The Impact of Spain’s Economic and Political Crisis on the European Elections. EPIN Commentaries No. 17, 2 April 2014

Despite the emergence of a critical debate against the EU-imposed austerity measures both at the level of the political elites and on the street, this EPIN Commentary by two Spanish political scientists based in Barcelona finds no sign that the upcoming European elections will have a more European focus than any of the previous ones. While there is no anti-European discourse among the Spanish mainstream political parties, they report that public trust in the European institutions is plummeting and Spanish turnout in European elections has been dropping in the last few years. In the authors’ view, the main reason for this is the low level of awareness of the functioning of the European Parliament but some responsibility also lies with the Spanish political parties and the way they deal with the electoral campaign to mobilise the discontented voters, who consider unemployment and the economic situation as the two most important issues that the country is facing at the moment.

Europe is still standing. CEPS Commentary, 6 June 2014

Despite the fact that anti-establishment, mostly euro-sceptic parties won about one-fifth of the vote in the European Parliament elections last month, Daniel Gros insists that it is not quite accurate (or fair) to characterise the result as a rejection of Europe. He argues that the deeper roots of the surge of euro-sceptic and other protest parties originate with the general dissatisfaction with the state of the economy and dysfunctional national political systems. Tinkering with austerity or the fundamental right of free movement within the EU will not make much of a difference and, in his view, only reform at home, in national capitals, will stem the tide of euro-scepticism.

The transatlantic growth gap. CEPS Commentary, 5 August 2014

Daniel Gros argues in this commentary that the cause of the transatlantic growth gap following the recovery starting in 2010 from the global financial crisis should not be sought in excessive eurozone austerity or the excessive prudence of the European Central Bank. Rather, compared to the US, he argues that the excess debt created in the EU during the boom years has been much more difficult to work off. He acknowledges that European officials are right to promote structural reforms of EU countries’ labour and product markets, but advises that they should also focus on overhauling and accelerating bankruptcy procedures, so that losses can be recognised more quickly and over-indebted households can start afresh, rather than being shackled for years.

Social cohesion in Europe after the crisis

In the last few years, Europe has been forced to re-think its socio-economic model. Social indicators speak for themselves. Real household income declined significantly between 2008 and 2012, employment rates are lower and the number of people in poverty saw a steady rise with a growing divergence between EU countries. In the eurozone, cuts in public spending and internal devaluation have been the main tools to aim at a correction of unsustainable fiscal positions and a strengthening of competitiveness. It has carried a heavy social price tag. Outside of the eurozone, austerity has also been the prevailing policy, seen as inevitable to avoid economic instability. The crisis has not hit everyone equally. The general losses have been high, but there have also been some quite important redistributive effects. With all the difficulties of defining and measuring 'fairness', it is clear that the adjustment has not been equitable. Apart from issues of market failure, there have been direct increases of inequality within each of the member states. Higher poverty rates have been observed, rises in inequalities between higher and lower income earners as well as intergenerational inequalities between age groups. Long-term consequences are only beginning to surface in the public debate as the most immediate pressures of the crisis are slowly overcome. In this report, the authors first of all look at the results of the survey we have carried out in seven European countries and review perceptions of the socio-economic model. Subsequently, they assess the importance of the social dimension in the broader context of the European growth model. The authors discuss the impact of the structural challenges of globalisation, demography and technological change. They then review the EU’s performance in the crisis. Finally, the authors make a number of recommendations on how to bridge the gap between Europeans‘ expectations and reality.

Europe’s Dog in the Nighttime. CEPS Commentary, 12 November 2014

Two recent instances of flagrant infringement of agreed EU rules – the submission by Italy and France of budget plans for 2015 that clearly violated their governments’ vows of continued austerity under the Stability and Growth Pact and David Cameron’s petulant refusal to pay a back payment of billions of euros to the EU budget – threaten the EU’s fundamental workings, which are based on a clear rulebook enforced vigorously by a strong Commission. As warned by Daniel Gros in his latest CEPS Commentary, Juncker’s Commission risks losing its authority from the start if rules can be bent or broken to accommodate the larger member states’ domestic political priorities. He also calls upon leaders in member states to play their part as well. Pandering to populists may be attractive in terms of short-term electoral gains, but the long-term cost in terms of credibility, both their own and that of the EU, will be very high.

The growth challenge for Europe and the EMU. CHALLENGE EUROPE Issue 22- Challenges and new beginnings: Priorities for the EU's new leadership, September 2014.

