Did Austerity Kill the European Dream?

Comparisons between the current crisis and the 1930s have been pervasive. With steep falls in the eurozone’s GDP growth, rising unemployment, and protracted price stagnation, economists have consistently warned the EU and Western leaders against repeating the mistakes made back then. Alongside this, the rise of xenophobic and anti-Europe parties across Europe since 2010 has led observers to note with preoccupation the possibility that, much as it happened in the thirties, the euro crisis might erode and eventually destroy liberal democracies and with that, the European project.

While this is not the place to deal in depth with the parallelisms between the current crisis and the 30s, one cannot but note how prevalent comparisons with the 30s have been. Rightly or wrongly, the fact is that policy-makers have constantly used the frame provided by the Great Depression. Successive G-20 Summit meetings since the crisis started stressed the need to avoid repeating the mistakes made in the 30s. Meanwhile the IMF and other leading economists, among them the most vocal, Paul Krugman, have regularly criticised the EU’s austerity policies because of the risk that they would lead to a 30s style depression.

The fact that comparisons have been drawn, rightly or wrongly, is less telling of the 30s than of the severity of the current crisis. In 2009, GDP fell 4.4% in the EU, with lows of -17% in Latvia, -14% in Estonia and Lithuania, and -6.8% in Hungary. Then, following a feeble recovery in 2010 and 2011, austerity measures sent the eurozone back into recession (with GDP hitting -0.7% in 2012 and -0.4% in 2013). The impact on employment, the perennial Achilles Heel of the European economy has been marked. Unemployment in the eurozone, which stood at 7.5% when the crisis started in 2007, went up to 12.0% in 2013, with countries such as Spain or Greece going well above 20% (26.1% and 27% in 2013 respectively). With these figures, representing 18.4 million unemployed men and women, politics in many EU member states have resembled a loaded gun just waiting to be triggered by extremism.

Indeed, electoral results for fringe parties form a large part of the story of the crisis, and they tell a story of growing success and consolidation. While correlation between two events does not of course imply causation, one cannot but note the coincidence between the success of these parties in the polls and the crisis. Rather worryingly, we’ve seen these parties succeeding across the European compass, from the “old”Western Europe to the “new” Central and Eastern Europe, and from the Parliaments of Southern Europe to those in Scandinavia. With every election, their virus has spread over the European map, culminating in the European elections of June 2014 in which they emerged as the first or second political force in a series of key countries such as France or the United Kingdom.

Their apparent ability to captivate the electorate in countries so wide apart geographically and so different in political culture questions whether “austerity” is the only culprit or, in fact, just another among many. Moreover, while the rise of far-right parties has been well-documented by the press, the rise of similar parties on the left (such as Syriza in Greece or Podemos in Spain) or, for that matter, of parties like Beppe Grillo’s Five Star Movement in Italy, all of which are difficult to categorize with the usual left-right labels, challenges the temptation to prematurely close the file and cry the 30s are coming back.

It is not only the ideological (left-right) variable that should lead us to pause. Geography is also important, for though the rise of UKIP in the UK might well have to do with Europe, since the UK is not a member of the eurozone and still enjoys monetary sovereignty, its rise can hardly have much to do with austerity. The UK is not the sole exception; the same can be said about other non-members of the eurozone where the far-right has been doing extremely well, such as Hungary, Denmark, or, lately Sweden, where the so-called Swedish Democrats have become the third political force in the September 2014 elections.

Within the eurozone, the ultimate paradox is that austerity policies have provoked the rise of far-right parties in creditor as opposed to debtor countries. Looking at the geography of far-right growth across the eurozone, it is France, the Netherlands or Austria, where these parties have assumed the greatest relevance. In comparison, it should be noted that, with the exception of Greece, the eurozone countries that have been hit hardest by the crisis (Spain, Portugal and Ireland) have not witnessed any significant increase of far-right parties. It is true that Spain, for example, has seen both new populist parties emerge on the left (Podemos) and an increase in another type of populism: secessionism. Nevertheless, a common sentiment prevails across politics and society, and that is a desire to stay in the EU and, more relevantly, in the eurozone. This sentiment is present even in Greece, where the rise of neo-Nazi Golden Dawn is a worrying development, still the truth is that despite the suffering associated with the Troika and austerity measures, the majority of Greeks, including those voting for the new radical left party represented by Syriza, are manifestly pro-EU and eurozone.

A final fact to consider is that the majority of these parties existed long before the crisis, thus the crisis cannot be the sole factor to explain them. Does this mean then that Europe and austerity are irrelevant when explaining the rise of these parties? Certainly not. It appears that the crisis has given them the milieu in which to grow, offering them a new narrative from which they could reinvent themselves and reach new electorates. In the majority of cases, from the UK’s UKIP to France’s Front National and others, the European crisis has provided them the opportunity to espouse party positions on their traditional issues such as immigration, identity and sovereignty. In this sense, Europe has done a great service to these movements: helping them detoxify their original narratives, generally anti-Semitic or purely fascist (like the original British National Party or the French National Front as founded by Jean Marie Le Pen, the current leader’s father) and aim at a new target, the EU. Already a very unpopular entity and one which can’t by its very nature stand up for itself, EU is allowing national governments to apportion it the blame for the issues they collectively agree on.

Across the continent, the European Union, presented in the form of a bureaucratic monster which strangles the economy, the hand that opens the gates to immigration, joblessness and multiculturalism, or the agent which demands too much solidarity towards the failed peoples of the South or East, has now assumed the identity of the much hated political, economic and cultural liberalism which all these parties claim to oppose. In Western Europe, these groups tactically vindicate democracy and present themselves as “Democrats” (e.g. in Austria, Denmark, Finland or Sweden), but in practice they stand for authority and order, economic protectionism and cultural assimilation (for any remaining doubts, see their praises of Putin). In Central Eastern Europe, however, due to their different political cultures and history, they do not hesitate to present themselves as fascists and directly challenge liberal democracy.

Despite their differences, all these parties, radical right or radical left, from inside or outside the eurozone, produce the same affect. They polarize politics and narrow the political space in which traditional centre-right or centre-left parties have to compete. Their challenge is to place traditional parties in a lose-lose dynamic: they can either try to compete with fringe parties by assuming part of their agendas (and in doing so risk losing the centre and facilitating the extremist political opposition), or they can reach to the centre and ally with their traditional political opponents in order to resist the assault of the radicals. In following the first strategy, they may have to sacrifice some policies, especially at the European level, and become more belligerent on a series of issues like immigration, thus losing legitimacy and capacity to act on the European level. In following the second strategy and combining with the traditional parties, they might further alienate their voters and incentivise them to move further to the extremes. In both situations, they face considerable risks.

This is where austerity comes back into the picture. To break this vicious circle, which threatens both the European project and domestic democracy, Europe needs growth and jobs. Whereas the reasons for the growth of populism are complex and are related to wider phenomena such as globalization, immigration and social change in contemporary societies, it is evident that Europe has been failing in the attempt to find the right mix of economic policies and political leadership. Europe is unlikely to go back to the 30s and democracy at home is thus not under risk. What is undoubtedly at risk, if it keeps failing to deliver to its citizens, is the European project. And here we can certainly speculate as to whether historians in the future will conclude that austerity killed the European dream.