hick2017 for Ireland; Moury and Standring, Reference Moury and Standring2017 for Portugal; Picot and Tassinari, Reference Picot and Tassinari2017 for Italy and Spain).
Analysing 18 OECD countries (including Ireland, Italy, Portugal and Spain) during the sovereign debt crisis, Shahidi (Reference Shahidi2015) found that the state’s fiscal capacity influenced the shape of LMP reforms: the presence of a fiscal crisis acted as a necessary (but insufficient) condition for recommodification policies, while the absence of a fiscal crisis acted as a sufficient (but unnecessary) condition for the absence of recommodification.
While insightful, these studies cannot account for the variation in the Portuguese case. The reform mix of major liberalisation and minor recalibration was pursued before the 2011 MoU by the minority Socialist executive with tacit approval of the centre-right opposition, based on the March 2011 social pact. This mix was then embodied in the MoU and continued to be pursued under conditionality by the new conservative government made up of PSD and CDS-PP, crystallised in the January 2012 social pact. Under the same conservative government, this relatively moderate phase gave way to more radical outputs from late 2012, increasing flexibilisation and dropping recalibration. Given the ongoing low fiscal capacity during the crisis (budget deficit was 10% of GDP in 2010 and 7% in 2014) and that the variation in policy did not follow partisan turnover, another explanation is needed. To that end, we next develop an alternative theoretical proposition based on coalitional politics and blame allocation.
Theorising an alternative explanation: coalitional politics and blame allocation
The enactment of welfare retrenchment coupled with labour market deregulation is generally an exercise in blame avoidance as it is widely unpopular and an electoral risk (Pierson, Reference Pierson1994). Governments seek to minimise political costs and resistance when enacting austerity-driven retrenchment during economic crisis because cyclical (e.g. nominal cuts in salaries and social benefits) and structural reforms (e.g. labour market liberalisation or recalibration) are bound to negatively impact important social groups and strata, such as civil servants, pensioners, social protection beneficiaries or labour market insiders.
The ability to minimise opposition by diffusing blame hinges on the level of institutional fragmentation and power dispersion. Retrenchment is easier to pursue in systems with high institutional fragmentation and diffused policy responsibility. This route is unavailable in low fragmentation systems where blame attribution and accountability are concentrated (Bonoli, Reference Bonoli, Bonoli and Natali2012). Here, strategies to minimise opposition move to inclusion, so that blame diffusion works through coalitional politics: including and sharing power with the opposition allows a mutual and more balanced compensation of constituencies, opening the path to retrenchment.
Portugal’s political system displays high concentration of power in the executive and clear blame ascription. In such cases, the formation of a grand coalition of government and opposition parties is a recurrent strategy of welfare retrenchment, allowing the executive to share blame and the opposition to influence policy (Schludi, Reference Schludi2005). However, coalition politics need not always be a formal coalition between government and opposition parties. Hering (Reference Hering2008) shows how parties cooperating informally diffuse blame and reduce the risk of electoral punishment. Also, informal political cooperation can include the executive, parties and social partners. With fewer political actors outside the informal coalition, and by co-opting social partners (especially trade unions), the prospects for organised protest are weakened and the space for alternative electoral political challenges is narrowed.
The executive’s rationale is clear. But why would an opposition party share the cost of political support with no power-sharing in goverment? Government and opposition preferences have to converge to a certain degree (Hering, Reference Hering2008: p.169), more likely under conditionality, which shifts parties’ preferences toward a pro-retrenchment stance (Jensen and Mortensen, Reference Jensen and Mortensen2014: p.145). When an external bailout prevents debt default, opposition parties may justify entering a coalition with the need to defend the national interest and act responsibly. Moreover, the prospect of influencing policy offers the opposition party or social partner the possibility of claiming credit for moderating the policy output.
