Tagged: SYRIZA

When Greece Leaves the Euro

Greece keeps pushing the currency union envelope. Mr. Tsipras, the socialist prime minister, is driven by his ideological convictions and therefore plays a different game than the leaders in Brussels with whom he is negotiating to keep his country afloat. The problem for the European leadership is that it seems incapable of understanding what role Tsipras’s ideology plays for his actions – Tsipras wants full independence for Greece so he can build his version of the socialist dreamland that now-defunct Venezuelan president Hugo Chavez created.

Rational arguments such as “property rights no longer exist in Venezuela” or “they have 60 percent inflation” and “crime is rampant and there is a shortage of almost every daily necessity” do not work on ideologues like Tsipras. That is the very problem with them. Therefore, you cannot reason with them as though they were swayed by the same type of “sensible” arguments that you are. But more importantly: so long as the EU leadership does not understand that politicians like Tsipras are ideologically opposed to everything that the EU stands for, they will not be able to have a rational conversation. There will be constant discords, where the EU leaders try to set goals that will help Greece stay inside the euro zone – and ultimately the EU – while Tsipras and others like him (think euro skeptics in Italy and Spain) will try to create circumstances that allow them to get what they want, namely out of the euro zone (and eventually the EU).

The biggest danger with this discord is that once the euro zone starts breaking apart, the retreat from the common currency will be disorderly. There is no doubt that the Bundesbank in Germany has a contingency plan for that disorderly dissolution, but it is far from certain that their plan will work. There are so many uncertain factors in this game that an even reasonably confident prediction is out of the question.

That said, there are some fixed points that can be put in the context of macroeconomic reasoning. That in turn should at least provide some insight into the best and worst case scenarios.

Before we get there, though, an update on the Greek situation, as reported by the EU Observer:

The stand-off between Greece and its lenders deepened over the weekend ahead of a meeting of euro finance ministers on Friday (24 April), with both sides exchanging barbs over the risk of a Greek default and its consequences for the eurozone. On Friday, Eurogroup president Jeroen Dijsselbloem said both parties should avoid “a game of chicken to see who can stick it out longer. We have a joint interest to reach an agreement quickly”.

An agreement about what? If Greece secedes from the euro it can, at least theoretically, run away from its bailout-related deals. In practice, the EU would still want to enforce loan contract, but it is much more difficult with a country that has a currency of its own – a currency that in all likelihood will be depreciating rapidly.

As for the IMF, Greece would have to deal with them separately, but it could do so much more so on its own terms once outside of the euro zone.

In fairness, though, it looks like the full extent of the Greek situation is beginning to dawn on at least some EU leaders. The EU Observer again:

EU and International Monetary Fund (IMF) leaders warned that Greece had to make quick progress to finalise a list of reforms that would enable it to receive a €7.2 billion loan. But they hinted that a Greek default could be managed by the eurozone. “More work, I say much more work is needed now. And it’s urgent,” said European Central Bank (ECB) chief Mario Draghi in Washington, where he was attending the IMF’s Spring meeting. “We are better equipped than we were in 2012, 2011, and 2010,” he added, referring to the years when fears of a eurozone break-up were at a high. “Having said that, we are certainly entering into uncharted waters if the crisis were to precipitate, and it is very premature to make any speculation about it,” Draghi also said.

So what would happen if Greece seceded from the euro? Well, the EU Observer article brushes on that subject:

Greek finance minister Yanis Varaoufakis, for his part, warned that his country’s exit would cause major problems for the rest of the region. “Some claim that the rest of Europe has been ring-fenced from Greece and that the ECB has tools at its disposal to amputate Greece, if need be, cauterize the wound and allow the rest of the eurozone to carry on,” he said on Spain’s La Sexta channel “Once the idea enters peoples’ minds that monetary union is not forever, speculation begins … who’s next? That question is the solvent of any monetary union. Sooner or later it’s going to start raising interest rates, political tensions, capital flight.”

This is a key statement. Some would interpret it as Greek leverage in negotiations with Brussels. However, the correct way to read it is as a blunt warning of what is to come: sooner or later Greece will leave the currency union, and it will do so like the men who escaped Alcatraz in 1962. Once someone has done what everyone thought was impossible, then just as Mr. Varaoufakis says, the only question on everyone’s mind will be: who’s next?

British Member of the European Parliament for the UKIP, Mr. Nigel Farage, made a great point recently when appearing on BBC (at about 2:25 into the video): the initial effect of a Greek currency secession is going to be a boost in growth as the currency depreciates. This growth spurt will inspire other struggling euro-zone states to consider a return to their national currency. Once the secession movement gets off ground, it is uncertain how many states will actually reintroduce their national currency, but it would be reasonable to expect a first round of secession to sweep from Athens to Lisbon.

The short-term financial turmoil aside, the most likely effect will be a southern European currency war. The four countries that have historically had weak currencies will find themselves returning to that position, only with an even deeper macroeconomic ditch to climb out of. The only moving part of their economies is, actually, exports, which will get a boost from a rapid currency depreciation. At the same time, that depreciation will be a major conduit for imported inflation, which in turn will eat its way into the economy a bit after the exports boom has gained momentum. The more the currency depreciates, the stronger the imported-inflation effect will be.

Inflation will have major consequences for the government budget. Depending on what type of inflation indexation is built into the welfare state’s entitlement programs, the cost of government spending will rise more or less with inflation. While inflation can also be beneficial to the revenue side of the state budget, it negatively influences the purchasing power of households and generally (but not always) depresses business profitability. As a result, domestic economic activity slows down, causing the tax base to stagnate.

And this is where the major test comes for currency secessionists: how will they handle their budget problems? With weak currencies they will have a hard time selling their treasury bonds on the international market; they can load up their banks – a likely scenario in Greece where a Syriza government could even go as far as to nationalize banks – but as the Great Recession demonstrated, leaning on banks for funding a government deficit is a particularly bad idea. When banks are overloaded with bad government debt in the midst of a macroeconomic crisis, then suddenly it is 2009 again.

Very briefly, then: once the euro zone starts falling apart the first ones to leave will face very difficult challenges. That is not to say that the remaining euro zone countries will have a better life – it is very likely that the euro zone itself won’t survive the 2017 French presidential election – but once the Southern Rim has left the euro zone the remaining countries will have a somewhat easier time following an orderly retreat plan. In fact, it would not be surprising if Germany, Austria and the BeNeLux countries remained in a “core” currency union – a Gross-Deutsch Mark, if you will. That currency could actually become a stabilizing point for a post-euro EU.

Still, even with an anchor currency in the heart of the EU, an implosion of the euro will have major negative effects for the European economy. What will those effects look like? That is a subject for another article.

Greece Preparing to Leave Euro

When the Chavista socialists in Syriza won the Greek election many forecasters raised the concern that Greece might leave the euro. However, most of them quickly subsided and joined the ranks of the non-confrontation opinion. The prevailing view over the past couple of months seems to have been that the Greek government will eventually cave in, stick to agreed austerity programs and honor its debt payments to the IMF.

I have refused to join the choir of consensus. On February 9 I explained (emphasis added):

There have been many attempts at predicting which way Greece is going to go under the new socialist government. Most of the voices heard thus far seem to agree that Prime Minister Tsipras will not seek a confrontational course against the EU. That is, however, a mistake. This is a man who considers now-defunct Venezuelan president Hugo Chavez a political hero. Tsipras is also a former communist (though being a former communist and at the same time a fan of now-defunct Hugo Chavez is a matter of political semantics) whose training in politics and – to the extent it exists – in economics is fully governed by those ideological roots. It is only logical that he continues to raise the volume vs. Brussels.

This ideological foundation for the Greek attitude toward the EU and the IMF has continued to elude international analysts. One reason is that most of those analysts have a business background or are otherwise trained in strictly quantitative methods such as econometrics; another reason is that most analysts are American, and Americans in general have a shallow – even non-existent – understanding of what role political ideologies play in European politics.

Related to this, it is important to keep in mind that Syriza is governing with coalition support from a small nationalist party whose feelings for the EU are perhaps even more unfriendly than those in Syriza.

Since my February 9 prediction I have steadfastly said that while the Greek future in the euro zone is more uncertain than most economic and political events, it is more likely that they leave the euro than that they stay in.

Today, The Telegraph reports:

Greece is drawing up drastic plans to nationalise the country’s banking system and introduce a parallel currency to pay bills unless the eurozone takes steps to defuse the simmering crisis and soften its demands. Sources close to the ruling Syriza party said the government is determined to keep public services running and pay pensions as funds run critically low. It may be forced to take the unprecedented step of missing a payment to the International Monetary Fund next week.

This is not the place to re-hash all the reasons why Greece is in this situation in the first place. Suffice it to mention one point, though, namely that ever since the end of the military government in 1974 democratically elected governments have emphasized welfare-state spending over a sound, working economy. Slowly but inevitably this has eaten away at the private sector. Eventually, the Greek economy collapsed into a deep recession, government tried to fix its enormous budget problems with austerity patches, the result was an even deeper recession – and here we are.

In other words, the origin of this fiscal crisis is in the welfare state. Now Greece has a government that by ideological conviction stands by, and wants to restore and even grow, that same welfare state. The only way they can do this – they believe – is if they leave the euro zone. While most Greeks have been against a currency secession, the Syriza government has now manipulated the circumstances to exactly where they need them to be, namely where they look like they care more about the Greek people while the evil global capitalist IMF does not.

Prime Minister Tsipras will be considered a national hero for as long as the drachma has some value vs. the euro. Which will probably be 3-6 months. Then the global market will have deemed the drachma worth little more than Monopoly money and Tsipras will have to resort to the kind of currency trickery they use in Venezuela (his vision of Greece’s future). Of course, with such reckless exchange-rate manipulation and money printing comes 40-50 percent inflation.

That is literally where Greece could be in two years, maybe less, if they leave the euro zone.

The Telegraph again:

Greece no longer has enough money to pay the IMF €458m on April 9 and also to cover payments for salaries and social security on April 14, unless the eurozone agrees to disburse the next tranche of its interim bail-out deal in time. “We are a Left-wing government. If we have to choose between a default to the IMF or a default to our own people, it is a no-brainer,” said a senior official.

Again, the circumstances that fit the Syriza agenda for euro secession. And, as the Telegraph emphasizes, one has to look at this from a political, ideological perspective more than strict macroeconomics:

The view in Athens is that the EU creditor powers have yet to grasp that the political landscape has changed dramatically since the election of Syriza in January and that they will have to make real concessions if they wish to prevent a disastrous rupture of monetary union, an outcome they have ruled out repeatedly as unthinkable. “They want to put us through the ritual of humiliation and force us into sequestration. They are trying to put us in a position where we either have to default to our own people or sign up to a deal that is politically toxic for us. If that is their objective, they will have to do it without us,” [a Greek government] source said. … Syriza sources say are they fully aware that a tough line with creditors risks setting off an unstoppable chain-reaction. They insist that they are willing to contemplate the worst rather than abandon their electoral pledges to the Greek people.

Prior to the election of the French socialists to both the presidency and the parliamentary majority in 2012 there was not a single government within the euro zone that even grumbled about the tough austerity measures imposed by the EU-ECB-IMF troika. President Hollande wanted to part with some of the measures that the troika thought would bring France into compliance with the EU’s Stability and Growth Pact. (This is the EU’s constitutional budget balancing measure.)

France is still not in compliance with the Pact, and the alternative policies that the socialists imposed on the French people have not made any notable difference in terms of growth and job creation. But their balking at compliance with EU-imposed austerity measures sparked a movement of dissent through much of the European left. The idea of simply telling the troika that “we care more about our people than about you” eventually brought Syriza to power in Greece – and will now bring Greece out of the euro zone.

In fact, as the Telegraph explains, the Greek government has already drawn up the plans for it:

An emergency fall-back plan is already in the works. “We will shut down the banks and nationalise them, and then issue IOUs if we have to, and we all know what this means. What we will not do is become a protectorate of the EU,” said one source. It is well understood in Athens such action is tantamount to a return to the drachma, even though Syriza would rather reach an amicable accord within EMU.

The effects for the Greek economy would be devastating. For starters, their Treasury bonds, which are denominated in euros, would become even more toxic than they already are. The only way they could continue to honor their payments on those bonds is if they would peg the drachma to the euro. But that would hold up if and only if they locked the borders and prevented people from taking their money out of Greece.

Which is why they propose a nationalization of the banks. Thereby they can lock in people’s money and force them to keep it in the country. But such draconian measures would of course be tantamount to declaring war on the global financial markets. Not that a Chavista socialist government would care, but it would force them to take counter-measures to prevent a complete meltdown of the currency within the first few months.

One such measure is a double-currency system, which is in operation both in China and in Venezuela. That shields the “real” currency from massive depreciation, but it also creates liquidity problems in the economy. The Chinese government escaped those problems thanks to many years of massive trade surpluses that – by means of currency sterilization – flooded he economy with liquidity and cheap credit. (They are now paying the price for that exchange-rate policy.) The Venezuelan government has simply taken to the monetary printing presses to do away with their liquidity problems. One of the many effects is 40-50 percent inflation.

