Saturday, November 07, 2015

Woes of the EU

The European Union is facing a crisis of governance. Two bad policies on major issues are creating a climate that is making a process of further unity difficult. Maybe, in practice, impossible. Those are the now-chronic euro crisis and the refugee crisis.

In the end, the EU is a crisis of democracy. Because the policies Germany is imposed on fellow eurozone members in order to have the euro currency work for Germany's narrow national benefit is more and more directly interfering with democratic processes. This year, we've seen that big-time in Greece. And we're seeing it right now in Portugal.

Ambrose Evans-Pritchard gave a good description of the early days of the current political crisis in Portugal: Eurozone crosses Rubicon as Portugal's anti-euro Left banned from power Telegraph 10/23/2015.

The President and head of state, Anibal Cavaco Silva, appointed a minority government after October's elections. A left-leaning coalition with a majority in Parliament is trying to get the pro-austerity minority government removed. Cavaco Silva said the majority coalition was too "anti-European," which in EU-speak means they want to pull out of the EU. In reality, they are anti-austerity and that's the real problem. They are committed to getting Portugal and its people out from under the ruinous austerity program on which Germany and Angela Merkel insist.

But the majority Left Bloc coalition is still striving to take power (Portugal left closer to government deal, still no majority Reuters 11/06/2015). Two of the three left parties, the social-democratic Socialist Party and the Left Bloc have agreed formally on a coalition program:

The [coalition] talks that began soon after the election have raised fears over the prospects for Portugal's timid economic recovery, because of the instability and the fact that the potential partners reject some reforms imposed to escape a debt crisis.

A group of over 100 entrepreneurs representing firms from cork-makers to motorways and construction, signed a manifesto arguing that uncertainty was already compromising investment, balance sheets and jobs, while a leftist government would only exacerbate the situation due to the far left's opposition to private business.

The centre-left Socialists have argued that they can form a government backed by a leftist majority that would respect European budget rules.

But the far left, especially the Communists, reject Brussels-imposed budget limits and have various other significant ideological divergences making a binding deal between them hard to achieve. Some Socialists also favour a centrist coalition rather than a deal with the radical left.

The Socialists plan more talks with the Communists before next week's vote to see if they can bring them on board.
Despite the propaganda slogans of the minority government's supporters quoted there, a left coalition is not going to demand an exit from NATO and the EU, as Cavaco Silva implied when he made his statement about deciding to install a minority government. They won't even try to exit the euro. But they do say they want to fight the austerity policies.

Paul Krugman in his column for today, Austerity’s Grim Legacy New York Times 11/06/2015, emphasizes that austerity policies can have very serious long-term problem that will continue to hurt people for years even if the economy starts growing at a healthy rate:

The idea that policies that depress the economy in the short run also inflict lasting damage is generally referred to as “hysteresis.” It’s an idea with an impressive pedigree: The case for hysteresis was made in a well-known 1986 paper by Olivier Blanchard, who later became the chief economist at the International Monetary Fund, and Lawrence Summers, who served as a top official in both the Clinton and the Obama administrations. But I think everyone was hesitant to apply the idea to the Great Recession, for fear of seeming excessively alarmist.

At this point, however, the evidence practically screams hysteresis. Even countries that seem to have largely recovered from the crisis, like the United States, are far poorer than precrisis projections suggested they would be at this point. ...

What this suggests is that the turn to austerity had truly catastrophic effects, going far beyond the jobs and income lost in the first few years. In fact, the long-run damage suggested by the Fatás-Summers estimates is easily big enough to make austerity a self-defeating policy even in purely fiscal terms: Governments that slashed spending in the face of depression hurt their economies, and hence their future tax receipts, so much that even their debt will end up higher than it would have been without the cuts.
But when the public votes in democratic elections against these destructive austerity policies, Merkel brings tremendous pressure to nullify that anti-austerity result, no matter how much contempt for democracy she shows in the process.

The Economist profiles Merekel as The indispensable European 11/07/2015. They note that Angie is "a scorpion who quietly eliminates potential rivals." That's even of her conservative sponsors in the CDU, most notably Helmut Kohl and Wolfgang Schäuble. And, if anything, it's more true of politicians in other countries of the eurozone, like Alexis Tsipras, Yanis Varoufakis and their Syriza party in Greece. Now the anti-austerity politicians in Portugal are in line for her wrath.

Caroline Copley reports on recent developments in the refugee crisis, which has been going on for years but recently reached a new acute stage, in German coalition agrees to speed up asylum process as influx hits record Reuters 11/06/2015:

The leaders of Germany's ruling coalition parties, struggling with the biggest influx of migrants in decades, clinched an agreement on Thursday on how to speed up the asylum process for those with little chance of being allowed to stay.

The agreement followed weeks of infighting and came as official figures showed the number of new arrivals in Germany this year had hit almost 800,000 by the end of October - the total number the government had expected for all 2015.

The crisis has opened a rift in Chancellor Angela Merkel's coalition. The Christian Social Union (CSU), the Bavarian sister party of Merkel's conservatives, have demanded tougher action, while the Social Democrats (SPD) favor a gentler stance.

After failing to fully resolve their differences on Sunday, Merkel said she and the leaders of the CSU and SPD had now agreed to set up special centers for migrants with no solid claim to asylum in Germany.
But Merkel's Interior Minister Thomas de Maizière of her own CDU party has thrown a brand-new wrinkle in the internal political arguments in Germany by suggesting Germany should set up some modification of Germany's right to asylum that would put new restrictions on the asylum recipient bringing in family members. (De Maizière will Familiennachzug für Syrer untersagen Deutschlandfunk 06.11.2015; Roland Preuß, Umgang mit Syrern: De Maizière löst neuen Koalitionsstreit aus Süddeutsche Zeitung 06.11.2015) This raises the prospects of still more conflict in Merkel's coalition over the refugee crisis, because that proposal wasn't part of the current governing coalition's refugee policy. It's always possible, though, that this was a coordinated "trial balloon" to test public reaction to such proposals.

The Economist article also reports the emergence of a new German verb, "merkeln," meaning to put off big decisions. That extend-and-pretend approach has been characteristic of her decision-making in the euro crisis and the refugee crisis. It involves short-term fixes that easy the acute phases of the crisis but avoid setting up substantial long-term solutions to the problems. But as the chronic problems drag on, they increase nationalist attitudes within EU and eurozone members countries, undermines the ability to further European unity, and, most seriously, undermines democracy within the whole of the EU.

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