Wednesday, November 26, 2014

Europe’s Political Stress Tests

PRINCETON – In recent years, the European Union – or, more accurately, the powerful countries of northern Europe – has been subjecting its weaker members to social and political “stress tests” in the name of fiscal rectitude. As a result, southern Europe and parts of Eastern Europe have become a kind of political laboratory, with experiments producing strikingly varied – and increasingly unpredictable – outcomes in different countries. At the last EU summit, Luxembourg’s prime minister, Jean-Claude Juncker, even suggested that the risk of a “social revolution” should not be excluded.

While that outcome remains unlikely, it is increasingly clear that many European countries – and the EU as a whole – need to renegotiate their basic social contracts. But European elites, preoccupied with short-term fixes, have not considered the long-term need for such revisions – to their own detriment.

Indeed, despite significant variations by country, one trend is becoming increasingly apparent across the EU: voters, regardless of their political orientation, are ejecting at the first opportunity leaders who implement austerity. But, beyond this overwhelming opposition to austerity, countries’ experiences vary widely.

Greece has seen the rise of an overtly fascist party, Golden Dawn, which proudly celebrates the legacy of former dictator Ioannis Metaxas. Although Golden Dawn has existed for roughly two decades, only in the last year did it gain enough support to enter parliament. Moreover, its poll numbers continue to climb.

Golden Dawn’s success does not reflect a deep-seated desire among Greeks to return to authoritarianism. The party has simply stepped in where the Greek state – long plagued by inefficiency and corruption – has retreated, providing basic welfare and other services to desperate citizens, while engaging in unprecedented violence against people who are or look like immigrants. One way that Golden Dawn attempts to embody the state is by having party members out on the streets as vigilantes.

Austerity has similarly sharpened a long-standing crisis of statehood and political legitimacy in Italy, reflected in the rise of a new anti-establishment party, the Five Star Movement, which claims to transcend the traditional left-right political spectrum. Indeed, the movement lacks clear policy objectives, instead capitalizing on popular disgust with Italy’s political elites – a sentiment that led directly to the last election’s failure to produce a clear winner. The sense of revulsion is acute: Many of the Five Star Movement’s supportershope to transfer control of Italy’s government to citizen-representatives, whose every move would be digitally monitored to preclude corruption.

Some countries’ electorates initially backed austerity, but none has re-authorized it. In Spain, for example, voters understood the implications of supporting the ruling Popular Party, making it one of the only southern states where the government had some kind of mandate to implement tough austerity. But the mutually reinforcing recession and debt crisis that Spain now faces have reinvigorated Catalonia’s long-standing secessionist movement; austerity has transformed a chronic, though manageable, problem into an acute existential question.

Similarly, Portugal’s center-right Social Democratic Party has pushed a tough pro-austerity line, including tax hikes and spending cuts, since coming to power in 2011. But new measures introduced last month have driven an increasingly frustrated population – which, until recently, had endured painful austerity with little of the public outcry seen elsewhere in southern Europe – to the streets to demand a general election two years ahead of schedule.

Political and social turmoil across southern Europe holds several lessons for austerity’s proponents – especially for Germany. First and foremost, the dogma that solid public finances – and, more broadly, a functioning state – can be achieved only through painful austerity is an illusion. When forced to choose between their societies and their clientele, politicians may well decide that allowing social tensions to rise – even to dangerous levels – is better than sacrificing their own power bases.

In fact, when Germany embarked a decade ago on a reform program featuring major cuts to the welfare state and a more flexible labor market, it broke the rules of the eurozone’s Stability and Growth Pact. Public spending had to rise before it could fall, in order to provide some slack while renegotiating parts of the social contract.

The second lesson from southern Europe is that muddling through is unlikely to work. Building the needed support for a new social contract will require an appeal to fairness, not just to fiscal rectitude. And a mechanism to authorize the new deal – such as a grand coalition actually empowered by elections (not just reluctant support by major parties for technocratic leaders like Italy’s Mario Monti) – is essential.

Alternatively, citizens could try to lead efforts to re-negotiate their countries’ constitutional arrangements. Iceland, for example, has embarked on an unprecedented experiment in crafting a bottom-up, “crowd-sourced” constitution. Similarly, albeit less radically, ordinary citizens comprise two-thirds of Ireland’s Constitutional Convention.

If southern eurozone countries followed the route of forging a new social deal, they would have to ensure that it ultimately intersects with the paths of the northern European members. While all eurozone countries do not have to converge on a single model, their interdependence means that a pan-European social and economic settlement is needed.

