In Spain, before the onset of the financial and economic crisis in 2008, demand-side factors (problem pressure) together with a favourable fiscal position and political conditions created a window of opportunity to substantially reorient social policies towards SI. Taking the ‘high road’ to SI (Ronchi, 2018), Spain increased resources for both old and new social risks. In contrast, in Italy, a weaker problem pressure, higher fiscal constraints, strong policy legacies (‘pension state’), and the preferences of policy-making actors explain a less accentuated pre-crisis turn towards the protection of new social risks (León and Pavolini, 2014).
However, these two relatively diverging trajectories changed after 2010. In Spain, policies of fiscal consolidation by a conservative government affected especially the implementation path of then still immature SI policies, namely family policies and care provisions as well as ALMPs, while efforts on minimum income schemes grew at the regional level. Therefore, during the crisis, expenditure on new social risks was hit harder by fiscal austerity that consolidated spending on old social risks, mostly unemployment and pensions. This confirms that expenditure on new social risks is more prone to retrenchment than the ‘immovable objects in the budget—such as pensions and, increasingly, debt service’ (Mertens, 2017: 921). In contrast, in Italy, enhanced unemployment protection, ALMPs and some measures aimed at fighting poverty were introduced during the wake of the crisis period to maintain political and social support, but at the same time there were severe cuts to education expenditure, healthcare care and ECEC services and most SI policies.
To compare old and new conditionality and their effects (obviously, still potential in the case of the NGEU), we build a counterfactual argument here. As just noted, under the old conditionality exercised by the EU during the Great Recession, reversed resource competition was the case in both Spain and Italy. In this paper, we examine conditioning factors (constraints and facilitators) in the economic, social protection and political domains at the verge of the COVID-19 pandemic. What would be the prospects for enhanced SI if there was a second edition of austerity-oriented conditionality?
Economic conditioning factors
In the intention of the EU, the reforms that member states had to implement during the 2010s were supposed to boost their capacity to grow economically again, to improve public budget balances and to create a sounder social protection system. These were intended to cover old social risks while following at the same time a social investment approach. Such reforms were mostly prompted by formal EU fiscal governance rules as well as informal conditionality mechanisms imposed by the European Central Bank after the onset of the sovereign debt crisis in spring 2010, which bore salient impact on social and labour protection and progressively restricted the room for national actors’ manoeuvring (Sacchi, 2015; Guillén and González Begega, 2019).
If we compare the situation at the onset of the Great Recession with that at the outbreak of the pandemic, macroeconomic imbalances were higher in Italy than in Spain in 2010, especially as to public debt (119.2% and 60.5%, respectively). However, the situation deteriorated rapidly in Spain (95.5% in 2019), while the figure for Italy did not grow so much but remained at a higher level (134.2%). Much more worrying for ‘repair and recover’ prospects are some structural traits of the political economies under scrutiny because they constitute highly vulnerable flanks. Three are outstanding as constraints for recovery: first, the composition of the productive systems; second, the comparatively high proportion of self-employed workers and micro firms; and third, high levels of temporary and precarious employment.
Overall, from a comparative perspective, both economies have been heavily relying on consumption services, including hospitality, recreation and tourism, all sectors severely affected by lockdown and social distancing measures. The Centre-Northern Italian regions have presented an exception, given the stronger role of the manufacturing industry compared with the rest of Southern Europe (Baccaro, 2021). In both Italy and Spain, the presence of small firms, with a fragile financing structure and difficulties to access credit, is very high comparatively speaking, while both countries have shown large proportions of fixed-term jobs, especially Spain. Finally, fiscal room for manoeuvre became severely constricted since the Great Recession: one could talk about exhausted treasuries in both cases.
Social protection conditioning factors and the role of policy legacies
Both Italy and Spain implemented important reforms between 2010 and 2014 aimed at increased labour market flexibility, conducive to less security in both employment and unemployment and narrowing the distance between insiders and outsiders through ‘flex-precarity’ for all (Guillén et al., 2021).
As already stressed, the 2010s were a lost decade for SI policies, defined in broad terms. Cuts or expenditure freezing were the rule for most of the decade in education, childcare or ALMPs (Guillén et al., 2021), matched by cuts/cost containment in healthcare and LTC (Petmesidou et al., 2020). Spain suffered relatively more than Italy from this freeze, given the fact that it had more clearly attempted to recalibrate its welfare state towards a social investment perspective in the 2000s (León and Pavolini, 2014).
