It’s as if an entire season of Game of Thrones swept through British politics in the space of two-and-a-half weeks.
The list of political careers in ruins runs long and deep. Prime minister David Cameron himself. Chancellor George Osborne. Former London mayor Boris Johnson. Justice secretary Michael Gove. Nigel Farage, the retiring leader of the United Kingdom Independence Party (UKIP). Maybe even Labour leader Jeremy Corbyn, who may enjoy the support of grassroots Labour members, but not of his parliamentary party.
Monday brought another casualty of the post-Brexit era: energy secretary Andrea Leadsom, who withdrew from the September leadership contest for the Conservative Party leadership. The decision came just four days after Tory MPs pitted Leadsom (with 84 votes) in a runoff against home secretary Theresa May (with 199 votes), eliminating Gove (with just 46 MPs supporting him).
Leadsom, who supported the Leave campaign in the June 23 referendum, had garnered the support of the eurosceptic Tory right, including endorsements from former leader Iain Duncan Smith and other Leave campaign heavy-hitters like Johnson and even Farage. But Leadsom struggled to adapt to the public stage as a figure virtually unknown outside of Westminster a week or two ago (reminiscent in some ways of Chuka Umunna’s aborted Labour leadership campaign last year).
Though she promised to bring far more rupture to Conservative government than May, Leadsom also struggled to defend against charges that she embellished her record as an executive in the financial sector before turning to politics. Over the weekend, she suffered a backlash after suggesting she would be a better leader because she (unlike May) had children.
It was always an uphill fight for Leadsom, despite the rebellious mood of a Tory electorate that voted overwhelmingly for Brexit and was clearly attracted to Leadsom’s more radical approach. May, a more cautious figure, supported the Remain campaign during the referendum, though she largely avoiding making strong statements either for or against EU membership. At one point, she argued that the United Kingdom should leave the European Court on Human Rights (a position that she has disavowed now as a leadership contender).
In April, Ireland will celebrate the centennial anniversary of the Easter Rising, the failed rebellion of an overpowered band of Irish republicans.
The heavy-handed response of British troops ended up martyring the republican cause, their lethal overreaction ultimately changing, and hardening, Irish public opinion in favor of independence from the United Kingdom.
Under the penumbra of this year’s centennial celebrations, Irish voters will go to the polls on February 26, after Enda Kenny, Ireland’s Taoiseach (prime minister) announced last week the dissolution of the Irish parliament, the Dáil, to ask voters to reelect his center-right Fine Gael, along with its junior coalition partner, Ireland’s social democratic Labour Party.
But polls show that the party with the most momentum is Sinn Féin, which hopes to capitalize on several factors toward what would be a historic victory. Hoping to peel off disaffected Labour voters, Sinn Féin might even be within striking distance of first place, given that no single party will come close to an absolute majority. Continue reading Sinn Fein joins list of surging anti-austerity forces in Europe→
As predicted, Spain’s messy general election resulted in no clear winner, and none of its two largest parties could claim a majority in the lower house of Spain’s parliament.
What’s more, though two upstart parties upended the political status quo that’s existed for nearly 40 years in Spain, neither did so well that they can form a government — or even serve as a kingmaker for one of the two established parties.
While the conservative Partido Popular (PP, the People’s Party) emerged with the largest share of the vote, prime minister Mariano Rajoy has plenty of reason to despair. Much of the party’s support comes from older voters in the Spanish countryside, and the PP benefited from an electoral system that delivers slightly more seats to parties with support outside Spain’s urban centers. Nevertheless, he has lost his absolute majority, dropped 64 seats and, worst of all for Rajoy, there’s no clear or easy path to a governing majority. Though Spain’s economy has stabilized under the past four years of PP rule, unemployment remains staggeringly high (21.2%). The party’s leader since 2004, Rajoy might ultimately be pushed aside during coalition talks for a younger or more charismatic leader, like deputy prime minister Soraya Sáenz de Santamaría.
Meanwhile, the center-left Partido Socialista Obrero Español (PSOE, Spanish Socialist Workers’ Party) suffered its worst defeat since the transition to democracy in the late 1970s. Its new leader, Pedro Sánchez, a moderate economist, simply could not convince voters to look beyond long-simmering corruption scandals (which, by the way, also plague Rajoy’s party) and the record of the prior PSOE government, which took the first steps toward the path of austerity measures in the aftermath of the 2009-10 eurozone debt crisis.
Indeed, the PSOE just barely outpolled Podemos, an anti-austerity alternative that burst onto the Spanish political scene in 2014, embracing the anti-establishment protests of the ‘indignados’ movement. Despite leading polls earlier this year, Podemos crashed as fears grew that it would cause the kind of economic pandemonium that plagued Greece after the election of the far-left SYRIZA this year. Its leading spokesperson, Pablo Iglesias, began to moderate his movement’s rhetoric, and rallied to a strong third-place finish.
