People's Democracy

Europe Turns to the Left

C  P Chandrasekhar

IT is a time of change in European politics. Voters, tired of the policy environment in which Europe’s economic crisis remains unresolved even as new burdens are imposed on them in the name of much-needed austerity, are revolting. Governments and politicians that support and implement austerity are being displaced by a vote in favour of the Left (and marginally for the extreme nationalist right) or are facing mounting protests in the streets.

One telling signal was the victory of Francois Hollande in the French presidential run-off, making this the first presidential victory for the Left since 1988 and only the second occasion when an incumbent French president has not been re-elected. Nicolas Sarkozy’s defeat may partly be the result of his excessively flamboyant style and arrogance. But it is largely the consequence of his willingness to collaborate with German Chancellor Angela Merkel in pushing for fiscal consolidation across Europe and imposing austerity on countries whose public debt levels were arbitrarily declared as unsustainable.

In Germany, Merkel too has been sent a warning. Her Christian Democratic Union has been inflicted a huge defeat by the centre-left Social Democratic Party in elections in North Rhine-Westphalia, the country’s most populous state. In the Netherlands, the government has collapsed and the country prepares for elections, as parties of both the right and the left flounder between support for deficit cuts necessitated by the new European fiscal compact and fear of voter anger.

BAILOUT DESIGNED TO

HELP PRIVATE CAPITAL

But the country that illustrates best the chaos that can ensue from the austerity philosophy that lacks rationale in the midst of a crisis is Greece. Burdened with austerity ever since the first bail-out agreement in 2010, Greece has not only seen incomes and output shrink dramatically, but is experiencing an unemployment rate of 22 per cent, with one in every two jobseekers under the age of 24 unemployed. The austerity measures were ostensibly aimed at reducing Athens’ debt from 160 per cent of GDP to 120 by 2020, through cuts in wages, pensions, healthcare, public sector employment, and much else. But with the austerity slowing growth, revenues have been falling short as well, making it near impossible to meet staggered debt-reduction targets. The bailout has failed.

The bailout was actually designed to help private finance capital. Access to credit from Eurozone governments, the European Central Bank and the IMF prevented the repudiation of private debt and an exit of Greece from the euro. In 2010, before the first bailout agreement, Greece owed about 310 billion euros, almost wholly to the private sector. According to the Greek Debt Management Office’s estimates, Greece now owes 266 billion euros, of which close to 75 per cent is owed to the European Central Bank, Eurozone governments and the IMF. While there is talk of a greater than 50 per cent haircut taken by private banks, the real outcome has been a huge swap of private debt for official debt.

The cruel cut was that this redistribution in favour of financiers who had lent to Greece without diligence had at its other pole severe austerity. That this would be unacceptable was known. Hence, when former Prime Minister George Papandreou announced on 31 October 2011 that the government would hold a referendum to assess popular support for the terms of the bailout agreement, the response from the counterparties to the bailout was aggressive. The move, which was seen as a means to scupper the bailout deal, was attacked both within and outside Greece. This led to its withdrawal and the resignation of Papandreou as prime minister ten days later. Clearly, democracy was not seen as a suitable environment for implementing the austerity presented as a prerequisite for restoring confidence and kick-starting growth.

Elections were also postponed for long so as to allow an unrepresentative “national government”, in the form of an opportunistic coalition between the centre-right New Democracy and the PanHellenic Socialist Movement (Pasok), to obtain legislative sanction for the austerity measures. The intention was to accede to the demands of the German and French governments, the European Central Bank and the IMF, even though protestors clashed with police outside parliament while the details of the austerity package were being debated and made into law.

But the elections had to be finally held. And they have left the erstwhile ruling coalition short of a majority, with the New Democracy winning 19 per cent of the vote and 108 (out of 300) seats in parliament and Pasok garnering 13 per cent of the vote and 41 seats.  What is remarkable is the showing of Syriza, the Coalition of the Radical Left, which came in second with 17 per cent of the vote and 52 seats. In the October 2009 polls, Syriza had won just 4.6 per cent of the vote and 13 seats. The vote was clearly a rejection of the two leading parties that had come together to accept and implement the austerity agenda in return for bailout funding.

POLITICAL REJECTION

OF AUSTERITY

Anger against austerity has also led to a good showing by the Ultra-right and neo-Nazi Golden Dawn Party that reportedly advocates forcing immigrants into work camps and planting landmines along the Turkish border. The party has won 6.9 per cent of the vote and 21 seats in the Greek parliament.

But with two seats short of a majority, the coalition led by New Democracy has little chance of forming the government, since it is committed to both staying with the euro and continuing with the bailout policies. The one party that could have helped form a new “national government”, the Democratic Left, which has won 19 seats, is committed to the euro but campaigned for a reversal of austerity measures.

The next to get the opportunity was Alexis Tsipras of Syriza. His declared objective is to scrap the austerity measures. In Tsipras’ view, there cannot be a government of “national salvation” to implement austerity, since such austerity amounts not to salvation “but tragedy for the people and the place”. "The parties that signed the memorandum now form a minority. Their signatures have been delegitimised by the people," Tsipras is reported to have said.

Unfortunately, Syriza too could not put together a government that can reject austerity and place the burden of preventing a Greek default and keeping Greece in the eurozone on the rest of Europe. In the event, efforts are still on at the time of writing to somehow cobble together a centre-right government with a face-saving relook at the austerity measures. If that works, the problem would once again be temporarily postponed. If it fails, Greece’s citizens will get one more chance to get a government that rejects austerity. This time they are likely to deliver.

The political rejection of austerity is visible in France as well. Immediately after his election, Hollande declared that his election signalled that “austerity does not have to be inevitable” for Europe. That is significant, especially since his campaign promises included higher taxes on business and the rich, employment subsidies, and a partial reversal of the rise in the retirement age to 62. 

There is therefore some hope that the world would see a retreat from an unthinking commitment to fiscal conservatism. But the transition would be difficult and divisive. Merkel has already warned Athens, grappling with finding itself a government, that it would have to stick to the reforms and budget targets agreed with lenders in the bailout deal. But this is not good for Greece, for Europe or the rest of the world. The reason why spending cuts in the middle of a recession are seen as making good sense is flimsy to say the least. Improved fiscal positions and reduced government debt is expected to improve “investor” confidence, leading to more international investments and credit and a revival of demand and growth. However, the reason why investors should feel confident when economies are languishing in a recession is never made clear. And the evidence that they don’t is ignored. Consider a country like Ireland, which has been a disciplined student of the “austerity for confidence” school. Having recorded a negative 0.4 per cent growth in GDP in 2012, Ireland grew by just 0.7 per cent in 2011. And growth in the last quarter of 2011 was just a little above half than in the second quarter. Other countries that have been experimenting with the contradictory austerity-induced revival strategy, such as Greece, Portugal, Spain, Italy and the UK have also been disappointed, as was to be expected. Nowhere is the turn to austerity as severe as in the peripheral countries of Europe. So the political backlash had to begin there. But with France showing the same tendency, the popular mood is difficult to dismiss. Hopefully this would restore some balance in economic policy making across the world.