By Steven Hill
May 10, 2012
Greetings from London. I have been here, and before that in Paris, for the last several weeks, observing elections in both countries (as well as holding meetings, interviewing people and giving a couple of lectures). As you can imagine, there is much talk here about what the recent elections mean, not only the French presidential election and Greek parliamentary elections but also recent local elections in the UK (including Mayor of London) which occurred last Thursday. In the UK elections, the Coalition government (Conservative and Liberal Democrat parties, the co-authors of the UK austerity policies) received a drubbing at the hands of the Labour Party.
Most pundits are misinterpreting these election results as voters’ rejection of austerity, but this is only partly correct. More accurately, these fresh results follow a consistent pattern in recent years in which incumbent parties – whether right or left – have been losing elections as voters react to increased economic insecurity resulting from the ongoing deep recession. Not surprisingly, incumbents are being blamed for the ongoing difficulties that people are experiencing. But these matters are complex, and voters simply are not clear enough in their own minds about what is the best way forward, whether it’s austerity or stimulus, “more Europe” or exiting the euro zone, etc. Even the experts are not clear, so why should average voters be clear on these very complicated matters?
But it is also true that Europe, after passing through what I believe to have been an important period of fiscal consolidation and debt deleveraging, is moving into a different phase of its evolution. A new consensus is emerging as leading voices on both the right and the left (including many conservative leaders such as ECB President Mario Draghi, European Commission President José Manuel Barroso and Italian Prime Minister Mario Monti), have begun to call for policies that will spur economic growth and job creation. Until now, both the left and the right in Europe had agreed for the most part that fiscal consolidation and austerity have been necessary in order to establish a benchmark for the size of allowable deficit/debt and fiscal spending, and as a foundation for further steps towards political and economic integration. But this new right-left consensus amounts to a recognition that austerity alone is no longer sufficient, as unemployment climbs higher and some member states stagnate in recession. This new consensus seeks to elevate growth and job creation to equal status with fiscal consolidation/austerity, and so in that sense truly represents a new wind of change blowing across Europe.
But of course there is disagreement between the Left and the Right about the specific policies to pursue in order to create growth/jobs. When French president-elect Françoise Hollande and German Chancellor Angela Merkel sit down, the Left and Right perspectives on “next steps” will be pressed to find common ground. The negotiations will be hard, and I don’t expect either side to emerge with everything it wants. Nevertheless, I think this will mark a step forward for Europe as it continues down the pathway of its fateful decision to decide how united it wants to be as a continent, and whether or not it will become a United States of Europe.
President-elect Hollande’s victory already has dramatically changed the debate, and so it has been exciting to eyewitness it from Paris and London. I was present at the campaign headquarters of the Hollande and Socialist Party campaigns on election night of the first-round election on April 22, and you could feel the excitement in the air as the several thousand people rallying in the street in front of the campaign headquarters glimpsed the possibilities for a new direction (for those who follow me on Twitter, they had a ringside seat since I tweeted live reports from the headquarters. The moment when the Socialist Party’s presidential candidate in 2007, Segolen Royale — who is also the former wife of Hollande, so how’s that for drama – arrived at the headquarters was an electric one). You can read the tweets at https://twitter.com/#!/
But this process of evolution that Europe is undergoing will take many years. It won’t be decided by one election in France, I can tell you that. Europeans have to decide not only will the many member states—or some subset of them in the “two speed” Europe scenario—share a currency but also budget policies, debt-sharing/eurobonds and ultimately a transfer union in which the better-off states will perpetually assist the lesser-off states (just as California, New York and New Jersey continually bail out Mississippi, Alabama and Alaska). Greece is the Mississippi of Europe, and from that fact follows other inevitable dynamics in a monetary union that Europeans are only beginning to realize. For example, Americans pay most of their taxes to a federal government in Washington, DC and they get most of their transfers from there—will Europeans consent to infuse the centre with so much power? That is a new reality that Europeans are only beginning to get used to (I wrote about these issues in more detail here: Germany’s Next Steps: Can you say “transfer union”?). In that sense, I would say that Europe is following a very expected trajectory, and one that shares important similarities with that traveled by a young America in the 1780s.
Still ahead for Europe is a redesign not only of many of its basic economic institutions, but also its political institutions. The political institutions of the European Union have been fine for a loose knit confederacy, but this crisis shows that they are inadequate for a monetary and transfer union. I took a big swing at proposing a redesign of European-level governance structures in this article: Europe 2.0: A Blueprint for Redesigning European-level Parliamentary Democracy. For a slightly more amusing take on such matters, see K-I-S-S Rule for Europe.
All in all, I am still bullish on Europe; longer-term I still think the European way is the “best hope in an insecure age” because of how it has created a development model of social capitalism that comes closest to figuring out the best way to foster equality, fairness, solidarity and economic and environmental sustainability. In many ways, Europe’s economy is actually more efficient and cost-effective than the American economy. I develop these ideas in this article written for the Robert Schuman Foundation’s 2012 State of the Union Report, Europe’s Promise: Why the European Way is Still the Best Hope in an Insecure Age
Recently I appeared on the Fox News Business Network to exchange views on these weighty matters. As always on Fox, the interactions were amusing, and even illuminating. Tune in by going to http://www.foxbusiness.com/on-