From Trump to the Euro Crisis

First, Brexit, then the election of Trump tell us that the "unpredictable" can occur. It could also occur in the eurozone, where the euro crisis deserves a secular reflection, open to different  possible scenarios

After the victory of Donald Trump, we can argue about not only the reasons for his unexpected success in America, but also about what lessons we can draw for the future of the European Union. Clearly, they are not overlapping political situations. Yet, despite all the differences, the scenarios are intriguingly similar. First, the economic crisis that has had different outcomes across the two sides of the Atlantic; then the quandary of traditional political parties.

The Great Recession has affected both the United States and Europe. With one important difference. The United States has started to grow again relatively quickly, and already in 2014, the GDP has exceeded the level before the crisis, while the unemployment decreased from 10 percent has been reduced to 4.9 percent. The opposite happened in the European Union and, in particular, in the eurozone, where the crisis continues with devastating effects.

The comparison between the policies adopted to respond to the crisis shows the absurdity of the combination of austerity and structural reforms adopted in the European Union under the auspices of the European Commission with the complicity of the eurozone member States. Austerity has paralyzed the growth, led to explosive levels of unemployment and, paradoxically, increased public debt, that it was aimed at reducing. At the same time, the so-called “structural reforms” attacked - through a reactionary policy defined as "reformist", the social achievements that have characterized the European democracy of the twentieth century.

 From the economic crisis to the dissolution of the Left

The paradox is that these policies have been supported not only by the rightwing movements, as it was predictable, but also and, sometimes, with greater emphasis, by the center- left parties..

It’s worth remembering that when the euro was introduced, the four largest European Union countries were run by center-left governments: from Blair, to Jospin, Schroeder and D'Alema, with Romano Prodi at the head of the European Commission. The optimism for the future of the EU, then enhanced by the Euro, seemed well founded and, apparently, guaranteed by the center-left leadership. The reality could not be more shocking. At the same time, the leftwing political class, which had been the main architect of the new European Union during the dawn of the twenty-first century, has disappeared.

Next year, when are scheduled parliamentary elections in three key countries such as France, Germany and (almost certainly) Italy, many unexpected things - as it was the case with Brexit and the Trump victory - could happen.

From this point of view, the American lesson is clear. Rather than rebuking the unforeseen events, it is worth wondering about the reasons that make them possible. “Between 1980 and the most recent period, Martin Wolf of the Financial Times writes, the share of the top 1 per cent in pre-tax income jumped from 10 per cent to 18 per cent. The US has the highest inequality of any other high-income country and has seen the fastest rise in inequality among the seven leading high-income economies. ..Closely related to the rising inequality has been a decline in the share of labour in GDP from 64.6 per cent in 2001 to 60.4 per cent in 2014” (New president has an economic in-tray full of problems, November 8, 2016).

We need to highlight that, in the last quarter of a century, for sixteen years the US has had two democratic presidents, unable to address this growing class divide. Why this dismal condition of large masses of working and middle classes should not affect their political choices, when they exercise their voting right? Is it accurate to stigmatize it as just a populist attitude?

Evidently, we need a disenchanted analysis, and Robert Skidelsky, Professor Emeritus of ePolitical Economy and a Fellow of the British Academy in History and Economics, may help in this direction. “The more unequal a society – he writes - the more the lifestyles and values of the wealthy diverge from those of “ordinary” people. They come to inhabit symbolically gated communities in which only one type of public conversation is deemed decent, respectable, and acceptable. To Trump’s supporters, his gaffes were not gaffes at all, or if they were, his supporters did not mind. But it is economics, not culture that strikes at the heart of legitimacy. It is when the rewards of economic progress accrue mainly to the already wealthy that the disjunction between minority and majority cultural values becomes seriously destabilizing. And this, I think, is what is happening in the democratic world” (Slouching toward Trump , Project Syndicate, and nov.12.2016).

The menace of different forms of Trumpism does exist also in the EU countries. The center-left parties are aware and frightened by this threat and try to set up any possible, even if, fragile boundaries. The Eurozone gives us three examples that are not isolated, but certainly significant.

In Spain, the Socialist Party, after rejecting the possibility of forming a government with Podemos, has finally decided, splitting the party, to support a minority government led by the Popular Party of Mariano Rajoy, who had been at the helm of the past government, characterized by the cuts to wages and pensions, while the unemployment exceeded 20 percent of the working people.

Instead, in Italy, the scheme should be reversed. To fight the menace of the "Five stars” movement that could win the next parliamentarian elections, the Renzi’s Democratic Party will likely form a coalition government  with what remains of Berlusconi's troops -  in this case, a government  fully endorsed by the Eurozone authorities.