A Greek secession will have serious consequences for the euro zone. Keep a close eye on Spain this year, then France in 2016 and 2017. More than likely the euro zone will be dead by the end of 2018.

Socialist Momentum in Europe

The answer to the question whether or not Greece will stay in the euro will probably be given this week. New socialist prime minister Tsipras is not giving the EU what it wants, jeopardizing his country’s future inside the currency union:

Talks between Greece and eurozone finance ministers broke down on Monday with an ultimatum that Athens by Friday should ask for an extension of the current bailout programme which runs out next week. Greek finance minister Yanis Varoufakis said he would have been willing to sign off on a proposal made by the EU commission, which was more accommodating to Greek demands, but that the Eurogroup offer – to extend the bailout programme by six months – was unacceptable. The battle is about more than just semantics. EU officials say Greece cannot cherrypick only the money-part of a bailout and ignore the structural measures that have to be implemented to get the cash. “If they ask for an extension, the question is, do they really mean it. If it’s a loans extension only, with no commitments on reforms, there is an over 50 percent chance the Eurogroup will say no,” one EU official said. Failure to agree by Friday would leave very little time for national parliaments in four countries – notably Germany – to approve the bailout extension. It would mean Greece would run out of money and be pushed towards a euro-exit. … As for the prospect of letting Greece face bankruptcy to really understand what’s at stake, an EU official said “there is no willingness, but there is readiness to do it”.

The mere fact that there is now official talk about a possible Greek exit from the euro is a clear sign of how serious the situation is. It is also an indication that the EU, the ECB and the governments of the big EU member states have a contingency plan in place, should Greece leave the euro.

My bet is that Tsipras is gambling: he wants out of the euro, but with a majority of Greeks against a reintroduction of the drachma he cannot go at it straightforwardly. He has to create a situation where his country is given “no choice” but to leave. This is why he is negotiating with the EU in a way that he knows is antithetical to a productive solution.

The reason why Tsipras wants out is simple: he is a Chavista socialist and wants to follow in the footsteps of now-defunct Venezuelan president Hugo Chavez. That means socialism in one country. (A slight rephrasing of the somewhat tarnished term “national socialism”.) In order to create a Venezuelan-style island of reckless socialism in Europe, Tsipras needs to get out of the euro zone.

Should he succeed, it is likely that other countries will follow his example, though for different ideological reasons. However, there is more at stake in the Greek crisis than just the future of the euro zone. Tsipras is riding a new wave of radical socialism, a wave that began moving through Europe at the very depth of the Great Recession. Statist austerity was falsely perceived as an attempt by “big capitalism” to dismantle the welfare state. It was not – quite the contrary:  statist austerity was a way for friends of big government to preserve as much as possible of the welfare state.

However, socialists have never allowed facts to get in the way of their agenda. And they certainly won’t let facts and good analysis get in the way of their rising momentum. What started mildly with a socialist victory in the French elections in 2012 has now borne Tsipras to power in Greece and is carrying complete political newcomers into the center stage of Spanish politics. But this new and very troublesome wave of socialism is not stopping at member-state capitals. It is reaching into the hallways of EU politics as well. As an example, consider these words on the Euractiv opinion page by Maria João Rodrigues MEP, Vice-Chair of the Socialists and Democrats Group in the European Parliament, and spokesperson on economic and social policies:

The Greek people have told us in January’s elections that they no longer accept their fate as it has been decided by the European Union. For those who know the state of economic and social devastation Greece has reached, this is only a confirmation of a survival instinct common to any people. The Greek issue has become a European issue, and we are all feeling its effects.

This is a frontal attack on EU-imposed austerity, but it is also a thinly veiled threat: unless Europe moves left, the left will move Europe.

Back to Rodrigues:

European integration can only have a future if European decisions are accepted as legitimated by the various peoples who constitute Europe. Decisions at European level require compromises, as they have their origins in a wide variety of interests. But these compromises must be perceived as mutual and globally advantageous for all Member States involved, despite the commitments and efforts they entail. The key question now is whether it will be possible to forge a new compromise, enabling not only to give hope to the Greek people, but also to improve certain rules of today’s European Union and its Economic and Monetary Union.

This should not be misinterpreted as a call for return of power to the member states. The reason why is revealed next:

We need a European Union capable of taking more democratic decisions and an Economic and Monetary Union which generates economic, social and political convergence, not ever-widening divergence. If Europe is unable to forge this compromise, and if the rope between lenders and borrowers stretches further, the risks are multiple: financial pressures for Greece to leave the euro; economic and social risks of continued stagnation or recession, high unemployment and poverty in many other countries; and, above all, political risks, namely further strengthening of anti-European or Eurosceptic parties in their aspiration to lead national governments, worsening Europe’s fragmentation.

The fine print in this seemingly generic message is: more entitlement spending to reduce income differences – called “economic and social convergence” in modern Eurocratic lingo – and a central bank the policies of which are tuned to be a support function for fiscal expansion. The hint of this is in the words “If the rope between lenders and borrowers stretches further”: member states should be allowed to spend on entitlements to reduce income differences, and if this means deficit-spending, the ECB should step in and monetize the deficits.

Rodrigues offers yet another example of the same argument:

[Many of] Greece’s problems were aggravated by the behaviour of the European Union: Firstly, it let Greece exposed to speculative market pressures in 2010, which exacerbated its debt burden. Secondly, when the EU finally managed to build the necessary financial stabilisation mechanisms, it imposed on Greece a programme focused on the reduction of the budget deficit in such an abrupt way that the country was pushed into an economic and social disaster. Moreover, the austerity measures resulted in a further increase of Greece’s debt compared to its GDP.

It is apparently easy for the left to look away from such obvious facts as the long Greek tradition of welfare-state spending. But that goes with the leftist territory, so it should not surprise anyone. More important is the fact that we once again have an example of how socialists use failed statist austerity to advocate for even more of what originally caused the crisis, namely the big entitlement state. They want to turn the EU and the ECB into instruments for deficit-spending ad infinitum to expand the welfare state at their discretion.

To further drive home the point that what matters is the welfare state, Rodrigues moves on to her analysis of Greece:

What Greece needs now is a joint plan for reform and reconstruction, agreed with the European institutions. This plan should replace the Troika programme, while incorporating some of its useful elements. Crucially, it should foresee a relatively low primary surplus and eased conditions of financial assistance from other eurozone countries, in order to provide at least some fiscal room for manoeuvre for the country. In return, the plan should set out strategic reforms to improve the functioning of the Greek economy and the public sector, including tax collection, education, employment and SMEs services as well as ensuring a sustainable and universal  social protection system.

