April « 2012 « Euro

Archiv: April 2012

Has an EU-turn set in?

24. April 2012, von Alexander Tietz, Comments (0)

by Ferdi De Ville

One of the surprising aspects of the financial crisis that started in 2008 is “the strange non-death of neoliberalism”, as Warwick professor Colin Crouch put it aptly. Indeed, especially after the Greek tragedy changed the beliefs about the origin of the crisis from ‘caused by untamed capitalism’ towards ‘provoked by profligate governments’, what followed was a reinforcement of neoliberalism rather than its demise. This resulted in electoral victories of the right throughout the Western world and, especially within the eurozone, synchronised austerity and further liberalisation and deregulating structural reforms. Many essays, articles and conferences have been dedicated to the question why the Left was unable to capitalise on capitalism’s greatest crisis in almost eighty years. Anyway, while Nobel Prize winning economists, international organisations from the International Monetary Fund to the International Labour Organization and even rating agencies advocated a more balanced crisis approach in the eurozone, the Frankfurt-Berlin-Brussels axis seemed unmoved.

Until very recently?

While the European Spring of 2012 will (as it seems) not make it into the annals neither for the wonderful weather, nor for a popular Arab-style uprising, an EU-turn in crisis policies may have cautiously set in. Some developments and decisions of the past weeks point in that direction: the cot death of the fiscal pact due to escalating fiscal problems in Spain and even the Netherlands; the eventual collapse of the Dutch government over austerity talks; the results of the first round of the French presidential elections; and the European Commission’s employment package presented on 18 April 2012 that focuses on the demand-side of jobs and growth.

After two years, more and more people concerned, observers and ordinary citizens alike, seem to think that the austerity-that-will-restore-confidence-policy has been tried and failed. After history had already proven that expansionary austerity is a fairy tale – except for a small number of countries and then always in combination with currency devaluation – the eurozone is increasing the reliability of this conclusion.

This column is written the day after the first round of the French presidential elections. While very different analyses about the results might (are, and will) be made, one conclusion should be undisputed: a very large part of the French electorate has voted against the current policy, and for parties that promise to protect France against the threats of globalisation and neoliberal European integration. Francois Bayrou, maybe the only candidate whose campaign can be described as truly moderate and unambiguously pro-European, has not even convinced one in ten French voters. Whatever the outcome of the duel Hollande-Sarkozy, the next president will have to take account of the disenchanted class that voted for one of the extremist parties or these will only blossom further.

Also the Netherlands might soon have a government that distances itself from the current austerity-only direction. Nobody dares to forecast the Greek elections that will be held at the same day as the French choose their next president, but it seems certain that the traditional parties will suffer a historical defeat (although this might not be reflected as such in the distribution of parliamentary seats because of the Greek electoral system). And with upcoming elections in Italy (although it is not yet known exactly when) and Germany, also the other two big eurozone countries might undergo governmental change.

Is it these changes the European Commission is anticipating and has led it to adopt the employment package drafted by Commissioner Laszlo Andor (and, one might add, Commissioner Algirdas Semeta to propose a European approach against tax fraud and evasion before the European Parliament a day later)?  The employment package is notable because, in general, it focuses on the demand-side of job creation and in particular, it proposes European-wide coordination (and hence introduction everywhere) of minimum wages ‘[that can] be an effective means of upholding labour demand’. Commission officials have conceded anonymously that this proposal is directed towards Germany. Keynesian observers and some politicians from peripheral countries and labour unions have for some time argued for wage increases (especially at the lower end of the labour market) in Germany (and other current account surplus countries) as a solution to imbalances in the eurozone, and for stimulating demand in Europe in the short term.

It cannot be excluded that after the French election Sarkozy or Hollande will become a ‘normal’ president who settles for a symbolic ‘growth’ annex to the Treaty on Stability, Coordination and Governance. And for the time being the importance of the employment package should certainly not be overstated. However, I find it very hard to imagine that the eurozone/EU will be able to continue much longer along the current path.

