In memory of Dr. Andreas Höfert

Everything is fine in Europe…

| Tags: Andreas Höfert

Many political analysts were expressing this sentiment even before the results of the European Parliamentary elections were known. And in a certain sense they’re right. Even with populist, nationalistic, unorthodox and anti-European parties now accounting for roughly 20% of all seats in the European Parliament (extreme left parties making another 10%), there is no reason to believe that anything fundamental will change in the way policy is made at the European level.

Indeed, the “traditional” parties from center-right and center-left retain a comfortable majority of seats in the Parliament. Moreover, the populist parties from the different countries don’t seem to have enough political maturity or will at this stage to join forces and push their agendas through at the European level. In fact, nationalistic goals fundamentally contradict such transnational alliances. Finally, as is always stressed, the European Parliament does not play an important role in the European decision-making process. The European Council, composed of the heads of state of the EU members and the president of the European Commission, continues to call the shots.

So everything is as before the elections and we can just ignore what happened? Not quite. There are several reasons to worry about the election results. At the European level, the protest parties will likely be unable to enact their agenda, but they will significantly affect national policies. The anti-European UKIP, which finished first in the UK, will continue to pressure Prime Minister David Cameron into being as euro skeptical as possible. This doesn’t bode well for the referendum about whether the UK should remain in the EU, which Cameron has announced for 2017, if his Conservatives win the next elections.

In France, the right-extremist Front National garnered over 25% of the vote, finishing as the first choice of the French electorate and topping by a large margin the conservative opposition. French President François Hollande's Socialist party did not even manage to capture a 15% vote share. French institutions are strong enough to withstand the consequences of this rout. However, most political analysts stressed the increased likelihood of a presidential second round occurring in 2017, with Front National’s president Marine Le Pen as one of the two contenders. Moreover, this result further weakens Hollande's position in negotiations with Germany.

The EU was built on a partnership of equals between France and Germany. In recent years France has slid increasingly into the role of junior partner. One consequence is that the EU and the Eurozone are perceived as more and more "German." Hence, as shown in the Eurobarometer studies, the populations of Southern European countries (including France) feel their voices are being "heard" less and have become less optimistic about the EU’s future.

One can obviously attribute the gains of populist parties to Europe’s still-dismal economic situation. Many European politicians are betting that, once growth returns, everything will be fine again. Hollande went so far as to promise that he wouldn't run for the French presidency in 2017 if unemployment hadn't declined by then.

European growth has improved of late and should continue to do so for the next six to 12 months. Nevertheless, it will remain subdued compared to other regions of the world and suffer due to the continent’s dismal demographics. We have discussed here several times the possibility of a "japanification" of the Eurozone, i.e. a decade-long low-to-no growth scenario, which would obviously create an even more fertile ground for populist parties to gain greater influence.

Ignoring the message of last week’s election result and moving on, as many politicians would prefer to do, is exactly what led to it in the first place. As we have also stressed several times here, the European construction is entangled in a trilemma: nation states, democracy and the euro battle it out on equal terms and ensure that you can have two of the desired options at the same time but not all three. European politicians who simultaneously defend the euro and national agendas shouldn’t be surprised when democracy fights back, even if it occurs in an ugly way. The "business as usual" approach will only reinforce the protest vote. In this sense, while it’s possible to ignore the results of the European Parliamentary elections in the short run, they should also be seen as a shot across the bow for a much nastier long run.