Why did nearly all European Union member states in the late 1990s succeed in reducing their budget deficits below the necessary 3% threshold in time to join the monetary union, after years of varied success at achieving fiscal discipline? Do the explicit criteria set out by the Treaty of Maastricht and the prospect of participating in the Economic and Monetary Union (EMU) fully explain the fiscal convergence seen in Europe prior to and immediately following monetary union? These are the questions that concern Mark Hallerberg's book. Rather than crediting the incentive of joining the euro zone, Hallerberg focuses on the domestic sources of fiscal reform since 1973. He argues that the Maastricht criteria were important in certain countries, especially in southern Europe. But to understand why virtually all states achieved a sufficiently low budget deficit to participate in monetary union, one must examine the competitiveness of the party system, the functioning of the electoral system, and the ideological coherence of the governing coalitions in individual countries. Domestic political factors offer a more nuanced, and ultimately more convincing, account of fiscal policy in Europe at the end of the twentieth century.

In addition to introducing Hallerberg's theoretical framework, the first chapter reviews and effectively discounts the standard explanation for fiscal policy convergence in the 1990s. Although the qualification for monetary union frames this chapter and the book as a whole, the argument over the relative importance of the EMU in shaping fiscal policy is not the book's greatest contribution. After all, the author's rejection of European Union–level factors for fiscal policy convergence is only partial. Rather, it is his analysis of the impact of domestic political institutions on fiscal policymaking generally that is the most useful and insightful.

As a result of his empirical analysis in Chapter 2 and his county case studies in Chapters 4 through 8, Hallerberg is able to demonstrate the relationship between particular types of political systems and effective institutional arrangements for maintaining fiscal discipline. Specifically, Domestic Budgets in a United Europe argues that in cases where the party system is uncompetitive or so unstable that many forms of government arise in succession (one-party majorities, multiparty coalitions, and minority governments), fiscal discipline is hard to achieve. By contrast, in stable competitive electoral systems, there are two effective strategies for achieving low budget deficits. First, in countries where there is ideological unity within governing coalitions, the delegation of policymaking authority to a finance minister is an effective strategy for keeping spending low. Second, in countries where governments contain ideologically diverse coalition partners, parties can negotiate over and commit to clear rules about formulating policy. According to Hallerberg, these two strategies allow governments to overcome the greatest obstacle to fiscal discipline, the common pool resource problem—namely, the temptation to draw from the common pool of revenue to pay for particularistic goods with little regard for the overall size of the budget. Curbing government spending and keeping deficits low are difficult to achieve when governing parties do not have to pay attention to how their specific expenditures impact the overall pool of revenue. The author convincingly argues that electoral politics determine whether granting greater discretion to a finance minister or formalizing rules for fiscal spending is the better strategy for a specific country to keep domestic budgets balanced.

Each of the empirical chapter examines a small set of EU countries in order to demonstrate the appropriateness and value of one strategy over the other. He groups together the United Kingdom, France, Germany, and Greece, since they all benefit from a delegation model of fiscal policymaking given the succession of ideologically unified governments. Among these cases, only Greece needed the Maastricht criteria to achieve fiscal discipline. In Italy, the delegation approach was only effective after the electoral reforms of 1994, which allowed for party turnover. Previous to the reforms, the dominance by the Christian Democratic Party had led to a “fiefdom” form of fiscal governance in which the common-pool resource problem prevailed. Italy's new electoral system, in addition to the Maastricht criteria, brought about greater fiscal responsibility.

Given the party systems in countries like the Netherlands, Belgium, and Finland, a delegation approach is ineffective since the finance minister cannot rely on the multiple parties in government to support spending cuts. Given the ideological disunity of the governing coalitions, formalized rules better limit budgetary spending. In a similar vein, formal rules, or “fiscal contracts” between governing parties and the opposition, were also necessary to rein in spending in countries with consistent minority governments, like Sweden and Denmark. Finally, the lack of stability in the party systems in Austria, Ireland, Portugal, and Spain confounded efforts to reduce spending. In these countries, Hallerberg credits the timing of the Maastricht criteria, along with some changes in the domestic budget process, for fiscal behavior prior to the introduction of the euro.

Domestic Budgets in a United Europe is extremely valuable to students of European politics and political economy generally. It is especially well written and accessible to a wide range of readers. There is some repetitiveness between the first and second chapters (and perhaps they should have been combined). However, by repeating the theoretical framework in Chapter 2 and confining the formalization of his framework to this chapter, the author makes his work accessible to a larger readership interested in European politics. One issue that the book anticipates and briefly considers is whether the forms of fiscal governance that worked prior to the introduction of the euro can continue to keep spending in check after monetary union. While the analysis suggests that the domestic institutions should still determine the appropriate strategy for fiscal governance, the higher deficit spending in Europe after monetary union may lead some to question the relative impact of internal and external variables.