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Euro-report Euro-report
by Euro Reporter
2014-05-31 09:44:26
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A diminished France could spell the end for Europe

The real earthquake was the fall of the Berlin Wall. A quarter of a century later Europe is still buffeted by the aftershocks. Vladimir Putin wants to revive the Soviet empire. France is floundering in a Europe dominated by a reunited Germany. The Russian president is doomed ultimately to fail but can wreak havoc along the way. France tortures itself rather than admit that Europe now belongs to someone else. European leaders imagined life after communism would carry on much as before. The EU would take in the new democracies of the east. A single currency would dilute the dominance of the D-Mark and anchor Germany in the existing European order. That was then. The elections to the European Parliament last week were not quite the populist rout of some excited headlines. Yet the anti-elite, anti-immigrant and, in some cases, anti-EU protest was plain enough. In France, Britain and Denmark the xenophobic right made significant headway. Elsewhere, the angry vote fragmented between left and right. Populists and euro-sceptics now hold 30 per cent of the seats in the EU assembly. Mr Putin has been cheering his fellow, equally nasty nationalist travellers.

The surprise is that anyone should have been surprised by the outcome. The continent has suffered five grim years of falling living standards, rising unemployment and government-induced austerity. Germany’s Angela Merkel aside, it has not been blessed with leaders who inspire popular confidence. Welfare systems designed for another age are buckling under the pressures of globalisation. That a fair slice of voters should see these elections as a cost-free chance to kick mainstream politicians can scarcely be described as startling. The EU’s leaders should not be complacent. The union must be attentive to the everyday concerns of ordinary citizens and resist interference in the nooks and crannies of national life. It would be a great pity if the politicians now negated this message by choosing an old-school federalist such as Luxembourg’s Jean-Claude Juncker to head the European Commission. For all that, the nuts and bolts of European integration are a sideshow. The insecurities and inequalities that flow from globalisation are not the fault of the EU. If there is a serious criticism to be made it is that the union has failed to find an economic and political strategy that demonstrates that member states would fare a lot worse on their own.

These were national more than European elections. The big shocks were delivered in France and Britain: Marine Le Pen’s National Front (FN) driving the centre-right UMP and President François Hollande’s Socialists into second and third place respectively, and Nigel Farage’s UK Independence party topping the poll in Britain. The opinion polls in France showed FN voters were much more intent on slapping the elite, and concerned with immigration and jobs than with the highways and byways of Brussels. Ukip supporters similarly ranked immigration and the economy as their top concerns. The results in France are infinitely the more important – and not just because Ms Le Pen’s smile does not disguise the FN’s fascist and anti-Semitic roots. Britain has been detaching itself from its own continent for some time. Were it to depart, the rest of the EU would suffer a hefty, but not fatal, blow. France, by contrast, is an essential pillar. Without France, the euro and the entire European project would collapse in on themselves. The prolonged sulk of successive French governments has begun to make the unthinkable thinkable. Talk to German politicians about the future of Europe and they are not unduly exercised by Spanish debt or Italian lassitude. The country they really worry about is France. Germany knows better than most the dangers of an overmighty Berlin.

The founding bargain of the EU balanced German economic strength with French political leadership. The fabled locomotive of integration had two drivers. Even after German unification, President François Mitterrand felt sufficiently emboldened to say that more Europe meant more France. Even during the 1990s the sentiment owed more to hope than expectation. Two decades of economic underperformance has made it sound plain silly. The temptation is to blame Mr Hollande. It is fair to say that he wasted the first two years of his presidency in the pretence there was a painless way of jump-starting France’s long-faltering economy. This year he promised an about-turn, but doubts linger as to whether he has the grit to live up to the reforms and restore the national competitiveness. Mr Hollande is one in a long line. His predecessor, Nicolas Sarkozy, promised a “rupture” with statist economic policies. In the event, Mr Sarkozy produced barely a ripple. It is more than 30 years since France balanced its budget and it seems almost as long since unemployment was much below 10 per cent. Sad to say, the National Front – a party as devoid of answers as it is deeply nasty – was the beneficiary of a vote against economic failure. The strange thing is that France is not the economic basket case many Anglophones pretend. It has high productivity, world-class companies, skilled workers and, as far as Europe goes, a better-than-most demographic profile. The problem is the state is too big, and social and welfare systems are too inflexible. Above all, France has lacked a leader with the political strength and candour to put things right. The vote for Ms Le Pen was a powerful warning of the perils of inaction. The populists will not bring down the EU. But an enfeebled France could.