The European economy is slowly and painfully striving to reemerge from the last six years of crisis. It was a crisis of enormous intensity and contagiousness, given the unprecedented depth of global financial integration combined with the systemic flaws in the EMU architecture. And it is not over, as the high levels of unemployment and the growing divergence between Member States testify. The threat of fragmentation is imminent as ever: fragmentation between euro-ins and euro-outs; fragmentation between North and South; fragmentation within societies, with increasing income inequality and a growing number of, what used to be, the middle class population slipping through the social safety net and below poverty lines. Policies of front-loaded fiscal consolidation have left welfare states in economically weaker countries severely underfunded. According to OECD data, the number of people living in households without any income from work has doubled in Greece, Ireland and Spain, and has risen by 20% or more in Estonia, Italy, Latvia, Portugal, and Slovenia. Fertility rates have dropped further since the crisis, deepening the demographic and fiscal challenges of ageing. There are long-term implications from these deteriorating trends, regarding people's long-term health, education and upward mobility from low-income families. It is also highly likely that many of the people unemployed for a long period of time will never again be able to gain proper access to the job market and build a normal career track. The enduring effects of the crisis risk creating vicious cycles of low growth, high debt levels, austerity, declining productivity, and stagnation. These developments carry heavy implications for the future growth prospects of the European economies, for future prosperity, and for the sustainability of pension systems and welfare states. They must be urgently reversed.

The Eurozone crisis and the erosion of democratic legitimacy: Lessons from the gold standard. ACES Cases No. 2013.3

This paper makes four propositions. First, it argues that the euro’s institutional design makes it function like the interwar gold exchange standard during periods of stress. Just like the gold exchange standard during the 1930s, the euro created a ‘core’ of surplus countries and a ‘periphery’ of deficit countries. The latter have to sacrifice their internal domestic economic equilibrium in order to restore their external equilibrium, and therefore have no choice but to respond to balance of payments crises by a series of deflationary spending, price and wage cuts. The paper’s second claim is that the euro’s institutional design and the EU’s response to its ‘sovereign debt crisis’ during 2010-13 deepened the recession in the Eurozone periphery, as EMU leaders focused almost exclusively on austerity measures and structural reforms and paid only lip service to the need to rebalance growth between North and South. As Barry Eichengreen argued in Golden Fetters, the rigidity of the gold standard contributed to the length and depth of the Great Depression during the 1930s, but also underscored the incompatibility of the system with legitimate national democratic government in places like Italy, Germany, and Spain, which is the basis for the paper’s third proposition: the euro crisis instigated a crisis of democratic government in Southern Europe underlining that democratic legitimacy still mainly resides within the borders of nation states. By adopting the euro, EMU member states gave up their ability to control major economic policy decisions, thereby damaging their domestic political legitimacy, which in turn dogged attempts to enact structural reforms. Evidence of the erosion of national democracy in the Eurozone periphery can be seen in the rise of anti-establishment parties, and the inability of traditional center-left and center-right parties to form stable governments and implement reforms. The paper’s fourth proposition is that the euro’s original design and the Eurozone sovereign debt crisis further widened the existing democratic deficit in the European Union, as manifested in rising anti-EU and anti-euro sentiment, as well as openly Eurosceptic political movements, not just in the euro periphery, but also increasingly in the euro core.

Greece in limbo: Post-election 2015 scenarios. EPIN Commentary No. 22/ 21 January 2015

In the run-up to elections in Greece on January 25th, this EPIN commentary explores the likelihood and consequences of four potential post-election scenarios: 1. Syriza single-party majority government or Syriza-led coalition government with anti-austerity parties 2. Syriza-led coalition government with pro-austerity parties or Syriza minority government 3. New Democracy government or ND-led coalition government 4. No government is formed.

Grexit 2015: A primer. CEPS Commentary, 22 January 2015

In the run-up to the Greek elections on January 25th and the subsequent renegotiation of the country's economic adjustment programme with the troika, Daniel Gros writes in this Commentary that "nobody officially wants Grexit": not Syriza, which wants Greece to stay in the euro. It is ‘only’ asking for a reduction in Greece’s official debt and an end to austerity. The German government also does not favour Grexit because European unification remains the central project for German policy-makers across all mainstream parties. Only some protest parties and vocal economists think Greece (and Germany) would better off with a new Drachma. In his view, the substantive issues are thus the demands for a reduction of the official debt of Greece and an end to austerity, both of which he describes as eminently fudgeable. In any event, change in policy will be minor if a Syriza government is as successful in fulfilling its promise to spend as the previous government was in promising not to spend.