The center-right liberal Ciudadanos (‘C’s,’ Citizens), a federalist, economically liberal party founded in Catalonia in 2007, made the leap from regional politics to national politics, but its leader Albert Rivera must be disappointed that it failed to steal more voters from Rajoy.
With another handful of seats going to various pro-independence Catalan parties, as well as Basque and Galician regional parties, the net result is that no one has enough seats in the 350-member Congreso de los Diputados (Congress of Deputies), the lower house of Spain’s legislature, the Cortes Generales (General Courts).
Notably, Rajoy maintained the PP’s majority, however reduced, in the far less powerful upper house, the Senado (Senate), which can be overruled on most matters (i.e., not ‘organic laws’ that deal with constitutional matters, civil rights and federalism) by majority vote of the Chamber of Deputies.Voters elected 208 senators on Sunday as well (an additional 58 senators are appointed by regional assemblies).
Two sets of statistics are worth considering.
First, the traditional major parties (the PP and PSOE) won just 50.7% of the vote in aggregate, compared to 83.8% in the 2008 election and 73.4% in the 2011 election. Obviously, that means Spain is entering a new era where coalition politics are more important. That’s not entirely unprecedented — when José María Aznar won 156 seats after the 1996 elections, he had to work with Catalan, Basque and Canarian nationalists to form a stable government. But the success of Podemos and Ciudadanos has transformed Spain’s politics from a two-party matter to a multiparty affair.
Secondly, among the four major parties to emerge from the 2015 election, it’s staggering just how evenly divided the Spanish left and right are. Together, the PP and Ciudadanos won 42.65% of the vote and the PSOE and Podemos won 42.67%. Spain’s electorate, in the broadest sense, delivered neither a mandate to a sharp left turn or a sharp right turn.
What Spain now faces is a difficult choice of among three different paths, all of which carry their own risks and challenges. Spain’s new young king, Felipe VI, will also take a more hands-on role in the coalition formation process than his father, Juan Carlos I, ever did. The good news for Spain is that the three options each mirror paths taken by three of its fellow European Union member-states in the last three years:
Germany 2013: a ‘grand coalition’ between the two established parties;
Portugal 2015: a fragile coalition government that brings together all of the parties and movements of the left; and
Greece 2012: deadlocked coalition talks lead to fresh elections.
To the extent that Spain is entering a new coalition-based era of its parliamentary politics, a reshaped Spanish political landscape might transcend 20th century fractures and the transition to democracy that’s dominated Spanish political life for a half-century.
Five days before the Christmas holiday, Spanish voters will go to the polls to choose a new government in an election that’s being hailed as the country’s most important since 1982.
Indeed, voter turnout may well exceed the 80% levels not seen since 1982, when Spain had only just emerged from its Francoist dictatorship and was four years away from joining the European Economic Community, the predecessor to today’s European Union. Moreover, it will also be the first general election to take place under Felipe VI, whose father Juan Carlos I abdicated in June 2014 after guiding the country’s transition to democracy in the mid-1970s.
But what makes the December 20 election so unique is that economic crisis has shattered Spain’s stable two-party electoral tradition, leaving a four-way free-for-all that could force unwieldy coalitions or a minority government at a time when the country has only just started its economic recovery. Distrust in both major parties, moreover, has opened the way for a popular far-left movement at the national level and greater discord at the regional level, most notably in Catalonia, where support for the independence movement is growing. No matter who wins power in the eurozone’s fourth-largest economy, the next Spanish government will face difficult decisions about GDP growth, lingering unemployment, and federalism and possible constitutional change.
For decades, Spanish elections were essentially, at the national level, a fight between the conservative Partido Popular (PP, the People’s Party) and the center-left Partido Socialista Obrero Español (PSOE, Spanish Socialist Workers’ Party). In the most recent 2011 election, the PP won 186 seats in the 350-member Congreso de los Diputados (Congress of Deputies), the Spanish parliament’s lower house, while the PSOE won 110 seats.
Both parties can point to massive successes over the past three decades. Under longtime PSOE prime minister Felipe González, Spain consolidated its liberal democracy and benefited greatly from closer economic and financial ties to Europe, while Barcelona’s emergence as the host of the 1992 Summer Olympics catapulted it into a world-class city. Under conservative prime minister José María Aznar, Spain joined the core of western European countries as a founding member of the eurozone in 2002 and developed widening security ties with the United States. When the PSOE returned to power in 2004 under José Luis Rodríguez Zapatero, the government enacted same-sex marriage in 2005 and later negotiated a peaceful ceasefire with the paramilitary Basque nationalist group Euskadi Ta Askatasuna (ETA).
The pain in Spain
But the global financial crisis of 2008-09 and subsequent eurozone crisis of 2010 knocked Spain off its pedestal.
Not unlike Florida, Nevada and parts of California in the United States, property values in Spain fell as rapidly as they once climbed, and an economy driven by construction and easy credit sputtered to near-depression levels of contraction. Despite running a more parsimonious fiscal policy in the 2000s than even Germany, Zapatero’s government soon found its expenses far exceeding revenues, and his government engaged in a series of tax increases and spending cuts.