Political cooperation can also be externally imposed via hierarchical structures or actors (Webb, Reference Webb1991). The Troika took on this constraining role, pushing for concerted action so that policies enacted under conditionality would endure beyond the end of the Programme. When memoranda of conditionality stress the need to follow social concertation, this indicates the external hierarchical node pushing for cooperation among domestic actors.
Cooperation from social concertation actors, especially trade unions, is subject to cross-pressures and divergent interests. Guardiancich and Molina find that social concertation was not relevant in five of eleven EU countries during the crisis (including bailed-out Ireland and Spain). In others, such as France, the Netherlands and Slovakia, social concertation fared relatively well. During a crisis, social concertation is more likely to matter when there is a tradition of institutionalised social dialogue, based on effective policy concertation and collective bargaining (Guardiancich and Molina, Reference Guardiancich, Molina, Guardiancich and Molina2017: p.3).
Social partners and tripartite agreements (TA) have been relevant in Portuguese labour policy, although in a context of ‘divided left’ (Watson, Reference Watson2015). The Portuguese revolutionary transition to democracy generated the long-term politicisation of trade unions, splitting the labour movement into two politically opposed and party-aligned confederations – the larger CGTP (General Confederation of Portuguese Workers), closely linked with the PCP (Portuguese Communist Party), and the smaller UGT (General Union of Workers) aligned with PS and PSD. Within the ‘divided left’ context, PS and UGT tend to cooperate with the PSD. UGT was created by PS and PSD to challenge CGTP and to represent workers in Social Concertation willing to negotiate reforms and accept retrenchment or losses. Historically, reform coalitions always included UGT, which became indispensable for any social pact. The distribution of power resources and preferences pushes governments and employers to make concessions to UGT disproportionate to its organisational power. UGT thus enjoys an informal veto power in social concertation. Even when PS or PSD governed with absolute majorities, they promoted social pacts because executive unilateralism was thought to hamper reforms (Campos Lima and Naumann, Reference Campos Lima, Naumann, Avdagic, Rhodes and Visser2011).
How does a coalition influence policy outputs? The relative convergence of preferences does not entail complete harmony. Government, opposition and social partners may hold different views on a specific dimension of retrenchment, a function of their constituencies and preferences. The end result is likely the outcome of different views and power resources, achieved by negotiating a compromise and granting mutual concessions. Coalition actors calculate how much they are willing to trade on one dimension in order to gain on others, the expectation being there is one central dimension on which compromise may be harder, while agreement on peripheral issues may be more straightforward.
The coalition holds as long as benefits exceed the costs while not jeopardising the participants’ core values. Changed political conditions can alter the stakes, increase the cost of staying and prompt an actor to exit the coalition. Such change may spring from electoral polls, popular protest or dire economic performance, and disproportionately affects the opposition. The support for increasing retrenchment puts opposition actors in a situation where they risk losing electoral support or forego the opportunity to mobilise voters against the government. Opposition parties may then prefer to be responsive to their electorate rather than responsibly support the government. As for the latter, there is a greater likelihood of leaving the coalition if other blame-avoidance strategies are viable. During the crisis, executives may shift blame by invoking external pressure (Troika) to present reforms as legally required or economically imperative (Moury and Standring, Reference Moury and Standring2017).
We next turn to an analytical narrative detailing how changing coalitional politics influenced labour market reforms over time.
Coalitional dynamics and labour market reforms during the crisis
On the way to the MoU
Going into the crisis, Portugal faced challenges such as insider-oriented segmentation, with protected open-ended contracts and a large share of atypical workers with very limited security, compounded by crisis-induced high unemployment.
Early in the Eurozone crisis, social policy measures were expansionary, in line with EU directives. As the crisis worsened throughout 2010 with the rising deficit, public debt and yields, the Socialist cabinet veered towards fiscal consolidation and flexibilisation. Increasing austerity by a minority executive depended on the support in parliament from the opposition centre-right parties PSD and CDS. From March to November 2010, three austerity packages (Stability and Growth Programmes, or SGPs) and the budget laws for 2010 and 2011 were passed in parliament with the assent of centre-right parties (Afonso et al., Reference Afonso, Zartaloudis and Papadopoulos2015: p.323). Similarly, negotiations toward a concertation agreement, reliant on co-opting the moderate trade union, bore fruit. In March 2011, government, employer confederations and UGT signed a TA combining flexibilisation (cut in severance pay), decentralisation of collective bargaining and recalibration (improved ALMP) (CES, 2011).
