Austria should be the last warning: policy change or implosion

austria

The far-right has been making major electoral progress across Europe for years. The onset of the economic and financial crisis proved the European Union’s institutional design was incapable of answering to economic shocks, becoming unable to compensate the loss of sovereignty of member state, especially in terms of monetary policy. Since countries do not control the currency (and the European Central Bank is committed to price stability only, not growth) and this is not compensated with EU-wide fiscal mechanisms that act as automatic stabilizers, the only way crisis countries could gain access to international financing was to accept bailouts with harsh reform agendas attached. This has been deepening the recession not only in the rescued countries, which have witnessed public spending, wages and employment plunge, but to all EU countries, since the spill-over effect has permeated them due to their economic interdependence.

This has caused two different, but still similar reactions in Europe. On the one hand, rescued countries increasingly see the EU as a synonym of austerity and misery. Greeks do not understand why they have to pay for Nea Democratia’s government lying about public deficit. Spaniards fail to understand why their public debt used to be less than 40% of the GDP in 2007 and it sky-rocketed to 100% after rescuing the financial, being citizens liable for a crisis they did not cause. Therefore, rescued countries tend to emotionally and ideologically detach from the EU, although this has translated into pro-European, progressive changes: Syriza in Greece, the impressive debut of Podemos in Spain, a progressive government in Portugal, and the centre-left still in power in Italy. But the critiques to the EU are clearly on the table.

On the other hand, Northern countries feel like they are paying for Southern Europe’s party. Yet the clear beneficiaries of the economic orgy in the South are German, French and Austrian banks. And these countries are suffering the effects of the crisis too: lower wages, low growth rates, less generous benefits. And the one to blame is the EU, because it has (allegedly) imposed a centrifugal redistribution of money toward the south, and those lazy folks need to be punished hardly, right? On top of that, the incapacity to generate a political discourse of tolerance toward immigration has caused solidarity to sink even further down.

In the 2014 European elections, the exceptional results of far-right parties in France and the United Kingdom, where their influence had not been that powerful, was a warning the EU (or the member states) failed to acknowledge. Today, Austria nearly elected a far-right President. The country is depressingly divided in two halves. The nazis would double their results in Greece. In Sweden, Denmark, Finland and Germany, they continue their rise.

Europe cannot wait any longer. The tight result in Austria is the last and probably the most serious of a chain of warnings we can no longer afford to ignore. The EU needs to give a proper response, which has been already put down by authors such as Stiglitz, Krugman, Galbraith, Piketty, Esping-Andersen. The EU needs to get rid of the ineffective austerity and set an agenda of growth, of sustainable growth. And this entails further integration. The currency area cannot work without fiscal integration, at least inside the Eurozone. These authors suggest the creation of EU-wide transfers (e.g. children benefits, unemployment benefits…) that would act as automatic stabilizers. In addition, they suggest introducing eurobonds and finishing the banking union. Mechanisms of debt relief will also be necessary.

But, is this agenda possible at all? The European leaders have been blaming the rescued countries for too long to make a policy u-turn, maybe. In addition, the Brexit will keep the UK outside any further integration. Also, we should not reject the possibility that such an agenda would be seen as “yet another” concession the misbehaving South, and therefore strengthen the influence of far-right parties in Europe. All these scenarios are possible, but if austerity is to continue and misery and confrontation keep going up, so might the far-right parties. We only need to look back on history to remember what people in situation of misery and humiliation end up voting.

Austria should be the last warning.

 

 

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