The Spanish electorate ousted Zapatero in December 2011, ushering the People’s Party back to power under Mariano Rajoy, whose main goal was to prevent Spain from needing to seek an emergency bailout. Despite some scares over the Spanish banking system in 2012, Rajoy succeeded in keeping Spain bailout-free, but at the cost of ever greater spending cuts and tax hikes. The Rajoy government’s tough fiscal medicine, to some degree, has worked. Yields on Spanish 10-year debt have steadily fallen from a high of over 7.2% in July 2012 to less than 1.8% today. For a country without economic expansion since 2008, the Spanish economy returned to fragile growth in 2014, and it maintained growth throughout 2015 — notching 1% growth in the second quarter of this year and 0.8% in the third.
But voters are not enthusiastic about the prospects of reelecting Rajoy, a leader who never quite managed to win over Spanish hearts. Spain’s unemployment rate today is still 21.2%, a drop from the record-high 26.9% level recorded in early 2013. But that’s still a far higher jobless rate than anywhere else in the European Union (with the exception of Greece).
In the 2008 election, before the bottom fell out of the Spanish economy, the two major parties together won 83.8% of the vote. By 2011, that percentage fell to 73.4%. If polls are correct, that percentage could fall below 50% on Sunday, as both the PP and the PSOE struggle against the surging popularity of the anti-austerity Podemos (‘We can’) on the left and the liberal, federalist Ciudadanos (C’s, Citizens) on the right.
If the election were held today, the PP would win around 110 seats, the PSOE around 90, and Podemos and Ciudadanos would each win around 60, leaving none of them with a clear majority. The uncertainty of the four-way race has both energized the electorate (in a manner reminiscent to those first early elections in the post-dictatorship era) and enhanced the chances of post-election uncertainty that both Greece and Portugal have endured this year. Continue reading Spain readies for historic, four-way election on December 20→
The one thing that both the Conservatives and Labour agree on in the 2015 election is that deficit reduction will be a priority for the United Kingdom’s next government.
To that end, when you put aside the sideshow of the proposed European Union referendum, the red lines and pledges about the National Health Service, and the vagaries of coalition politics with Scottish nationalists or Northern Irish unionists, the central question of the British general election is how to bring the budget deficit down from around 5% of GDP today to 3% or less by the end of the next government’s scheduled term in 2020.
No matter who wins today’s election, though, the next British government will prioritize deficit reduction. Though Labour leader Ed Miliband and prime minister David Cameron have very different visions for how to accomplish that, that they both agree on this goal is notable for two reasons. First, it puts Miliband and Cameron in agreement in a way that former prime minister Gordon Brown and Cameron never were in the 2010 election. Second, it means that Miliband has largely agreed to wage the 2015 campaign on Cameron’s own territory. Miliband conceded, long before the general election campaign even began, the central premise of Cameron’s 2010 campaign and subsequent government. Continue reading No matter who wins in the UK, deficit reduction will be the top goal→
With the failure of Greece’s parliament to elect a president after a third and final vote this morning, prime minister Antonis Samaras will dissolve the parliament and schedule early elections — most likely on January 25.
It will be the first election since June 2012, when Samaras’s center-right New Democracy (Νέα Δημοκρατία) narrowly defeated the hard-left SYRIZA (the Coalition of the Radical Left — Συνασπισμός Ριζοσπαστικής Αριστεράς). According to just about every poll, SYRIZA holds a lead of between 3% and 7% against New Democracy.
Expect a tough Samaras-Tsipras fight for first place
Samaras is a wily and seasoned campaigner, and he will undoubtedly cast himself as the guardian of Greece’s long-term stability. On Monday morning, he was lashing out at ‘political terrorism,’ and warning that a SYRIZA victory would allow Greece’s sacrifices to go to waste. SYRIZA will face sustained criticism — some justified, some overblown — from just about every quarter in Europe that it and its leader, Alexis Tspiras, are dangerous ideologues whose policies could force Greece out of the eurozone in 2015. Already, publications like The Guardian are referring to Greece being ‘plunged into crisis.’ Expect the fear-mongering about the consequences of a SYRIZA victory to be on par with efforts by the British political establishment and business community in the fraught week leading up to the Scottish independence referendum. It’s by no means certain that SYRIZA’s narrow single-digit lead will survive that kind of onslaught.
The fight between SYRIZA and New Democracy is so important because the first-place finisher in the election will not only win the largest share of seats in the 300-member Hellenic Parliament (Βουλή των Ελλήνων), but also a 50-seat ‘bonus’ meant to provide the winning party with enough seats to form a working majority government. Over the next few days, it will be worth watching to see whether SYRIZA or New Democracy convince any other smaller parties to merge, because the marginal value of even a one-vote victory in Greek elections is so consequential.
