The Guest Blog

Guest post by Andy Langenkamp, political analyst for ECR Research and Interest & Currency Consultants.

Unemployment in the eurozone is at historic highs. Economic growth data are equally depressing while confidence is low among producers and consumers. In short, the stock market rallies of recent months are premature. The European “patient” will not get better unless politicians reassure markets through reform packages that force supersized governments to go on a healthy diet of innovation, entrepreneurship, responsible lending and borrowing, sustainable healthcare and affordable pension systems. The motto of recent years – muddling through – should be replaced by better buzz words. Why not determination and perseverance?

Voters will only get behind their governments if they think their leaders are competent, courageous, trustworthy, and not easily corrupted. They should radiate authority, been successful at the polls in a honest way, and truly resonate with the electorate. Politicians can only implement far-reaching measures if the rest of society regards them as legitimate.

Precisely this is lacking. Voters no longer trust elected politicians. More and more European countries are regularly in the grip of political scandal. Even Germany recently lost two presidents because they were mired in scandal. It is no longer possible to dismiss such developments as individual wrong-doings. By now, political institutions as a whole are being regarded with suspicion; not least because news of widespread inappropriate behavior by politicians is widely disseminated through traditional and social media. That politicians seem helpless in the face of political-economic crisis only makes matter worse. Confidence in political parties is at a very low ebb. Eighty percent of Europeans distrust political parties.

Owing to this crisis of confidence, centrist parties are losing ground rapidly. That voters tend towards parties on the fringes of the political spectrum hampers efforts to find a solution to the crisis. First, because coming up with a compromise is more difficult when a larger number of parties has a say; particularly if these parties are “eccentric”. Second, most parties that appeal progressively more to the electorate are not well-disposed towards European integration.

This euroscepticism suits many voters. Often, they loath the idea of cross-border adventures in an uncertain world as their own situation deteriorates. Seventy percent of Germans is against aid for Greece. In turn, there is growing resentment against German opposed austerity in the peripheral eurozone countries. In addition, voters have a low opinion of the EU. Of its four major bodies – the ECB, European Commission, European Council, and the European Parliament – only trust in the European Central Bank scores higher than 40% (41%).

If politicians are no longer to be trusted, how can they implement reforms that should get the member states on a sustainable footing? Populists and dissatisfied citizens will interpret every initiative as an attempt by the elite to ruin decent citizens; not as a step towards achieving a functional social-democratic welfare state. Politicians are inclined to inflate new bubbles in order to compensate for bubbles that have already burst.

Truth is, Europe has never broken out of its bubble. It still believes in utopia and is living its life as a ‘Lifestyle Superpower’. The quality of life is untenable with a welfare state that has grown out of all proportions (52% of global expenditure for social protection originates in Europe). Now, we are living in a – as PIMCO, the world’s largest mutual fund, calls it – “new normal” that requires a more moderate lifestyle. Only large-scale interventions – a much higher pensionable age, higher patient contributions to healthcare etcetera – and a complete restructuring of the public administration and labor market can keep a trimmed-down version of the existing welfare state alive. All other so-called “exit routes” will merely prolong the agony of “muddling through”.

Making progress requires leaders who are not afraid to stake their political careers. It may be a cliché but let’s look at Nelson Mandela for a minute. After he had taken office as president, Mandela was under huge pressure to abolish everything that represented South Africa’s national rugby team, the Springboks, because it was strongly associated with the apartheid regime. Mandela realized that to keep the country together he would have to go against his core constituency and allow the Springboks to continue. In the movie Invictus this was the subject of a poignant dialogue between Mandela and his adviser:

Mazibuko: You’re risking your political capital, you’re risking your future as our leader.

Nelson Mandela: The day I am afraid to do that is the day I am no longer fit to lead.

Only if leaders dare to risk their position will the eurozone be able to survive. For one thing is certain, many measures that need to be implemented are directly opposed to what voters want. In other words, politicians need to apply “tough love” and act in the long-term interests of their electorate instead of yielding to all its short-term demands.

For now, visionary leaders are extremely thin on the ground and there is only a very slim chance that voters and populist parties will have a change of heart. This political “poverty” will cause Europe to weaken politically and economically in the coming period. Only if politicians and voters get out of their bubble, there is chance that markets feel that fundamental change is in the air and will calm down.

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