Economic Turmoil in Europe: Political Backlash and a Euro-Nordic Headache
Dan Steinbock, writer for The Globalist sent an interesting story he wrote regarding the Euro Crisis: Economic Turmoil, Political Backlash in the wake of the Finnish election results and the
rise of the “True Finns”.
What follows is partial excerpt of that story, starting with a section titled “The Euro-Nordic Headache”. I am not going to do my normal blockquote so as to make what follows easier to read. Everything that follows is from Dan Steinbock.
The Euro-Nordic Headache
The [Finnish] election took place only days after Portugal became the third euro member to seek a bailout and market speculation grew over impending debt restructuring in Greece.
With their strong election performance, the True Finns could disrupt efforts to tackle the euro debt crisis because Finland, unlike other euro countries, requires approval from its parliament to participate in EU bailouts.
Even before the election, the largest opposition party, the Social Democrats, led by chairman Jutta Urpiainen, began setting conditions on support for Portugal. Following in their footprints, the conservative Finance Minister Jyrki Katainen and Prime Minister Kiviniemi called for harsher measures in the case of Portugal.
Now Katainen is expected to become the next conservative prime minister, replacing Kiviniemi, whose Center Party plunged from first to fourth place since the 2007 election.
In Brussels and Lisbon, a Katainen-led government would ease angst because it is seen as pro-EU and supportive of the Portuguese bailout. Conversely, with their election gains, the True Finns will seek a majority that allows them to block the euro region’s bailout mechanism.
Since the election result means complicated inter-party negotiations for a coalition government, it will be difficult for the Finnish parliament to make a decision on the Portuguese rescue plan by next month, when Lisbon seeks to complete the package.
Further, the government is expected to include at least one anti-bailout party — either the True Finns or the Social Democratic party, which voted against previous rescue packages for Greece and Ireland.
Since EU rules require unanimous approval for each euro bailout fund, Finnish support is vital — it is one of the few remaining AAA-rated euro economies. However, euro officials are exploring options for the Portuguese deal without the Finns, if necessary.
After economic turmoil, political shift
In most competitiveness rankings, the Nordic economies are among the global leaders. As small and open economies, however, their prosperity is predicated on the growth of their major trade partners, the large EU economies and the United States. In Finland, for instance, the EU dominates almost 60% of all exports and over 80% of all direct investment abroad.
Amidst the global financial crisis, euro governments saved their banks at the expense of the taxpayers. Now the economic crisis is generating a political backlash — from the small Nordics to the large EU economies.
In 2007, the Danish People’s Party received a 13.9% vote share in the parliamentary election. Two years later, the Norwegian Progress Party raked in 22.9%. Last fall, the right-wing nationalist Sweden-Democrats garnered 5.7% of the popular vote.
Germany is amidst seven elections in the 16 federal states, which are hammering Chancellor Angela Merkel’s Christian Democratic Union (CDU). The support for its coalition partner, the Free Democratic Party (FDP), has collapsed.
In France, President Nicolas Sarkozy’s centre-right Union for a Popular Movement (UMP) party suffered in regional elections last month, amidst a strong performance by the far-right National Front. In Italy, the Northern League, an anti-immigration party pivotal in Prime Minister Silvio Berlusconi’s coalition, has seen its support double in the past five years.
In June 2010, elections in Belgium led to a landslide victory for the separatist and conservative New Flemish Alliance in Dutch-speaking Flanders. In Holland, the far-right Geert Wilders could become the next Dutch prime minister after significant gains in the recent regional elections.
In the absence of a comprehensive solution, euro leaders are scrambling to bail out, or bail in, one crisis economy after another. As long as the countries to be rescued have been small — accounting for less than 2.5% of the eurozone’s total GDP — the problems have been averted. But after Portugal, the spotlight will shift to Spain, which contributes 11.5% of eurozone GDP.
Unfortunately, the problems are systemic. Neither muddling through the economic turmoil nor nationalist political shifts will resolve the problems. The euro crisis is not just about liquidity — it is primarily about solvency. The advanced economies can live beyond their means some of the time, but not all of the time.
Amidst the broadening political backlash, Europe has few alternatives left. It must move toward deepening integration, or cope with greater fragmentation.
The above courtesy of Dan Steinbock and the Globalist. Thanks Dan!
Mike “Mish” Shedlock