Austerity revolt shakes Europe
Elections over the weekend have pushed Europe and the euro, and the global economy, to the brink - or abyss - of yet another dangerous crisis. The people have spoken, not merely in France but also in Greece and Britain and even in Germany.
Their message is loud and clear: we have had enough of destructive job-killing austerity and want to get back to growth as the driving force of economies. Francois Hollande declared in his victory speech, that 'austerity is not inevitable' and his win over Nicolas Sarkozy - which has grabbed most of the headlines - was a harbinger of change across Europe. It is hard to be optimistic. There is no obvious leader in Europe - or in the world - who has a global vision, let alone one who has the personality and the political skills to transcend narrow national views to work out an economic and financial programme that would work across borders.
Markets took a gloomy view. Asian stock markets fell heavily as did the Standard & Poor's futures index, the euro fell to a three-month low, and the Japanese yen, as the safe haven currency, rose.
Hollande's victory by 52 to 48 per cent over Sarkozy was expected, but France's president-elect is still an unknown quantity. He is more modest than Sarkozy, who pranced across the world stage like a show pony. Former president Jacques Chirac derided Hollande as 'less known than [president Francois] Mitterrand's labrador dog'; Hollande turned the insult into a publicity bonus for him.
Hollande is popularly known as 'the marshmallow', even though he has recently shed some of his flab. He will take over a country with unemployment at the highest level for 12 years and with unsustainable debts.
Some commentators say that in practice Hollande will not be as much a firebrand as his reputation. He is after all an enarque, that is a graduate of the Ecole Nationale d'Administration, the French graduate school that has a quasi-monopoly on elite administrators, so Hollande is very much part of France Inc.
But he is caught between the demands of the French people and the adamantine opposition of Germany against changes to the European stability pact. As of last week, when it was clear Hollande would win, the best Berlin was prepared to offer was a velvet glove to soften the iron fist of austerity. Wolfgang Sch?uble, Germany's finance minister, said: 'Everybody who gets freshly elected into office must be able to save face, so we will discuss this with Hollande in a very friendly way. But we won't change our principles.'
German Chancellor Dr Angela Merkel, who had shared a campaign platform with Sarkozy in his bid for re-election, stuck to her guns at a conference in Berlin last month, saying that: 'You can't spend more than you take in. You can't live your whole life this way. Everybody knows this.'
Other commentators said the weak French economy would not allow Hollande much leeway. Fredrik Erixon, head of the European Centre for International Political Economy in Brussels, told Bloomberg: 'Merkel is just going to lean back and watch Hollande jump into icy water and try to swim. He'll soon realise his predicament because financial markets are going to do to France what the French electorate didn't do.'
The French are not alone in expressing their opposition to austerity. The coalition government of British Prime Minister David Cameron took a hammering in local elections last week, losing hundreds of seats to Labour in a vote of opposition to the cutbacks that have sent the country back into recession. Britain is not a member of the euro and not a member of the inner European club.
The coalition government of the Netherlands last month fell because of opposition to budget austerity measures after only 558 days in office. Austerity opponents have hit the streets in Italy, Portugal and Spain.
But the most defiant vote against austerity came from Greece. In parliamentary elections, voters left no party in a position to form a government, smashing those who had gone along with the deficit reduction policies demanded by their international creditors, and supporting far-right and far-left parties.
Anthonis Samaros, leader of New Democracy, which secured the biggest share of the vote, just 19.7 per cent, wants to stay in the euro but renegotiate the deal with creditors. Alexis Tsipras, leader of the second-biggest party, Syriza, a coalition of radical left and green groups, which took 16.6 per cent of the vote, declared the vote was 'a humiliating defeat' for the policies of Merkel.
Growing numbers of economists sympathise with the revolt against austerity. In a paper for policy portal Vox EU, Charles Wyplosz wrote: 'Citizens rightly feel that sacrifices do not deliver the promised results. Even the IMF, long criticised for its stern advocacy of procyclical austerity, is now asking that Eurozone nations that can to 'go slow' ... We are left to casual empiricism and lessons from history, both of which show that procyclical fiscal policies are bad, especially when monetary policy is not available any more.'
He makes a sensible claim that the proper solution must 'combine debt restructuring, front-loaded collective fiscal expansion and long-run unbreakable commitments to fiscal discipline'. But where is any politician who understands what this entails, let alone has the power to promote a workable scheme and the votes to get it accepted?
France's national debt, in euros
- Debt per French citizen is Euro26,898
- Debt per Greek citizen is Euro30,954