European Politics

While there has been a lot of interesting work by economists on Ireland’s crisis over the last year, there hasn’t been much on the _political economy_ of the crisis. This “piece”:http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1642791, written this summer by Sebastian Dellepiane Avellaneda and Niamh Hardiman at University College Dublin, is the best that I’ve seen, and is particularly excellent on the interaction between Economic and Monetary Union and domestic decision-making structures. I’ve patched together extracts Brad-De-Long style into a short quasi-narrative below the fold, but if you are interested, you should really download and read the original piece.

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Most of the discussion I’ve seen of the financial crisis as it affects the eurozone seems to me both confused and confusing. A country outside the eurozone and without the “exorbitant privilege” of being able to sell lots of debt denominated in home currency has three options when it runs into debt trouble: default, depreciation and dependency.

Default is the straightforward solution, but it involves a big loss of face, and unpredictable long-term costs. Depreciation doesn’t directly improve the debt position, since debts are in foreign currency, but by making exports cheaper and imports dearer it helps a country to trade its way out of difficulty, without the need for a reduction in domestic prices and wages. Finally, there’s the option of dependency on an outside rescuer, normally the IMF. This has been the most common solution, but the IMF always demands a price (in terms of policy “reforms”) that makes a rescue only marginally more attractive than default.

A eurozone country doesn’t have the option of depreciation. In return, however, it has two dependency options, calling on either the IMF, or the European Financial Stability Fund. Since the EU would like to keep the IMF out, a distressed debtor can expect slightly better terms from the EFSF.

The default option isn’t affected, except in the same way as any kind of behavior viewed as discreditable affects membership of any club. A government that defaults on its debts might be thrown out of the eurozone, but then again it might be thrown out of the OECD, and the eurozone might expel a member that facilitated tax evasion.

The big question is whether the EFSF will work. That’s certainly challenging, but it still seems like a better bet for debtor countries than going it alone. And of course, there’s more commonality of interest than is often supposed because any bailout benefits the creditors, usually French and German banks

Looking at the Sarkozy government’s attempt at ethnic cleansing of the Roma, The Economist’s Charlemagne had the following observation about

the vociferous protest from the European Parliament. On September 9th it passed a strongly worded resolution denouncing discrimination against the Roma, and singled out the commission for its “late and limited response”. The row thus brings out the contradictions of European democracy: an elected national government finds that its resort to populism is confronted by the European Commission, an appointed body, and by the European Parliament, a distant chamber elected by a minority of voters.

It struck me that you could replace “national” with ” Southern state”, “European Commission” with “US Supreme Court” and “European Parliament” with “US Federal government”, and the analogy with Brown vs Board of Education would be just about perfect (except that it’s the Parliament driving the Commission and not vice versa). Then I noticed that Chris had proposed an almost identical substitution in relation to economic policy here.

This is the first time I can recall the European Parliament playing a key role in a conflict between the central institutions of the EU, such as the Commission and a member state. If the Parliament and Commission prevail, as they should, it seems to me that this will change the effective political structure of the EU, in the direction of a federal democracy. I’d be interested in the thoughts of those closer to the action.

Another episode in “What David Moles said”:http://chrononaut.org/2010/09/16/many-writers-have-all-the-virtues-of-civilized-persons/

Art Goldhammer on “the Sarkozy meltdown”:http://artgoldhammer.blogspot.com/2010/09/astonishing-rebuke.html

bq. The problem is that this statement was a lie, according to Merkel. … astonishing public rebuke, Merkel’s spokesperson …The idea that Sarkozy would simply have invented an exchange with Merkel and that he would have invoked her “total and entire” support without having cleared it with her beggars belief. A president who behaves in this way permanently discredits himself. Plummeting in polls, attacked for human rights violations, chastised by the Pope, sued by Le Monde, and now slapped in the face by Merkel, Sarkozy seems to be coming unhinged, prepared to say anything and do anything to retain his increasingly tenuous hold on power. How long before an open revolt breaks out in his own party?