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The European Parliament election is a wake-up call for all of Europe

This Monday, European citizens awoke to a new reality. Across Europe, parties opposed to the European Union, mostly on the far right, were swept into the European Parliament by a wave of voter discontent. In some EU member states, including key countries like the United Kingdom and France, such parties will control the largest blocs of MEPs. And neo-Nazi groups, such as Golden Dawn in Greece and Jobbik in Hungary, have made gains that were once unthinkable, just 70 years after their ideological forebears brought decimation to the continent. Their message is one of disgust with the political class, marked by a visceral anti-European agenda. And, when the extremists take their seats, they are likely to stifle any effort to extricate Europe from its economic woes. The EU, built as a means of reconciling and unifying a fractured continent, could find itself under the control of those who are determined to compromise its very foundations. Europe’s leaders are wringing their hands in shock and surprise, as if in the aftermath of a natural disaster. “It’s an earthquake,” French Prime Minister Manuel Valls said of the result, in which Marine Le Pen’s National Front won 25% of the vote, finishing well ahead of the governing Socialists and the mainstream opposition Union for a Popular Movement.

It would be a colossal and historic error to believe that the attraction of populist and simplistic messages emanating from the extremes is solely the result of the economic crisis. In fact, Europe’s post-World War II model has shown an almost congenital tendency to return to the safety of the political mainstream in hard times. Historically, European voters, at least in the post-war period, have known almost instinctively that economic recovery requires political stability and confidence, not the politics of class enmity and racial division. Europe’s populism at the extremes – and its mirror image, apathy at the political center – displays in all of its repellent glory the profound disconnect between the electorate and the EU’s political leadership. What we are witnessing is a European population that feels fed up with politicians who do not address people’s daily concerns. The extremists are by no means restricted to the far right. On the far left, the quasi-mystical allure of anti-globalization and anti-capitalism – a muddled brew of simplistic slogans and easy scapegoats – shares much with the far right. The French entertainer Dieudonné M’bala M’bala – whose signature “quenelle” gesture, which resembles an inverted Nazi salute, has stirred controversy throughout Europe – personifies this overlapping discourse.

Initially, Dieudonné achieved success through humorously exploiting racial stereotypes and campaigning against racism. But he has now come full circle, is seen in the company of senior National Front leaders and even named Jean-Marie Le Pen (Marine’s father and the party’s founder) the godfather of his third child. Former Marxist and now far-right ideologue Alain Soral, considered one of the inspirations behind the recent anti-government demonstrations in France, has become Dieudonné’s mentor. As is often the case, anti-Semitism fuels their common engine. In Greece, there have even been indications of cooperation and coordination between the left-wing Syriza coalition, which finished first in the European Parliament election, with 26.6% of the vote, and the right-wing populist Independent Greeks Party (ANEL). These purported ties have cantered on forming a coalition government after the next national election, if they can bring down Prime Minister Antonis Samaras’s administration. Europe’s voters, thankfully still through the ballot box, are expressing their fears stemming from the economic crisis, the breakdown of the social contract, and perceived threats to national and cultural identity in the absence of coherent policies and pan-European legislation to address issues such as immigration and minority integration. Moreover, they see Europe’s multicultural model degenerating before their eyes with the rise of mono-cultural enclosed communities in Europe’s cities. Ultimately, the failure to address these concerns, owing to an ill-conceived view of political correctness, is hurting the very minority groups that silence was supposed to protect, by driving Europe’s citizens into the welcoming arms of populist forces. Europe’s political leaders cannot continue to bury their heads in the sand, avoiding “delicate” issues and abandoning the territory to extremists and inciters of hate and intolerance. The European Parliament election is a wake-up call for all of Europe. Almost seven decades of closer European integration and the absence of war have been made possible by the maintenance of social peace. But ignoring issues that concern so many citizens is no way to ensure that social peace continues. Leaders must lead, and they must educate voters. We all pay the price when they evade their fundamental responsibilities.

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Can Europe afford the rise of the right?

The votes across Europe have been counted, and the clear winners in the European Parliament elections are the parties who are pushing for the break-up of the body they'll be working for. Around a fifth of seats in the parliament are now held by hard-right anti-establishment or euroskeptic parties from countries including France, the U.K., the Netherlands and Denmark . And concerns are already being raised about how this might affect the economy of the European Union (EU). The economic policies of those anti-establishment parties which have done well are often vague – or even non-existent. Many have been set up as single issue, and have attracted votes partly as a protest against mainstream political parties. Take the U.K. Independence Party, who had the biggest share of the vote (in a 36 percent turnout) in the U.K.'s European elections.

