In memory of Dr. Andreas Höfert

On frustrated politicians and politics of frustration

| Tags: Andreas Höfert

Some years ago being a politician in Western democracies was a prestigious job: thrilling election campaigns, the formation of national policy in parliament or the ultimate prize of leading the country. Today, it seems the politician’s job boils down to frustration, as hands are more and more tied – as is especially true in Europe.

François Hollande will go down in history as the French president who lost the confidence of his people most rapidly. Less than 11 months ago just after election, 60% of the French were confident that he was good at what he was doing, while today only 30% have that confidence. The truth is, he got elected by default, not because a majority of French believed that he was up for the job but because a majority of them wanted the incumbent President Nicolas Sarkozy out.

Hollande inherited the French economy already in a downward spiral, which has continued since. In 2013 we could even see a negative growth rate for the whole year, and the real gross domestic product for the first quarter 2013 could well be below that seen in the first quarter of 2007, six years ago. French unemployment may register its highest absolute postwar figures within the next couple of months, although the increased population dampens the unemployment rate. Finally, having been also elected over a program of “moralization” of French politics, François Hollande has seen his former Budget Minister being caught in a tax evasion scandal.

So the obstacles are immense. But in my view they don’t explain Mr. Hollande’s spectacular drop in popularity completely. When people voted for him they obviously did it assuming he might do something about the ongoing economic malaise. Meanwhile they understand that whoever is in charge won’t change much. Why? If we go back to the 1980s, a European government confronted with stagnation or recession had anti-cyclical economic tools at its disposal both through monetary as well as through fiscal measures. It could devalue its currency and expect a boost in exports (even though the link is not always evident) or it could finance some growth through public investment by increasing its debt.

Both measures are now impossible within the Eurozone. Monetary policy is set by an independent European Central Bank, which focuses almost exclusively on inflation. Eurozone country leaders might complain, as several French politicians did recently, that the common currency is too strong. However, this might not be true for other Eurozone member countries, and on top of that, leaders cannot devalue against their competitors within the Eurozone.

As for fiscal policy, being a member of this same Eurozone and needing to comply with fiscal consolidation means that leaders' hands are tied here as well. In fact the frustration the French population is currently expressing can also be seen as frustration that citizens cannot change the economic policy of a European country anymore through the traditional expression of democracy, i.e. by ousting a government. In this respect France is currently joining the cohort of European countries that have experienced a similar frustrating political environment.

Since the usual forms of democratic expression are often perceived as not being valid anymore in Europe, other means could ultimately be employed by the frustrated populations. In a recent in-depth analysis, UBS Senior Economic Advisor George Magnus has explored the relationship between economic stress and social unrest in Europe and South America in the 20th century. It has led him to wonder why the streets in Europe so far are still relatively quiet. Some possible answers are ageing populations and family structures.

Nonetheless his conclusion is sobering and likely the biggest tail risk for Europe: “The current Eurozone news (…) doesn’t seem like the ideal scenario in which to expect European social unrest and political turbulence to fade away.”