Two PS cabinet members confirmed the multilateral process in parliament and social concertation, as well as the constant approval of the EU and ECB, stressing that European actors valued social consensus in support of austerity measures put in place before and including the MoU. This informal political cooperation between parties and social partners comprised an ‘austerity coalition’ cemented by a sense of duty and the need to avoid sharing the blame for a possible default. In parliament, it met the opposition of PCP and the Left Bloc (BE) – whose potentially lethal motions to censure the executive were defeated by the abstention of PSD and CDS. In social concertation, the largest and PCP-aligned CGTP rejected the 2011 TA. In a pre-bailout context, the fact that the moderate UGT joined the civil servant strike in March 2010 and the general strike with CGTP in 24/11/2010 strengthened its bargaining position in the 2011 TA negotiations.
As the crisis worsened with rising unemployment, popular protest and strikes, the PSD’s position of allowing successive austerity from a minority PS government became untenable. The political situation came to a head with the SGP 4 (March 2011). Facing internal discord, the PSD leadership realised it could not go on losing political capital by supporting the Socialist cabinet, given very favourable opinion polls (de Giorgi et al., Reference de Giorgi, Moury and Ruivo2015: p.62). On March 23, a negative coalition of PCP, BE, PSD and CDS rejected the SGP 4 in parliament. PM Sócrates resigned that same day; on April 6, the PS caretaker government asked for international financial assistance; negotiations ensued.
The MoU and the initial labour market reforms
On May 17, the MoU was signed between the Troika and the caretaker government, but also by PSD and CDS, and, after consultation with social partners, in exchange for a €78bn bailout package. On June 5, the centre-right coalition PSD-CDS won the general elections with an absolute majority, and took the executive.
The SGP 4 political crisis should not cloud the fact that informal political cooperation persisted despite PS and PSD trading places between government and opposition. Continued ‘political and social consensus’, party cooperation and social concertation – a ‘bailout coalition’ – was demanded by international creditors as key for long-term fiscal adjustment and structural reforms. This was confirmed by two Socialist secretaries of state and MoU negotiators, and by a UGT Senior Official, telling us the Troika ‘informed all social partners that Portugal was bankrupt and needed a bailout’, and that a ‘social pact was needed to provide the government with political stability’ to implement reforms. The same was acknowledged by the incoming centre-right Finance Minister (Gaspar and Avillez, Reference Gaspar and Avillez2014: p.256). Despite early statements about ‘going beyond the Troika’, the PSD claimed the MoU as its own. Future cabinet member Carlos Moedas stated the Troika ‘followed a roadmap given by the PSD’ (Aníbal et al., Reference Aníbal, Botelho and Faria2011).
The MoU prescribed liberalisation and decentralisation to reform an overly rigid labour market due to excessive employment protection for permanent contracts, generous unemployment benefits, and wage bargaining unable to keep wage growth aligned with productivity and external competitiveness. It also sought to combat dualism by focusing on segmentation, outsider and long-term unemployment protection and ALMP. Not by chance, this asymmetric blend of liberalisation and recalibration was reminiscent of the March 2011 social pact, as recognised by Labour Secretary Pedro Martins, PSD and PS MPs in parliament (DAR 1/9/2011) and UGT (2012: p.2). In January 2012, the set of measures was negotiated in social concertation and signed into agreement between the conservative government, UGT and employer confederations, and then legislated by parliament (CES, 2012).
