Drawing on an analysis of austerity reforms in Greece and Portugal during the sovereign debt crisis from 2009 onwards, we show how the nature of the linkages between parties and citizens shapes party strategies of fiscal retrenchment. We argue that parties which rely to a greater extent on the selective distribution of state resources to mobilise electoral support (clientelistic linkages) are more reluctant to agree to fiscal retrenchment because their own electoral survival depends on their ability to control state budgets to reward clients. In Greece, where parties relied extensively on these clientelistic linkages, austerity reforms have been characterised by recurring conflicts and disagreements between the main parties, as well as a fundamental transformation of the party system. By contrast, in Portugal, where parties relied less on clientelistic strategies, austerity reforms have been more consensual because fiscal retrenchment challenged to a lesser extent the electoral base of the mainstream parties.

This article examines the impact of the ongoing economic crisis on Greek and Portuguese welfare state reforms in a comparative perspective with a particular focus on the public sector, labour markets and social protection. It is argued that the recent crisis caused 'shock and awe' in Greece and Portugal resulting in an unprecedented wave of cuts, tax rises and labour market reforms. In particular, public sector remuneration and jobs were cut, pensions were significantly curtailed and pension rights significantly restricted, successive tax hikes were implemented and welfare benefits became less generous and more conditional. It is argued that these reforms constitute a critical juncture and a considerable effort towards welfare retrenchment, which is which is implemented before converging with the more advanced welfare states of the EU15. Both countries appeared to be significantly more vulnerable to the crisis than the richer countries of Northern Europe (e.g. Germany, Austria, Sweden, Finland and the Netherlands) and their larger Southern counterparts (Italy and Spain). Yet, the latter had to implement similar measures, albeit in a less abrupt and extensive fashion. In other words, it may be that size is less important than economic and political power for coping with the effects of the current crisis.

The Europeanization literature has extensively examined the influence of the European employment strategy (EES) on Member States' employment policies. However, two least‐likely cases – Greece and Portugal – have been neglected in the literature. This article focuses on the activation of public employment services (PES), which has been one of the key elements of the EES. Based on a sample of 44 semi‐structured interviews and primary and secondary document research on seven reform episodes during 1995–2009, it finds that the EES altered Greek and Portuguese employment policies by empowering policy entrepreneurs and, when the latter were absent, through European Social Fund financial conditionality. While the literature considers policy learning as the chief EES‐Europeanization mechanism, little evidence is found herein to support such an explanation. The findings may be relevant for a number of EU policies based on voluntarism and EU funds, such as the new flagship EU initiative Europe 2020.

While the literature on Europeanization has exhibited considerable awareness of the methodological challenge of establishing causal relations between non-binding EU stimuli and domestic change, less work has been done on how this challenge might be met. This article contributes to the literature's attempts to meet this challenge by: 1) reformulating four explanations of Europeanization based on four distinct causal mechanisms (instrumental learning, social learning, naming and shaming and peer pressure); 2) specifying their observable implications for three intervening steps between EU stimuli and change in national policy (the definition of the policy problem, the alternative courses of action considered and the manner in which they were assessed); 3) defending process tracing against critiques of its usefulness for research on Europeanization; and 4) providing practical guidelines on how process tracing can be used to test these four explanations empirically, using examples from employment policy, where non-binding EU stimuli feature most prominently.

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The article examines the adoption of Flexicurity principles in Portugal and Greece during 2006–2009. Despite the similar conditions between the two cases and common EU stimulus, the process and final outcomes in the reform of their employment protection systems differed. In Portugal, the government persevered and implemented a reform in line with Flexicurity principles. By contrast, the Greek government initially favoured Flexicurity and initiated a reform process of the legal framework; however the reform was halted. The article explains this divergence by combining the insights of Europeanization and Varieties of Capitalism literatures. It is argued that in cases of Mixed Market Economies, ‘misfit’ with EU stimuli is a necessary, but not sufficient condition for institutional change. Instead, reforms depend on union structure and the existence of policy entrepreneurs favouring reform, which explains the divergent reform paths.

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In the analysis of the usages of Europe in Portuguese reconciliation policies presented in this article, we found a general concordance/temporal sequence between EU and national level developments. In an overall context of limited policy change induced by the EU, the main actors using EU resources were political entrepreneurs: firstly, ministerial elites, and secondly, high-level officials either in government or in the independent bodies for gender equality. These actors used primarily cognitive and financial resources: the European Employment Strategy (cognitive usage), and EU funds (strategic usage), whereas legal resources were not used. Finally, cognitive usage occurred in the beginning of the reform process (the EU was reform initiator) whereas strategic usage took place to support existing goals during the reform process (the EU was reform supporter).