Miserable time ahead for Europe

Joyless time as Europe returns from holidays

Buffeting from foreign policy and economic squalls

By Denis MacShane

What the French call la rentrée – ‘the return’ (from the summer break) – is not going to be a happy one in Europe. There is not a single European government with a sense of élan. Leaders and ministers appear at the mercy of events, buffeted by the fickle demands of public opinion. For a brief moment earlier in the summer, Matteo Renzi, Italy’s young, Blairite prime minister, seemed to have a golden touch but Italy dropping again into negative growth has brought him down to earth.

Brussels has to put in place a new leadership team after the refusal in July by European leaders to agree key nominations for president of the European Council and the post of high representative for foreign policy.

Jean-Claude Juncker has to satisfy demands for key posts from powerful member states. The UK, French and German leaders, David Cameron, François Hollande and Angela Merkel, are not helping the new EU Commission president by nominating male political trustees. If Cameron or Hollande had sent a woman, London and Paris could have named the Commission slot they wanted.

Instead Juncker may be warming to proposals from an influential group, ‘The Friends of the European Commission’, suggesting clusters of Commissioners under more powerful Commission vice presidents. Juncker’s chief of staff says that Juncker will do less travelling than outgoing EU president José Manuel Barroso who insisted on appearing at every international photocall with Council president Herman Van Rompuy.

Luxembourg, Juncker’s home country, is run by an effective strategic cabinet of just five people. If Juncker really can streamline the Commission and stop it generating anti-EU backlash, then perhaps even British Conservatives will warm to him.

The foreign policy front is a nightmare. Islamist ideology and organisation have sunk deep roots. Expenditure of blood and treasure again looms in Iraq. British, French, and German youngsters are going off to join the Muslim jihad in Syria or Iraq and pose with the heads of decapitated opponents.

The Arab spring has become an Arab nightmare with no progress towards democratic stability or market economics under rule of law anywhere along the southern Mediterranean coastline.

Russian President Vladimir Putin plays cat and mouse with Ukraine, encouraging and arming separatists and scorning Merkel’s anger over Russia’s Anschluss with Crimea.

The sanctions decided by the EU and Putin’s counter-boycott of EU agricultural exports are hurting many economic sectors. Putin’s adversaries may welcome a decline in growth in Russia, but the whole European region from the Atlantic to the Urals, from the Mediterranean to the Arctic Circle, suffers when any sector or region stops making money, creating jobs and paying taxes.

Meanwhile the economic outlook is bleak. The big three euro area economies – Germany, France and Italy – contracted in the second quarter, Portugal’s economy was shaken by troubles at its biggest bank. Greece reports a small primary surplus but its GDP is 25% smaller than when it enjoyed an economic glow after hosting the 2004 Olympics. As OMFIF advisory board member and former UK government joint chief economist, Vicky Pryce, author of Greekonomics, says, Greece is in a 21st century equivalent of a debtor’s prison.

Britain is showing the best GDP growth in the European Union (EU) but this is not leading to higher wages or more stable employment. And many economists, of all political persuasions, warn that UK growth may again be based on a housing bubble as well a boom in public and private debt.

A group of French business executives and professionals based mainly in London (Le Cercle d’Outre-Manche) has produced a report, La France et le Royaume Uni face à la crise 2008-2014 (France and the UK: Reponses to the 2008-2014 Crisis) which lists the immobilism of French economic and labour market policy-makers.

But the biggest difference with the Anglo-Saxon response to the banking crash and subsequent recession appears that Washington and London have rediscovered the virtues of Lord Keynes. On the continent there is a belief that the more the patient bleeds the quicker will be his recovery. A big question in la rentrée will be whether the economic theory of Ordoliberalismus – to use its Teutonic title – in place since 2008-09 is reaching its use-by date.

Since 2008 the US Federal Reserve has pumped $2.5tn into its economy; the Bank of Japan $2tn, and the Bank of England $625bn. How long before the European Central Bank and the practitioners of Ordoliberalismus in Berlin learn to speak English or indeed American?

A return to growth in the EU will not solve the challenges of foreign policy or the anti-politics of the new left-right europhobic populists. But if growth returns, so many other problems can be solved. As Berlin and Frankfurt look out on a Europe without growth, there must be a chance that the alternative policies on offer from the Fed and Bank of England begin to become persuasive.

This was published in the OMFIF bulletin 19 August 2014

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