By: Park MacDougald
Can a Socialist knock some economic sense into the Eurozone?
Socialism and neo-liberal economics don’t traditionally go hand in hand. Here in the Land of the Free, “socialist” is a favorite epithet used by those on the political right to describe economic or social policy that veers to the left of libertarian economic idol Ludwig von Mises. Though the application is often comically misinformed (no, Virginia, Keynesianism isn’t Socialism), it does speak to something in the American mindset that when trying to tar a political opponent, “socialist” has become the go-to smear over such age old favorites as “fascist,” “Communist,” and “Nazi.”
In the Old World, mercifully, such a problem does not exist. Rather, it is quite the opposite situation – parties which proudly label themselves as “Socialist” are really no more than moderate, center-left, social-democratic parties in the style of England’s Labour. Although these parties would almost certainly be considered far-left by American standards, one would be hard pressed to find a party willing to carry out the type of bold, anti-market (and anti-logic) action (think Cristina Kirchner) that might endear them to the Hugo Chavezes of the world. In practice, parties such as France’s Parti Socialiste (PS) or Germany’s Sozialdemokratische Partei Deutschlands (SPD) generally follow neo-liberal economic principles, albeit with higher taxes, lower retirement ages, and shorter work weeks. However, in Europe as in America, prevailing elite and public opinion still holds that, when it comes to economic issues, the Socialist parties may be as scary as their names suggest.
This helps partially to explain the international hand-wringing that has accompanied the recent French presidential election. The incumbent Nicolas Sarkozy of the centre-right UMP is favored by most of the European political establishment, and German Chancellor Angela Merkel ignited a controversy when she endorsed him earlier in the election cycle. Sarkozy is generally thought to be better-schooled on economic matters, and his election would likely calm some of the investors who have grown wary of France’s government bonds as of late. However, Sarkozy’s re-election is looking increasingly unlikely. He is widely unpopular among the French public and is expected to lose the run-off on May 6th to Socialist candidate François Hollande. As predicted, Hollande emerged as the leading vote-getter in yesterday’s 1st round of elections, with 28.6% of the vote. Sarkozy received 27.1%, far-right National Front candidate Marine Le Pen received 18%, and Communist Jean-Luc Mélenchon received 11.1% (Only Hollande and Sarkozy will run in the second round). Sarkozy is not dead yet, but it will be difficult for him to recover from the first round defeat, as almost all of the Communist votes will go to Hollande and it is unsure whether National Front voters, many of whom are ex-communists and whose primary concern is immigration, will support Sarkozy or vote at all.
Hollande’s election looks, on its face, to be a terrifying prospect for the eurozone. He has campaigned on a platform to increase taxes on millionaires to 75% (almost ensuring massive capital flight and discouraging entrepreneurship), promised to lower the pension age to 60, declared war on global finance, and promised ever-more government spending in a country whose AAA credit rating was recently slashed for the first time in history because of persistent structural deficits. To an American public whose understanding of the crisis is usually limited to some vague mental associations with escalated government debt levels, electing a heavy-spending Socialist to lead the second largest nation in Europe seems like a recipe for continent-wide economic suicide.
However, Hollande might not be so dangerous as he seems. In fact, he may be exactly what Europe needs at the moment. One of the most astounding aspects of the recent European economic crisis has been the failure of the supposed “best & brightest” minds of Europe to adequately diagnose the problem that faces them. Despite ample evidence that the fiscal austerity championed by Berlin has been driving economies like Greece, Spain, and Italy into depression, the Germans and other northerners have remained adamant about the regimen. Massive public spending cuts in these nations have led to GDP contractions, in turn fostering high unemployment and loss of social cohesion. Since GDP is shrinking, despite reducing expenditures governments are receiving less in revenues to go towards paying back their debt. Germany’s ruling center-right CDU and its partners across Europe, including Sarkozy’s UMP, have consistently recommended austerity (and more austerity) as the only solution to the economic problem. This has meant an outright refusal to engage in more expansionary fiscal policy that might help cash-strapped governments, but might also cause inflation, anathema to a German public with the hyperinflation of the Weimar years still fresh in the mind. This has helped foster the belief in many corners that the obstinancy of the German public is the real obstacle to any effective solution.
The election of Hollande may prove an important step in the recovery. The Frenchman has already promised that he will renegotiate the recent European fiscal compact with more of an eye towards promoting growth in the periphery, rather than the apparently punitive austerity measures contained in the first one. Already, it has been asserted that the election of Hollande, and other leftist candidates across the continent, might convince Merkel and the ECB to pursue more inflationary policy, or at the very least agree to issue some sort of Eurobond – a sort of common European debt to replace the worthless national bonds of nearly bankrupt countries such as Greece. In any case, a change in policy is needed from Brussels and Berlin, and it may be more benificial for all if Paris and Berlin were to march in step no longer.