European leaders must move beyond the increasingly implausible mantra of “belt-tightening today; full bellies tomorrow,” and recognize that, at its core, the euro crisis is a political crisis. Rather than focus on quick policy fixes, Europe’s leaders need to pursue long-term solutions. And that includes new social contracts.

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    1. CommentedHll Dlgz

      It is true that this crisis creates new policy options. Main intermediaters of the policy change i.e. parties (Golden Dawn in Greece and the Five-Star Movement in Italy) are not 'approved' by the the elite. A conciliation between vested interests and newly arising powers will determine the content of next policy and its revolutionary character.

    2. CommentedCarol Maczinsky

      Austerity is a completely misleading term, call it soft landing. The islandic constitutional experiment is unfortunately over. A people is responsible for its democratic decisions and if they elect fascists that is fine to me, because I don't have to live under such rulers. A people cannot blame its democratic decision making on others. The rescue aid from Northern countries is not a Versailles treaty but only softens the landing of what has already fallen. Bankrupters who insult reditors and others are not be taken seriously.

    3. CommentedJoshua Ioji Konov

      An excellent observation... adding to it is that the pro-libertarian EU economics continues to trickle-up capital into the very few whereas expecting the trickle-down effect. which seemingly does not work..., the subsidies, the flat taxes, the VAT hurt small business and investors to the point of diminishing demand and consumption, other words cutting the branch under their own feet, which plus the austerity measures is a measure for disaster...

    4. CommentedZsolt Hermann

      I partially agree with the article's last paragraph:
      "...European leaders must move beyond the increasingly implausible mantra of “belt-tightening today; full bellies tomorrow,” and recognize that, at its core, the euro crisis is a political crisis. Rather than focus on quick policy fixes, Europe’s leaders need to pursue long-term solutions. And that includes new social contracts..."
      Europe, and in fact the whole global world needs new social contracts.
      But the crisis is not a political crisis, it is a total system crisis.
      Any new social contract, any negotiation has to be placed in the right context, on true, real foundations, otherwise we will continue chasing our own tail as the article mentions.
      First we need what the politicians want to avoid the most: a brutally honest self-examination, putting all the facts on the table regardless of party politics, personal legacies, reelection dreams, and so on.

      We have all the necessary scientic and "field" data to formulate two precepts, all new contracts, negotiations have to be based on:

      1. Austerity vs stimulus is completely irrelevant in today's framework. The problem is with the economic model itself that has become unsustainable. The present unnatural, excessive, constant quantitative growth economy is based on an illusion, it has no natural foundations.
      Nature, the system we exist in does not understand credit, borrowing without repaying, paying for credit with credit, building unfounded bubbles on top of other bubbles, creating and fulfilling unnatural, unnecessary desires.
      Nature is a simple system, with simple unbreakable laws, you can only take what exist in the system, you can only take what you truly need and leave the rest for the system as if you exploit the system you hurt yourself as your existence depends on the optimal function of the whole system.
      We have been trying to ignore this for a long time, pretending we exist outside of the system, thinking we can have our own rules, laws, subsystems, but all this is unfounded and as a result we are all in a dead end.
      We are part of the system and the laws are binding.

      2. The above mentioned natural system is complete. There is a full cooperation, complementing mutual interaction between the elements. If this interaction is not mutual, not fully complementing the balance, homeostasis is broken and the system fails, effecting all of its elemenst in a negative way. If only parts of the system go against its main laws, the system rejects that part.
      Humanity evolved into a global network by today, these interconnections have become full.
      Our evolution entered the "one for all/all for one" stage.

      In summary the new human system not only in Europe but all over the world has to be based on a natural necessity and resource based economy, and governed by a fully, globally mutual, supra-national governing system.

        CommentedEdward Ponderer

        As dreadful my recollection is of final's week back in the good old days, perhaps the most unnerving thing about it was that annoying sign posted everywhere on campus and most particularly the libraries, "A diamond is just a lump of coal that did good under pressure."

        Now, there is some truth to that -- but one thing is absolutely required for that, this being that the pressure on the diamond-to-be is evenly distributed. Otherwise, that lump of coal will not do well at all -- it will simply shatter into a messy dust.

        So if the matter of restructuring the molecular bonds of the big round lump of coal that we live on -- that is the bonds of human relationship -- is to be done constructively, it too will have to be completely global and balanced. -- Or the messy dust of social revolution will happen, over and over, till there is nothing but a fine black soot.