Right on the euro
The EU has finally wrapped up its parliamentary election results. Discontent in Europe runs high, mostly because of the persistently terrible economy. To the horror of many, populist euroskeptic parties continent-wide â€” nationalist, anti-immigration, anti-EU, and often openly racist â€” scooped up roughly 140 of the 751 seats,Â up from about 60 in 2009. (Hereâ€™s a decent rundown of six of the parties).
Voters are tired of austerity, high unemployment, and stagnation. â€śAfter five gruelling years, many of Europeâ€™s citizens must wish they could dispatch the entire political class to hellfire and tormentâ€ť, writes the Economist. Since that isnâ€™t an option, most didnâ€™t bother to turn out for the elections. Many of those who did came to back extremist candidates. Anatole Kaletsky calls it â€śa perfectly predictable â€” and justifiable â€” upsurge of populist anger after the euro crisisâ€ť. He says the varied extreme parties are unlikely to work with each other, anyway. Tyler Cowen predicts Europe doesnâ€™t have the political coordination to keep itself from imploding.
Noah Millman thinks results mostly just mean voters in Britain, France, and to a lesser extent Germany, are freaking out about losing more sovereignty in the name of the European project. But Francesco Daveri at VoxEU says this goes back to economics, too. He says there is a correlation between countries with high trade deficits with Germany and countries where the euroskeptics are popular, particularly France and Austria. (See here if you are interested in going down the trade-imbalance rabbit hole.)
At the European central banking forum (like Jackson Hole, but more euro) taking place in Portugal this week, European Commission president JosĂ© Manual Barroso said European leaders are worried about the outcome of the elections. However, according to the WSJ, Barroso refused to blame austerity policies for the result. Paul Krugman, who was at the ECB forum, thinks European policymakers are â€śdeep in denialâ€ť. Itâ€™s all about the euro (and the austerity following the euro crisis), he says: â€śSorry, but depression-level slumps didnâ€™t happen in Europe before the coming of the euroâ€ť. Further, he writes in a separate post, â€śat least part of the blame rests with officials who seem more interested in price stability and fiscal probity than in democracyâ€ť.
The one thing keeping Europe together seems to beÂ Mario Draghiâ€™s pledge to do â€śwhatever it takesâ€ť to protect the euro. Last month, Cullen Roche noted that the yield on Spanish 10 year government bonds has been falling consistently for the last year (the trend has continued since his post). The same is true, generally, of Greek, Italian, and Portuguese debt. â€śIt looks like European debt of all types is once again becoming indistinguishable to a large degreeâ€ť, he writes. Michael Oâ€™Sullivan and Eleni Panagiotarea at Project Syndicate worry that this development has caused European leaders to become complacent. â€śAs the distressed countriesâ€™ bond yields have fallen, reforms have become increasingly unambitiousâ€ť.
Tina Fordham, chief global political analyst at Citi, sees the vote as part of global â€śvox populiâ€ť movement, which is measurably intensifying. While financial markets have largely ignored the growing number of populist â€śrisk eventsâ€ť (voting for extremists in wealthy countries, protests and violence in poorer ones), she says, â€śhistory suggests markets have trouble pricing in paradigm shiftsâ€ť. Her message is clear: economic and political instability are on the horizon. Pay attention, and be afraid. â€” Shane Ferro
On to todayâ€™s links: