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Europe's Lurch to the Fringe

Posted: 05/03/2012 8:38 am

This Sunday's French and Greek elections may mark the beginning of the end of the current political status quo not only for France and Greece, but for much of Europe. The polls will take place in a unique political, economic, social and psychological climate, and will likely mark a formal shift away from pro-austerity measures. The desire of a large part of the populous for a gradual yet fundamental change is mixed with frustration about what austerity measures have -- and have failed -- to achieve, prompting many to want to punish the political establishment. The question is, will they end up punishing themselves in the process.

The current crisis in Europe challenges the notion that a better future can only be achieved through a painful present, with salary cuts, increased taxation, and reduced public services being part of nearly every European country's current landscape. After four years of this approach, many people in Europe are now poised to reject the new rules to the game. New political divisions are emerging, but transcend traditional cleavages such as left vs. right, increased vs. limited state interventionism, and nationalism vs. xenophobia. Voters are now likely to support candidates who can draw a fine line between charisma and political sobriety, excess and realism, and sensibility and necessity.

The failure on the part of the current crop of politicians to turn Europe's economic morass around has created a backlash because voters no longer see a pot of gold at the end of the rainbow. Instead, they see a new Europe that is beginning to imply a semi-permanent state of budget cuts and austerity, which is perpetuating anemic growth rather than the type of economic stimulus that will ultimately lift the continent out of its hole.

An absence of trust between voters, politicians and political organizations has ensued. Since the political middle ground has failed to deliver, voters are seeking solace through political candidates spouting increasingly extremist rhetoric, and raising the prospects of parties on the far right and left. The irony is that political extremists have no better game plan and probably stand no better chance of turning things around -- even though voters would like to believe they do.

In France, Mr. Hollande's answer to sclerotic growth is to reject fundamental reform while raising taxes and spending, making the role of the state even larger. There is also concern about whether any coalition government in Greece will be able to deliver on the country's promises of maintaining a tough austerity program, which would imperil continued IMF support.

It is becoming increasingly clear to more and more voters that as the present medicine has failed to show tangible results (with the Greek economy expected to shrink another 5 percent this year, and France slated to achieve virtually no growth) that if their lifestyles have not already been negatively impacted by Europe's perfect storm, it will soon be the case.

Europe's drift toward political extremism also threatens to derail the Franco/German alliance and common understanding about how to fix the problem. With Mrs. Merkel having taken a firm stance against Mr. Hollande, his rise to power implies even greater challenges for Europe. It is becoming evident that if things do not improve in the rest of Europe, Germany will begin to lose the incentive to convince European leaders of the necessity of maintaining a medium term tight monetary policy.

The continent's leaders and the political elite must acknowledge the multifaceted character of the current crisis, with all its political, economic, and social manifestations. This economic crisis is forcing the wider establishment and average citizens to re-examine Europe's socio-political structure. It may take a shift to the fringe of the political spectrum to finally arrive at the right mix that will enable Europe to lift itself up, which implies that a political solution remains many years away. If so, Europe, and the world, must brace itself for part two of the Great Recession, which cannot be far away.

Co-written with Alexis Giannoulis

Daniel Wagner is CEO of Country Risk Solutions, a cross-border risk consulting firm based in Connecticut (U.S.), Director of Global Strategy with the PRS Group, and author of the new book Managing Country Risk. Alexis Giannoulis is a CRS research analyst and a freelance diligence and political risk analyst.

 

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