The election in Greece on Sunday – and the likely triumph of the left wing Syriza Party – will be only the first of three hammer blows this year to the European Union and its politics of austerity. Spain too will be holding a general election later this year ( in December) and the new left wing movement Podemos has already swept to the top of the polls on an anti-austerity platform similar to the one that the Greeks seem about to embrace. In Britain too, the May general election is likely to leave the Conservatives clinging to power in a coalition with UKIP, Britain’s right wing anti-EU party – although in UKIP’s case, its hostility to the EU is based on the EU’s immigration policy, not its economic policy. In sum, 2015 looks like sounding the death knell to the European Union as we currently know it.
If so, the Germans will have only themselves to blame. The self serving austerity measures in Europe dreamed up by Germany’s central bankers were bad social policy – in that the bailout terms systematically punished the most vulnerable members of society in Greece, Spain and elsewhere for the “ sins’ of those who had benefitted the most from Germany’s trade policies. It was also bad economic policy as well. If we have learned anything from the GFC, it is that recovery is not achieved via austerity, but by the policies of expansion that have been pursued in the United States and Britain. In the US and UK, their current economic recoveries have been on the back of quantitative easing and credit created by activist governments. The age of timid central bankers and governments fearful of market intervention obsessed with inflation and intent on budget-balancing is over, or should be.
On that point, Bloomberg News published an interesting overview last week:
…. The U.S., with the most activist central bank and after more than five years of quantitative easing and a zero interest rate policy, has the best looking economy in the developed world. Europe, where Germanic austerity and central-bank timidity prevails, looks the worst. Japan is somewhere in the middle, both in terms of its economic recovery and QE.
Preliminary results of these grand monetary experiments are now in and the results are clear: more monetary stimulus equals a stronger economic recovery.
(Yet as you may recall a few years ago, when the Greens suggested a form of QE here as a response to the GFC fallout, this was taken as evidence of those wacky Greens, and their desire to print money! In the end, New Zealand retained the zombie rhetoric of belt-tightening and austerity, but surfed off the back of the stimulus programmes that were being enacted in China and Australia. Not for the first or last time, Finance Minister Bill English was merely the conduit for decisions made offshore. )
The political re-alignments now playing out across Europe in the wake of the failed EU austerity programmes are significant. In Greece and Spain, political life has been dominated for decades by a relatively stable two party system whereby the mainstream parties of the centre-right and the centre-left have regularly swapped the reins of government. The GFC and the rash of punitive bailouts have now destroyed that cozy consensus – and in 2012 in Greece it took a grand coalition of these former enemies to keep Syriza at bay. That won’t work again this year. Regardless, the traditional centre-right and centre-left parties in Spain have also been talking of forming a united front against the rise and rise of Podemos. This ‘grand coalition’ trend has been evident right across Europe:
As populists gain electoral support, traditional center-left or center-right governments have lost their majorities. These parties, which have historically alternated in government, and have long seen each other as ideological rivals, have had to join forces to remain in power. Formal coalitions between the two biggest parties now rule in Germany, Austria, the Netherlands, Finland, and Ireland, among other countries. Some form of grand centrist bargain also props up the reforms pursued by Matteo Renzi, in Italy; assures the current majority in the European Parliament; and helped persuade the Scots to vote against independence.
If it wins on Sunday, Syriza is already promising to re-negotiate Greece’s bailout package and its debt repayment obligations. As it does so, Syriza has already made an unlikely new friend. Yesterday, the far right French politician Marine Le Pen and her National Front announced her support for Syriza, presumably on the grounds that her own anti-EU cause will be furthered by whatever damage Syriza can inflict on the EU as it follows through on its election promises.
In the short term, the reef fish in the global share-markets will be panicked by Syriza’s success. They shouldn’t be. The political backlash across Europe against the unjust and unworkable EU austerity programmes has been inevitable, and has been coming for years. What’s unpredictable is what happens when the plug is finally pulled on the EU common currency.
The Panic, The Panic
Poverty, injustice and sharemarket upheavals. Doggone, I mean the panic is on :