Since 2012, Greek economic conditions are slightly improved. Greece’s GDP is set to grow by between 1.0% and 1.4% in 2014, following six consecutive years of contraction, and there’s every reason to believe it will continue to expand in 2015. The government even attempted a reasonably successful bond sale in April, and Greece’s staggering unemployment rate is now just 25.7%, down from its high of 28%.
Nevertheless, the dual cuts of budget austerity and economic depression have, understandably perhaps, left the Greek electorate weary of renewing a mandate for austerity, and the uncertainty over the country’s political future has pushed 10-year bond yields to an unsustainable 8.5%.
Greece’s ‘bailout’ questions remain unsolved
Fueling that uncertainty is Greece’s planned exit from its bailout program in February 2015, just days after the election.
If it wasn’t already clear, Ed Miliband’s final conference speech before next May’s general election indicated that he intends to wage his campaign on the basis of the United Kingdom’s National Health Service — and not a full-scale attack on the ‘austerity’ anti-deficit policies of David Cameron’s coalition government.
It’s hard to believe that Miliband has now been the leader of the United Kingdom’s Labour Party one year longer than former prime minister Gordon Brown was, especially after the bravura performance that Brown delivered for the ‘Better Together’ campaign, which may have swayed enough Scottish voters to reject independence in the surprisingly close referendum.
When he won the leadership in September 2010, upsetting his opponent and brother, former foreign minister David Miliband, it was a shock. While Labour’s MPs and the party faithful narrowly preferred David, unions and other affiliated Labour groups gave Ed just enough of an edge to narrowly defeat the more seasoned Miliband, who promptly left frontline politics and moved to New York.
In the past four years, Ed Miliband has benefitted from the polling lead that Labour has consistently held against the Conservatives, who have been mired in unpopular decisions to slash the national budget after years of more permissive spending under Brown and his predecessor Tony Blair, for whom Brown served as chancellor of the exchequer.
In the first year of Tory-led government, the British economy grew by 1.7% — sluggish in absolute terms, but vigorous by what would follow. In 2012, British GDP fell to 0.3% before rebounding last year to 1.7% and a forecasted growth rate of 3.2% in 2014.
As the economy has improved, it means that it might not be enough for Miliband to attack Cameron and the current chancellor, George Osborne, for inflicting greater damage on the economy by cutting spending in a time of low economic growth. While it may be true that Osborne’s budget cuts didn’t necessarily promote growth, it’s unavoidable fact that the United Kingdom is now growing faster than the rest of the European Union, which emerged from the 2008-09 global financial crisis and the 2010-12 eurozone debt crisis to face a growing deflation threat today. Italy, which has struggled to enact reforms under its energetic new prime minister Matteo Renzi, recently entered a triple-dip recession.
Polls, meanwhile, show an increasingly tight race. Labour’s once dominant lead is shrinking, in the most recent September 18-19 YouGov/Sunday Times poll to just 4%. If the election were held today, Labour would edge out the Tories by a margin of 36% to 32%, with the eurosceptic United Kingdom Independence Party (UKIP) winning 16% and the junior coalition partners, the Liberal Democrats, just 7%. That could result in any number of outcomes, including a Labour minority government, a Conservative minority government, or the continuation of the Tory-Liberal Democratic coalition.
It was always a stretch to believe that there was enough room in France’s government for both Arnaud Montebourg and Manuel Valls.
Montebourg, who represents the unapologetically socialist wing of France’s Parti socialiste (PS, Socialist Party), received a promotion in April as economy minister when French president François Hollande reshuffled his cabinet and replaced former prime minister Jean-Marc Ayrault with Valls. At the time, it was hardly clear that Montebourg deserved it after picking fights with prominent foreign businessmen in both the United States and India and waging an avowedly protectionist ‘Made in France’ campaign while serving as minister for industrial renewal. Montebourg (pictured above), with a charming grin, trim figure and a wavy swath of dark hair, who last weekend shared a photo of Loire Valley red wine on his Facebook feed, fits neatly into the American stereotype of the preening, tiresome, French socialist.
Valls, meanwhile, is leading Hollande’s government at a time when the Socialist administration is turning even more to the center, with a much-heraled (if hokey) ‘Responsibility Pact’ that aims to cajole French businesses into hiring a half-million new workers with the promise of a €40 billion payroll tax cut, financed by an even greater €50 billion in spending cuts. Though he’s regularly touted as a reformer, it’s more accurate to say that the Spanish-born Valls is a tough-minded ‘third way’ centrist who wants to rename the Socialist Party, which he considers too leftist. As interior minister, he showed he could be just as tough on immigration and crime as former conservative president Nicolas Sarkozy. When he became as prime minister in late March, Valls had the highest approval rating by far of any cabinet member. Today, his approval is sinking fast — an IFOP poll last weekend gave Hollande a 17% approval rating and Valls just 36% approval.
But Valls always had the support of Hollande and allies like finance minister Michael Sapin, and it was clear even in the spring that Montebourg was destined to become more isolated than ever in the Valls era.
