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 — nationalist, anti-immigration, anti-EU, and often openly racist — scooped up roughly 140 of the 751 seats, up from about 60 in 2009. (Here’s a decent rundown of six of the parties).
Voters are tired of austerity, high unemployment, and stagnation. “After five gruelling years, many of Europe’s citizens must wish they could dispatch the entire political class to hellfire and torment”, writes the Economist. Since that isn’t an option, most didn’t bother to turn out for the elections. Many of those who did came to back extremist candidates. Anatole Kaletsky calls it “a perfectly predictable — and justifiable — upsurge of populist anger after the euro crisis”. He says the varied extreme parties are unlikely to work with each other, anyway. Tyler Cowen predicts Europe doesn’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 José 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 “deep in denial”. It’s all about the euro (and the austerity following the euro crisis), he says: “Sorry, but depression-level slumps didn’t happen in Europe before the coming of the euro”. Further, he writes in a separate post, “at least part of the blame rests with officials who seem more interested in price stability and fiscal probity than in democracy”.
The one thing keeping Europe together seems to be Mario Draghi’s pledge to do “whatever it takes” 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. “It looks like European debt of all types is once again becoming indistinguishable to a large degree”, he writes. Michael O’Sullivan and Eleni Panagiotarea at Project Syndicate worry that this development has caused European leaders to become complacent. “As the distressed countries’ bond yields have fallen, reforms have become increasingly unambitious”.
Tina Fordham, chief global political analyst at Citi, sees the vote as part of global “vox populi” movement, which is measurably intensifying. While financial markets have largely ignored the growing number of populist “risk events” (voting for extremists in wealthy countries, protests and violence in poorer ones), she says, “history suggests markets have trouble pricing in paradigm shifts”. Her message is clear: economic and political instability are on the horizon. Pay attention, and be afraid. — Shane Ferro
On to today’s links: