Policy Research in Macroeconomics

President Tusk: opposition to austerity is an ideological, anti-European illusion

“This new intellectual mood, my intuition is it’s risky for Europe.  Especially this radical leftist illusion that you can build some alternative to this traditional European vision of the economy. I have no doubt frugality is an absolutely fundamental value” – Donald Tusk, President of the European Council, 16 July 2015, in interview with the Financial Times

“Since the global financial crisis, economic outcomes in the euro zone have been deeply disappointing. The failure of European economic policy has two, closely related, aspects: (1) the weak performance of the euro zone as a whole; and (2) the highly asymmetric outcomes among countries within the euro zone” – Ben Bernanke, former Chairman of the US Federal Reserve, 17 July 2015

“A spectre is haunting Europe — the spectre of [anti-austerity]. All the powers of old Europe have entered into a holy alliance to exorcise this spectre” – Communist Manifesto, 1848, with one small amendment! 

In the Financial Times of 17th July, we find the text of a long interview given by Donald Tusk, former Polish Prime Minister and – more importantly for now – President of the European Council, the title given by the EU Treaties to the regular meetings of EU Heads of State.

The whole interview is well worth reading, and not all of it is so bad.  But it contains several alarming passages in which he dismisses any challenge to the dominant Eurozone austerity consensus as “ideological” “anti-European” and “an illusion”.  Mr Tusk ably demonstrates why and how the EU’s current leadership is now so out of touch with much of Europe’s population – and how that leadership has fallen prey to the autocratic myth that There Is (and can be) No Alternative (our old friend TINA) to the current economic and monetary policies. 

More than that – he apparently sees the current widespread opposition to austerity as a “mood” leading to a pre-revolutionary situation akin to 1968!

Here are key parts of what he had to say (it was a long interview…all emphases are mine):

I am really afraid of this ideological or political contagion, not financial contagion, of this Greek crisis. Today’s situation in Greece, including the result of the referendum and the result of the last general election, but also this atmosphere, this mood in some comments – we have something like a new, huge public debate in Europe. Everything is about new ideologies. In fact, it’s nothing new. It’s something like an economic and ideological illusion, that we have a chance to build some alternative to this traditional European economic system. It’s not only a Greek phenomenon.

This new intellectual mood, my intuition is it’s risky for Europe.  Especially this radical leftist illusion that you can build some alternative to this traditional European vision of the economy. I have no doubt frugality is an absolutely fundamental value and a reason why Europe is the most prosperous part of the world…. My fear is this ideological contagion is more risky than this financial one.

One of the most important parts of this new thinking about Europe is in fact something like questioning Europe as an idea, the EU as an organisation. From time to time, I feel that some politicians and some intellectuals in Europe are bored by the EU and they are ready to question everything, they’re ready to change everything in Europe, including treaties, but also this traditional way of thinking about Europe and our values.

For me, the atmosphere is a little similar to the time after 1968 in Europe. I can feel, maybe not a revolutionary mood, but something like widespread impatience. When impatience becomes not an individual but a social experience of feeling, this is the introduction for revolutions. I think some circumstances are also similar to 1968.

The most impressive for me was this tactical alliance between radical leftists and radical rightists, and not only in the European Parliament…. The discussion about Greece, it means a discussion against austerity, a discussion against European tradition, anti-German in some part. Everything was provoking enthusiasm on both sides. It was quite symbolic.

It was always the same game before the biggest tragedies in our European history, this tactical alliance between radicals from all sides. Today, for sure, we can observe the same political phenomenon.

The main melody today is anti-European. When I say anti-European I mean this traditional thinking about the EU and European and the common currency, and of course anti-market, anti-liberal – in fact, something revolutionary. From time to time, I feel for them it doesn’t matter what kind of ideology it is.

Tusk was asked if part of his concern about the political debate had to do with outside commentators like Paul Krugman who have criticized the EU’s handling of the Greek crisis. His reply is interesting (and shows he is wedded to the German ordoliberal economic philosophy):

The debate, and the main actors in this debate, everything they say today is very attractive and spectacular and intellectually brilliant. Unfortunately, it has nothing to do with the political reality. It’s also very similar to 1968. For sure today we need fresh discussion and we have new challenges, so we need new arguments and new debate. But I’m absolutely sure what we need as our main need today is very pragmatic and realistic discussion about what we can do with our organisation, the EU and our currency. 

If I look for something inspiring when it comes to the economy, I am ready to look towards something wise and responsible in different sources than this kind of debate. For me, maybe the best school of thinking is the so-called “ordoliberals” in Germany, in this critical time after the Second World War. Very pragmatic, no ideology, no illusions. Books and also practical politics from [Ludwig] Erhard, [Walter] Eucken, [Wilhelm] Röpke. This, for me, is the source of thoughts that can be very useful for today.

To sum up, for Mr Tusk, any challenge to the conservative and pro-austerity  economic orthodoxy of the Eurozone is seen as no more than “ideology” – as compared to the ruling conservative orthodox policies which either have no ideology, or maybe belong to a respectable “school” such as German ordoliberalism

(Moreover, I would add, ordoliberalism itself has transmuted from a strongly rules-based means of injecting some “social” benefits into the dominant “market” system, to its present role – a rules-based means of enforcing conservative economic policies that foster unemployment and promote long-term divergence).

A defensive interview

Mr Tusk gave in many ways a very defensive interview – a fear of other ways of thinking, a genuine puzzlement that anyone should question the Eurozone’s economic and monetary policies. To do so for him raises the “spectre” of 1968.

Most revealing of all is his remark that “The discussion about Greece [in the European Parliament], it means a discussion against austerity, a discussion against European tradition.”  Thus, to be against the policies of austerity is, for Mr Tusk, an illegitimate political position to hold that, one which brands anyone who holds it as “anti-European”.

The end of Europe’s social contract

The implied “social contract” underpinning the Common Market – established under the Treaty of Rome in 1957 – and its successors (European Community and European Union) sought to ensure a fair balance between the interests of capital and those of labour and consumers at European level, with increasing economic deregulation etc. matched by stronger protections for workers and consumers.  The right of member states to develop their own social security systems at national level without interference was not questioned.

 All that has changed – at first gradually, since the 1990s, but now rapidly.  Thus far, the roll-back in social protection has not so much been achieved by removing rights developed at EU level, but by the imposition of EU and Eurozone laws and policies on economic and monetary policy that increasingly undermine such protection within individual countries, especially via very high, chronic unemployment caused by flawed policies. 

While Eurozone sovereign debt crises have been the most visible vehicles for imposing austerity policies via conditionalities, it is the architecture and rulebook of the Eurozone that do the long-term damage, and require – independent of any government’s will – policies that place the interests of bankers and creditors above all others .

The EPP takes control of the EU

Let us recall that under this mandate of the European institutions, following the 2014 European Parliament elections, we have a much more pervasive party political set-up, with the EPP (European People’s Party) generally in control.  The choice of Commission President was explicitly claimed by the EPP as their right (with Mr Juncker, the chosen candidate, as their “Spitzenkandidat”), following the elections in which the EPP emerged as largest party. Mr Tusk is also from the EPP stable.

The European Social Democratic parties also seek to organise across the institutions, via the Party of European Socialists (PES) and the broader alliance of Socialists and Democrats (the S & D Group in the Parliament).

But social democrats are split

The social democrats are however far less consistent in their views than the EPP, notably on economic policies – and some join forces on austerity politics with the EPP. Netherlands Prime Minister Mark Rutte, for example was in the camp of the hard-liners at the recent Euro Summit on Greece (1), while the German SPD have often seemed to share much of Angela Merkel’s perspective on economics. 

Other social democrats at European level are starting to oppose austerity.  At a recent “relaunching Europe” conference in Budapest of the S & D Group, its chair, Gianni Pittella, stressed that some Europeans were angry, particularly the young, because their expectations have not been fulfilled:

They are right. But the shortcomings in job opportunities, social cohesion and a fair economy are the consequence of the austerity imposed by the Conservatives. 

We need an alternative vision for Europe

But so far, the Social Democrats have not articulated an alternative vision or set of policies to fundamentally challenge the contractionary, unemployment-fostering economic and monetary policies that are both embedded in the EU Treaties, and also translated into laws and actions. 

It is of course extremely difficult to change the EU Treaties, but until the social democratic parties unite – with other progressive parties – around a concerted, Europe-wide challenge to the economic and monetary philosophy of the Eurozone and the EU, the peoples of Europe will continue to face recurrent crises and continuing decline, for which still more “frugality” is the only official response.

(1) Thanks to a reader’s alert, I have realised since writing this article that the reference to Netherlands PM Mark Rutte as a social democrat is wrong – he is in fact from the Dutch People’s Party for Freedom and Democracy (VVD) which is in coalition with the Dutch Labour Party (PvdA).  Not that the difference is great – his finance minister, Jeroen Dijsselbloem, is chair of the Eurogroup (finance ministers) and consistent hard-liner on Greece.

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