It took less than five months for the cabinet to rupture. Montebourg publicly challenged Hollande over the weekend to rethink his economic policy in light of new data that show France’s economy remains stagnant — growing by just 0.1% in the last quarter, far below Hollande’s already-anemic target of 1%. Montebourg has also criticized Germany for encouraging austerity policies throughout the eurozone that he and other left-wing European politicians and economists blame for weakening the continent’s economic growth since the 2008-09 financial crisis.
In response, Valls orchestrating a dramatic resignation on Monday morning, though Hollande has given him a mandate to form a new government that won’t include Montebourg or allies like education minister Benoît Hamon and culture minister Aurelie Filippetti.
The drama surrounding this week’s reshuffle is hardly welcome so soon after Valls’s initial appointment, and Hollande risks a wider revolt on the French left that could endanger his agenda in the Assemblée nationale (National Assembly), where Socialist rebels could join legislators from the center-right Union pour un mouvement populaire (UMP, Union for a popular movement) in opposition to his agenda. Valls will introduce the 2015 budget in the autumn, and if he fails to pass it later this year, his government could fall and Hollande might be forced to call snap elections that the Socialists would almost certainly lose.Continue reading Valls-Montebourg fissure could bring early French elections→
As the results come in from Egypt’s presidential election, here’s one thing to keep in mind about the extent of Abdel Fattah El-Sisi’s staggering margin of victory:
If his margin holds up in the final official results, el-Sisi will have won the election with a larger share of the vote than Egypt’s longtime strongman, Hosni Mubarak in both 1999 (93.79%) and 2005 (88.6%).
That’s all you really need to know about whether this was really a fair election — after months of pre-campaigning designed to paint el-Sisi as Egypt’s national savior and the military-led crackdown on journalists and dissent of all stripes, not just among the Muslim Brotherhood (الإخوان المسلمون) and supporters of former president Mohammed Morsi, who was deposed in July 2013 by el-Sisi, then in his capacity as army chief of staff and defense minister.
There are now less than two weeks to go before Italians select a new prime minister, and if you watched the dueling soundbites, you would be forgiven if you thought the two main contenders were current prime minister Mario Monti and former prime minister Silvio Berlusconi.
But while Berlusconi and Monti have taken up much of the headlines, the centrosinistra (center-left) coalition headed by Pier Luigi Bersani, the leader of Italy’s center-left Partito Democratico (PD, Democratic Party), still seems more likely than not to win the Feb. 24 and 25 parliamentary elections, guaranteeing a majority in the 630-member Camera dei Deputati (House of Deputies), the lower house of the Parlamento Italiano (Italian Parliament) and a plurality of the seats among the 315 elected members of its upper house, the Senato (Senate).
As of last Friday — the last day under Italian law that new polls can be published in advance of the election — the broad centrosinistra coalition still held a single-digit, but steady, lead over the centrodestra coalition dominated by Berlusconi’s Popolo della Libertà (PdL, People of Freedom). After consolidating the center-right, especially by gaining the support of the autonomist Lega Nord (Northern League), Berlusconi’s coalition has pulled to within a modest deficit with the centrosinistra, despite the fact that polls show his PdL with less than 20% support and the PD with consistently over 30%.
Meanwhile, the centrosinistra coalition has lost some support to both the centrist coalition headed by Monti, the outgoing technocratic prime minister, and the anti-austerity protest Movimento 5 Stelle(M5S, the Five Star Movement) of comedian Beppe Grillo was also gaining steam going into the final two weeks of the campaign.
So if the centrosinistra lead has been whittled down a bit, the race to govern Italy still seems like Bersani’s fight to lose. It’s a much more fragile lead than it was when the campaign started, but in Italy, you’d expect the race to tighten, especially with Berlusconi’s full-court press — even in his weakened political state, Berlusconi remains one of Italy’s richest men, and he commands a significant amount of media control.
Since the start of the campaign, even with Bersani and his center-left allies campaigning hard, sparks have flown strongest not between Bersani and Berlusconi, but between Berlusconi and Monti.
Berlusconi, for his part, launched his campaign in December 2012 by accusing Monti of dragging Italy back into recession with ‘German-centric’ policies and, despite an odd offer before Christmas to step down in favor of a united Monti-led coalition, has hammered away at Monti’s efforts to appease European interests from Brussels to Berlin, efforts that Berlusconi claims have come at the cost of improving everyday life in Italy.
In the midst of the back-and-forth between il cavaliere and il professore, where exactly does that leave the centrosinistra? And how did Berlusconi and Monti, whose parties have arguably less support than either of Bersani’s PD or Grillo’s Five Star Movement, come to dominate the campaign?
European Union leaders reached agreement Friday on the EU budget (the multi-annual financial framework or ‘MFF’) for the period from 2014 to 2020. After months of bickering, the 27 member states signed off on a deal totaling €908.4 billion, and the European Parliament will vote on the budget in March.
The budget is geared towards two — some would say conflicting — goals and political constituencies.
