The disenchantment of Europe

The recent European Parliament elections were dominated by disillusion and despair. Only 43 per cent of Europeans bothered to vote — and many of them deserted establishment parties, often for anti-EU extremists.

Indeed, the official results understate the extent of popular dissatisfaction; many who stuck with traditional parties did so reluctantly, faute de mieux.

There are many reasons for this political earthquake, but the biggest are the enduring misery of depressed living standards, double-digit unemployment rates, and diminished hopes for the future.

Europe’s rolling crisis has shredded trust in the competence and motives of policy makers, who failed to prevent it, have so far failed to resolve it, and bailed out banks and their creditors while inflicting pain on voters (but not on themselves).

The crisis has lasted so long that most governing parties (and technocrats) have been found wanting. In the eurozone, successive governments of all stripes have been bullied into implementing flawed and unjust policies demanded by Germany’s government and imposed by the European Commission.

Though German Chancellor Angela Merkel calls the surge in support for extremists “regrettable”, her administration — and EU institutions more generally — is substantially responsible for it.

Start with Greece. Merkel, together with the European Commission and the European Central Bank (ECB), threatened to deprive Greeks of the use of their own currency, the euro, unless their government accepted punitive conditions. 

Greeks have been forced to accept brutal austerity measures in order to continue to service an unbearable debt burden, thereby limiting losses for French and German banks and for eurozone taxpayers whose loans to Greece bailed out those banks.

As a result, Greece has suffered a slump worse than Germany’s in the 1930s.

Is it really any wonder that popular support for the governing parties that complied with this diktat plunged from 69 per cent in the 2009 European Parliament election to 31 per cent in 2014, that a far-left coalition demanding debt justice topped the poll, or that the neo-Nazi Golden Dawn Party finished third?

In Ireland, Portugal and Spain, the bad lending of German and French banks in the bubble years was primarily to local banks rather than to the government.

But here, too, the Berlin-Brussels-Frankfurt axis blackmailed local taxpayers into paying for foreign banks’ mistakes — presenting the Irish with a 64 billion euros ($87 billion) bill, roughly 14,000 euros per person, for banks’ bad debt — while imposing massive austerity.

Support for compliant establishment parties duly collapsed — from 81 per cent in 2009 to 49 per cent in 2014 in Spain. 

Fortunately, memories of fascist dictatorship may have inoculated Spain and Portugal against the far-right virus, with left-wing anti-austerity parties and regionalists benefiting instead. In Ireland, independents topped the poll.

The misconception that northern European taxpayers are bailing out southern ones also prompted a backlash in Finland, where the far-right Finns won 13 per cent of the vote, and in Germany, where the new anti-euro Alternative für Deutschland won 7 per cent.

At Merkel’s behest and with the complicity of the ECB, which waited until July 2012 to quell a bond-market panic sparked by eurozone policy makers’ mistakes, the commission also imposed eurozone-wide austerity, causing a cumulative loss of nearly 10 per cent of GDP in 2011-13, according to the commission’s own economic model.

By plunging Italy into a deep recession (from which it has yet to recover), austerity sank interim Prime Minister Mario Monti’s broad-based coalition and boosted Beppe Grillo’s anti-establishment, anti-euro Five Star Movement, which finished second in the European Parliament election.

Merkel also demanded a stifling and undemocratic EU fiscal straightjacket, which the commission duly enforces. So when voters throw out a government, EU fiscal enforcer Olli Rehn immediately insists that the new administration stick to its predecessor’s failed policies, alienating voters from the EU and pushing them towards the extremes.

Consider France.

After François Hollande became president in 2012 on a pledge to end austerity, his Socialist Party won a large majority in parliamentary elections. But Berlin browbeat him into further austerity.

Now, with both the centre right and the centre left discredited — together, they received only 35 per cent of the popular vote — Marine Le Pen’s racist Front National topped the poll by promising radical change.

Along with a chronic economic crisis, Europe now has an acute political crisis. Yet the EU establishment seems bent on pursuing business as usual.

In the parliament, a vocal but fragmented minority of critics, cranks, and bigots is likely to push the centre-right and centre-left groups, which still have a combined majority, to club together even more closely.

The low turnout and weakening of mainstream parties gives the European Council — national leaders of the EU’s member states — a pretext to continue cutting deals in smoke-free rooms.

First up will be the choice of the European Commission’s next president. The outgoing president, José Manuel Barroso, claims that “the political forces that led and supported… the Union’s joint crisis response… have overall won once again”.

Merkel wants to stick to current policies that have failed to deliver growth and jobs.

Perhaps the man to shake things up is Matteo Renzi, Italy’s dynamic 39-year-old prime minister.

In office since February, he won a resounding 41 per cent of the vote, twice that of his nearest rival. Already committed to reforming his country’s crony capitalism, he now has a mandate to challenge Merkel’s crisis response. 

The timing is perfect: Italy takes over the EU’s rotating presidency in July. Renzi has already called for a 150-billion EU investment boost and greater fiscal flexibility.

Instead of a eurozone caged in by Germany’s narrow interests as a creditor, Europe needs a monetary union that works for all of its citizens.

Zombie banks should be restructured, excessive debts (both private and public) written down, and increased investment combined with reforms to boost productivity (and thus wages).

The fiscal straightjacket should be scrapped, with governments that borrow too much allowed to default. Ultimately, the fairer, freer, and richer eurozone that would emerge is in Germany’s interest, too. 

Europeans also need a greater say over the EU’s direction — and the right to change course. They need a European Spring of economic and political renewal.

The writer was an economic adviser to the president of the European Commission until February 2014. His latest book is “European Spring: Why Our Economies and Politics are in a Mess – and How to Put Them Right”. ©Project Syndicate, 2014. www.project-syndicate.org