“Matthew Yglesias”:http://yglesias.thinkprogress.org/2010/09/harvardperetz-controversy-illustrates-folly-of-charitable-donations-to-wealthy-u-s-universities/ on Martin Peretz and the university donation business.

bq. It’s really too bad that Harvard has chosen to take this tack. Obviously the only person in this conversation who’s questioned anybody’s right to “free speech” or exhibited a weak “commitment to the most basic freedoms” is Peretz himself. Equally obviously, Peretz’s right to be a bigot does not create a right to be honored by prestigious universities. My alma mater is doing a disservice to their brand and to public understanding of the issues by deliberately obscuring things in this manner. It would be more honest to say that Harvard is a business run for the benefit of its faculty and administrators. The business model of this business is the exchange of prestige in exchange for money. Peretz has friends who have money that they are willing to exchange for some prestige, and Harvard intends to take the money.

I’ve an “article”:http://democracyjournal.org/article.php?ID=6773 on the horrible mess that is EU economic politics in the new _Democracy._ The bit I’d most like people to take away:

bq. austerity measures will not lead to economic stability. They will never be applied to strong member states, and will fail to address the problems of weaker ones, which are more likely to face problems of overheating in the private sector than over-reliance on public borrowing. They are also extremely crude, and would provide little flexibility for states faced with asymmetric shocks. Most importantly, the emphasis of austerity hawks on fiscal rectitude and nothing but is not politically sustainable. They would reproduce the problems of the early twentieth-century “gold standard” system, in which economies responded to crises with chopped wages and swingeing increases in unemployment. As Barry Eichengreen has emphasized, democracies cannot credibly maintain such a system over the long run. European citizens are suspicious of the EU because they do not understand it. If they come to see it as a set of shackles chaining them in economic squalor and misery, their suspicion will be transformed into positive detestation. EMU cannot survive widespread public loathing. Yet such loathing would be the ineluctable result of enforced austerity programs.

But also (following on from yesterday’s review), you should really read “Jacob Hacker’s piece”:http://democracyjournal.org/article.php?ID=6772 in the same issue on the politics of healthcare reform going forward.

bq. Reformers may have won the war in 2010, but they lost the battle for public opinion: Americans were convinced reform was needed, but not that the federal government should have the authority to make sure it was done right. Reformers cannot afford to lose the second battle for public opinion. Winning it will require organization and narrative. It will also require that progressives coalesce around a broad vision, as they did in the years after the passage of the Social Security Act. That vision should have two sides: the case against insurers and the case for government. … They can begin by resisting insurers’ self-serving entreaties to be freed from the requirement that they spend at least 80 percent of their bloated premiums on the actual delivery of care. … But making a case against insurers is not enough to justify the stronger federal role that is essential. Reformers … should not be afraid … to point out where the law needs to be strengthened, especially when that also means pointing out where private insurers continue to fall short. And nowhere is this more true than when it comes to the public option.

Here comes my long overdue update on the Dutch government formation (I owe you one on Belgium too, but there isn’t much to report, except the lack of progress, and whatever that could be taken to imply). We had “elections in the Netherlands”:https://crookedtimber.org/2010/06/09/dutch-elections-first-results-and-open-thread/ early June, and the right-liberals, VVD, emerged as the biggest party. They first tried to form a coalition with the Christian-Democrats (CDA) and PVV, the party of Geert Wilders (in fact, it is not a party, but a ‘movement’: Geert Wilders is the only member and the other people do not have any formal power, and from what we can gather in the media also not much real power.) But CDA refused to enter any talks/negotiations if VVD and PVV did not first come to some rough agreement between the two of them. So that turned into nothing.
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While “Mitch McConnell”:http://www.talkingpointsmemo.com/archives/2010/08/mcconnell_makes_his_choice.php?ref=fpblg is trying to figure out whether the US can get rid of birthright citizenship, French rightwing politicians seem to be engaged in a “bidding war”:http://artgoldhammer.blogspot.com/2010/08/irresponsibility.html to see who can come up with the most egregious proposal for stripping citizenship from criminals. As Art Goldhammer observes, this is a fairly transparent attempt to distract voters from the Sarkozy government’s embroilment with dodgy billionaires and tax advisers.