On the one hand, politicians argued that spending should be mobilised to support growth, employment, competitiveness and convergence, in line with the Europe 2020 Strategy. At the same time, some EU leaders in the United Kingdom, Germany and in the Netherlands, made clear that ‘as fiscal discipline is reinforced in Europe, it is essential that the future MFF reflects the consolidation efforts being made by Member States to bring deficit and debt onto a more sustainable path.’ The result is a smaller budget than was agreed for the previous budgetary period (2007 to 2013), yet one that is expected to achieve greater results to help pull the EU out of its economic malaise. A ‘spend less, achieve more policy’ strategy in an era when one in four Spaniards are unemployed seems doomed to fail.
The result, however, is not wholly surprising. Over the last four years, austerity and cuts in public spending have become commonplace throughout the EU, so it should come as no shock that the EU institutions should also tighten their belts.
Speaking after the negotiations concluded, German chancellor Angela Merkel said, ‘The agreement is a good agreement as it gives predictability for investors to create growth and jobs.’ José Manuel Barroso, the European Commission president, no doubt privately disappointed with the outcome, publicly voiced support for the deal saying the budget was ‘an important catalyst for growth and jobs.’
UK prime minister David Cameron can also be very pleased with the result, given that the agreement marks the first time in the history of the EU that its budget has been scaled back. Cameron had gone to Brussels threatening to use the veto if leaders failed to make savings in real terms. He singled out the exorbitant salaries paid to some of the EU’s top officials, some of whom earn close to €15,000 per month and are taxed at just 8%. During the last five years, national-level tax increases have been imposed in addition to freezes on public and private sector pay, while officials working in the EU institutions have escaped austerity. Cameron was determined, during the talks on the budget, to cut administrative costs despite opposition from French and Polish leaders who feared any cuts to the EU budget would affect generous subsidies to farmers and structural and cohesion funds.
Cameron was clearly relieved that his call for budgetary reductions met with friendly ears at least among some EU colleagues. Over the past twelve months, he had been busy building a coalition among the Dutch, German and Scandinavian member states (the EU’s main paymasters) to reduce the budget in real terms.
Although Cameron and Merkel may well find themselves at odds over the UK’s role in the EU over the next five years, with Cameron determined to ‘renegotiate’ its role and Merkel equally determined to forge ever closer fiscal and political union, budget politics may have been a useful vector to find common ground. Indeed, Merkel and Dutch prime minister Mark Rutte ultimately became strong supporters of London’s push to force austerity on the EU itself. The unlikely emergence of the Anglo-German alliance was perhaps the most intriguing element of the negotiations. Continue reading ‘La bataille des chiffres’: EU leaders agree new budget deal→
It’s hard not to feel some compassion for Spanish prime minister Mariano Rajoy’s government, which limped to its one-year anniversary only in December 2012.
In that time, Rajoy’s government has weathered all of the following:
the passage of four budget cut packages and painful tax increases — income tax rates have increased, tax breaks for home owners have been eliminated and the Spanish value-added tax increased from 18% to 21%;
a volatile bond market that saw Spanish 10-year rates peak at 7.50% briefly at the end of July 2012, and the constant specter of yet another sovereign debt crisis;
an increase in the Spanish unemployment rate to 26%, just narrowly below Greece’s 26.8% unemployment rate;
yet another contraction in 2012 to Spanish GDP (1.4%) with a 1.5% contraction forecast for 2013;
a European bailout in June 2012 of €40 billion for Bankia, a conglomerate of conglomerate of cajas (savings banks) with exposure to Spain’s sagging real estate market, despite Rajoy’s campaign promise not to seek or accept a bailout;
the avoidance of a full European bailout of Spanish sovereign debt, while cagily working to ensure that the terms of any eventually bailout are on terms as favorable as possible (in part by holding out until the last possible moment for any potential future bailout);
a high-profile showdown with Catalan premier Artur Mas in advance of Catalunya’s regional elections in November 2012 that exacerbated federal-Catalan tensions and all but assured a showdown over holding an independence referendum in 2014.
But now Rajoy’s government — and Rajoy personally — is facing perhaps its biggest crisis yet, in the form of an entirely self-inflicted scandal over slush funds, when it was reported last week that Luis Bárcenas, the former treasurer of Rajoy’s Partido Popular (PP, People’s Party), had been keeping unofficial books that provided expense payments for party leaders, including Rajoy, who received payments of up to €25,000 annually from 1997 to 2008.
The accusations come in addition to an ongoing investigation into the prior PP government of José María Aznar, the so-called Gürtel scandal involving kickbacks for contracts. The most recent allegations involve slush funds, whereby proceeds came to Bárcenas from private construction companies and went out as payments to top party officials. So the latest allegations could now also become a major focus of a judicial inquiry into the Gürtel corruption matter, endangering Rajoy’s government.
Rajoy’s resignation could open a further Pandora’s box of adverse outcomes for Spain, including the appointment of an even more right-wing prime minister (ahem, Esperanza Aguirre) and early elections result in strengthening more radical leftists, in the same way that Greece’s 2012 parliamentary elections strengthened SYRIZA, a coalition of the radical left, in the Hellenic parliament.
