End of the road for European austerity?

With France likely to vote in a socialist president critical of her fiscal pact, and a Dutch government collapsing on the issue of social reforms, German Chancellor Angela Merkel’s austerity model is taking a battering.

Published on 24 April 2012 at 14:34

Europe is on the move. The Merk in the Merkozy "austerity" pact is about to lose its back wheels. Other conservative or technocratic cheerleaders of austerity are all fighting to keep this hybrid on the road. Poor handling is making the passengers in the back – Spain, Italy, Portugal Greece – car-sick. Even co-drivers like the Dutch, who railed against a short haircut for Greece's private financiers, are finding it hard to steer in the Netherlands, where the roads should be smoother. On Monday their government collapsed.

The extreme right is on the rise again in France, where the Front National, whose image has been detoxified by the daughter of its founder, got its highest score. The Front National's score has steadily been rising and what made 2007 different was Mr Sarkozy's ability to capture much of its vote. This he has now lost and if he is to win it back in two weeks, he will have to turn ugly again. Either way, the French incumbent becomes steadily less attractive as a partner for Ms Merkel.

As Angela Merkel is racing against time to lock the austerity measures into EU law, institutions, and its executive, the politics of key member states are moving in the opposite direction. Whether it is from the extremes or the centre, from left or right, the popular message is similar: German-led austerity diminishes our sovereignty, wrecks the prospects for our youth, and – if anyone from the centre to the left is talking – fuels the rise of the neo-fascist right.

Merkollande, if it emerges, is a concept for a silent, less flashy, electric family car. But there is no design, let alone something ready for the test track, and batteries could still be a problem. Nicolas Sarkozy did not take up Angela Merkel's offer to campaign on his behalf and one senses now a certain amount of relief on the German chancellor's behalf that she was not asked. If Mr Sarkozy, who is known in Germany as a divider and a polariser, has every interest in dramatising the choice before the French electorate in the next two weeks before the second round, Ms Merkel, who is facing important elections of her own, may have different political goals.

Opinion in the German social democrats SPD on Hollande's 60-point programme of reform is divided. Some leading voices, like the former finance minister, Peer Steinbrück, have called Hollande's demand for a renegotiation of the austerity pact naive. While others, like the SPD leader Sigma Gabriel, are in lockstep with Hollande's attempt to exit the eurozone debt crisis by encouraging growth. Together, they said in a joint interview, they can "move things".

That will almost certainly include Ms Merkel herself, who is nothing if not a pragmatist. Time and again the argument is made why Germans should throw their good, hard-earned money after southern Europe's bad. The counter argument – that if the single market fails, its single biggest provider of goods will fail with it – has yet to be made with sufficient force. But when it does, Ms Merkel will move with the prevailing wind. The only real question in Ms Merkel's mind is whether she has a majority. This most cautious of political animals will move where her majority takes her.

Anyone serious about the European project should take the message of the first round to heart. Persist with an economic programme that diminishes sovereignty, consigns youth to high levels of unemployment, and steers Europe towards a decade of stagnation, and you will destroy trust in social solidarity, the bedrock on which the EU lies. Economically the case for stimulus at the risk of stoking inflation has still to be won. Politically, it's becoming a no-brainer.


Hollande presidency could upset vote in referendum

The issue of a François Hollande presidency in France is a sensitive one in Ireland as it gears to vote in a referendum on the Merkozy driven Stability pact on May 31. The socialist front-runner has contested a treaty which locks austerity measures in to EU law. The Irish Times writes -

Hollande’s aides are talking not of amending the substance of the treaty, as he has been suggesting during the campaign – a nightmare prospect for other capitals, not least Dublin – but of adding a protocol. And some German analysts have been suggesting that Merkel may be willing to countenance a form of “growth pact” as a protocol to the treaty. That would also find favour in Spain and Italy, among others.

[...] While moving the goalposts on the shape of the treaty, or even suggesting they will be moved, is clearly not helpful to Ireland’s attempt to get a referendum agreed on May 31st, the alternative of a “growth protocol” does have some appeal. To sell the fiscal treaty, branded simply and effectively by No campaigners as the Austerity Treaty, this Government, like others in the union, must sell the idea of the treaty and monetary union as an engine for growth, and not simply an instrument of economic torture, however necessary.

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