The people of Europe have voted for paralysis – and perhaps obliteration

[Texan]

http://www.timesonline.co.uk/article...823265,00.html
The Times October 13, 2005

The people of Europe have voted for paralysis – and perhaps obliteration
Anatole Kaletsky

AFTER THIS WEEK’S creation of a German government in which Angela Merkel will not even control the Finance and Foreign ministries, all three of the great European nations that have dominated the Continent’s history for 2,000 years — Germany, France and Italy — are effectively leaderless. They will almost certainly remain politically paralysed at least until the French presidential election of 2007. The power vacuum now covering the whole of continental Europe is almost unprecedented, at least since the disastrous period between the two world wars.

But is the inability of German, French and Italian voters to choose effective political leaders and then to decide on clear programmes of social and economic reform — or more precisely the unwillingness to do so — a cause for worry? Or should we instead regard it as a natural product of the prosperous and comfortable societies that Europeans have created and simply want to preserve?

Before I try to answer these questions, let me consider the main premise: that the German elections, along with the French referendum before the summer, really do represent an important punctuation mark in the history of Europe: the point when the ambitious market-oriented economic reform programme that started in the 1950s but really accelerated in the 1990s was brought to a full stop.

This is the clear message from the composition of the new Government — with all the key “reform” ministries, including Finance, Labour, Health, Environment, Transport and Social Services, ceded to the Social Democrats, who only last month were denouncing the modern market economy as a biblical plague of locusts, laying waste to Germany’s traditional welfare state.

Indeed the main theme of the German election, as of the French referendum campaign before it, was public rejection of an economic reform agenda that was demanded by the business and political elites. The market reforms that would supposedly make Europe the “most competitive economy in the world” had been unanimously endorsed by Europe’s political leaders in their now-notorious Lisbon Declaration. But while the business and political elites across Europe became more and more obsessed with Lisbon’s promises of open markets, competition and globalisation, voters couldn’t help noticing that all these reforms, instead of improving their living standards or working conditions, were making them poorer and more insecure.

In this sense the German election, as much as the French referendum, was a grand gesture of defiance by voters against their political elites, a message perceptively summarised by Wolfgang Münchau, a German commentator in the Financial Times: “The German electorate has launched a new era in European economic policy — the post-reform era. After ten years of economic reforms, the Germans decided they had had enough.”

To judge by opinion polls, the French electorate is sending a similar message, with the conciliatory immobilisme of Dominique de Villepin steadily gaining ground against the radical promises of a “dynamic” government from Nicolas Sarkozy. A similar pattern seems to be developing in Italy, where the Berlusconi Government has long since abandoned all significant economic reform plans and now looks like being replaced by a Centre Left even more committed to preserving the status quo.

The reasons for this rejection have been discussed many times on this page and in my Economic Views. They come down to the simple point made by Münchau: reforms have been tried for a decade and they have failed to produce the promised increase in living standards or economic growth. Reforms have not delivered results because central banks have refused to support them with stimulative monetary policies and also because politicians have implemented them in the wrong order, starting with unpopular deflationary measures such as pension cuts, while delaying market liberalisation and financial deregulation that would have boosted wealth and created jobs. But all this is water under the bridge; the question now is whether the end of reforms should be seen as a disaster, an opportunity or a non-event.

At the European level, the unity of the German and French electorates in rejecting liberal reforms ends Tony Blair’s hopes of leading a pro-market consensus in Europe. On the contrary, the new coalition Government in Germany will find common cause with an ultra-cautious Chirac Government to re-create a powerful Franco-German axis, whose primary purpose will be to oppose liberal reforms. This, indeed, is already the situation reported from Brussels: the present European Commission is probably the most liberal ever, but its liberal ambitions, whether in trade policy, competition or deregulation, are frequently blocked by the veto-wielding combination of Germany and France.

But does the impending paralysis over reform in Europe really matter? This depends on one’s point of view. For Europeans who are elderly or who “own” their secure unionised jobs, especially in the public sector, the lack of economic dynamism is unimportant, compared to the generosity of pensions and protection of employment rights. High unemployment, which mainly afflicts the young and non-unionised, is a small price to pay for such security.

For Euro-idealists who hoped to see the EU moving towards federation and establishing itself alongside America and China, as one of the three global powers of the 21st century, the failure of European economic initiative may seem a disaster, but for ordinary citizens why should this matter? Superficially, therefore, Eurosceptics should welcome the inability of the “European model” to reform itself. It was always a delusion that the treaties of Rome and Maastricht had created a new system of socioeconomics that applied only to Europe and that could insulate its citizens from the realities of competition in the modern globalised world. In this sense, we must indeed welcome the recognition that national governments and voters, rather than bureaucrats in Brussels and Frankfurt, will determine their own national destinies by deciding on the necessary political trade-offs — between security and dynamism, between equality and incentives, between low taxes and generous public spending, and so on.

The tragedy, however, is that something precious will be lost if the people of Germany, France and Italy choose the path of a slow, comfortable national decline, rather than revitalisation. What will be lost, of course, is the global dominance of the European civilisation that these three great nations largely created.

As a democrat one has to acknowledge that the ageing electorates of Germany, France and Italy are entitled to vote for political paralysis, economic decline and global irrelevance. But the inevitable eclipse of European civilisation by a brash, materialistic American or Chinese culture will be a tragedy of epic proportions.