Rajoy didn’t help matters much on Monday, when he perplexingly explained that reports are all ‘untrue — except for some things.’
The great thing about Washington, D.C. is the flow of visitors we see from throughout the world and the relative access to top officials through top-notch organizations such as the Brookings Institution, which hosted Greek opposition leader Alexis Tsipras for a 90-minute session Tuesday.
The beleaguered Greek economy has receded from headlines somewhat since the razor-close election in June 2012 (itself a rerun of an earlier inconclusive vote in May 2012) and since the conclusion of the latest agreement, reached in October 2012, between Greece’s government and the ‘troika’ of the International Monetary Fund, the European Commission and the European Central Bank for the disbursement of cash to the nearly bankrupt Greek government in exchange for €13.5 billion in budget cuts.
Tsipras leads SYRIZA (the Coalition of the Radical Left — Συνασπισμός Ριζοσπαστικής Αριστεράς), which finished a very narrow second place to the center-right New Democracy (Νέα Δημοκρατία), whose leader Antonis Samaras, now prime minister, leads a broad pro-bailout coalition. Although SYRIZA lost the election, it’s the largest anti-austerity force in Greece, and it either leads or ties New Democracy in most polls.
Given that Greece’s unemployment rate keeps increasing (it’s currently around 27%) and it’s entering its sixth consecutive year of economic contraction, even as the government’s been forced into adopting increasingly harsh austerity measures, it’s hard not to see Tsipras as a future prime minister.
Tsipras, who’s made several international trips since last June, has been on somewhat of a campaign to convince the world that he’s not a crazy socialist to be feared, but rather well-placed within the Keynesian macroeconomic tradition of the social democratic left, whose European leaders believe that austerity alone cannot deliver the kind of boost to the economy that will result in greater GDP growth and more employment. Continue reading Tsipras predicts Greek debt haircut after German elections→
Most indications are that the next Euro Group head will be a relative newcomer to the group of eurozone finance ministers — Dutch minister Jeroen Dijsselbloem, who declared his formal candidacy for the job today.
As I noted at the beginning of the year in my piece on 13 up-and-coming politicians to watch in 2013, the current head of the Euro Group since 2005, Jean-Claude Juncker, also prime minister of tiny Luxembourg since 1995 and the Luxembourgian finance minister from 1989 to 2009, is stepping down from the role.
Dijsselbloem belongs to the anti-austerity social democratic Partij van de Arbeid (PvdA, Labour Party) — that has joined a coalition that’s headed by the decidedly more budget-obsessed Volkspartij voor Vrijheid en Democratie (VVD, the People’s Party for Freedom and Democracy) and prime minister Mark Rutte.
The Euro Group came into being in the late 1990s in advance of the introduction of the single currency as an informal group. In 2005, Juncker became the group’s first president amid a push to formalize the group’s role in 2009 though a protocol to the Treaty of Lisbon:
The Ministers of the Member States whose currency is the euro shall meet informally. Such meetings shall take place, when necessary, to discuss questions related to the specific responsibilities they share with regard to the single currency. The Commission shall take part in the meetings. The European Central Bank shall be invited to take part in such meetings, which shall be prepared by the representatives of the Ministers with responsibility for finance of the Member States whose currency is the euro and of the Commission.
The Euro Group typically meets a day before the Economic and Financial Affairs Council of the Council (Ecofin) of the European Union — Ecofin is comprised of the wider group of all 26 EU member state finance/economics ministers. Accordingly, the Euro Group typically dominates economic policymaking at the Council level. At the Council, policies related to fiscal matters must be adopted unanimously, though other policies can be adopted by the EU’s qualified majority voting mechanism (i.e., essentially a supermajority formula that requires both a majority of the 27 member states and a majority of the EU population).
The Euro Group president is appointed for a term of 2.5 years, by majority vote of the Euro Group, and the next president could be appointed as early as Monday, though French finance minister Pierre Moscovici has called for a more formal and transparent process of selecting the next president. Moscovici has also called on Dijsselbloem to outline his views on the future direction of the Euro Group, and Dijsselbloem is set to discuss goals at Monday’s meeting, though Juncker has been dropping all sorts of hints that Dijsselbloem’s selection is all but assured.
Dijsselbloem has been a member of the Tweede Kamer (the lower house of the Dutch parliament) since 2000, after spending four years as an assistant at the ministry of agriculture, nature management and fisheries.
In parliament, Dijsselbloem has been a moderating voice on highly charged issues like the role of Muslims in Dutch society. In 2007, he spearheaded a commission on educational reform. Earlier in 2012, when former Amsterdam mayor Job Cohen resigned as Labour leader, Dijsselbloem was chosen to serve as the party’s interim leader until Samsom was elected as the permanent Labour leader, and he was the fifth candidate on Labour’s list in the 2012 elections.