There is no such thing as a “sustainable and universal social protection system”. When Europe’s new generation of socialist leaders get their hands on the right policy instruments they will turn all government-spending faucets wide open. Deficits will be monetized and imbalances toward the rest of the world handled by artificial exchange-rate measures (most likely of the kind used by now-defunct Hugo Chavez).

If this new wave of socialism will define Europe’s future, then the continent is in very serious trouble.

A short-term measure of the strength of the momentum will come later this week when we will know whether or not Greece will remain in the currency union. Beyond that, things are too uncertain to predict at this moment.

Greece Closer to Euro Exit

There have been many attempts at predicting which way Greece is going to go under the new socialist government. Most of the voices heard thus far seem to agree that Prime Minister Tsipras will not seek a confrontational course against the EU. That is, however, a mistake. This is a man who considers now-defunct Venezuelan president Hugo Chavez a political hero. Tsipras is also a former communist (though being a former communist and at the same time a fan of now-defunct Hugo Chavez is a matter of political semantics) whose training in politics and – to the extent it exists – in economics is fully governed by those ideological roots.

It is only logical that he continues to raise the volume vs. Brussels. Alas, from Euractiv:

Greek Prime Minister Alexis Tsipras laid out plans on Sunday (8 February) to dismantle Greece’s “cruel” austerity programme, ruling out any extension of its international bailout and setting himself on a collision course with his European partners at a summit in Brussels later this week. In his first major speech to parliament since storming to power last month, Tsipras rattled off a list of moves to reverse reforms imposed by European and International Monetary Fund lenders; from reinstating pension bonuses and cancelling a property tax to ending mass layoffs and raising the mininum wage back to pre-crisis levels.

There are two reasons to take this man seriously. The first has to do with his admiration of now-defunct Hugo Chavez. Fans of so called Bolivarian socialism – the ideological niche Chavez carved out for himself and his project to destroy Venezuela – truly believe in the idea of socialism in one country. They are not ideologically or intellectually opposed to “going at it alone”: on the contrary, it would be entirely in line with their thinking to try to repeat in Greece what now-defunct Hugo Chavez did in Venezuela. This means, as I have explained several times before, that Tsipras and his party, Syriza, would be more than happy to try to turn Greece into a European Venezuela.

In addition to terrible economic consequences, this would mean cutting some key economic and political ties between Greece and the EU. A termination of EU-imposed austerity and a reintroduction of the drachma are high on that list.

The second reason to take Tsipras seriously will be revealed in just a moment. First, back to Euractiv:

Showing little intent to heed warnings from EU partners to stick to commitments in the €240 billion bailout, Tsipras said he intended to fully respect campaign pledges to heal the “wounds” of the austerity that was a condition of the money. Greece would achieve balanced budgets but would no longer produce unrealistic primary budget surpluses, he said, a reference to requirements to be in the black excluding debt repayments. “The bailout failed,” the 40-year-old leader told parliament to applause. “We want to make clear in every direction what we are not negotiating. We are not negotiating our national sovereignty.” In a symbolic move that appeared to take direct aim at Greece’s biggest creditor, Tsipras finished off his speech with a pledge to seek World War II reparations from Germany.

In effect, that means writing off German loans. But wait – there is more. Let’s continue with the Euractiv article and listen to the political arrogance of Prime Minister Tsipras:

Tsipras ruled out an extending the bailout beyond 28 February when it is due to end. But he said he believed a deal with European partners could be struck on a so-called “bridge” agreement within the next 15 days to keep Greece afloat. “The new government is not justified in asking for an extension,” he said. “Because it cannot ask for an extension of mistakes.” Athens – which is shut out of bond markets and will struggle to finance itself without more aid quickly – plans to service its debt, Tsipras said. “The Greek people gave a strong and clear mandate to immediately end austerity and change policies,” he said. “Therefore the bailout was first cancelled by its very own failure and its destructive results.”

This is quite a high-pitch rhetoric to come from a man whose country cannot function without foreign aid. But herein lies the second reason why it is important to take Tsipras seriously and assume that he means every word he says. From EU Business:

A Greek exit from the euro would see the euro collapse like a house of cards, Finance Minister Yanis Varoufakis warned in comments that triggered a spat with Italy. “Greece’s exit from the euro is not something that is part of our plans, simply because we believe it is like building a house of cards. If you take out the Greek card, the others will collapse,” Varoufakis said in an interview with Italian public broadcaster RAI that was aired on Sunday.

Here is the strategy behind the Greek finance minister’s rant. As PM Tsipras tells the EU, the ECB and the IMF that austerity is over, he flags up that Greece will now begin its long walk out on the left flank. he is now at a point where he can start implementing his long-held dream of a communist, or at least Bolivarian socialist, paradise in Greece. The EU-ECB-IMF troika has very limited resources to put up against the Greeks unilaterally ending austerity – their most formidable weapon would be to kick Greece out of the euro.

Theoretically, the Greek government would not mind that, but they want it to happen on their terms. They want to tell Europe that “you can’t kick us out, because we quit”. That is a risky strategy – they can only push Brussels and Berlin that far – so to increase the likelihood that Greece holds the aces here, finance minister Varoufakis reminds the European leadership what chaos would erupt if they kicked Greece out.

This is a very high-stakes game, for both parties. The first skirmish will be over Greece’s participation in the currency union, with my bets being on Tsipras unilaterally pulling Greece out. That may make him look strong, but in the end Greece will lose. It is their economy and their people who will be subjected to a European version of the Bolivarian socialist paradise that now-defunct Hugo Chavez created.

The New Left and Europe’s Future

Only a couple of days after the European Central Bank raised white flag and finally gave up its attempts at defending the euro as a strong, global currency, Greek voters drove their own dagger through the heart of the euro. Reports The Telegraph:

Greece set itself on a collision course with the rest of Europe on Sunday night after handing a stunning general election victory to a far-Left party that has pledged to reject austerity and cancel the country’s billions of pounds in debt. In a resounding rebuff to the country’s loss of financial sovereignty, With 92 per cent of the vote counted, Greeks gave Syriza 36.3 percent of the vote – 8.5 points more than conservative New Democracy party of Prime Minister Antonis Samaras.

That is about six percent more than most polls predicted. But even worse than their voter share is how the parliamentary system distributes mandates. The Telegraph again:

It means they will be able to send between 149 and 151 MPs to the 300-seat parliament, putting them tantalisingly close to an outright majority. The final result was too close to call – if they win 150 seats or fewer, they will have to form a coalition with one of several minor parties. … Syriza is now likely to become the first anti-austerity party in Europe to form a government. … The election victory threatens renewed turmoil in global markets and throws Greece’s continued membership of the euro zone into question. All eyes will be on the opening of world financial markets on Monday, although fears of a “Grexit” – Greece having to leave the euro – and a potential collapse of the currency has been less fraught than during Greece’s last general election in 2012.