Employment protection (EPL) for insiders was hit. Dismissal compensation for new permanent contracts was cut from 30 to 20 days per year of tenure (capped at 12 x the employee’s monthly wage or 240 x the minimum wage, whichever lower) (Law 53/2011), and then extended to all employees by Law 23/2012. EPL for fixed-term contracts also changed. Severance pay for new hires went from 36 (contracts shorter than 6 months) or 24 (those longer than 6 months) days per year of service to 20 (Law 53/2011). On the other hand, the renewal of fixed-term contracts was temporarily extended to 18 months (Law 3/2012).
The executive passed a substantive unemployment protection reform (Decrees-law 64 and 65/2012; Law 23/2012). The cap on benefits was lowered from €1257 to €1048, plus a 10% cut in value after 6 months. The duration was halved to 18 months. On the other hand, the required contributory period was shortened from 15 to 12 months, coverage was extended to economically dependent self-employed workers, and benefits for unemployed couples and monoparental families were temporarily increased by 10%.
As for collective bargaining, the major change (a step further relative to the 2011 TA) was the ‘organised decentralisation of collective bargaining’, allowing work councils in firms with at least 150 employees to negotiate agreements at plant level, but under a mandate from trade unions (Law 23/2012).
Policy outcomes were relatively moderate from June 2011 to the end of 2012. First, the new unemployment regime featured some recalibration (Moreira et al., Reference Moreira, Alonso Dominguez, Antunes, Karamessini, Raitano and Glatzer2015). While the amount and duration of benefits were cut, access was widened to economically-dependent self-employed workers and the required contributory period shortened. Law 3/2012 extended the renewal of fixed-term contracts as a transitional anti-unemployment measure and allowed for the partial accumulation of unemployment benefit with a new contract wage. A host of 12 new ALMP programmes seeking to improve youth employability and correct segmentation was created in 2011-2012 (LABREF database, 2012).
Second, some measures fell ‘short of the MoU’. Law 23/2012, which followed the 2012 social pact, broadened the criteria for just cause dismissal under ‘inadaptation’, but it ended up not including as criteria the failure to meet ‘goals’ set by the employer. The Minister for the Economy and Employment stated in parliament: “the MoU went further than what was agreed in social concertation” (DAR 31/3/2012). UGT claims credit for preventing in social concertation what would have been the “only just cause dismissal criteria the Troika really wanted to introduce for the entire workforce” (UGT, 2012: p.8). The same with the criteria for plant level bargaining (minimum 150 employees instead of none) and the no change in criteria for extending collective agreements, including a safeguard clause requiring the previous agreement of social partners for any future change (UGT, 2012: p.10).
Third, at least one important measure – in the Government’s Programme but not in the MoU – was avoided: the half an hour increase in daily working time for the private sector. Introduced in parliament by the government (14/12/2011), it was blocked by a combination of industrial protest (general strike by UGT and CGTP, 24/11/2011) and social concertation. A deal-breaker for UGT, it was dropped by the executive on January 16, 2012, two days before the signing of the 2012 TA.
A relatively moderate policy output reflects the bailout coalition’s broad and diverse composition, and policy process. Despite enjoying an absolute majority, the executive took to governing within a broad informal coalition and multilateral bargaining in parliament and social concertation. The PS in opposition abstained in 3 motions to censure the government presented by PCP and BE between 6/2011 and 3/2013. Given that PS’s censure would not have toppled the government, the abstention reads as tacit support. The PS cooperated with the government on major legislation during the first 15 months: voted in favour of Laws 3/2012 and 47/2012; abstained in the labour reform Law 23/2012 (which embodied the January 2012 TA); and the 2012 budget law.
The January 2012 TA signed by the executive, UGT and employers’ confederations was in line with, if not more generous than, the MoU. The social partners’ moderating influence on policy via social concertation was widely recognised in parliament by Labour and Employment cabinet members and the Socialist opposition alike (DAR 1/9/2011, 31/3 and 12/5/2012), by UGT (2012), and to us by a PSD Secretary of State, a Socialist Secretary of State and a Senior Official from CCP (Conferation of Commerce and Services). The PSD Secretary of State told us that Law 23/2012 was discussed in detail with social partners, right down to the wording of articles. The CCP Senior Official confided that there was an ‘effort not to go too far in the reforms so that UGT could sign it and accept the law’.
