The Great Euro Gamble

In today's Wall Street Journal we argue,

"When European Union leaders forged their monetary union without a full political and economic merger, they gambled on two vital factors: That economic forces could be kept in check, and that national democracies could be managed.

Over the past 16 months, we have been reminded time and again exactly how big and how irresponsible those gambles were. Sunday's was arguably the strongest reminder yet, courtesy of the anti-euro True Finns party that may hold the balance of power in the next Finnish government. Paris, Berlin and Brussels seem not to have factored Nordic populism into their grand plans for the euro. But ultimately the euro zone is about politics, and politics remain as local as they ever were."

We go on,

"The True Finns' success will not change European politics overnight, and the party may not even succeed in blocking Finland's participation in future bailouts. But, irrespective of what we think of the True Finns, the election does highlight how powerfully a euro-zone crisis can contribute to shaping national politics. Euro bailouts were also an important issue in Slovakia's elections last year, and helped to deliver a new governing coalition that refused to take part in Europe's Greek bailout. That government only reluctantly kicked in later to help create the temporary bailout fund that euro leaders are now looking to replace after 2013.

This year the True Finns asked voters to consider the same question that Slovaks did last year: Why should they work harder and retire later to pay for the mistakes and wasteful habits of southern European governments? This "triple-A populism" has proven a powerful force in a number of countries with sparkling credit ratings, including Germany. Writ large, this weekend's Finnish elections are a rebuke of one of the euro zone's central, and fatal, conceits: that political ambition can trump economic and democratic realities."

Looking at EU leaders' gamble on being able to keep economic forces in check, we note,

"Markets have now finally woken up to the fact that Greece and Germany are poles apart; it is time for EU leaders to do so as well. Ireland, Greece and Portugal have made all too clear that economic forces can rarely be predicted, let alone contained.

Some particularly federal-minded EU leaders took this as a pretext to push even harder for a full-fledged fiscal union. Former European Commission President Romano Prodi wrote in an op-ed in the Financial Times last May that "When the euro was born everyone knew that sooner or later a crisis would occur. . . . I was warning years ago that, through no one's fault in particular, extraordinary events could occur that would force joint co-ordination of fiscal policies."

That sentiment spurred EU leaders to take their next major gamble, which was even riskier than the first: They bet that once they did start to effect robust economic and political union, national voters and parliaments would play along and vote the "right" way. So last year, when the EU elites decided to break their own treaties and turn the euro zone into a de facto debt union, they forced taxpayers in some countries to take on the liabilities of foreign governments in other countries—without the possibility of voting these governments out of office. But taxpayers are now showing signs of revolt. "

We conclude,

"Will EU politicians' second gamble turn out as ill-judged as their first? Time will tell. But one thing is clear. The political price that European leaders are paying to keep their flawed project afloat continues to rise."

The EU's walls of Jericho moment?

The exact consequences for the eurozone of the True Finns' success in yesterday's Finnish elections remain unclear. The result makes it the third largest party, securing 39 seats in the 200-strong parliament with 19% of the votes, close behind the National Coalition Party (NCP), which received 20.5% of the votes (44 seats in Parliament) and the Social Democrats which won 19.1% of the votes (42 seats). To put this into context, they polled only 4% in the last national elections.

With performance better than the 15 or so percent expected on Friday, a seat within the new coalition government is now a distinct possibility. Finnish television Yle quotes the party secretary of the victorious National Coalition Party saying that a government consisting of the three major parties is a "strong possibility", with the NCP’s Jyrki Katainen as Prime Minister.

Formal coalition negotiations are due to start on 27 April, which could make it very difficult for Finland to sign up to a bail-out package for Portugal, as that requires the approval of Finnish Parliament. True Finns leader Timo Soini has re-stated his opposition to the Portuguese bail-out package following last night’s election results. “I don’t believe that the package that is there will remain”, he told Yle last night. The Social Democrats want Portugal to restructure its debt rather than seek a bail-out, which is an additional factor in all of this. However, let's not also forget as with all politicians, Mr. Soini wants to be in government - he wants powers - so it's possible that he might compromise on the party's tough 'no more bailouts' position. What's clear is that when it comes to the EU Soini and Katainen occupy two different planets.

