Democracy Strained: The effect of Financial Bailouts on Political Representation

• In Event: Political Representation in an Era of Austerity

Abstract

This paper analyses the effect of financial bailouts on individual perceptions about the way democracy works. A common understanding of democracy is that it serves as a mechanism to moderate conflict over preferences by periodically giving citizens a chance to vote on those preferences. Alternation in power is, thus, associated with a possible change of a policy paradigm. This paper argues that this idea may be challenged in hyper-globalised contexts that are exposed to severe economic crisis. In this context, a trade-off between levels of globalisation and levels of procedural democracy can be defined. I use the euro-crisis that started in 2009 to develop my theoretical framework and exploit the use of financial bailouts as Bayesian mechanisms that resulted in a fundamental change about the way democracy works within EMU countries. Using data from the Eurobarometers between 2001 and 2017, and using a diff-in-diff analysis, I show how levels of satisfaction with democracy, trust in national parties and trust in national governments experienced a significant decline in bailout countries compared to non-bailout countries in the period under study. These findings have direct implications to understand the collapse of establishment parties and the rise of new forms of political platforms.

Author

• Rubén Ruiz-Rufino, King's College London