The party's economic spokesman, Stephen Woolfe, told CNBC Monday that he had been in the job six weeks and would only now begin to formulate the party's economic policy ahead of a party conference in September.  UKIP's taxation policy is an example of the party's lack of clarity, veering between a flat tax and a general "simplification of the tax policy," according to leader Nigel Farage. Richard Murphy, campaigner at Tax Research UK, has accused the UKIP platform of making "no sense at all." Farage himself had described the party's previous manifesto for the 2010 U.K. general election as "drivel." UKIP's main possible influence might be to drive the ruling Conservative Party further to the right – it has already helped prompt Prime Minister David Cameron to promise a referendum on the country's EU membership if he is re-elected. "We expect the British Conservatives to continue to press immigration, European devolution, and even Brexit as issues as they attempt to fend off UKIP in next year's UK election," Tina Fordham, chief global political analyst at Citi, wrote in a research note.

This prospect has alarmed economists and business people. The majority of U.K.-based businesses want the country to remain in the EU and think their future prospects would be worse if the U.K. left, according to business lobby group the British Chambers of Commerce. In Germany, anti-euro Alternative for Germany (AfD), which is led by an economics professor, won 7 percent of the vote. As Germany has earned its reputation as the euro zone's paymaster, any suggestion of lack of commitment to the euro cause could reverberate across the region. Meanwhile in Greece, the leading euro sceptic party is on the hard left. Syriza, which has carved out a substantial niche campaigning against austerity measures imposed by Greece's international lenders, won the largest share of the vote there, but didn't manage to get enough to force early elections – a prospect that would have unsettled investors in the euro zone's periphery. For now, the impact on markets and the euro has been relatively limited – yet this shift away from the center ground is still concerning for longer-term investment. "The probability of a radical general election result somewhere in Europe at some point in the remainder of this decade is high," Jim Reid, strategist at Deutsche Bank, warned.

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Europe’s new anti-EU mood is an ominous sign

In the elections for the new European Parliament that concluded last Sunday, a Euroskeptic tsunami swept over the continent. Parties heavily critical of the European Union made major electoral advances, particularly in France, Britain and Denmark. Important protest votes were also registered in Austria, Hungary, Sweden and Greece. European integration was initiated after the Second World War by the likes of Robert Schuman, Jean Monnet and Konrad Adenauer, with a view to preventing more bloodshed and betting on shared values. It started with a six-nation economic community, and developed to its present 28-member alliance representing the largest economic entity in the world. Within that grouping, 18 countries have unified their currency in the so-called euro zone. The latter has been plagued by mismanagement and wrong-headed policies. The larger European Union has been challenged by a return to nationalism, a revolt against immigration and general complaints about poor governance.

The potential collapse of the European Union could lead to the same kind of fragmentation that contributed to the Second World War and subsequent violent conflicts in Europe — and must be considered very dangerous. The European experiment is the first example of a pooling of sovereignties to create a larger political union with a common flag, passport and Europe-wide standards. As such, it is a prototype of possible world federalism, ardently wished for by those who believe that globalization must be tempered by some form of world governance. If the experiment were to fail, then the larger objective of a better-managed world could be set back decades. Europe is too big, and too important, to fail. There are two options. First, rein in the process of unification, put it in reverse and return some powers back to the national countries. Second, intelligently expand and reorganize the shared powers, develop the common institutions, strengthen European democracy and harmonize fiscal and monetary policies. In a slogan, more and better Europe or no Europe at all. This is the motto of the Euro-optimists.

In my opinion, the first option is doomed to failure. A return to 28 nation states, each with their own currencies, taxation policies and widely different social safety nets, would exacerbate tensions and is completely incompatible with a globalized world where interdependence — wished or unwanted — is the new reality. With giants like the United States, China and India, a “Little Europe” would be completely marginalized and would lose any hope of retaining world influence. The second option, the reinvention of a better, more organized, reinvented Europe, is the preferred path — possibly the only path. Part of this would require giving the European Central Bank a much wider mandate, similar to the one of other central banks that has a responsibility to promote growth and employment. The ECB’s current mission is almost entirely focused on controlling inflation — a non-issue at the present time, since the continent is threatened more by deflation. Reinvention would also require giving up the completely counterproductive austerity policies that have wreaked havoc in countries like Greece and Spain. With over 50 per cent youth unemployment, the remedy has proved to be much worse than the disease. European reinvention should be a global imperative. With one-quarter of world production and with rumblings of wars of the past (Ukraine, etc.), Europe must, once again, be a high priority for the world as a whole. A sustainable, democratic Europe is good for the global system. A balkanized, nationalistic Europe conjures up nightmarish visions of a shameful 20th century, with its two world wars.