It does not quite work that way. The euro is under compounded pressure from many different elements, one being the Greek economic crisis. The actions by the ECB themselves have done at least as much to undermine the euro: its pledge last year to buy all treasury bonds from euro-zone governments that the market wanted to sell was a de facto promise to monetize euro-denominated government debt. The EU constitution, in particular its Stability and Growth Pact, explicitly forbids debt and deficit monetization. By so blatantly violating the constitution, the ECB undermined its own credibility.

Now the ECB has announced that in addition to debt monetization, it will monetize new deficit. That was the essence of the message this past Thursday. The anti-constitutionality of its own policies was thereby solidified; when the Federal Reserve ran its multi-year Quantitative Easing program it never violated anything other than sound economic principles. If the ECB so readily violates the Stability and Growth Pact, then who is to say it won’t violate any other of its firmly declared policy goals? When euro-zone inflation eventually climbs back to two percent – the ECB’s target value – how can global investors trust the ECB to then turn on anti-inflationary policies?

Part of the reason for the Stability and Growth Pact was that the architects of the European Union wanted to avoid runaway monetary policy, a phenomenon Europeans were all too familiar with from the 1960s and ’70s. Debt and deficit monetization is a safe way to such runaway money printing. What reasons do we have, now, to believe that the ECB will stick to its anti-inflationary pledge when the two-percent inflation day comes?

This long-winded explanation is needed as a background to the effects that the Syriza victory may have on the euro. I am the first to conclude that those effects will be clearly and unequivocally negative, but as a stand-alone problem for the ECB the Greek hard-left turn is not enough. In a manner of speaking, the ECB is jeopardizing the future of the euro by having weakened the currency with reckless monetary expansionism to the point where a single member-state election can throw the future of the entire currency union into doubt.

Exactly how the end of the euro will play out remains to be seen. What we do know, though, is that Thursday’s deficit-monetization announcement and the Greek election victory together put the euro under lethal pressure. The deficit-monetization pledge is effectively a blank check to countries like Greece to go back to the spend-to-the-end heydays. Since the ECB now believes that more deficit spending is good for the economy, it has handed Syriza an outstanding argument for abandoning the so-deeply hated austerity policies that the ECB, the EU and the IMF have imposed on the country. The Telegraph again:

[Syriza], a motley collection of communists, Maoists and socialists, wants to roll back five years of austerity policies and cancel a large part of Greece’s 320 billion euro debt, which at more than 175 per cent of GDP is the world’s second highest proportional to the size of the economy after Japan. … If they fulfil the threats, Greece’s membership of the euro zone could be in peril. Mr Tsipras has toned down the anti-euro rhetoric he used during Greece’s last election in 2012 and now insists he wants Greece to stay in the euro zone. Austerity policies imposed by the EU and International Monetary Fund have produced deep suffering, with the economy contracting by a quarter, youth unemployment rising to 50 per cent and 200,000 Greeks leaving the country.

Youth unemployment was up to 60 percent at the very depth of the depression. Just a detail. The Telegraph concludes by noting that:

Mr Tsipras has pledged to reverse many of the reforms that the hated “troika” of the EU, IMF and European Central Bank have imposed, including privatisations of state assets, cuts to pensions and a reduction of the minimum wage. But the creditors have insisted they will hold Greece to account and expect it to stick to its austerity programmes, heralding a potentially explosive showdown.

Again, with the ECB’s own Quantitative Easing program it becomes politically and logically impossible for the Bank and its two “troika” partners to maintain that Greece should continue with austerity. You cannot laud government deficit spending with one side of your mouth while criticizing it with the other.

As a strictly macroeconomic event, the ECB’s capitulation on austerity is not bad for Greece. The policies were not designed to lift the economy out of the ditch. They were designed to make big government more affordable to a shrinking private-sector economy. However, a return to government spending on credit is probably the only policy strategy that could possibly have even worse long-term effects than statist austerity.

Unfortunately, it looks like that is exactly where Greece is heading. Syriza’s “vision” of reversing years of welfare-state spending cuts is getting a lot of support from various corners of Europe’s punditry scene. For example, in an opinion piece at Euractiv.com, Marianna Fotaki, professor of business ethics at University of Warwick, England, claims that the Syriza victory gives Europe a chance to “rediscover its social responsibility”:

Greece’s entire economy accounts for three per cent of the eurozone’s output, but its national debt totals 360 billion or 175 per cent of the country’s GDP and poses a continuous threat to its survival. While the crippling debt cannot realistically be paid back in full, the troika of the EU, European Central Bank, and IMF insist that the drastic cuts in public spending must continue. But if Syriza is successful – as the polls suggest – it promises to renegotiate the terms of the bailout and ask for substantial debt forgiveness, which could change the terms of the debate about the future of the European project.

As I explained recently, so called “debt forgiveness” means that private-sector investors lose the same amount of money. The banks that received such generous bailouts earlier in the Great Recession had made substantial investments in Greek government debt. Would Professor Fotaki like to see those same banks lose even more money? With the new bank-rescue feature introduced as the Cyprus Bank Heist, such losses would lead to confiscation of the savings that regular families have deposited in their savings accounts.

Would professor Fotaki consider that that to be an ethically acceptable consequence of her desired Greek debt “forgiveness”?

Professor Fotaki then goes on a long tirade to make the case for more income redistribution within the euro zone:

The immense social cost of the austerity policies demanded by the troika has put in question the political and social objectives of an ‘ever closer union’ proclaimed in the EU founding documents. … Since the economic crisis of 2007 … GDP per capita and gross disposable household incomes have declined across the EU and have not yet returned to their pre-crisis levels in many countries. Unemployment is at record high levels, with Greece and Spain topping the numbers of long-term unemployed youth. There are also deep inequalities within the eurozone. Strong economies that are major exporters have benefitted from free trade, and the fixed exchange rate mechanism protecting their goods from price fluctuations. But the euro has hurt the least competitive economies by depriving them of a currency flexibility that could have been used to respond to the crisis. Without substantial transfers between weaker and stronger economies, which accounts for only 1.13 per cent of the EU’s budget at present, there is no effective mechanism for risk sharing among the member states and for addressing the consequences of the crisis in the eurozone.