While many, many obstacles stand in the way of a real EU-turn in its crisis approach and reform of economic governance, it is fortunately not impossible. I expect that as dissatisfaction with the unsuccessful austerity approach increases and is translated in election results, the European Commission will finally assume its role as the promoter of EU-wide interest, which in the euro crisis is to keep away from the bad equilibrium of synchronised austerity. This might put it, after the ECB, at a collision course with Germany with whom it (as the ECB) normally concurs ideologically and structurally. If this happens, it might open an interesting debate on an alternative European crisis approach that might also penetrate into next year’s German electoral campaign.

If the eurozone/EU would eventually be able to change policies that failed and are disapproved in national elections, this would be an impressive response to its critics that hold that a single market and currency is by definition incompatible with nation-state democracies.

But, hey, this might as well soon turn out to be an utterly wishful-thinking column.

 

Dr. Ferdi De Ville is assistant professor at the Centre for EU Studies, Department of Political Science, Ghent University where he teaches and writes on economic and monetary union and the euro crisis.

 

The First Round of the French Presidential Elections and Political Turmoil in the Netherlands Could Mark the Beginning of new Controversies on the Eurozone’s Crisis Management

23. April 2012, von Alexander Tietz, Comments (0)

By Carsten Brzeski

François Hollande and Nicolas Sarkozy are the two finalists of the French Presidential elections with 28.5% and 27.1%. Negotiations between the losing candidates and the finalists are likely to be tense. Both Hollande and Sarkozy will now try to get as much support as possible from the losing candidates to win the runoff elections in two weeks. It looks as if François Hollande can probably obtain all support from the left wing without major problems. This support should represent around 15% of the votes. Nicolas Sarkozy is likely to have more difficulties to attract the Front National’s voters (far-right party), which obtained 19%. Marine Le Pen, the Front National’s leader, is a clear opponent of Nicolas Sarkozy. However, her voters are closer to Sarkozy than Hollande. François Bayrou, the centrist leader, has obtained around 9.1%. At this time, he has not given any voting instruction. Polls show his voters could be split in three parts for the second round; 1/3 to Hollande, 1/3 to Sarkozy and 1/3 to abstention. This would secure a victory for Hollande. The main challenge for the second round for Sarkozy is therefore to attract Front National voters and centrist voters. But, at this time, polls show the transfer of vote seems to be favourable to Hollande.

Elsewhere during the weekend, the Dutch government negotiations on the budget came to a standstill. Prime Minister Mark Rutte, whose centre-right minority coalition has been in power since October 2010, said on Saturday that crucial talks on budget cuts had collapsed after his ally Geert Wilders from the Freedom Party had refused to do a deal. Since the elections, the Freedom Party had a pact to support Rutte’s minority government in parliament, giving it the majority to pass legislation. The Dutch government still needs to find additional budget consolidation to bring its fiscal deficit to 3% GDP next year as the country is running under the so-called European excessive deficit procedure. With Saturday’s decision, it looks likely that new elections will be announced shortly. Interestingly, there does not seem to be a political majority anymore to bring the deficit to 3% next year.

Latest developments in France and the Netherlands could lead to a change of their

respective political and economic stance. Obviously, both core Eurozone countries are currently running under the excessive deficit procedure and will have to bring their fiscal deficit back to 3% of GDP next year, which would – given this year’s deficits – still require significant additional efforts. Moreover, let’s not forget that both countries (as all other European countries) still have to ratify the new fiscal compact. It should not be excluded that we could see a repetition of the 2002-2004 episode when the fiscal rules were changed after the biggest Eurozone countries had breached them. The drivers behind last weekend’s political developments in both France and the Netherlands are not necessarily the same. However, the outcomes might have one common denominator: they could mark the beginning of a change to the entire Eurozone crisis management.

Dr. Carsten Brzeski (Carsten.brzeski@ing.be) is Senior Economist at ING BELGIUM SA/NV – Economic Research.

