The Rise of Europe’s Extremes?

When Messrs. Cameron and Osborne committed the UK to ‘the age of austerity’ three years ago, they hoped to batten down the hatches, reign in spending, empower the private sector and use thrift to eventually attain growth. A Europe-wide commitment formed; austerity, rather than stimulus, was seen as the best way to avoid a double-dip recession.

Though it may be a five year plan, hard numbers suggest this is not working.

Across Europe the state has shriveled; interest rates have been slashed, yet unemployment and deficits continue to soar. The election of François Hollande has not only opened up the chance of a change of direction in France, but also in Athens, Brussels and Berlin.

Revolt against austerity is now widespread and the message of long term opponents like Paul Krugman, Henry Blodget, David Blanchflower and the shadow chancellor Ed Balls is gaining traction.
The question is simple: ‘Austerity now?’ or ‘stimulus now and cuts later?'.

To an electorate who have seen pay freezes, widespread unemployment and governments who seem protected from the sharp end, it’s becoming harder and harder to argue for austerity.

[Related Article: Nicolas Sarkozy v Francois Hollande: What happens when the dust settles?]

So does the election of Hollande represent a sea-change for Europe?

Even though Merkel and Cameron have publicly welcomed Hollande’s election, there will be private anxiety about a leader who swept to power on an overtly anti-austerity platform.

Twelve European countries are now in recession; their leaders constantly trying to appease impatient and volatile electorates. One in four of the workforce remain unemployed in Spain - and Italy and France are not far behind. The very existence of the Eurozone is precarious.

Governments which have bound themselves to austerity now seem caught in a death spiral - while it appears that cuts are choking growth, we remain locked into a plan that means we must cut more.

But will Hollande really be able to provide change? The new French President was careful not to make big promises - as Ed Miliband is in Britain - and even his signature reforms had a lot of fine print.

He announced he would recruit 60,000 more teachers, but is funding this by shifting existing civil service jobs from other ministries to education. He promised to roll back Sarkozy's pension reform - but for only a tiny fraction of workers. He pledged to renegotiate the European Fiscal Compact Treaty that Sarkozy negotiated with Merkel - but only to add a growth stimulus, not to alter its very purpose.

So while the debt-ridden countries on the hinterland of Europe are turbulent, the big beasts - Germany, France and the UK - remain committed to the cause of austerity. The fundamentals of economic policy-making remain steadfast. When Dad pays for dinner, he sets the conversational agenda.

The extremes of political discourse are gaining traction in Greece and France.  In Greece, a leftist coalition opposed to austerity is seeking to form a government. In France the far-right Marine Le Pen received the backing of the fifth of the French electorate, and UKIP’s Nigel Farage gets more and more airtime in Blighty.  

We can worry about these extremes, which seem to offer such simple answers, but maybe we should also be thankful for them. The conversation has widened from a banal monotone over details to a discussion of alternatives. The EU electorates are making protest votes.

Dad pays for dinner, but we don’t have to blindly eat it.