Flashlight Europe No° 1 – January 2015. Tsipras Will Have to Put His Cards on the Table

Alexis Tsipras, the new Greek prime minister, has announced that he intends to terminate the policy of austerity and that “subservience is over.” How will this affect policymaking in the euro-zone? Is the troika going to reconsider its positions? Will the other crisis-ridden states join in the rebellion? And what has all this got to do with the European Central Bank and “quantitative easing?” Henrik Enderlein, who is Professor of Political Economy at the Hertie School of Governance and Director of Jacques Delors Institut – Berlin, provides some answers to these questions.

Living (dangerously) without a fiscal union. Bruegel Working Paper 2015/03

The euro area’s political contract requires member nations to rely principally on their own resources when confronted with severe economic distress. Since monetary policy is the same for all, national fiscal austerity is the default response to counter national fiscal stress. Moreover, the monetary policy was itself stodgy in countering the crisis, and banking-sector problems were allowed to fester. And it was considered inappropriate to impose losses on private sector creditors. Thus, the nature of the incomplete monetary union and the self-imposed taboos led deep and persistent fiscal austerity to become the norm. As a consequence, growth was hurt, which undermined the primary objective of lowering the debt burden. To prevent a meltdown, distressed nations were given official loans to repay private creditors. But the stress and instability continued and soon it became necessary to ease the repayment terms on official loans. When even that proved insufficient, the German-inspired fiscal austerity was combined with the deep pockets of the European Central Bank. The ECB’s safety net for insolvent or near-insolvent banks and sovereigns, in effect, substituted for the absent fiscal union and drew the central bank into the political process.

Geen leger, is onbetaalbaar = No Belgian armed forces is unaffordable. Egmont Security Policy Brief No. 61, February 2015

In this Security Policy Brief Jo Coelmont examines the challenges Belgium is facing at present. On the one hand there is the declared political objective to henceforth provide its defence forces with the means of achieving all of its tasks and, furthermore, to develop a new Strategic Plan, while taking decisions on replacing its current fleet of F16 fighter aircraft and determine strategic orientations on the replacement of frigates, mine hunter vessels and other major equipment programmes. On the other hand, the already taken austerity measures impose severe structural cuts on its defence budget for the upcoming five years. In this context the author is proposing some « dos and don’ts«.

The Re-emergence of Russia and its Collision Course with Europe. Jean Monnet/Robert Schuman Paper Series Vol. 14 No. 4, March 2014

From the Introduction. In order to understand the historical roots of the current geopolitical confrontation between the EU and Russia, we have to go back to the end of the Cold War and to the catastrophic decade that it was followed by in Russian history. The dissolution of the USSR imposed serious economic hardship for Russia and for all the ex-communist East-European states. Russia was the hardest hit amongst them, as the center of the USSR's economic system it suffered most from the dissolution of regional economic ties. This crisis was just deepened by the IMF's privatization and reform campaign, which imposed austerity measures and state-asset privatization as a “shock-therapy” answer to the country's economic problems. This policy package did nothing to save Russia from economic collapse (which eventually happened in 1998), the only thing it achieved was an even stronger social and economic crisis and the enrichment of the rent-seeking ex-communist top bureaucrats by state-assets, which were sold out under-priced through diverse channels of corruption

Why Greece is different. CEPS Commentary, 22 May 2015

With Greece’s economy tanking again, the country’s government is convinced that it is the victim of the wrong treatment in the form of excessive austerity and is calling for a renegotiation of the bailout deal it made with its international creditors. In Daniel Gros’ view, however, this narrative overlooks the fact that the approach worked in other peripheral countries: Portugal, Ireland, Spain and even Cyprus, are all visibly recovering. As he points out in this CEPS Commentary, it was their strong export performance which allowed these countries to escape the austerity trap and he accordingly urges Greece’s policy-makers to focus their attention on stimulating exports rather than only discussing the budget.

Puerto Rico and Greece: A Tale of two defaults in a monetary union. CEPS High-Level Brief. 18 June 2015, Update 30 June 2015

It is widely argued that the problems of Greece in the eurozone derive not only from mistakes made by successive Greek governments, but from deep-seated problems with the design of the euro area. The euro area is judged to be incomplete because it does not have any fiscal shock absorbers, nor a federal transfer system, and, according to many, it has imposed senseless austerity on the country. The US, by contrast, is often held up as an example of a complete monetary union in this type of problem could not arise. However, the working of the US is much less perfect than it appears from afar. The ‘genuine’ economic and monetary union, which undoubtedly exists in the US, also has problems in dealing with low-performing states in terms of productivity and governance. Puerto Rico exemplifies these difficulties and shows that in such an integrated area similar problems, including a fiscal crisis can arise. Both Puerto Rico and Greece are very special and extreme cases within their respective unions, but the strength of a system can be measured by how it deals with these cases.