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.