MOST Eurozone news is almost unbearably predictable. Since 2010, politicians have endlessly talked about an “existential danger” to the euro, unless extraordinary measures are taken. We keep hearing from politicians who tell us that the only way to stave off catastrophe is to engineer another bailout – of a bank, of a nation, or of the whole continent.
So it is surprising that no organised, mainstream opposition has emerged in Europe – with the exception of a few voices on the free-market right and from ugly populist movements like the True Finns or the French National Front.
True, no one wants another Great Depression. But that argument strains credulity, as we get deeper into the most serious economic downturn since the 1930s. Unemployment in the EU stands above 10 percent, with Spain and Greece having more than one-fifth of their workforce out of work. In nominal terms, per capita GDP is not expected to bounce back to 2008 levels anytime soon – the average Italian earned $39,000 (£24,952) in 2008, and can expect only $36,000 in 2017, according to IMF forecasts.
How much worse could things have got if, instead of the deleveraging process, policymakers had forced creditors to accept upfront losses – even if it had meant bankruptcy for some banks – and if European economies had moved on, with clear expectations about future policies? Iceland did that in 2008. It suffered a sharp but brief recession, but the tiny nation is now back on track, with its economy growing at 3.1 per cent.
The dilemma of the current Eurozone crisis revolves around who should bear the costs of bad past decisions. Investors who made those decision or the real economy, through the painful process of deleveraging? The choices made by policymakers on both sides of the Atlantic effectively shield investors from losses, at the cost of a long recession.
Americans saw through this – the 2008 bailouts gave rise to the Tea Party movement. Though the Tea Party might be past its prime, discontent has not gone away – 52 per cent of Americans think the bailouts were a bad thing for the economy, according to a February 2012 Pew poll. This dissatisfaction may lead the Tea Party to have a lagged effect – like the Barry Goldwater presidential campaign in 1964.
In a recent Pew poll, 48 per cent of Germans, 56 per cent of the French and 61 per cent of Britons opposed assistance to Eurozone countries in distress. There is an opportunity for an anti-bailout, pro-market political movement that would reject crony capitalism. As in the US, it is unlikely that such movements will arise from within the political establishment. But do Europeans have enough civic engagement for such a movement to emerge spontaneously from the bottom up?
Dalibor Rohac is an economist at the Legatum Institute in London. Follow him on Twitter @daliborrohac