Why did an absolute majority government seek compromise? The upside of the informal coalition lay in diffusing blame when enacting austerity measures. The political calculus of following the MoU’s social dialogue process and seeking UGT and Socialist agreement is that a broader coalition disperses blame attribution and strengthens the legitimacy of reforms, easing compliance and consent.
The PS’s preferences converged with the government. The PS had negotiated the 2011 TA and the MoU. As a PS Secretary of State and a PS Minister, both MoU negotiators, told us, the MoU mostly comprises measures the Socialist government wanted to enact, and thus there would be room for agreement with the conservative executive as long as enacted policies kept within its confines, ‘particularly labour market reforms’. A Socialist MP explained the party’s stance on the 2012 Labor Code reform: “There are some matters we agree with; others result from the Memorandum; some others come from the Tripartite Agreement” (DAR 31/3/2012). Socialist cabinet members told us the Party felt obliged to support the measures as a sign of credible commitment to the Euro and the EU, while offering a chance to claim credit for moderating policy outcomes.
UGT leveraged its informal veto power in social concertation to shape policy outputs under increasingly constrained circumstances, from the social pact to the MoU in 2011, and again from the social pact to the labour reform in 2012. It strived to influence policy by pushing for recalibration, keeping measures within the confines of the MoU (‘there are no measures worse than the MoU’) or even short of the MoU (‘[UGT] avoided the only just cause dismissal criteria the Troika really wanted to introduce for the entire workforce’, UGT, 2012: p.8); and by preventing worse measures, novel to the MoU, such as the half an hour increase in daily working time. All things considered, UGT claimed credit for the outcome (UGT, 2012: p.15-16).
The “TSU crisis”, the coalition demise and the second phase of reforms
The informal cooperation between governing parties, PS, employers and UGT started to unravel in autumn 2012. The economy contracted and worsened throughout 2012, as unemployment soared to almost 16%, the planned reduction of the deficit to below 3% of the GDP was missed, and government bond yields stayed above 8%. The IMF warned that too much austerity might be counter-productive, begetting a recessive spiral that would undermine general political support and fracture the governing coalition; it thus urged the government to provide a stimulus to the economy (Faria, Reference Faria2012). In September, the executive announced a supply side solution to jump-start the economy, the overhaul of the TSU regime (mandatory social contribution based on salary paid by workers and employers). The employer’s share would drop from 23.75% to 18% to ‘boost competitiveness and job creation’, offset by a 7 p.p. increase (11% to 18%) paid by salaried workers.
The Troika credited the government for such a ‘creative solution’ (Faria and Aníbal, Reference Faria and Aníbal2012); the Finance Minister claimed authorship (Gaspar and Avillez, Reference Gaspar and Avillez2014: p.28). The PS ‘was not informed’, a former Socialist Secretary of State told us. A nerve snapped and protests spread across the country with millions taking to the streets. All social partners came out against the proposal. One employer representative said ‘the pillar of social stability was attacked’ (Távora and González, Reference Távora and González2016: p.338). Employer confederations were critical in public and in private, admitting to us they feared for social peace in their companies. Employers told Gaspar they were willing to actively undermine the measure (Gaspar and Avillez, Reference Gaspar and Avillez2014: p.283, 287). The TSU reform was dropped by the government, and replaced in the 2013 budget law by a huge tax increase, raising the average rate of personal income tax by 3 p.p. to 13% and the collected revenue by 28%. This was a stopgap remedy. Going forward, the solution would be permanent public expenditure cuts of €4bn, particularly in the welfare state (IMF, 2013).
