The best thing that could happen to Europe right now is:
- an orderly retreat from the common currency;
- a massive program for well-organized, phased-in privatizations of large government programs, coupled with appropriate deregulations; and
- substantial tax cuts proportionate to the spending cuts resulting from privatization.
Such a program would generate GDP growth and job creation of a sort Europe has not seen since at least the rebuilding of the continent after World War II. Sadly, it does not look like Europe is heading in the libertarian direction. On the contrary, the next wave in the continent’s political life is radical socialism.
That is the only thing more worrying for Europe’s future than a continuation of statist austerity. Radical socialism means restoring government spending to the promises that were made when the welfare states were built, as well as raising taxes accordingly to pay for those spending programs.
Put simply, the radical socialists are trying to balance Europe’s welfare states of the 1980s and 1990s – when they were at the height of their generosity – on top of economies that have not grown for seven years. They want their governments to have the same spending capacity today as they had when the economy was, comparatively, close to full employment.
After the surprisingly strong victory for Syriza in Greece, the socialist wave is now making landfall in Spain. From the Daily Mail:
Hundreds of thousands of people marched through Madrid today in a show of strength by a fledgling radical leftist party, as it becomes the latest European political organisation to gain widespread support for its anti-austerity stance. … The party’s rise is greatly due to the charisma of its pony-tailed leader, Pablo Iglesias, a 36-year-old political science professor.
In a way, this revolutionary change to Europe’s political scene is understandable. The austerity policies that have been dictated by the EU, the European Union and the International Monetary Fund have been a twin-headed dragon spewing fiscal-policy contempt over the citizens of country after country. On the one hand, the policies pledge to maintain government promises in the form of all sorts of cash entitlements and in-kind services; on the other hand government drastically reduces the actual content of those services, sometimes paired with higher taxes that make it increasingly difficult for the citizens of Greece, Spain, Portugal, Italy, France and other countries to satisfy the needs privately that government promises to provide for but no longer does.
This is statist austerity at work. It is a high form of cynicism that fails to achieve its stated goal – a balanced government budget – while draining the private sector of even more resources.
The radical socialists see the first part of the statist-austerity equation, namely the damage it leaves in its tracks. They fail, however, to recognize the second part. Alas, their rhetoric. Daily Mail again:
Hailing from the Madrid working class neighborhood of Vallecas, Iglesias prefers jeans and rolled up shirt sleeves to a suit and tie and champions slogans such as Spain is ‘run by the butlers of the rich’ and that the economy must serve the people. … Opinion polls show the party could possibly take the number one spot in upcoming elections and thus trigger one of the biggest political shake-ups in Spain since democracy was restored in 1978 after decades of dictatorship. … This year, Spain holds elections in 15 of its 17 regions followed by general elections. Podemos’ first battle will be in the southern Socialist heartland of Andalusia in March, followed by regional and municipal elections in the crucial ruling Popular Party stronghold of Madrid in May.
And now the false narrative of the Great Recession is coming back to haunt the political leadership. By portraying this as a financial crisis – which it was not – Europe’s political and economic elite has now served the left with a plateful of demagogical goodies. Back to the Daily Mail:
‘The political class has lost all credibility,’ said unemployed lathe worker Marcos Pineda, 54. ‘The PP that governs today had its former treasurer in jail for corruption and the banks were bailed out with 40 billion euros ($52 billion) of European money, but the government refused to call it a bailout.’ Podemos has often expressed its support for some of the policies of left-wing governments in Venezuela, Bolivia and Ecuador, which makes many Spanish mainstream politicians bristle. In Europe, it openly supports Syriza, which won national elections in Greece on January 25 and which has pledged to challenge the austerity measures imposed on the country by the European Union and International Monetary Fund.
The bank bailouts were tightly tied to the massive purchases that the banks did of treasury bonds from troubled welfare states such as Greece, Spain, Portugal, Italy and Ireland. As the credit rating of those countries – and thus their bonds – tumbled like mortally wounded Sturzkampf bombers, the banks pledged to support those welfare states with more bond purchases. In exchange, the banks were given tax-funded bailout money, though as I will show in my next book the bailout money was far from enough to cover what the banks spent on welfare-state junk bonds.
Put bluntly: the banks saved the welfare states, not the other way around. But Europe’s supporters of free market capitalism have failed miserably at communicating this to the public. As a result they leave the political field – and the privilege of defining the political discourse – to the most dangerous socialists Europe has been home to since the Cold War.
This new radical socialist movement is ready to go farther down the red brick road to collectivism than any other leftist movement since the heydays of Communism. With such role models as Venezuela’s now-defunct Hugo Chavez, movements like Syriza and Podemos won’t think twice of destroying property rights and other cornerstones of a functioning economy. They will follow a long-established socialist agenda of evolving their big government from the welfare state and its indicative form of central economic planning to the teleological version used by Communists.
Think it can’t happen now? Go back and read the theorists behind the welfare state project. Go study the works of Gunnar Myrdal and John Kenneth Galbraith. Their roadmap from the first elements of income redistribution to full-blown government control over the entire economy has been followed very faithfully by the left. The only reason why they have not yet reached the teleological planning stage in Europe is that their advancement of government has been interrupted from time to time by voters electing moderate statists – a.k.a., liberals and “conservatives”.
Now, though, the established center-right parties are losing credibility, and losing it fast. M/S Europe, having hit the austerity iceberg, is listing left.
How much water can she take in before she goes down?