Presidential Campaigns in France – Missing the Point?

19. April 2012, von Alexander Tietz, Comments (1)

By Daniela Schwarzer

In April and May 2012, all eyes in the EU are on France. The presidential elections come at a key moment. The crisis in the euro area is re-gaining pace, with bond market pressure once again increasing on Spain – and serious questions asked about investors’ confidence in France.

 

The campaigns of the two main candidates, the acting president Nicolas Sarkozy and socialist contender Francois Hollande, have almost entirely discarded the pressing problems the French economy faces. Over the last few years, the country has lost competitiveness, with unit labour costs rising considerably. While France does have a few successful industrial players (automobile, aeronautics, etc.), the general trend is de-industrialisation. Since 2004, the country records external trade deficits, with a rising tendency. France faces growing public debt, attaining 90% of GDP this year. While both candidates have claimed that they would balance the budget (Sarkozy has promised zero deficit for 2016, Hollande for 2017), they have not said how they will attain this target – in particular which expenditure they would cut of an overall expenditure to GDP ratio of 56 %. The medium- and long-term budgetary perspectives (including the high implicit debt levels hidden in the social security systems) have not been worth mentioning in a campaign. Several candidates, among them Hollande, have even promised to unravel Sarkozy’s timid pension reform which raised the French retirement age from 60 to 62. So, in a nutshell, voters are not prepared for the adaptation needs of the economy and public spending in France. But markets won’t have mercy, so the new political leaders will have to stage a moment of truth to their electorate rather sooner than later after the second round of the presidential elections in May and parliamentary elections following in June.

Many observers state that the campaign was equally weak on Europe. Indeed, none of the candidates has put forward a proposal for further developing the EU or the eurozone. Meanwhile, in other countries, slowly but surely, discussions on euro area crisis management and governance reforms are evolving into a rather fundamental debate on the future political nature of the EU, subsidiarity vs. further competence transfers, legitimacy crises, democratic deficits and the like. The French presidential candidates have missed out on this one.

 

But the EU does play a role in the election battle in France, though not the way some may have liked. Poll data show that candidates with outright EU-sceptic and anti-globalisation positions gather roughly 30% of the votes. This has surely influenced the tone chosen by more moderate and traditionally pro-European candidates. There has been a threat by the acting president to withdraw from Schengen, unless the EU would take a more restrictive stance on integration, there have been proposals perceived as ’attacks’ on the European Central Bank’s independence. These proposals have been done away with as campaign noises which no realistic follow-up by some, or have been seen as outright provocations by others. There is yet one initiative by the socialist candidate which may make some difference if he should win the elections. Francois Hollande has made it clear that he would not let France ratify the Fiscal Compact unless there is an additional growth initiative. When he first voiced this condition, it stood against the European mainstream and was treated as a threat to Europe’s renewed quest for stability. Only a few months later, and after new discouraging data on the euro area periphery, the question how to foster growth is of increasing concern, even to right-wing governments which, for months, have insisted to put austerity first and refused to debate growth policies. Hollande’s proposal – and the reactions to it – was significant in a second dimension. It is the first time that left-wing policy proposals play a role in the euro area debate, otherwise shaped by a strong liberal consensus. At one point in March 2012, when Hollande gathered a group of left-wing political leaders from other EU countries for a public campaign event, Paris even seemed to become the crystallisation point of a new left-wing debate over re-shaping the euro area. No matter how on judges the content of the proposals made, it is legitimate and high time to bring a left-right-debate where it belongs: The reforms of the governance structures in the euro area agreed upon so far are not politically neutral. The new rules enshrine economic and budgetary policy choices, so it is legitimate to debate them, broadly and controversially.

 

Dr. Daniela Schwarzer is the Head of the Research Division EU Integration at the German Institute for International and Security Affairs, Stiftung Wissenschaft und Politik (SWP) in Berlin.

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