This sequence of events led to the breakdown of the ‘bailout coalition’. To be clear: the governing parties did not set out to break the coalition as it would have been advantageous to keep it working in order to share blame; rather, the TSU sequence resulted from functional pressures from an ever-worsening economy. As Afonso et al. noted, the political cooperation between the conservative government and opposition that lasted for 15 months eroded “when the crisis worsened and the reforms failed to deliver results” (2015: p.329).
How, then, to understand this unilateral decision to aggressively liberalise, risking the defection of PS and UGT, leaving the conservative coalition to fend by itself, and concentrating blame? At first sight, the distributive costs and benefits of the TSU proposal (lower hiring and wage costs favouring employers while saddling salaried workers with increased social contributions) were congruent with the perceived preferences and class composition of the centre-right electorate, disproportionately made up of small business owners and fewer production and service workers – the opposite makeup of the PS’s electorate (Afonso and Bulfone, Reference Afonso and Bulfone2019: p. 246). When the proposal was aired, the expected differential distributive impacts for the electorates of the centre-right and the PS would minimize blame attribution from the former, even if sparking rejection from the latter. However, this turned out to be a misreading by the conservative government of its own electorate, since employers criticized the move, as noted above, and opposed harsher liberalization (for reasons detailed in Bulfone and Afonso, Reference Bulfone and Afonso2020) – leading the TSU proposal to be dropped and replaced by a huge tax increase in the 2013 budget law, most of which paid by pension and wage incomes.
Following the TSU episode, PS and UGT exited the informal coalition, moving to opposition. An early sign came on 27/11/2012 with the Socialist vote against the 2013 budget law. Favourable opinion polls and the prospect of holding office undoubtedly eased the move from cooperation to conflict (de Giorgi et al., Reference de Giorgi, Moury and Ruivo2015: p.63). Moreover, continued support for neoliberal austerity became an existential threat. Acting responsibly was preventing the Party from being responsive (Mair, Reference Mair, Streeck and Schäfer2013) to its electorate and the popular protest. Further labour market liberalisation, welfare retrenchment, public sector cuts and privatisations would destroy PS’s power resources. Interviewees told us the party had to represent societal protest, channel a political alternative to austerity and market orthodoxy – or face “PASOKification”.
The PS motion to censure the government confirmed the break (28/3/2013). It stated that “austerity and internal devaluation at all costs brought a recessive spiral, rising debt and unemployment.” An arrogant executive had estranged the parties, ignored the demands of civil society and marginalised social partners (DAR 109/XII/2). Thereafter, PS voted with PCP and BE on all motions to censure presented until the end of the legislature in 2015. Despite the combined opposition of PS, PCP and BE, the governing parties passed labour laws 69/2013, 76/2013, 27/2014 and 55/2014, and the budget laws for 2013, 2014 and 2015. In May 2014, the newly elected PS leader, António Costa, vowed to ‘turn the page of austerity’ and never enter into a coalition with either or both PSD and CDS after the up-coming 2015 elections.
UGT also moved to opposition, refusing to sign any TA until the end of the Programme in May 2014 (it returned to social concertation only in October 2014 to raise the minimum wage). Under new leadership from 23/4/2013, it blasted the executive’s newfound disrespect for the social dialogue laid down in the MoU, the freeze in collective bargaining and the push to further flexibilisation and deregulation by revisiting policy which had already been settled by social pact (UGT, 2013). The huge demonstrations of 1/5/2013 resulted from UGT’s collaboration with CGTP, as did the general strike on 27/6/2013.
