As one who believes that Europe’s nation states need to move closer together and on from their past, if they are to exert influence in the world, the current times are very worrying. The EU is under threat as never before, economically from the crisis and politically as the forces of nationalism grow stronger.
Since the sovereign debt crisis broke over Greece in 2010, the political leadership of the EU and its member states has fallen short in facing up to the crisis insisting that the only acceptable answer lies in austerity. In a stern Victorian way, heavily impregnated with Protestant indignation about profligacy, distressed countries are, under EU instruction, having to deepen their recessions by cutting the three Ps – pay, pensions and public spending – and raise taxes. This is a partial replay of the economic history of the early 1930s. It did not work then and it is not working now. Far from securing the recovery, austerity is strangling it. That is the eurozone policy and it is the approach of the UK, although not of the US – one key difference with the 1930s, the other being the cheap loans policy of the European Central Bank and the quantative easing policy of the Bank of England.
Lord Eatwell put the weakness of the present approach well in a recent debate in the House of Lords (Hansard – March 25 column 1840): “The Second World War was a severe economic shock and Britain borrowed heavily to pay for it. We finally paid for the war in 2006…. even though the debt to GDP ratio exceeded 250 per cent rather than the 70 per cent of today, this did not stop the Government creating the NHS, introducing major educational reform, expanding the welfare state, and starting the difficult process of rebuilding the economy.”
But with the important exception of President Obama, western governments are not following the Keynesian policies of 1945 – which worked in Europe through the Marshall Plan – but those of the 1930s which did not.
The political consequences are already evident. Governments pursuing austerity are losing elections. Nationalistic parties of varying degrees of extremism are growing in strength. Euroscepticism is at an all time high with a cocktail of anti euro sentiments laced with opposition to the single market and to the free movement of labour. In the UK, UKIP might become larger than the Liberal Democrats while the SNP is now a major threat to the concept of the union of Great Britain.
There are alternative strategies on offer including mutualising some of Europe’s debts, i.e. Eurobonds, financial transaction taxes, fiscal boosts to increase spending on infrastructure and environmental projects, and better pay for the low paid in strong economies like Germany. But what is needed is political leadership to implement these measures and to change the current course of policy.
The bright star in Europe’s firmament for progressives and for pro Europeans is the new French President Francoise Hollande. Europhile and Keynesian, Hollande is determined to see fiscal stimulation and growth brought centre stage. If he succeeds in changing the course of the EU, it will be the most significant act of European statesmanship since Gordon Brown’s leadership in organising the bank bail outs in 2009. Hollande will have a formidable task in persuading Chancellor Merkel of that great industrious nation, Germany, that it needs to act more like General Marshall, and less like your granny’s household afraid of debt. I wish him well. Europe needs him to do well and so does democracy.