In other words, Europe’s welfare statists will continue to blame the common currency for the consequences of statist austerity. But while professor Fotaki does have a point that the euro zone is not nearly an optimal currency area, the problems that she blames on the euro zone are not the fault of the common currency. Big government is a problem wherever it exists; in the case of the euro zone, big government has caused substantial deficits that, in turn, the European political leadership did not want to accept – and the European constitution did not allow. To battle those deficits the EU, the ECB and the IMF imposed harsh austerity policies on Greece among several other countries. But countries can subject themselves to those policies without being part of a currency union: Denmark in the 1980s is one example, Sweden in the ’90s another. (I have an entire chapter on the Swedish ’90s crisis in my book Industrial Poverty.) The problem is the structurally unaffordable welfare state, not the currency union.

Professor Fotaki again:

The member states that benefitted from the common currency should lead in offering meaningful support, rather than decimating their weaker members in a time of crisis by forcing austerity measures upon them. This is not denying the responsibility for reckless borrowing resting with the successive Greek governments and their supporters. However, the logic of a collective punishment of the most vulnerable groups of the population, must be rejected.

What seems to be so difficult to understand here is that austerity, as designed for Greece, was not aimed at terminating the programs that those vulnerable groups life off. It was designed to make those programs fit a smaller tax base. If Europe’s political leaders had wanted to terminate those programs and leave the poor out to dry, they would simply have terminated the programs. But their goal was instead to make the welfare state more affordable.

It is an undeniable fact that the politicians and economists who imposed statist austerity on Greece did so without being aware of the vastly negative consequences that those policies would have for the Greek economy. For example, the IMF grossly miscalculated the contractionary effects of austerity on the Greek economy, a miscalculation their chief economist Olivier Blanchard – the honorable man and scholar he is – has since explained and taken responsibility for.

Nevertheless, the macroeconomic miscalculations and misunderstandings that have surrounded statist austerity since 2010 (when it was first imposed on Greece) do not change the fact that the goal of said austerity policies was to reduce the size of government to fit a smaller economy. That was a disastrous intention, as shown by experience from the Great Recession – but it was nevertheless their goal. However, as professor Fotaki demonstrates with her own rhetoric, this point is lost on the welfare statists whose only intention now is to restore the welfare state to its pre-crisis glory:

The old poor and the rapidly growing new poor comprise significant sections of Greek society: 20 per cent of children live in poverty, while Greece’s unemployment rate has topped 20 per cent for four consecutive years now and reached almost 27 per cent in 2013. With youth unemployment above 50 per cent, many well-educated people have left the country. There is no access to free health care and the weak social safety net from before the crisis has all but disappeared. The dramatic welfare retrenchment combined with unemployment has led to austerity induced suicides and people searching for food in garbage cans in cities.

There is nothing wrong factually in this. The Greek people have suffered enormously under the heavy hand of austerity, simply because the policies that aim to save the welfare state for them also move the goal post: higher taxes and spending cuts drain the private sector of money, shrinking the very tax base that statist austerity tries to match the welfare state with.

The problem is in what the welfare statists want to do about the present situation. What will be accomplished by increasing entitlement spending again? Greek taxpayers certainly cannot afford it. Is Greece going to get back to deficit-funded spending again? Professor Fotaki gives us a clue to her answer in the opening of her article: debt forgiveness. She wants Greece to unilaterally write down its debt and for creditors to accept the write-down without protest.

The meaning of this is clear. Greece should be able to restore its welfare state to even more unaffordable levels without the constraints and restrictions imposed by economic reality. This is a passioned plea for a new debt crisis: who will lend money to a government that will unilaterally write down its debt whenever it feels it cannot pay back what it owes?

This kind of rhetoric from the emboldened European left rings of the same contempt for free-market Capitalism that once led to the creation of the modern welfare state. The welfare state, in turn, brought about debt crises in many European countries during the 1980s and ’90s, in response to which the EU created its Stability and Growth Pact. But the welfare states remained and gradually eroded the solidity of the Pact. When the 2008 financial crisis hit, the European economy would have absorbed it and shrugged it off as yet another recession – just as it did in the early ’90s – had not the welfare state been there. Welfare-state created debt and deficits had already stretched the euro-zone economy thin; all it took to sink Europe into industrial poverty and permanent stagnation was a quickly unfolding recession.

Ironically, the state of stagnation has been reinforced by austerity policies that were designed in compliance with the Stability and Growth Pact; by complying with the Pact, those policies, it was said, would secure the macroeconomic future of the euro zone and keep the euro strong. Now those policies have led the ECB to a point where it has destroyed the future of its own currency.

Another Greek Debt Default?

Three years have passed since Greece simply nullified part of its debt. In the last quarter of 2011 the Greek government owed its creditors 356 billion euros; in the first quarter of 2012 that debt had been reduced to 281 billion euros, a reduction of 75 billion euros, or 21 percent. The banks that owned Greek treasury bonds were strong-armed by the EU and the ECB into accepting the debt write-down; ironically, that only added insult to injury as banks in, e.g., Cyprus started having serious problems as a result of precisely that same write-down.

As some of you may recall, a bit over a year after the Greek government unilaterally decided to keep some of the property lenders had allowed them to use – in other words wrote down their own debt – banks in Cyprus began having problems. Having invested heavily in Greek treasury bonds they had to take a disproportionately impactful loss on their lending to Athens. As a direct result the EU-ECB-IMF troika began twisting another arm: that of the Cypriot government. They wanted the government in Nicosia to order the banks in Cyprus to replenish their balance sheets with – yes – money confiscated from their customers.

That little episode of assault on private property is also known as the Cyprus Bank Heist.

Both these events, which exemplify reckless disrespect for private property and business contracts, make Bernie Madoff look like a Sunday school prankster. Unlike Madoff, government is established to protect life, liberty and property. But in both Greece and Cyprus government has voided property rights simply because it is the most convenient way at the time for government to fund its operations.

In other words, to protect the welfare state at any cost.

There were many of us who thought that Europe’s governments had learned a lesson from the massive protests against both the Greek debt write-down and the Cyprus Bank Heist. Sadly, that is not the case. Benjamin Fox, one of the best writers at EU Observer, has the story:

With fewer than three weeks to go until elections which seem ever more likely to see the left-wing Syriza party form the next Greek government, the debt debate has returned to the centre of European politics. Syriza’s promises to call an end to the Brussels-mandated budgetary austerity policies … are not new … But what is potentially groundbreaking is Syriza’s proposal to convene a European Debt Conference, modelled on the London Agreement on German External Debts in 1953 which wrote off around 60 percent of West Germany’s debts following the Second World War

Apparently, Syriza does not think twice about the actual consequences of their proposal. If it was carried out, it would have the same kind of effects on Europe’s banks as the last debt write-down. While there are no immediately reliable sources on how much of the Greek government debt is owned by financial corporations, we can get an indirect image from other euro-zone countries in a similar situation. In Spain, e.g., banks owned 54.3 percent of all government debt in 2013; in Italy the share was 55.6 percent while 41.2 percent of the French government were in the hands of financial corporations.

