Ireland, Fiscal Crisis, Austerity, Cutback Management
This paper evaluates the austerity thesis of Reinhart and Rogoff (2010, 2011) in the Eurozone. It offers a nuanced understanding of what modernization of public services means in an extreme situation. This paper also reveals the impact of the EUROZONE crisis on the nature of reforms in, and the size and capacity of the public sector in countries seeking ECB/EC/IMF (the Troika) assistance.Many central governments have devised elaborate rescue schemes for banks affected by the toxic assets crisis. This has a resulted in a shift from a private sector banking crisis to a sovereign debt crisis. This situation is particularly acute in the EUROZONE countries in which central governments have limited room for manoeuvre. A dominant strand of current thinking is the need for financial conservatism. This has been articulated as the need to reduce government indebtedness to foster economic growth (Reinhart and Rogoff, 2010, 2011). The Reinhart and Rogoff thesis points to the need to reduce government indebtedness through austerity programmes.These countries have substantially reduced the size and capacity of their public sectors. These austerity programmes have also led to high levels of unemployment, and declining economic growth. An exception to this is the experience of Ireland which shows some evidence of economic growth. These outcomes are not supportive of the Reinhart-Rogoff thesis that austerity programmes in high debts countries will lead to economic growth. This research investigates both the speed and direction of travel of reforms promoted by governments in EUROZONE countries with significant indebtedness. There were a number of strands to this investigation. In the first instance, this study revealed the relative importance of financial cutbacks v modernisation of public administration. This study also questions whether managerial reforms are substantive and yield efficiency savings. In practice these reforms are brutal cost reductions. This crisis has initiated modernisation and given legitimacy to call for public sector reforms.