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Europe has an even bigger crisis on its hands than a British exit

If Europe's policy elites could not quite believe it before, they must now know beyond much doubt that they have lost Britain. This island is no longer part of the European project in any meaningful sense. British defenders of the status quo were knouted on Sunday. UKIP won 27.5pc of the vote, or 29pc after adjusting for the negligence - or worse - of the Electoral Commission in allowing a spoiler party with much the same name to sow confusion. Margaret Thatcher's Tory children are scarcely friendlier to the EU enterprise. Britain's decision to stay out of monetary union at Maastricht sowed the seeds of separation, as pro-Europeans fully understood at the time, though almost nobody expected EMU officialdom to clinch the argument so emphatically by running the currency bloc into the ground with 1930s Gold Standard policies and youth unemployment levels above 50pc in Spain and Greece, and above 40pc in Italy. European leaders must henceforth calculate that the British people will vote to leave the EU altogether unless offered an entirely new dispensation: tariff-free access to the single market along lines already enjoyed by Turkey or Tunisia; and deliverance from half the Acquis Communautaire, that 170,000-page edifice of directives and regulations that drains away sovereignty, and is never repealed.

Ideological hardliners would prefer to see Britain leave rather tolerating any reversal of the one-way Monnet Doctrine, and some talk of shutting British goods out of the European markets. They are fanatics. Others know that the EU's global credibility would be shattered if one of its largest states - and twin-leader in projecting military power - were to walk away in disgust, as Germany's Wolfgang Schauble has repeatedly warned. Brexit would change the chemistry of the union, leaving Germany in a hegemonic role it does not want, and leaving France in a very awkward "menage a deux". It would deprive the smaller free-market states of their policy champion and risk a chain reaction. A looser trading sphere might all too quickly emerge as a more alluring prospect along the Nordic-Protestant rim. Eurosceptics won the vote in Denmark, just as they did in Britain.  It is a fair bet that EU leaders would search for an amicable formula, letting Britain go its own way while remaining a semi-detached or merely titular member of the EU. Let us call it the Holy Roman Empire solution. Yet Britain is the least of their problems. The much greater shock is the "Séisme" in France, as Le Figaro calls it, where Marine Le Pen's Front National swept 73 electoral departments, while President Francois Hollande's socialists were reduced to two.

Mr Hollande's address to the nation on Monday night was mournful. He had no answers beyond a few pro-forma utterings about "growth, jobs and investment", instantly undercut by his vow to press on doggedly with the same contractionary policies that led to disaster. His premier, Manuel Valls, even had to announce that the president would see out his five-year term, as if this were already in doubt. It is widely claimed that the Front is eurosceptic only on the surface. Perhaps, but when I asked Mrs Le Pen what she would do on her first day in office if she ever reached the Elysee Palace, her reply was trenchant. She would instruct the French Treasury to draft plans for the immediate restoration of the franc, that great symbol of emancipation from the English occupation (franc des Anglais). She vowed to confront Europe's leaders with a stark choice at their first meeting: either to work with France for a "sortie concertee" or coordinated EMU break-up, or resist and let "financial Armageddon" run its course. "The euro ceases to exist the moment that France leaves, and that is our incredible strength. What are they going to do, send in tanks?" she said. She said there can be no compromise with monetary union, deeming it impossible to remain a self-governing nation within the structures of EMU, and impossible to carry out the reflation policies necessary to defeat the economic slump. "The euro blocks all economic decisions. France is not a country that can accept tutelage from Brussels. We have succumbed to a spirit of slavery," she said.