Adding up actual debt for these three countries, both total and the share owned by banks, gives us a financial-corporation share of almost exactly 50 percent. Using this number as a proxy for Greece, we can assume that banks own 160 billion of 320 billion euros worth of Greek government debt.

A Greek debt write-down according to the Syriza proposal would, if it cut evenly across the total debt, force banks to lose 86 billion euros. And this is under the assumption that, unlike the last write-down, banks are treated on the same footing as everyone else. Back then banks had to assume a bigger shock than other creditors.

The 2012 write-down was worth a total of 75 billion euros.

Has Syriza even taken into account that families, saving up for retirement, own treasury bonds? In Italy they own as much as ten percent of all government debt, a share that would equal 32 billion euros in Greece. But even if that number is five percent – 16bn euros – and you ask them to give up 60 percent of it, the impact on remaining private wealth in Greece would be devastating.

To make matters worse, Syriza does not confine their confiscatory dreams to their own tentative jurisdiction. Benjamin Fox explains that Syriza hopes that a write-down in Greece…

would lead to a huge write-down of government debt for … other southern European countries. The idea was initially mooted by Syriza leader Alexis Tsipras in 2012 when the left-wing coalition finished second in the last Greek elections. Roundly dismissed as fantasy for almost all the two years since then, the proposal is at the heart of the party’s campaign manifesto and Syriza insists it won’t back down if it wins the election.

In the three countries mentioned earlier, Italy, Spain and Greece, banks own a total of 2.47 trillion euros worth of debt. A 60-percent write-down of that equals 1.58 trillion euros. Compare that, again, to the total Greek write-down of three years ago of 75 billion euros.

In Italy alone households own 215 billion euros in government debt. Is the socialist cadre leading Syriza ready to rob them of 89 billion euros just to improve their government’s balance sheets? That would be 1,500 euros for every man, woman and child in Italy. Obviously, all of them do not own government debt, but the more concentrated the ownership is the bigger the impact will be on their economic decisions.

This is, for all it is worth, an idea of galaxy-class irresponsibility. If it ever became the law of the land in Europe it would set off a financial earthquake far beyond what the continent experienced in 2009. And I keep repeating this: all of this is under the assumption that banks will not be discriminated against – an assumption that is not likely to survive all the way to a deal of this kind. Europe’s socialists have a tendency to despise banks and consider them unfair, even illegitimate institutions. It is possible that Syriza, at least as far as Greece is concerned, would force banks to eat the entire write-down loss.

But is this really worth all the drama? After all, the Greek election is three weeks out. Benjamin Fox notes that “Syriza is so close to taking power that the proposal deserves to be taken seriously.”

This debt write-down is part of a broader plan that Syriza has put in place for the entire European Union. To work at the EU level the plan would have to be more complex and involve a series of transactions involving the European Central Bank that, frankly, amount to little more than macro-financial accounting trickery. At the end of the day, those who have lent money to Europe’s governments would make losses worth trillions of euros.

As things look today it is not very possible that Syriza would have it their way across the EU. But it is almost certain that they will go ahead and do it in Greece. What the ramifications would be for the Greek economy is difficult to predict at this point – suffice it to say that the storm waves on the financial ocean that is the euro zone will rise again, and rise high, if Syriza wins on January 25.

European Democracy in Peril

As the dust settles on the elections to the European Parliament, a somewhat schizophrenic conclusion is emerging:

  • on the one hand voters expressed their skepticism toward the EU project and rejected, overall, the notion of a continuous, business-as-usual expansion of the EU into a new, gigantic government bureaucracy;
  • on the other hand the rejection of even bigger government was partly expressed in a form that, absurdly enough, may very well pave the way for another, even uglier form of government expansion.

The outcome of the election is more dramatic than most media outlets have yet realized. Put bluntly, this election was a loss for European parliamentary democracy and a gain for authoritarianism of a kind Europe has not suffered from for a quarter century now. But as painful as it is to acknowledge, the real winners of this election were communists and aggressive nationalists – also known as fascists.

There is no mistaking the outcome: voters spoke, and numbers changed in the European Parliament. Political parties with a traditional commitment to parliamentary democracy lost dramatically, with conservatives and liberals losing more than one fifth of their seats. At the same time, communists and radical socialists of assorted flavors increased their parliamentary presence by one third.

Add to those gains the big inroads made by aggressive nationalists and fascists.

Europe’s political elite may want to ignore this, but the most dangerous reaction to this election would be to turn a blind eye to what voters did: they passed power out from the democratic center to the outer rim of the political spectrum. There, communists and fascists stood ready to scoop up voters who are deeply dissatisfied with, well, just about everything from unemployment and economic stagnation to immigration and “inequality”.

Europe is now at a fork in the road, one that will decide the fate of a continent that is home to half-a-billion people. But before we get there, let us take a look at what actually happened in the election.

Communist parties did well, especially in southern Europe where the Great Recession has done its biggest damage. In Greece, the radical leftist party Syriza, which sees Hugo Chavez’ Venezuela as a political role model, took 26 percent of the vote and became the largest Greek party in the EU Parliament. In Italy, incumbent prime minister Renzi’s leftist Democratic Party got 40 percent of the vote. Portugal’s old communist party, rebranded as socialists, came in first with 31.5 percent of the vote. In Spain, a radical socialist coalition took ten percent of the votes, placing them third in the election.

But it was not just in southern Europe that communists, old or new, did well. Ireland’s scary-left and historically terrorist-affiliated Sinn Fein got a frighteningly large 17 percent of the votes.

Sweden is an example of how refurbished communists have shown remarkable resiliency in the past two decades. Their radical left is split among three parties, which taken together is more than the country’s traditionally dominant social democrats got. The three radical leftist parties are: the Greens (15.3 percent of the vote), the renovated-communist Leftist Party (6.3) and the new, aggressively socialist Feminist Initiative (5.3).

Altogether, the entire leftist spectrum – from vanilla-favored social democrats to hardline Chavista leftists – held their lines in the European Parliament, in the face of stiff competition. But as indicated by the above mentioned examples, the radical flank within the leftist block made big advancements. Their European Parliament group, called GUE/NGL, increased its number of seats by one third. This number could increase even more when some small, new parties from across the EU choose affiliation.

