This past week was fascinating to watch. While it is impossible to tell at this time that there has indeed been a shift in the direction of European policy, it is evident that at least there’s been a momentary shift in its tone. Indeed, we seem to have gone from “how do we impose as much austerity as possible to get rid of the bond vigilantes” to “wait we are not growing, now that’s the new problem… this stuff isn’t working”.
So how did that happen?
There were a number of contributing factors.
- Hollande’s buoyant victory at the first round of the French Presidential election, and the fact that he is likely to become the next French president has put his agenda on the map. A large part of his focus is on growth; responsible, well monitored growth, but growth nonetheless. Whereas the Spanish PM cannot get away with this sort of talk, because he lacks the pull to credibly push for it, a French president can and in this case Hollande has. Where, until now the debate has been one sided in favour of the austerity side, at least now there is an alternative. This matters because democracy is about debate and conflicting views. If there’s only one idea, there’s no point in having democracy. Because the right has dominated the main capitals of Europe for a large amount of time, there has been no alternative. However now there should be some debate. This is good! It will probably cause some turbulence in the markets, but it is healthy!
- The Dutch government collapsed over talks on how to impose austerity. While it is not unlike Dutch governments to fall, it is not usual for me to find myself agreeing with a guy like Geert Wilders. While his lazy politics of populist xenophobia, fearmongering and lowest common denominator appeal are everything that has always been wrong with politics, the fact that he is the only guy to have the common sense to say that austerity is stupid should be embarrassing to mainstream politicians.
- Immediately after the collapse of the Dutch government, bad PMI figures reinforced the argument that austerity is not a magic wand that solves all the problems, on the contrary. These insight were further reinforced at the end of the week.
- Finally, purposefully or not, Mario Draghi got on the growth bandwagon in his address before the European Parliament. Clearly his comments were not a blanket endorsement of Hollande, and probably Merkel’s argument that he was making her point was correct. But the important thing here is not immediately how the growth is achieved, but rather that people start thinking about it.
I would not be surprised if in 6 months time we looked back and asked “When did we drop austerity and started talking about growth”. If so, then the answer is clearly “the last week of April 2o12”.