The EU authorities are now in a near hopeless situation. The logic of EMU is a further erosion of nation states. The "Two Pack", "Six Pack" and "Fiscal Compact" are all coming into force, and national regulators are losing control over their banking systems. The euro will inevitably lurch from crisis to crisis without some form of fiscal union and debt pooling. Yet voters have just let forth a primordial scream against any further transfers of power. With the exception of Germany, the elections were a broad repudiation of EMU austerity. The two dominant parties of the post-Franco order in Spain saw their share of the vote drop to 49pc from 80pc last time, with the Podemos radicals coming from nowhere four months ago to win 8pc with a campaign to "stop Spain being a colony of Germany and the Troika". The austerity coalition that has pushed the Netherlands into debt deflation crashed to 21pc. The ruling enforcers of EU-IMF Troika policies fell to 31pc in Greece and 28pc in Portugal. Italy's new leader, Matteo Renzi, bucked the trend with a record vote of 41pc for the centre-Left, but his triumph is no less a threat to the EMU policy regime. After watching fellow Socialists in Europe destroy themselves trying to perform root-canal surgery on their economies without anaesthesia, he is going for growth whatever they may say in Brussels about EMU deficit rules. If anybody has the panache to lead a reflation revolt, it is this irrepressible Tuscan gambler. Yet the elections have thrown up another wild card. Germany's Alternative fur Deutschland (AfD) has stormed onto the scene with 7.5pc of the vote. For the first time the anti-euro movement has an electoral platform to rail against bail-out policies or any deviation from orthodoxy by the European Central Bank. It is now even harder for Chancellor Angela Merkel to yield ground, whether on a debt redemption fund to chip away at legacy debts, or on the pace of fiscal retrenchment.

Strasbourg's Hemicycle is to become a chamber of militancy and protest where a Babel of voices shout down all action in languages the others don't even understand, like the Habsburg Empire's Cisleithanian parliament in its final years as the polity was falling apart. Europe's leaders are counting on recovery to rescue them, relying on the rest of the world to generate the necessary demand, but creating none itself. This is courting fate at a time when China is choking its credit boom, most of the Brics are in trouble and the US Federal Reserve is tightening. Italy, Holland and Portugal fell back into contraction in the first quarter, and France stalled again. The latest data show that the M3 money supply shrank again in April. It is the new normal of perpetual stagnation. Europe's "Fiscal Compact" has set in motion a doomsday machine, requiring states to retrench for year after year by law until their debts are ground down to 60pc, and we are all dead. The best that can be hoped for is 1pc growth in southern Europe through the decade, too little to prevent a lost youth or to halt the rise in combined public and private debt ratios. Claims that all is well are belied by strong hints that the ECB will venture into the unknown next week by cutting the discount rate below zero and launching asset purchases. Central banks do not embark on such policies unless something is badly wrong. The stimulus will not be enough, of course. The ECB's structure makes it incapable of acting with the overwhelming force of the Fed or the Bank of Japan, and it will therefore fail to break the recessionary psychology.

At some point the global cycle will roll over, leaving this crippled zone facing the prospect of another downturn before it has eked out any worthwhile recovery. It is a sobering thought. Unemployment may jump to yet higher plateaus. The European elections of 2019 may see the annihilation of the existing party system, if we get that far. Let us not lose sight of what has occurred. The root cause of this social, political and economic disaster is EMU. As Nobel economist Paul Krugman said this week: "Depression-level slumps didn’t happen in Europe before the coming of the euro." Monetary union first destabilised the South with massive capital flows. Now its contractionary bias blocks recovery. Oxford Professor Kevin O'Rourke has called for an end to the misery in a remarkable cri de coeur for the International Monetary Fund. What shocks him is that EU officials seem to treat it as a matter of course that unemployment should be stuck at 1930s levels, or that Italian GDP should still be 9pc below peak after half a decade. "These are not minor details, blemishing an otherwise impeccable record, but evidence of a dismal policy failure," he said. "If economic historians learned anything from the Great Depression, it is that adjustment based on austerity and internal devaluation is dangerous. Britain ran large primary surpluses throughout the 1920s, but its debt-to-GDP ratio rose substantially thanks to the deflationary, low-growth environment." Prof O'Rourke said he has been waiting five years for Europe's leaders to forge the new instruments needed to make the failed experiment work, but it is by now obvious that Germany will not allow fiscal union or shared banking liabilities, and others will not accept a federal political Europe. It therefore pointless to protract the agony. "The demise of the euro would be a major crisis, no doubt about it. We shouldn’t wish for it. But if a crisis is inevitable then it is best to get on with it, while centrists and Europhiles are still in charge. If the euro is eventually abandoned, my prediction is that historians 50 years from now will wonder how it ever came to be introduced in the first place," he said.

 


         
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Emanuel Paparella2014-05-31 15:21:30
Thank you to the Ovi editors for a very informative and thorough report on the disaster of the EU parliamentary elections and the danger posed by extreme right-wing parties to a fair and just democratic process. That political phenomenon is quite similar to what is going in democracies all over the world, such as that of the tea-party sending people to congress to work against the government and congress itself.


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