The underlying message in the shift toward the hard left is that Europe’s voters – already living under the biggest governments in the free world – have forgotten what happens when government grows beyond the boundaries traditionally respected in Western Europe. Perhaps the most conspicuous signal of Europe’s communist amnesia is embedded in the seven percent voter share that Die Linke got in Germany. They are the old Socialist Unity Party, in other words the party that ruled East Germany with an iron fist and back-up from Soviet tanks throughout the Cold War. Die Linke is fiercely anti-capitalist and shares Syriza’s adoration for what Hugo Chavez did to Venezuela.

The fact that Die Linke only got 7.4 percent should be considered in the context of the fact that Germany’s Green Party captured 10.7 percent of the votes. This puts the radical left in Germany at 18.1 percent, a share that grows even more in view of the fact that the SPD, the social democrats, are now parked at a lowly 27 percent voter share. If the social democrats in Germany continue to decline, the combined voter share of the Green Party and the old East German communists could easily exceed 25 percent in the next German national elections.

A surging radical left in the European Parliament will have profound consequences for European politics, but it will also affect Europe’s relations to the United States. More on that in a moment. First, let us take a look at the other flank of the authoritarian lowland.

Known under its less sophisticated label “fascism”, authoritarian nationalists made frightening advancements in the election. Most notorious, of course, is the victory in France for Front National under Marine Le Pen’s stewardship. Her polished version of the party her father founded won a stunning 25.4 percent of the vote, putting them decisively ahead of the nearest competition.

Ten years ago, Front National was little more than a punch line in a political joke. Yes, Jean-Marie Le Pen technically came in second in a presidential run-off against incumbent Jacques Chirac, but the entire campaign was of the same kind as if the Democrats had put up Ralph Nader against George W Bush in 2004. (No other comparison intended between Nader and Le Pen, of course.) Today, Front National is at a point where their leader can confidently demand that President Hollande dissolve the national parliament for new elections. That is not going to happen, but the demand sent shivers through the French political establishment.

It should. Marine Le Pen is no longer just a French political contender – she is in fact not just the leader of what is currently the largest political party in France. She is emerging as the leader of a new, bold, aggressive nationalist movement in Europe. Her party group in the European Parliament will incorporate outspoken fascists such as Hungarian Jobbik (which came in second in Hungary and apparently has its own uniformed party corps). Some media reports state that Front National and Jobbik are already in talks with each other on how to cooperate in the European Parliament.

Another of Le Pen’s new friends is Golden Dawn, which in the European election confirmed its position as Greece’s third largest party. Despite extensive legal challenges and elected officials of the party currently being incarcerated, Golden Dawn refuses to go away. More than likely, their strong support among police and the military will be enough to let them return, emboldened and empowered, to both the Greek and the European political scene.

With Front National, Jobbik and Golden Dawn as their pillars, the aggressive nationalist party group in the European Parliament could indeed turn out to be a vehicle for the rebirth of European fascism. The deciding factor will be where Europe’s rapidly rising patriotic parties will land. This is a different breed than the aggressive nationalists, consisting of Euro-skeptic parties, best exemplified by Britain’s UKIP. There is now a whole range of parties in Europe that fall into this category, such as PVV in the Netherlands, Danish People’s Party, Swedish Democrats, True Finns, Alternative for Germany and Austria’s People’s Party.

Some of these parties did remarkably well: both UKIP and the Danish People’s Party won their countries’ respective European Parliament elections. The Swedish Democrats scored almost ten percent of the votes, double what they got in the national elections in 2010. Alternative for Germany surprised many by capturing as much as seven percent of the votes, while there was disappointment among PVV supporters in the Netherlands as their party only got 13 percent and a third place.

It is not an exaggeration to say that this new group of patriotic parties holds Europe’s fate in their hands. Their ideological foundation spans from “basically libertarian” as Nigel Farage once called UKIP to welfare-statist Swedish Democrats. But they all have in common that they are committed to traditional, European parliamentary principles. This sets them apart from the aggressive nationalists whose political visions do not exclude a new full-scale fascist experiment.

If some of the patriotic parties are lured into cooperation with Front National, Jobbik and Syriza, there is a significant risk that Europe, within the next five years, will see a continent-wide fascist movement. There are other aggressive nationalist parties lurking in the political backwoods, ready to capitalize on voter disgruntlement with existing political options. Among those, Germany’s National Democratic Party, NDP, actually captured on seat in the European Parliament this time around.

With the history of Front National in mind, only imagination sets boundaries to what the NPD can accomplish.

Another example is the Party of the Swedes. Originally called the National Socialist Front and merged with violence-prone Swedish Resistance Movement, the Party of the Swedes is waiting for the patriotic, parliamentarian Swedish Democrats to fail to deliver on their voters’ Euro-skepticism. While waiting, Party of the Swedes is gaining parliamentary skills at the local level around Sweden. That experience can then be used in a run for national office – and eventually to reach for the European Parliament.

While fundamentally anti-democratic movements gained ground, the surge of democratic, patriotic parties is the only silver lining in this European Parliament election. This group is still small compared to the traditional center-right parties known under their acronyms EPP (center-right) and ALDE (center-liberal). But these democratic, patriotic parties hold the map in their hands to Europe’s future. If the EPP and ALDE choose to cooperate with them, then Europe will choose the stable, democratic road to the future.

If, on the other hand, the Europhiles in EPP and ALDE continue to ignore the growing, sound, democratic version of Euro-skepticism, and instead charge ahead with their project of a grand European Super-Union, the voter reaction will be fierce and potentially catastrophic. At that point, voters will seek other, much less palatable outlets for their skepticism or outright resistance to the European project.

If leaders of Europe’s conservatives, liberals and social democrats do not pay attention to what actually happened in this European election, they will do Golden Dawn, Jobbik, NPD and Front National a service they will regret for the rest of their lives.

It does not matter if Marine Le Pen is a fascist or an aggressive nationalist. Her surge to pan-European prominence has uncorked a bottle where black-shirted genies have been locked away for decades. History has shown how relentlessly those genies can intoxicate cadres of voters and how viciously they can tear down the institutions of parliamentary democracy.

Europe is playing with fire. The only thing that stands between the torch of fascism, lit up in this election, and a pan-European bonfire is the skill and insightfulness of a small group of Europhile politicians and bureaucrats in the hallways of power in Brussels. So far the leaders of EPP and ALDE, as well as the European Commission, have thoroughly ignored the rise of Euro-skepticism around the continent. So far they have been completely tone deaf to widespread popular frustration with the EU project.

Hopefully, they will come around and start listening to their critics. Hopefully they will let Nigel Farage be the recognized voice of Euro-criticism. But time is running out. If nothing decisively happens soon, the same trend that was set in this election will begin to show up in national elections.

In 2017, the Palais de l’Elysee could have a new tenant – Marine Le Pen.