Right on the euro

May 30, 2014

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:

Our Society Is Doomed
“The transformation of your job into your social life is largely a one-way street” – Noah McCormack

EU Mess
Spanish real estate is back: “People are starting to overpay on certain assets” – Jenny Anderson

“A company as successful as Vice should be paying decent wages”, but it isn’t – Hamilton Nolan

New Normal
Most new manufacturing jobs are in low-tax, “right-to-work” states – WSJ

“Many companies have strong jock cultures, particularly in their sales departments” – Harvard Business Review

Data Points
Compared to actual writing, readers don’t really like native ads – Lucia Moses
Inflation rises! (to the still very low and beneath Fed target level of 1.6%) – Josh Mitchell

Billionaire Whimsy
Zuckerberg gives $120 million to Bay Area schools – AP

Sobering Reminders
“Everybody’s getting paid, but Raheem still can’t read”: what happened when Zuckerberg gave $100m to Newark schools – Dale Russakoff

No Apologies
“This is a fascinating and important debate”: The FT’s accusations against Piketty end with a whimper – Chris Giles

“They can be taken out of the system”. Siemens is cutting 11,600 jobs – Reuters

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