The bailout coalition’s demise left the executive relying solely on PSD and CDS. Mounting Constitutional Court vetoes (7 in 2013-2014 vs. 2 in 2012) compounded the situation. No longer constrained by the informal coalition, the executive aligned its preferences with the Troika. Gaspar stated “our interests are, in essence, fully aligned with [the Troika’s]. There is no difference in goals” (Gaspar and Avillez, Reference Gaspar and Avillez2014: p.262). Over time, the Troika’s focus narrowed on flexibilisation, abandoning any pressure to recalibrate (European Commission, 2014: p.61)
In this second stage, the mode of policymaking is marked by the concentration of power in the executive and by a unilateral policy process relative to opposition in parliament and social partners. A PSD Secretary of State told us that when support from social partners was not forthcoming, the executive went ahead anyway because ‘it was more important to create jobs than garner support for the measures’. The sidelining of social partners in order to move reforms further ahead applied both to trade unions, particularly UGT, which met with the approval of the IMF (Pires and Martins, Reference Pires and Martins2015: p.112), and to employers’ organizations, leading one CCP Senior Official to confide to us that ‘the government took more liberal positions than the employer confederations’.
As a result, LMP went ‘beyond’ the MoU and the 2012 TA in that it undermined collective bargaining, furthered liberalised employment relations, while dropping recalibration. First, in October 2012 the executive unilaterally decided that collective agreements could only be extended to a whole sector if the negotiating employer organisation represented more than 50% of employment in said sector (Council of Ministers Resolution 90/2012). This countered MoU recommendations and the 2012 TA stating the extension criteria should be based on workers’ and employers’ representativeness. Both trade unions and all employers’ associations opposed the measure as too restrictive, arguing it would undermine collective bargaining (Távora and González, Reference Távora and González2016: p.348). Given the executive’s unilateral stance, employer confederations wrote a joint letter to the IMF asking for the measure to be dropped, as it would compromise social peace and stability and would distort competition between firms (CAP, CCP, CIP and CTP, 2012; Bulfone and Afonso, Reference Bulfone and Afonso2020)
Second, just cause dismissal compensation, which had already been cut from 30 to 20 days, was, in 2013, further reduced to 12 days for all contracts. The executive invoked the MoU’s directive to align severance pay with the EU average, which it claimed was 12 days; trade unions, notably UGT, insisted it was 18. Trade unions also argued that, according to both MoU and 2012 TA, it should apply only to new hires – not to all contracts. Accusing the government of ruining social concertation, UGT threatened to reject the 2012 TA and cancel all further talks (Fonseca, Reference Fonseca2013). The executive then finessed the proposal regarding new hires (employment contracts entered into force after 1/10/2013): compensation for collective dismissals was cut to 12 days per year; for individual permanent contracts, it was cut to 18 days of base remuneration and seniority for the first three years of the contract plus 12 days for the following years (Law 69/2013).
Third, changes to the criteria for just cause dismissal (suitability and job extinction) also broke with the MoU and the 2012 TA, which stated the employer was responsible for their definition. Law 23/2014 featured a definition vetoed by the Constitutional Court. In response, the executive unilaterally decided new criteria for employers when determining individual dismissals in the case of job extinction (Moreira et al., Reference Moreira, Alonso Dominguez, Antunes, Karamessini, Raitano and Glatzer2015: p.207). These criteria were highly contested by both trade unions and the largest employer confederation, CIP (Confederation of Portuguese Industry) (Martins, Reference Martins2014). Nevertheless, they were passed into Law 27/2014.
Conclusions
This article shows that LMP reforms in Portugal under external conditionality were not homogenous, but differentiated between a first phase where recalibration (e.g. unemployment protection) co-existed alongside hard liberalising measures (e.g. EPL for insiders) and a second phase where recalibration was dropped and liberalisation further deregulated employment protection and security and eroded collective bargaining.
We argue this variation is explained by the changing coalitional politics and blame allocation underpinning policymaking under conditionality. Whereas initial reforms were the work of a broad informal political coalition through multilateral policymaking spanning the governing centre-right parties, the PS in opposition, the moderate trade union (UGT) and employer confederations in social concertation, its breakdown in late 2012 led to the conservative executive’s increasing centralisation and the shutting down of social concertation, yielding more radical policy outputs against the opposition of the PS, both trade unions and employer organisations. Our work corraborates Campos Lima and Abrantes’ (Reference Campos Lima and Abrantes2016: p.16-17) findings that the prevalent LMP method of policymaking was tripartite agreement in the first stage, replaced by unilateral decision in the second phase, and that most of the measures that went ‘beyond the MoU’ were enacted unilaterally in the latter stage.
