euro zone

Populist Blackmail

Europaflaggen
Flying the flag for fiscal responsibility. Can northern Europe resist blackmail by populists in the south? Source: DPA

When it comes to justifying violation of European rules on sovereign debt or liquidating banks, one argument is very much in vogue just now: That you have to make an exception once in a while to avoid fueling populist criticism of the euro and EU.

This is how France extended mitigating circumstances in the run-up to the presidential elections, even though it had been flouting the European agreement on reducing public debt for years. Deadlines were constantly pushed back and penalties postponed, for fear of providing grist for the National Front’s far-right mills.

Spain had already profited from similar arguments prior to its last elections. And the latest approval for government assistance in a bailout of Italian banks was essentially aimed at depriving the anti-Europe Lega Nord and Five Star Movement of fresh ammunition against Brussels.

The idea that states should be rewarded with transfers for complying with European agreements, rather than sanctioned for transgression, has become common currency in the European Parliament. It’s little different from rewarding those who manage to refrain from shoplifting rather than punishing theft.

The European Commission has just published a reflection paper on the future of the European monetary union, devoid of any calls for structural reform, such as more flexibility in the labor market, cutting excessive public spending or eliminating barriers to market entry. Instead, the paper is rich in ideas for new hedging instruments and financing mechanisms for the benefit of southern Europe.

If fear of populists guided the paper’s authors in the Commission, they aren’t alone. The European Central Bank is shying away from normalizing its monetary policy. Since it can no longer excuse its decisions with economic data, political uncertainties are repeatedly raised as justification.

Bids to curb populism in southern Europe boost the EU|s critics in northern Europe.

Such politically motivated decisions see Europe bowing to populist blackmail. The result is, southern Europeans have all the more reason to vote for populist parties. More votes for euroskeptics becomes the best way to force concessions, soften rules, and ultimately extract transfers from northern Europe. And it’s rational for northern European voters, in turn, in vote for populists who fight this.

Giving in to populist extortion is not a strategy to ensure the survival of the euro or the EU. Firstly, it damages the credibility of painstakingly improved regulations in fiscal oversight and the banking union. Against this backdrop, it’s impossible for potential net contributor countries to implement further steps towards shared risks.

Secondly, this behavior undermines the principle that aid is dependent on reform and reduced autonomy. And thirdly, bids to curb populism in southern Europe boost the EU’s critics in northern Europe. The support for the European project allegedly preserved in the south is eroded in the north.

What can Europe do to resist such populist blackmail? In the short term, interpretation of euro zone regulations shouldn’t be influenced by election strategies. To ensure this, decisions over the stability pact should be handed over to independent institutions.

In addition, there needs to be an orderly path for euro-zone countries’ insolvency and exit from the single currency that doesn’t entail systemic crisis. It is precisely this systemic risk that allows populist parties to blackmail Brussels with so little opposition.

Ultimately, radical populists can only be stopped if voters realize their demands are a threat to peace and prosperity. European institutions giving up on enforcing European law is not the answer.

 

To contact the authors: gastautor@handelsblatt.com.

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