bq. Nicolas Sarkozy’s proposal to strip certain criminals of French citizenship has brought the xenophobes out of the woodwork. Thierry Mariani, always a leader in this pack, has proposed extending the punishment to all who have been naturalized for less than ten years and convicted of crimes with sentences of greater than five years. The round numbers make short shrift of the constitutional problem, that any such law creates two classes of French citizens, those whose citizenship status is precarious and the rest–contrary to the Constitution of the Fifth Republic, which states that “all French citizens are equal before the law.” …

bq. But these _dérapages_ were predictable once the cat was out of the bag. Indeed, one might go so far as to say that they were intended. Each _surenchère_ relaunches the polemic and distracts attention from other issues. And of course none of these measures–even in the exceedingly unlikely case that any of them are enacted, given the likely refusal of the _Conseil Constitutionnel_ to accept them–would have the slightest effect on the “security” of the French. What proportion of crimes is committed by recently naturalized citizens (or wandering gypsies)? … you seize on some trival _fait divers,_ invoke the inalienable human right of self-preservation, and direct anger and fear at some disliked and defenseless element of the population, accused without evidence of imperiling the “security” of authentic citizens.

A “bloggingheads”:http://bloggingheads.tv/diavlogs/29563 with Dan Drezner, where we discuss in passing the recent dust-up between Tyler Cowen and Paul Krugman on Keynesian demand-stimulation strategies and Germany (see “here”:http://www.nytimes.com/2010/07/18/business/18view.html?_r=1&scp=1&sq=tyler%20cowen&st=cse, “here”:http://www.marginalrevolution.com/marginalrevolution/2010/07/what-germany-knows-about-debt.html “here”:http://krugman.blogs.nytimes.com/2010/07/18/more-stimulus-despair/, “here”:http://www.marginalrevolution.com/marginalrevolution/2010/07/germany.html. I’m mostly on Krugman’s side of this argument, but not entirely – a few points.

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Ken Coates, a very significant figure in the history of the British left, has died. The Guardian has an obituary.

Jesus Christ. Louis Michel, the former European Commissioner for Development and Humanitarian Aid, is reported by the EU Observer as offering his opinions about Leopold II, King of the Belgians and one-time private owner of the Congo:

bq. “Leopold II was a true visionary for his time, a hero,” he told P-Magazine, a local publication, in an interview on Tuesday. “And even if there were horrible events in the Congo, should we now condemn them?” … “Leopold II does not deserve these accusations,” continued Mr Michel, himself a descendent of the Belgian king and a “Knight, Officer and Commander” in the Order of Leopold, Belgium’s highest honour. … “The Belgians built railways, schools and hospitals and boosted economic growth. Leopold turned the Congo into a vast labour camp? Really? In those days it was just the way things were done.” …. Admitting there were “irregularities,” he said: “We can easily be tempted to exaggerate when it comes to the Congo … I feel instinctively that he was a hero, a hero with ambitions for a small country like Belgium.” “To use the word ‘genocide’ in relation to the Congo is absolutely unacceptable and inappropriate.”

Let’s be clear about this: what Michel has said is comparable to Holocaust-denial. If you doubt this, or even if you haven’t read it yet, then Adam Hochschild’s King Leopold’s Ghost should set you right. Perhaps 10 million people, perhaps half the population of the area, died during the “Free State” period, victims of Leopold’s greed for the region’s natural resources, chiefly rubber.

“Charlemagne”:http://www.economist.com/blogs/charlemagne/2010/06/bureaucrats_brussels writes about European Commission officials.

bq. I would not be astonished if a majority of the [British] public assume that EU officials are primarily motivated by pay, perks and privileges. Actually, from Mr Farage’s point of view, I suspect the truth is still more worrying. EU officials, in my experience, want “more Europe” because they want “more Europe”. … EU officials live in a world in which nationalism is the great evil. … They are often highly educated, in a geeky sort of way … The town’s defining ethos of anti-nationalism is often admirable. EU officials are easy to get on with, and a decent bunch in my experience. But it brings problems: I find a lot of people in this town at best naive about how much integration public opinion will accept, and at worst a bit hostile to democracy. Get a Brussels dinner party onto referendums, and hear people rave about the madness of asking ordinary people their opinions of the European project.

