The public sector in the aftermath of the financial and debt crisis: Long–term, neglected consequences

Abstract

The paper deals with some widely neglected, long-term consequences of the financial and sovereign debt crisis for the public sector. It indicates that there are no uniform answers because EU member states have been very unevenly affected. Various measures as parts of immediate austerity packages are categorized and criticized for their quantitative nature, incremental effects and short–term perspective. The focus is on long–term consequences of austerity measures such as quantity as well as quality of service provision, development of macro–economic variables, uneven distribution of curtailments not only between but also within countries and levels of government, and deteriorating employment relations. Unions have to react but are in a purely defensive position. In comparative perspective the public sector in Germany has been hit but less seriously than a number of others; however, due to earlier severe retrenchment and consolidation measures it is part of a lean state. Established labor market institutions, such as social partners and institutionalized collective bargaining, continue to function despite changed conditions. There are, however, future risks, such as increasing fiscal pressure because of the implementation of national as well as European debt brakes. Furthermore, there are far reaching, broader consequences of retrenchment measures not only for public sector employees but also for large groups of other citizens especially consumers because of limited access of various publicly provided services. Therefore, some political options and changing priorities are discussed. Reactions in general elections seem possible, the existing welfare state will continue to change.