The elections to the European Parliament were set to unfold this week amid an official atmosphere of complacency and anxiety. The anxiety reflects the fact that the anti European Union (EU) far right is expected to do well right across the continent.
As we know from the case of Ukip, the hard right have mixed a toxic cocktail of Euroscepticism and anti-immigrant racism. But there is a second factor that is especially powerful throughout continental Europe—the economic disaster that has afflicted the eurozone.
This is where the complacency kicks in. According to the EU political elite, the eurozone crisis is over. Thanks to their skill and determination, the euro has been saved.
This self-serving opinion seems to be shared by the financial markets. The gap between the interest rates on German government debt and on the debt of weaker eurozone economies such as Greece, Italy, and Spain has narrowed sharply.
Certainly the situation seems very different from two years ago. Then it seemed only a matter of time before Greece left the euro. Between Greece’s two general elections in May-June 2012 money was draining fast out of the country’s banks.
It was widely expected that this would cause the entire monetary union rapidly to unravel.
A three-part series in the Financial Times newspaper last week portrayed the German chancellor, Angela Merkel, as the heroine of this crisis.
On the one hand, she did not relent in her government’s demand for the implementation of austerity in exchange for financial support. Highly indebted eurozone member states such as Greece, Ireland, Portugal, and Spain have suffered economic and social devastation as a consequence.
On the other hand, she eventually allowed the European Central Bank (ECB) to promise that it would use its potentially unlimited power to create money to protect the eurozone.
This move was fiercely resisted by the German central bank, the Bundesbank, which warned that it would risk hyperinflation and encourage reckless borrowing.
Initially, caught between the Bundesbank and the demands by Barack Obama and French president, Nicolas Sarkozy, to back the creation of a “firewall” of money to protect the eurozone, Merkel refused to move.
She was even reduced to angry tears in a confrontation with the two presidents in Cannes in November 2011.
Merkel eventually backed the new ECB president, Mario Draghi, when he promised in July 2012 he would do “whatever it takes” to save the euro.
Draghi came up with a scheme that offered indebted states help in exchange for austerity measures. It was never implemented—its very announcement was enough to reassure markets. The gap between eurozone interest rates began to shrink.
According to the Financial Times, “By now, Ms Merkel was secure in her belief that allowing the euro to fall apart would be far too dangerous. Gaining her approval for the ECB plan would come down to something she had argued for all along: in exchange for aid, struggling countries had to agree to economic reforms.”
So the markets cheered up for a while. But share prices dropped sharply on Friday of last week when it was announced that the eurozone grew by a miserable 0.2 percent in the first quarter of 2014.
Germany grew by 0.8 percent but France stagnated, and Italy, the Netherlands, Portugal and Greece shrank. Meanwhile, the eurozone rate of inflation is 0.7 percent, way below the ECB’s target of 2 percent.
There are widespread fears that the eurozone is so depressed economically that prices may start falling, as they have in Japan for most of the past two decades.
The lower growth and inflation, the harder it will be for states such as Italy and Greece to repay their huge debts. And this is to ignore the devastating effects of 1930s-style levels of unemployment in southern Europe.
So saving the euro has been a bit like one of those operations that are very successful—apart from the patient dying. No wonder the Eurosceptic right is expected to be the big winner in these elections.