Social democracy and Europe’s crisis

Elections in France in 2012, Germany in 2013, the European elections of 2014 and the ongoing negotiations for the reform of the EU’s multi-annual financial framework for the 2014-2020 period are opportunities. Whether socialists and social democrats will take advantage of them or not, remains to be seen.

The financial crisis, the subsequent economic crisis and the crisis in the Eurozone can be seen as both a confirmation of the decline of socialist and social democratic parties as well as an opportunity for them to return to their roots, draw on their past achievements, learn from the errors, and begin to create a credible alternative, which Europe desperately needs. 

In electoral terms, elections in various European countries (such as Germany, Sweden and the UK) and the European elections of 2009 confirmed, with few though notable exceptions, the decline of socialist and social democratic parties. Given that many, though certainly not all, socialists and social democrats (in inverted commas or not) had actually contributed to bringing about the crisis – most notably through their fervent, unequivocal and sustained support for the ‘light touch regulation’ of financial services – it is not surprising that voters up and down the Old Continent chose to reject them. 

After all, any hope for a better result in the European elections had received a major blow when the leaders of the Spanish and Portuguese socialists and Gordon Brown chose in the spring of 2009 to support Mr Barroso’s candidacy for re-election as President of the European Commission. The former two did so for reasons of ‘Iberian solidarity’. The latter did so, presumably, because of Mr Barroso’s impeccable credentials as an Atlanticist, tame Commission President and a supporter of unfettered markets. As a result, calls not only from their sister parties but also a larger spectrum of parties, such as the Greens, for various elements of the European Left to put forward a common candidate went unheeded. 

On the other hand, evidence is emerging which points in the direction of change. First, in terms of political personnel, the election of Ed Miliband, the major role that Martine Aubry has played in reinvigorating the French PS, François Hollande’s platform for the presidential elections, the relative popularity of the trio that leads the SPD – in short, politicians who argue for change – is one significant piece of evidence. 

Second, in terms of institutional arrangements, agreement has been reached within the Party of European Socialists to put forward a common candidate for the presidency of the European Commission alongside a common programme ahead of the European elections of 2014 in an effort to at least begin to fight European elections on European issues, rather than purely national ones. 

Finally, in policy terms, what they can see as an encouraging sign is the fact that the victory of the Centre-Right and its allies in the 2009 European elections was based on a theme and slogan with clear social democratic overtones: to help create “l’Europe qui protège”. Equally important is the fact that, in some European countries, it is much more accurate to refer to an electoral collapse of the Left, rather than a swing to the Right.

Since then – or even before then – various policy proposals have been presented either in several parallel monologues or in proper debates (involving those from the rightly revered Helmut Schmidt down to activists who seek to promote the partial but explicit politicization of the EU) on a broad range of issues regarding the relationship between the political and the economic spheres, the boundary between the public and the private, the appropriate level(s) of action (national, European; too often some speak as if we had to choose between these two). One might even speak of evidence of an emerging consensus on a number of key issues underpinned by the concept of responsible capitalism and the re-affirmation of the primacy of democratic politics. So, what are the main features of the emerging - albeit perhaps fragile - consensus in this political family? 

The first point concerns the sustained, well-informed and unequivocal support for a financial transaction tax at the level of the EU that will seek to dampen speculation and raise funds for the public exchequer(s). The intellectual back-up exists and explicitly addresses key arguments used by those who oppose the introduction of the FTT. Support within the directly elected European Parliament is very robust indeed. Despite the Tory-led UK government’s opposition – which is important due to the required unanimity - the proposal is very likely to go ahead at the level of the Eurozone due to the significant support that it has garnered, crucially, even among key segments of the Centre-Right as evidenced by the recent initiative of the finance ministers of nine Eurozone countries. If it must be confined to the Eurozone, the tax can be calibrated in a manner that will enable it to cover any transactions (i.e. including those actually taking place elsewhere) involving firms legally based in the Eurozone. In other words, what matters is the place of establishment of the firm, rather than the locus where the transaction takes place. Tax experts have pointed out that avoidance is not as easy as some claim, in part because money transfers can be traced via the SWIFT system.

Second, there is widespread support for a series of measures that can be summarized by the term ‘economic union’, which has – along with political union - been neglected by those who created the Euro. This involves several bold proposals including Eurobonds, and agreement on the need to foster growth. The specific nature of Eurobonds (e.g. Eurobonds, project bonds etc.) remains to be seen and is matter for debate but socialists and social democrats (as well as Greens and significant segments of the Liberal group in the European Parliament) either support them explicitly – as is the case of François Hollande and the French Socialist Party – or present them as unavoidable, as is the case of the German SPD (in the latter case for fear of being portrayed as ‘irresponsible’). 