As early as the 2003 election, Dijsselbloem was seen as a Samsom confidante — they campaigned together in that year as the ‘rode ingenieurs‘ — the ‘Red Engineers’ — due to their red overalls and scientific backgrounds, Samsom in nuclear energy and Dijsselbloem in agricultural economics.
Despite just two months on the job as a pro-growth minister in a government that will seek to reduce the Dutch budget to within 3% of GDP in 2013, Dijsselbloem literally personifies the current fiscal debate in Europe. It helps that the Netherlands was one of the original six countries that formed the predecessor to the European Union and that it retains one of Europe’s last remaining ‘AAA’ credit ratings.
On one side, as personified by Moscovici and French president François Hollande of the center-left Parti socialiste, only aggressive government policies to boost aggregate demand can reduce unemployment and jumpstart Europe’s economic engine. Although even Hollande admits the need to bring France’s budget in line with the European Union standard, generally, of within 3% of GDP, Hollande’s government has preferred to implement tax increases rather than cut spending too deeply.
On the other side, as personified by German finance minister Wolfgang Schäuble and German chancellor Angela Merkel of the center-right Christlich Demokratische Union Deutschlands (CDU, Christian Democratic Union), the key to prosperity — even in the face of recession — is to cut spending and narrow the budget deficit, thereby bringing more investment and business confidence by shoring up public finances. Continue reading Who is Jeroen Dijsselbloem?→
Former Czechoslovakia is very much in the news this month, with January 1 marking the 20-year anniversary of the split into the Czech Republic and Slovakia, and with the upcoming Czech presidential election.
But one of the more interesting questions in 2012 and in 2013 has been the variance between the Czech economy and the Slovak economy.
Given that the Czech Republic, which still uses the koruna as its currency, retains full monetary policy independence, and that Slovakia has been a member of the eurozone since 2009, you might expect the Czech economy to be in a better position, given that Greece, Spain, Italy and other countries in Europe have suffered greatly from being shackled through their membership in the eurozone. That seems especially true considering that the eurozone’s one-size-fits-all monetary policy was too loose for the eurozone periphery before the 2008 financial crisis and now seems, despite European Central Bank president Mario Draghi’s best efforts, too tight today.
Yet the result is exactly the opposition — the Czech economy, growing at a relatively weak 1.7% in 2011, fell into a shallow contraction in 2013, while the Slovak economy continues to grow — 3.3% GDP growth in 2011 and around 2.5% growth in 2012.
So what explains the difference? I see three dynamics in particular:
First, given that Slovakia was always less developed than what’s now the Czech Republic, there’s simply more low-hanging fruit. The Czech economy (in PPP terms) is $286 billion, while Slovakia’s economy is just $132 billion. On a per capita basis, Czechs, with a GDP per capita of just over $27,000, are still better off than Slovaks, with a GDP per capital of just over $24,000. But that’s not such an incredible gap, and so I’m not sure that necessarily explains the disparity in GDP growth.
Secondly, and this is probably related to the first point, the relatively recent entry into the eurozone has likely boosted the Slovak economy in the short term, reducing the transactions costs of trade with the rest of western Europe, upon which both Slovakia and the Czech Republic depend for much of their export growth. The Slovakian automobile industry, in particular, continues to fuel the country’s export strength.
Finally, we can look to economy policymaking — while the center-right Czech government has been focused on budget austerity, the social democratic Slovak government has been much more liberal with respect to using government as a tool to boost growth, despite the fact that both countries carry a public debt of a bit over 40% of their respective GDPs. Petr Nečas, the Czech prime minister since 2010, and the leader of the Občanská demokratická strana (ODS, Civic Democratic Party) that dominates the center-right governing coalition, has faced massive protests in the face of an austerity program that’s features not only tax increases, but painful spending cuts and reductions in government services.
Conversely, although Slovakian prime minister Robert Fico, the leader of the Smer – sociálna demokracia (Smer-SD, Direction — Social Democracy), has pursued tax increases since taking power in March 2012 on a wave of discontent over austerity. A previously flat tax of 19% will become a little more progressive, with an upper limit of 25% for the wealthiest taxpayers. Meanwhile, his government has attempted to shield the poorest Slovakians from additional spending cuts (and conceivably, they are the economic actors most likely to benefit from — and spend — each marginal euro of support from the government, thereby boosting aggregate demand). Fico has furthermore boosted budgetary funds for transport infrastructure and for equalizing educational opportunities throughout all regions of Slovakia.
It’s also worth keeping in mind that unemployment remains much higher in Slovakia — around 14%, nearly doubling the rate of between 7% and 8% in the Czech Republic, and it’s even worse among the poorer eastern parts of the country and among the disadvantaged Roma minority group.
GDP growth is not the only factor that determines the economic health of a country, and the Slovak government has not been successful in eliminating what appears to be a longstanding structural unemployment problem — at its lowest just before the 2008 financial crisis, the Slovak rate was 8.8%.
Photo credit to Kevin Lees — photo taken in Prague in December 2005.