The imbalance in favour of income maintenance policies instead of SI ones worsened during the Great Recession in a context of a generalised ‘dual retreat’ of both types of policies, as also welfare state expenditure trends show. In particular, on the one hand, overall social protection expenditure increased between 2005 and 2018 in both countries. At the same time, however, such expenditure grew at a higher pace in the Western part of the EU (EU-15) compared to Italy and Spain. Moreover, if we exclude social protection expenditure on unemployment benefits and pensions (which follow quasi-automatic mechanisms of growth related to the functioning of the labour market and the ageing of the population), the remaining social protection expenditure actually decreased since the late 2000s and the gap on per capita expenditure in Western Europe and Italy and Spain widened, as shown in Fig. 1.
Overall, during the last decade, the Italian and to a slightly lesser extent the Spanish welfare state strengthened their dominant pattern on social protection through cash transfers and less through services, which is indicative of the difficulties of both these two countries to evolve towards intensified social investment (Fig. 2; see also Guillén et al., 2021).
Overall, the Great Recession in itself and welfare state reforms during last decade did not only leave a weaker welfare state (at least in relation to SI policies) but also a very complicated socio-economic situation. Both countries arrived at the onset of the pandemic with economies and societies still trying to recover from the consequences of the previous economic crisis on companies, labour market and the population.
Political conditioning factors
Government stability, other aspects of the functioning of the political system, as well as public and political support to the European integration project are also important factors in the capacity for welfare state reform led by EU funds. In both Italy and Spain, the Great Recession left a much more fragmented political landscape with stronger and more radical political confrontation and a considerable diminishing public support for EU institutions.
Three facets of the political scene are important to consider: governments’ stability; party competition around EU issues; and public opinion on EU institutions, a facet strictly connected with the previous one. In the two cases under scrutiny, what happened in the 2010s created the conditions for a more unstable political environment. However, also in this case, some differences appear between the two countries. Italy features a long-term problem of government instability with changes in the landscape of political parties, especially acute since the last quarter of the twentieth century onwards. Spain by contrast has had a relative stable de facto two-party system (consisting of the Conservative People’s Party (PP) and the Socialist party PSOE) since the period of transition to democracy up until 2015.
In the last decade, this difference between the two countries partially diminished (see tables A.2–A.3 in the online annex). New political actors entered the policy arena with electoral success, although with different approaches and ideological orientation. The core new actors in Spain have been Podemos, a radical left-wing (populist) party; Ciudadanos, a conservative-liberal party and, more recently, in 2018, a radical right populist party (VOX). In Italy, the scene has been increasingly dominated by populist parties not belonging to the left tradition, namely, the Five Star Movement (M5S), which is a party difficult to frame in terms of traditional left-wing ideologies, the League and, more recently, Brothers of Italy (FdI), which are or have become radical right-wing parties. These parties entered a competition where the policy orientations between the traditional centre-left and centre-right parties were increasingly narrowing in relation to how to transform the welfare state.
Back in 2008, PP and PSOE gathered around 85% of votes and 92% of parliamentary seats, practically monopolising the competition (Bosco and Verney, 2016). After the 2015 and 2016 general elections, party politics were deeply reshaped (Rodón and Hierro, 2016; Rodríguez-Teruel et al., 2016). On the left, Podemos became a party able to obtain 11 to 13% of votes. On the right, Ciudadanos and later VOX managed to contest PP’s hegemony. Governing Spain has become increasingly difficult, as clearly shown by the fact that six general national elections took place in 11 years (2008–2019).
In Italy, the two main parties on the left and on the right have been able to collect votes to a lesser extent than in Spain. Several parties have always been competing with the two main ones although the parties changed over time. Political instability in Italy has translated into a sequence of government crises. Between 2008 and 2021 there have been eight different governments.
Parties’ ideological and political position on the EU also shifted significantly during the past decade. As shown in Fig. 3, Euro-scepticism increased strongly in Italy since the beginning of the Great Recession and around 40–45% of citizens believe in recent years that Italy would fare better outside the EU. Euroscepticism has also increased in Spain but is still at lower (and probably politically more manageable) levels.
Overall, in both countries there has been an intensification of ideological polarisation, radicalisation of attitudes and preferences both among the population and within the political system in a climate of growing political confrontation (EsadeEcPol, 2020). However, important differences persist between the types of competition in both countries, especially in relation to the role of the EU.