Our contribution is both empirical and theoretical. Empirically, we offer a fine-grained analysis of LMP reform under conditionality outlining distinct policy patterns over time. Theoretically, we make several contributions. We show that cooperation in policymaking not only between government and opposition but also between government and social partners is possible during external conditionality. This finding speaks to the debate on the relevance of social concertation during the crisis. Although we present evidence of executive unilateralism from late 2012, we also find that, until then, bargaining and compromise by the government and social partners, in particular the trade union UGT, helped drive – while it lasted – labour market policy reform, in partial contrast with Culpepper and Regan (Reference Culpepper and Regan2014).
The Portuguese sequence of cooperation and demise between government, opposition and social partners has been noted in the literature (de Giorgi et al., Reference de Giorgi, Moury and Ruivo2015; Afonso et al., Reference Afonso, Zartaloudis and Papadopoulos2015). We expand upon these findings by elucidating the causal connection between the cooperation cycle and variation in LMP reform under conditionality. We show how coalition politics affects the nature and direction of reforms, arguing that the broader the reform coalition in terms of opposition parties and social partners, the more moderate the output. Similar dynamics of political cooperation and blame avoidance were found driving Portuguese healthcare refoms during the crisis (Asensio and Popic, Reference Asensio and Popic2019). Future research could investigate whether similar cooperation dynamics existed in other welfare state arenas in comparable Southern European cases.
The article elucidates how political dynamics of blame sharing/avoidance influenced coalition building and breakdown. Portuguese governments found a way to share blame and minimise opposition to unpopular measures by working through a broad informal coalition including opposition parties and social partners before and, especially, after the May 2011 bailout. Regarding non-governmental actors, we found that the PS in opposition and the trade union UGT entered into tacit and at times explicit cooperation, thus sharing in the blame for unpopular measures, in exchange for being able to influence policymaking, claiming credit for moderating or impeding worse outputs. PS and UGT’s influence helped to bring about a few recalibration measures in the first stage of reform. UGT’s support for such measures shows responsiveness towards labour market outsiders, in line with a growing body of literature suggesting that unions in Southern Europe are moving from an exclusive insider-focus toward a “solidarity for all” approach (Durazzi et al., Reference Durazzi, Fleckenstein and Lee2018). Whether trade unions in Southern Europe address other gaps in social protection for outsiders typical of Bismarckian systems is a clear avenue for future research.
Finally, we show under which circumstances political cooperation may break down. Altered conditions stemming from election results, popular protest or economic performance can trigger a transition from cooperation to opposition. Depending on the political calculus of coalitional actors, this can lead to a return to cooperation under new circumstances or to a definitive break. The coalition may be reconstituted after an election with parties trading places between government and opposition, as was the case in Portugal after the MoU and the June 2011 general election. Alternatively, permanent opposition can follow the demise of informal cooperation, as happened in late 2012 with the end of the ‘bailout coalition’, triggered by hard policy changes pursued by the governing parties in response to functional pressures from an ever-worsening economy.
Supplementary material
To view supplementary material for this article, please visit https://doi.org/10.1017/S0047279420000653.
Acknowledgments
Research for this paper was supported by the project “Democracy in Times of Crisis: Power and Discourse in a Three-Level Game” (PTDC/IVC-CPO/2247/2014) and by IPRI-NOVA FCT fund (UIDB/04627/2020). The authors would like to thank Catherine Moury for her support and detailed comments, Amílcar Moreira for sharing his work and insight, José António Pereirinha for his comments and Angie Gago, Ana Guillén, Stefano Sacchi, Alexandre Afonso, Elisabetta De Giorgi and all other project members, two anonymous reviewers and the editors of JSP for their useful feedback. All errors are ours.
