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.

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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.