In addition, there is growing consensus on the need for the active pursuit of growth, an issue on which there is support even from liberal European leaders such as Mario Monti (indeed, even credit rating agencies begin to note that austerity alone cannot resolve the problem). Concrete ideas include an active industrial policy. In the case of François Hollande’s electoral platform, this explicitly involves the authorization of EU-level loans to fund large-scale projects (e.g. in energy), or an increase in the lending capacity of the European Investment Bank (the EU’s lending arm, whose role can be crucial at a time when the European banking system is in crisis), a greater emphasis of the EU’s budget on investment in low-growth member states. 

Central in this regard is the correct idea that the current conservative majority’s overwhelming emphasis on budgetary discipline (e.g. through the ‘fiscal compact’) and, even, wage restraint does not deal with what is the real issue -  namely, imbalances within the Eurozone. In this he is supported by economists (be they trade union-affiliated or not, including many German economists), trade unionists (such as the leader of CGIL, the largest Italian trade union) and politicians who rightly point out that countries such as Spain and Ireland have been complying with the Maastricht rules until the crisis struck and asset price bubbles burst - which means that it is factually wrong to ascribe the crisis to profligacy (though this did play a major role in the case of Greece). 

In tactical terms, François Hollande is right to refuse the ratification of the fiscal compact unless the role of the ECB is re-balanced and extended (so that it resembles more closely a proper central bank) and specific measures are taken so as to promote growth and job creation. If the fiscal compact is meant to (a) reassure the German public opinion that interest-bearing loans to ailing Eurozone countries is not money down the drain and (b) ensure that the ‘sinners’ will return to the path of prudence, why should the other part of the presumed trade-off, namely a more active role on the part of the European Central Bank, remain implicit? Mr Hollande’s campaign director (and possibly future prime minister of France) Pierre Moscovici has underlined the direct link between the re-orientation of the new EU treaty and popular support for the EU. Hannes Swoboda, the leader of the socialist group in the European Parliament supports the extension of the ECB’s mandate which would place the fight against imbalances within the Eurozone on an equal footing with the fight against inflation. Moreover, in Europe’s powerhouse, there are growing calls for significant wage increases.

In the short term, there is increasingly vocal consternation generated by the treatment of the (arguably special case of) Greece. Recent attempts to finalise the arrangements that are meant to implement the agreement of 26 October 2011 in regard to the voluntary ‘haircut’ of private bondholders, have been coupled with a remarkably heavy dose of austerity that may end up killing the ‘patient’ as the European Parliament and Mario Monti have noted. As the Confederation of German trade unions stated, Greece needs a new Marshall Plan that will help it grow in a sustainable way. The same point has been made by several others, including, most notably, Helmut Schmidt and, more recently, the newly-elected social democratic leader of the EP, Martin Schulz. Pier Luigi Bersani, leader of the Italian Democratic Party, expressed his indignation at the behaviour of those European politicians who insult the Greek people and pointedly reminded Angela Merkel (a) that no country can save itself on its own (and that applies to Germany too), (b) the responsibility of the EU for allowing Greece to reach the stage where it presently is, (c) the direct link between the reunification of Germany and the agreement to create the Euro and above all (d) the fact that, for Europe, the Euro and European integration is not a mere economic but in reality a grand political project of strategic importance. François Hollande has rightly criticized the punitive and counter-productive nature of some of the recent measures that have been imposed on Greece in exchange for the support that it receives in a desperate attempt to avoid default, and has highlighted the need for growth-inducing measures. The fact that many of these reactions refer not only to economic rationality but to the principle of solidarity as well is important, since rhetoric shapes the citizens’ understanding of and opinions on the ongoing crisis.

Agreement on these issues does not indicate the existence of a fully-fledged common programme but it might be seen as the beginning of a process that will generate that programme. One might also question the wisdom of the decision to place more emphasis on the FTT’s introduction rather than on need for growth-fostering measures. In any case, elections in France in 2012, Germany in 2013, the European elections of 2014 and the ongoing negotiations for the reform of the EU’s multi-annual financial framework for the 2014-2020 period are opportunities. Whether socialists and social democrats will take advantage of them or not, remains to be seen.

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