I found this pretty interesting because I was thinking about writing a piece last week about how Charlemagne himself represents a political tendency that is “a bit hostile to democracy.” The occasion of this critique was his “linking”:http://www.economist.com/blogs/charlemagne to a “piece”:http://www.spectator.co.uk/spectator/thisweek/14997/part_2/eurosceptics-against-the-nation-state.thtml that he wrote under his own name before he worked for the _Economist_ which is all about how one _needs_ to have restraints on national level democracies for the European project to work.
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Fascinating interview with Jurgen Habermas in today’s Irish Times. Talking about Merkel and how she has burnt Germany’s reputation for putting its longer term interests as the greatest beneficiary of an effective European Union ahead of short-term, domestic politics, he notes a generational difference:

“Over the past four weeks Angela Merkel has squandered much of the capital of trust accumulated by her predecessors over four decades. … After Helmut Kohl, our political elites underwent a sweeping change in mentalities. With the exception of a too-quickly exhausted Joschka Fisher, since Gerhard Schröder took office a normatively unambitious generation has been in power. It seems to enjoy Germany’s return of Germany to normality as a nation-state – and just wants be “like the others”. Conscious of the diminishing room for political manoeuvre, these people shy away from farsighted goals and constructive political projects, let alone an undertaking like European unification. I detect a certain indifference towards this project. On the other hand, the politicians can no longer deceive themselves concerning the fact that the Federal Republic is the greatest beneficiary of the single currency. Self-interest dictates that they support the preservation of the euro zone.

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Eugene Volokh, in a “brief post”:http://volokh.com/2010/06/10/party-of-geert-wilders-leading-critic-of-islam-gains-heavily-in-dutch-election/ on the Dutch election, characterizes Geert Wilders as a ‘leading critic of Islam.’ This is a fascinating terminological choice. If a European politician who had angry views about Israel went ahead to advocate a ban on the Torah, a five year ban on the building of Jewish temples, a permanent ban on preaching in Hebrew, and a government program aimed at paying Jews to leave the country, would Eugene Volokh describe him as a “leading critic of Judaism?” I suspect, perhaps incorrectly, that he might use slightly different language.

Update: The title of Volokh’s post has now been changed (I imagine in response to this post) to characterize Wilders as a “Leading Critic of Islam (and Advocate of Restrictions on the Practice of Islam).” Whether this constitutes a substantial improvement or not I leave open to debate.

There are two national elections in the Low Countries this week — today in the Netherlands and Sunday in Belgium. The Belgian elections are actually hugely important for the future (or absense of such a future) of the country, since there hasn’t been any real functioning government in the last three years, and the Flemish voters are probably going to vote en masse for NVA, the flemish democratic nationalist party. More on this on Sunday.
In the meantime the Dutch voters had their chance to vote for a new government today, and “the first prognosis”:http://www.nrc.nl/binnenland/verkiezingen2010/article2560933.ece/Exitpoll_PvdA_en_VVD_even_groot, based on exit poll results, is that the VVD (mainstream ‘liberal’ (in the European sense) right wing party) and the PVDA (the social-democrats/labour party) would both be leading, but only with 31 out of 150 seats. The Christian-democratic party, who were the biggest in the last couple of elections, would fall back to 21 seats. PVV, the right wing anti-immigrant party of Geert Wilders would have 22 seats, and other parties 16 (populist socialist party), 11 (Greens), 10 (Left-Liberals), and 7 seats for the orthodox Christian parties. So this is extremely scattered. All this needs to be taken with a serious pinch of salt of course – it’s merely exit polls, but nevertheless still interesting, since it shows how difficult it will be to form a coalition. It’s not unlikely that a four-party coalition will be needed.
For more background information, read “this post”:http://www.themonkeycage.org/2010/06/dutch_elections.html by Erik Voeten. The comments section is open for anything related to the Dutch elections, including predictions on what kind of coalition would be plausible, and actual results as they become available. I’ll add my bit as long as I am awake.