Anatole Kaletsky

Despite election results, reason still rules Europe

By Anatole Kaletsky
May 30, 2014

anatole -- french student

When can a vote of 25 percent be described as a “stunning victory” or even a “political earthquake”?

According to the European establishment, it’s when these votes go to a rabble of odd-ball extremists, ranging from overt racists and even disciples of Adolf Hitler to unreconstructed Stalinists and comically naïve anarchists.

However, the most alarming symptom of political breakdown revealed by the European parliament election is mainstream politician’s hysterical reaction to a perfectly predictable — and justifiable — upsurge of populist anger after the euro crisis.

anatole -- unemploymentAfter all, people have suffered five years of unnecessary hardship as a result of misguided economic policies. Why then should anyone be surprised that tens of millions of voters decided “to give their governments a kicking” as British Prime Minister David Cameron put it? Especially when the European elections provided an ideal opportunity for people to vent their anger with national governments, with no risk of letting the populists get anywhere near true power.

While the media were banging on about the shock and devastation of Sunday’s supposed political earthquake, this benign, and perfectly plausible, interpretation was quietly adopted by financial markets and the European business community.

Sober analysts noted that out of the 751 seats in the European parliament, an overwhelming majority of 467 were won by the three main blocs of conventional pro-European Union parties — the center-right European People’s Party, the center-left Socialists and the center-center Liberals. Another 53 seats are held by the even more pro-European Greens and 45 by the British Conservatives and allies.

This left only about 140 seats, less than 20 percent of the total, to genuinely euro-sceptical and populist groups — ranging from the neo-fascist Golden Dawn in Greece to the French National Front and UK Independence Party to the neo-communist German Linke. None of these parties can work together, even for tactical gains.

UKIP, for example, will not cooperate with the French National Front — which it considers racist. The National Front will not cooperate with Golden Dawn, which it regards as fascist. Germany’s anti-euro Alternative will not cooperate with UKIP — which it considers too extreme.

As a result, there will probably be no major disruption or change in the workings of European institutions. The chances are that mainstream politicians will respond to the upsurge of populism defensively — circling their wagons around existing EU institutions and sticking more doggedly to outdated treaties.

anatole -- greece golden dawnMoreover the fact that Germany was the country where the anti-EU vote proved weakest and where the governing coalition retained the strongest public support will reinforce the German government’s self-confidence in dictating terms to the rest of Europe. The most likely scenario, therefore, is that Germany will continue to thwart any serious efforts to reform the misguided fiscal and monetary rules that caused the euro crisis and will probably condemn Europe to long-term stagnation. Aggravated by an ever-widening division between creditor and debtor countries.

There, is however, a more hopeful possibility. While EU institutions are not seriously threatened by the outcome of this election, some national governments are – especially President Francois Hollande’s Socialists in France. If the French mainstream parties start to feel a genuine existential threat from the upsurge of the National Front, they could try to learn from the one government that has managed not just to hold its own against the populists, but to gain massively at their expense.

Italy’s center-left Democrats, under the new leadership of Matteo Renzi, did far better than any other national ruling party. Its 41 percent vote almost doubled the share in last year’s domestic election. This massive pro-government swing crushed the populist anti-euro Five Star Movement from more than 30 percent last year to just 21 per cent. It also forced Silvio Berlusconi’s Forz Italia into a humiliating third place, with just 17 percent, its worst performance for 20 years in a nationwide poll.

Renzi’s popularity was partly attributable to novelty and personal charisma. Yet there are clear lessons from his success that mainstream politicians in other countries could emulate if they want to reverse populism, xenophobia and anti-EU sentiment.

The main lesson from Italy is that governments must offer voters immediate relief from the fiscal austerity imposed during the euro crisis by the dreaded “Troika” of the European Commission, the European Central Bank and the International Monetary Fund. Renzi’s first action as prime minister was to promise Italians that there would be no further tax increases and then quickly translate these promises into legislation, though Italy’s budget deficits were overshooting EU-mandated targets.

anatole -- french votersThe European Commission and the ECB have criticised this budgetary back-sliding. Renzi has made clear, however, that he would respond to such concerns not with further emergency austerity measures, but with long-term structural reforms, including gradual labor liberalization, privatization and restructuring bureaucracy.

A second lesson follows from this: Though Renzi has not yet faced that long-term structural reforms, they are more important than fiscal targets. For Europe’s economic governance will have to be reconsidered if the euro is to survive.

Though the acute phase of the euro crisis may be over, the single currency has been revealed as a fundamentally unstable system. For the euro to be viable in the long-run, national debt burdens will have to be shared or mutually-guaranteed; banks will have to be jointly backed by? all euro-zone nations, and the ECB will have to become a lender of last resort in sovereign bond markets, like the Federal Reserve and the Bank of England.

Unfortunately, all of these reforms have been ruled out by the German government and the German courts have ruled them incompatible with the German constitution and the Maastricht Treaty.

But if Europe desperately needs reforms that are incompatible with the German constitution and the EU treaties, then the rational response is surely to revise the German constitution and the EU treaties. Not to impose a ban on any discussion of reforms.

True believers in the “European project” now talk about responding to the upsurge of populist anger by revising the EU treaties and national constitutions to reflect the lessons of the euro crisis. But transforming national politicians into genuinely European leaders will require a bigger earthquake than this week’s election.


PHOTO (TOP): A French student shouts slogans as he participates in a demonstration to protest against the results by France’s far-right National Front political party in the European election in Paris, May 29, 2014. REUTERS/Philippe Wojazer

PHOTO (INSERT 1): Members of the 22M Marches for Dignity organization protest against the country’s unemployment rate in an unemployment office in Gijon, northern Spain, April 30, 2014. The signs read, “Debt default” (R) and “Public services” (L). REUTERS/Eloy Alonso

PHOTO (INSERT 2): A girl sings the national anthem with supporters of the far-right Golden Dawn party during a pre-election rally in Athens, May 23, 2014. REUTERS/Yorgos Karahalis

PHOTO (INSERT 3): French students protest against the results by France’s far-right National Front political party in the European election in Paris May 29, 2014. REUTERS/Philippe Wojazer

Post Your Comment

We welcome comments that advance the story through relevant opinion, anecdotes, links and data. If you see a comment that you believe is irrelevant or inappropriate, you can flag it to our editors by using the report abuse links. Views expressed in the comments do not represent those of Reuters. For more information on our comment policy, see http://blogs.reuters.com/fulldisclosure/2010/09/27/toward-a-more-thoughtful-conversation-on-stories/