The very rich information contained in the Manifesto Project database (MP), as well as in the Chapel Hill Expert Study (CHES), includes aspects such as the role of and vision on the EU, how the market economy should be regulated, nationalist and moral stances as well as the parties’ positions on welfare education issues and typical populist issues such as the role of elites and corruption (see tables A.4 and A.5 in the online annex). The main differences and similarities between the two countries in terms of political competition and landscape are the following. The main divergence concerns the debate around the EU. In Spain practically all main parties (especially the traditional ones but also Ciudadanos) express support for the EU. Podemos shares a more critical, but still positive view of EU institutions, and only the radical right VOX has a critical negative stance (specifically on European bureaucracy and migration policies). If the relationship with the EU is not a heated topic for party competition (with the exception of VOX) in Spain, the situation is very different in Italy. Only the main social democratic party (PD) and to a lesser extent the other smaller left-wing parties, as well as the traditional (Berlusconi’s) conservative party (although adopting a critical stance), are clearly in favour of the EU. The populist M5S has had a more ambiguous position, and the other two right wing parties (Lega and FdI) are very critical and sceptical, with the former advocating an ‘Italexit’ from the EU in the recent past.
The analysis just carried out shows that neither macroeconomic conditions and demand-based political economies (with the partial exception of Northern Italy) nor the ‘state of the welfare state’ at the outset of the pandemic presented much room for manoeuvre for expansionary SI policies, especially considering that both Spain and Italy are among the most aged societies in the EU. Political conditions were very adverse in Italy as to population attitudes towards the EU and political parties positioning and much less so in Spain but still significant. This implies low to very low tolerance to yet another phase of austerity.
However, so far, the two crises have seen two very different regulatory models adopted by EU institutions towards national policy-making. During the Great Recession, the EMU governance structure fixed the austerity and fiscal consolidation contexts in all Southern European countries, bearing a predominant top-down approach, even if through indirect/informal mechanisms in countries such as Spain and Italy (de la Porte and Heins, 2015). Instead, the novel and more recent approach of the EU to the present crisis (Armingeon et al., 2022; de la Porte and Heins, this issue), induced by the COVID-19 pandemic, seems so far different and of the utmost importance for countries of the South. Temporary relaxation of the deficit and debt criteria, emergency measures supporting national healthcare systems and copious financial aid are likely to allow welfare states to breathe, at least in the short term. Most importantly, though, the novel bottom-up approach as to the formulation of RRPs (proposed by each member state) together with a double surveillance exercised by both the EU and other member states, poses new challenges and affects the potential capacity of welfare states to weather the storm.
The analysis of economic, social protection and political conditions allows for an interpretation of the findings of section three. Because of economic and productive constraints, State Budget Bills for 2021 show little intention to expand on SI in the absence of European funding. Conversely, RRPs speak against a ‘legacy laden’ stance and rather of a desire to exploit the ‘window of opportunity’ by devoting resources to all SI-type policies.
The change in the type of EU conditionality, matched by an EU approach towards SI, helped to direct resources towards SI policies. The RRPs’ structure clearly limits the possibility to use EU resources for welfare state realms different than social investment ones and this type of conditionality has triggered the opportunity for reforms. Therefore, it was easier for Spanish and Italian governments to introduce reforms thanks to this new stance of EU institutions. At the same time, the task of the respective executives was also facilitated by the common positioning of most of the political parties in favour of welfare expansion. In addition, in both countries there is a general partisan consensus on the need for the improvement of key public services, especially education (see tables A.6 and A.7 in the online annex). In this context, populist parties in both countries show a quite articulated and differentiated approach. Podemos and M5S have been in favour of welfare expansion and redistribution to a similar extent to the more traditional left wing parties, adding a strong populist touch in terms of anti-elitist and anti-corruption discourse. Radical right parties in both countries are highly nationalist, in favour of welfare expansion to a certain extent but strongly against redistribution. In relative terms, VOX seems a traditional far right party, more focused on law and order, neoliberal policies and nationalism, rather than a ‘new’ radical right party, promoting welfare expansion in an exclusionary manner (Guillén et al., 2021).
In both countries, governments realised that SI could be a strategy combining limited immediate economic costs and prompt high returns in terms of their legitimation. All in all, although it is not possible to go beyond the plans’ intentions given their recent character, at the time of writing the new conditionality in the form of a ‘carrot’ strategy seems to be yielding better results in the domain of SI policies than old-style conditionality in the form of a ‘stick’.