Time to grasp the nettle of European reform
Mohamed El-Erian
May 26, 2014
Mainstream politicians throughout Europe would be well advised to heed the warnings of Manuel Valls, the French prime minister, who labelled yesterday’s European election results “a shock, an earthquake that all responsible leaders must respond to”. That is not because the European project will be derailed by the new parliament (it will not). Rather, it is because an inadequate response risks damaging its members further, in ways that would be even harder for any government to fix.
Until now, many of Europe’s more traditional leaders had taken considerable comfort in the massive transformation of the region’s financial landscape. In less than two years, they had gone from battling a financial crisis to enjoying a period of tranquillity that even saw these same spreads reach record low levels just a couple of weeks ago. Yet some were punished heavily at the ballot box because they failed to deliver on what really matters for citizens – particularly growth, jobs and rising living standards.
The anti-establishment parties tended to do particularly well in countries with disappointing growth records. The success of the National Front (France) and Syriza (Greece) is particularly notable in this regard. Both topped their countries’ polls, according to exit polls. Such success reflects more than the positive support of citizens. It is also a result of negative voting by those wishing to make loud anti-establishment protest statements.
Elections for the European parliament are a particularly good place for strategic protest voting. Such voting is unlikely to result in fringe parties achieving a majority. The legislature is a hard place to forge solid alliances among disparate and fractured national parties. It can certainly make a lot of noise and create many tangents for the executive branch in Brussels, but it does not have decisive power when it comes to changing many influential EU policies. Its direct influence on individual countries is even more limited. As such, despite what some may be suggesting, the new parliament will threaten directly the integrity of Europe’s historic integration project.
Yet Mr Valls is right to urge governments to hear and respond to this weekend’s message; and do so by being a lot more serious about tackling the problems that are holding back growth and employment.
Voters are clearly telling national governments that the time has come for them to act more forcefully and decisively on what most instinctively realise: that financial stability is a necessary but not sufficient condition for promoting durable growth and strong job creation. Yes government are lucky to have been able to outsource policy responsibilities to a “whatever it takes” European Central Bank under the bold leadership of Mario Draghi; but they are wrong to behave as if the ECB has all the solutions.
With the ECB likely take additional accommodative “unconventional measures” soon, governments would be well advised to use this weekend’s surprising election outcome as a catalyst to focus on doing what the ECB cannot do – namely, implement the structural reforms needed to improve productivity, reform key markets, and enhance productivity; and do so in a more comprehensive and consistent manner, and one that is properly explained to citizens.
So far, the surge for the anti-establishment parties is limited to a few countries; and it reflects as much (if not more) reversible voting behaviour as opposed to genuine and durable support. As such, it is not about to derail European integration efforts at either the regional or national levels.
Yet if national governments continue to dither in addressing what fuels this protest – namely, perceptions that they are either too exhausted or insufficiently committed to promote inclusive high growth – it is just a matter of time until the protest movement starts to paralyse domestic legislation and, with that, undermine the critical components of a vibrant and strong European project.
Until now, many of Europe’s more traditional leaders had taken considerable comfort in the massive transformation of the region’s financial landscape. In less than two years, they had gone from battling a financial crisis to enjoying a period of tranquillity that even saw these same spreads reach record low levels just a couple of weeks ago. Yet some were punished heavily at the ballot box because they failed to deliver on what really matters for citizens – particularly growth, jobs and rising living standards.
The anti-establishment parties tended to do particularly well in countries with disappointing growth records. The success of the National Front (France) and Syriza (Greece) is particularly notable in this regard. Both topped their countries’ polls, according to exit polls. Such success reflects more than the positive support of citizens. It is also a result of negative voting by those wishing to make loud anti-establishment protest statements.
Elections for the European parliament are a particularly good place for strategic protest voting. Such voting is unlikely to result in fringe parties achieving a majority. The legislature is a hard place to forge solid alliances among disparate and fractured national parties. It can certainly make a lot of noise and create many tangents for the executive branch in Brussels, but it does not have decisive power when it comes to changing many influential EU policies. Its direct influence on individual countries is even more limited. As such, despite what some may be suggesting, the new parliament will threaten directly the integrity of Europe’s historic integration project.
Yet Mr Valls is right to urge governments to hear and respond to this weekend’s message; and do so by being a lot more serious about tackling the problems that are holding back growth and employment.
Voters are clearly telling national governments that the time has come for them to act more forcefully and decisively on what most instinctively realise: that financial stability is a necessary but not sufficient condition for promoting durable growth and strong job creation. Yes government are lucky to have been able to outsource policy responsibilities to a “whatever it takes” European Central Bank under the bold leadership of Mario Draghi; but they are wrong to behave as if the ECB has all the solutions.
With the ECB likely take additional accommodative “unconventional measures” soon, governments would be well advised to use this weekend’s surprising election outcome as a catalyst to focus on doing what the ECB cannot do – namely, implement the structural reforms needed to improve productivity, reform key markets, and enhance productivity; and do so in a more comprehensive and consistent manner, and one that is properly explained to citizens.
So far, the surge for the anti-establishment parties is limited to a few countries; and it reflects as much (if not more) reversible voting behaviour as opposed to genuine and durable support. As such, it is not about to derail European integration efforts at either the regional or national levels.
Yet if national governments continue to dither in addressing what fuels this protest – namely, perceptions that they are either too exhausted or insufficiently committed to promote inclusive high growth – it is just a matter of time until the protest movement starts to paralyse domestic legislation and, with that, undermine the critical components of a vibrant and strong European project.
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