Finally, in France, François Hollande will be forced by his party to give up another attempt to run again for presidency. To avoid the ascent of Marine Le Pen to the Eliseo Palace, we will quite likely see the Socialist party deciding to support the rightwing candidate, as it did in 2002 when voted Chirac to avoid he victory of Jean Marie Le Pen. Now, after the defeat of Sarkozy in the primary, it's likely that it will vote for François Fillon, the former Sarkozy's Prime minister, with an openly thatchérien program.

Yet this alleged crisis management, which will surely satisfy both the European Commission and Berlin, could be the victim of an unexpected setback, as occurred with the unexpected Brexit and the victory of Trump. In France, for instance, the unexpected could occur following a possible referendum on the European policy, which could repeat the experience of 2005, when the French people rejected the European Constitution Project. Unlike Brexit, the result of the French referendum may mark the abandon of the euro, without questioning the permanence of France in the EU. These are scenarios that the current political debate prefers to avoid. However, the euro crisis alongside that of the center-left parties, who have been some of the euro policies the strongest advocates, are facts that are hard to ignore.

A failed experiment

The euro’s experiment has indeed failed. In effect, the flaw was, from the outset, in the substantial transformation of the Deutschmark into a common currency. The following policy was neither right nor wrong, but fundamentally unsustainable for the majority of the Eurozone countries, given the German monetary policy, due on one hand to the horror of inflation, linked to a particular period of history and, on the other hand, to the exceptional economic structure which makes Germany the world’s fourth largest economy and the biggest exporter in the world.

While euro area has witnessed an endless crisis, the EU member States, who have remained out of the euro - such as Poland, Sweden and the United Kingdom - for many years have achieved a remarkable growth along with a decrease of the unemployment rate.

The loss of confidence in the euro is clear. On one hand, the most representative countries of the enlargement process, with a combined population of around one hundred million citizens - Poland, the Czech Republic, Hungary, Romania and Bulgaria -  although formally obliged to adopt the Euro, have in effect rejected it.

On the other hand, the seven EU member States - Estonia, Latvia, Lithuania, Slovakia, Slovenia, Cyprus and Malta - who together total a smaller population than a single big German land have joined the Eurozone, in addition to the founding twelve member States. Therefore,  it is fair to say that the enlargement of the Eurozone has been, in large measure, an expansion of the deutschmark area.

To be aware of the failure of the euro is the only way to prevent a more dangerous crisis that could lead to the collapse of the entire European Union. This does not mean the end of the euro, but a recognized distinction between its adoption and the participation in the EU, allowing each EU country to democratically choose to remain or to leave the Eurozone.
Popular referendums are not the only tools, but certainly the most democratic. Brexit was an example. France, as we have seen, could follow with a different purpose: to abandon the euro, keeping the European Union.

Other countries may follow the example. In Italy, referendums on international treaties are not allowed by the Constitution. Nevertheless, it is not impossible to identify a topic of domestic policy linked to the Eurozone’s participation.

This could be the case of the Fiscal Compact. It represents a cage for the national macroeconomic policy, since it obliges the budget parity and the limitation of the sovereign debt at 60 per cent of GDP. The first one could contrast with the flexibility needed in relation to the economy; the second one is unachievable without prior acquisition of strong and stable growth. Indeed, the Fiscal Compact is an international treaty, not incorporated in the European legislation and not approved by the European Parliament. Moreover, it will be submitted to the judgment of the signatory states five years after its launch, i.e. in 2019. This means that without ratification of the European Parliament and the national Parliaments of the member States ceases its validity in 2019.

It is possible that a number of governments will renounce translating the Fiscal Compact in the European legislation, having it demonstrated its inconsistency and its very nature as a means that could paralyze any possible chance to face, at a national level, the economic stagnation and impoverishment. Moreover, if the Fiscal Compact, imposed by Germany as an essential condition for the existence of the Eurozone, will be put in jeopardy, the scenario in the EU will drastically change.

To conclude, I think it is worthwhile to mention Joseph Stiglitz, who, in its last book, after an extensive analysis of the birth and development of the euro draws the following conclusion: "Many in Europe will be saddened by the demise of the euro. It is not the end of the world ...There is much more in the European project, the vision of European integration than in monetary agreement "And he adds:" It was assumed that the currency would promote solidarity, integration and prosperity ... but if it has become an impediment to their achievement ... is better to abandon the Euro and the European project to save them (the Euro - How a common currency Threatens the future of Europe " (The Euro: And its Threat to the Future of Europe , p.295, 2016). It can be considered a pessimistic assessment, but it reflects a reality that is difficult to refute.

Antonio Lettieri
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