Accounts of the management of the recent economic crisis in Spain have been dominated by an emphasis on external constraints. However, this approach leaves unanswered important questions about the role of domestic political factors. Using systematic qualitative primary research and employing elite interviewing and process tracing, this dissertation aims to fill this gap for the period of the Partido Socialista Obrero Español (PSOE) administration. The question it seeks to answer is: what role did domestic political factors play in the PSOE government´s management of the crisis in Spain and in its immediate origins?

The dissertation shows that domestic politics played a crucial role in the management of the crisis, most importantly by determining the shape of the measures undertaken. In its three distinct stages – downplaying/inaction, reaction/stimulus and austerity/reform – the PSOE´s response was certainly constrained by external factors, most notably EMU membership and the actions of sovereign-bond investors, the ECB and Germany. Yet while these external constraints forced the government to act, domestic political factors fundamentally shaped the content of key measures: the fiscal stimulus, the labour, financial and pension reforms, the refusal to accept a bailout or the reform of the Constitution. Seven factors were particularly influential: i) electoral and political cost, ii) party and partisanship, iii) organised interests, iv) domestic institutions, v) ideological preferences, vi) ineffective decision-making, and vii) judgement and personal characteristics of decision-makers.

In conclusion, domestic politics played a more important role in the management of the crisis than is allowed for by dominant approaches focusing on external constraints and weak domestic policy autonomy. The findings provide empirical evidence to support research agendas that identify significant state discretion in the face of international economic integration and an important role for domestic political factors such as institutions, material interests, partisanship and ideology in shaping economic outcomes.