Regardless, it's clear that a new brand of "triple A" populism has emerged in the creditor eurozone countries, whose voters are voicing strong opposition to the "we'll keep the euro together at any price" doctrine that they have been fed by EU elites up to now. As we've noted before, such anti-euro sentiments are now picked up by nationalist parties from Vienna to Paris, feeding into the mix of anti-incumbency, pro-independence and most often, strong anti-immigration sentiments.

As we also noted before, the "far-right" label is inappropriate as a generalised term to describe the various parties currently occupying this space around Europe - they're all different in their make-up, roots and emphasis with some a lot nastier than others - and the True Finns simply isn't a "far right" party. What's clear though, is that they all push a heavily nationalist agenda, and they all fish in more or less murky, anti-immigration waters.

But in relation to the eurozone specifically, what's so significant about this election is that it's changing the parameters of the debate. In Austria, Netherlands, Germany and France, the established parties have managed to keep strong anti-euro, anti-bail-out forces outside the realm of government. The Dutch government rely on the opposition parties to circumvent Gert Wilders' Freedom Party, for example. If the True Finns make it into government - and chances are that they will - 'triple A populism' will have become part of the mainstream conversation, in a mainstream European country.

The guiding principle of European integration has always been 'build the institutions and the facts of life will follow'. In the realms of eurozone bail-outs, as well as in the contentious domain of immigration, this guiding principle is now being tested to its limits.

As Gideon Rachman points out on his blog today, the EU is in "deep trouble". Someone (a certain Mr T. Blair), in a speech to the European Parliament, said in 2005:

"It is time to give ourselves a reality check. To receive the wake-up call. The people are blowing the trumpets round the city walls. Are we listening? Have we the political will to go out and meet them so that they regard our leadership as part of the solution not the problem?"

That was six years ago. It's a most unfortunate irony that EU leaders, in their misguided efforts to stamp out 'nationalism' via over-building institutions and attempting to superimpose an artificial identity from above, are now contributing to the rise of the very currents they were professing to fight.

First to the Finnish line

This is a graph showing the support for the different parties, according to a poll published last night, ahead of the Finnish national elections on Sunday. All international eyes are on the True Finns (fourth from the left) - the party that has said it opposes a bail-out deal for Portugal and putting any more cash on the table for struggling eurozone economies. In fact, the party doesn't want to be in the euro at all.

A lot has been said about the True Finns, with the European media all of a sudden forced to become experts on Finnish national politics - it has to be said with varying degrees of success. That many still refer to the True Finns as a "right wing" party indicates the need for a bit more analysis and a bit less reliance on labels that are flying around. The party is pretty skilfully moving along the right-left scale. It's effectively social democratic on economic and welfare issues, favouring a big state, combined with a pretty clear socially conservative flavour. It's definitely populist and not exactly enthusiastic about immigration (and this in a country which accepts some of the fewest migrants in Europe).

So what will happen on Sunday? We wouldn't bet our money on any player. The True Finns have seen a drop in support recently - 15.4% in the poll published yesterday, down from 17.2% a month ago. The National Coalition Party extended its lead to 21.2% in yesterday's poll, while the Centre Party was the second largest party at 18.6%. The Social Democrats were at 18%. The Nordic bookies don't think the True Finns will make it into government and will give you 2.10 times your money for a bet on them winning ministerial seats, while a bet on them not making it only gives you 1.65 times your money.

Regardless, the True Finns are likely to make huge gains compared to the last elections in which they scored just over 4% (see the rise of the True Finns here, in yellow). And a second thing to remember, the Social Democrats - currently at 18% - have also expressed pretty clear opposition to a Portuguese bail-out, instead arguing for a restructuring. Between them, the two parties could well reach above 30% - that's a pretty powerful anti-bail-out bloc. As we've noted before, this could potentially hugely complicate a Portuguese bail-out, as well as efforts to top up the temporary bail-out fund (EFSM) and cash injections in to the permanent rescue mechanism (EFM).

The elections in Finland have made people - not least many opinion formers - start to realise that, shock horror, ultimately the eurozone is about politics. And as we know all politics is local.

In fact, it's difficult to find a more conspicuous example of the inherent flaws of the eurozone - the idea that political ambition can stamp out both economic and democratic realities - coming up against the full force of national democracy.

What's the truth about the True Finns?

We have received a couple of comments in regards to our blog post below on the rise of populist parties in the wake of the eurozone bail-outs. Some have been unhappy about our assertion that the Front National is gaining ground in French politics, whereas others have taken issue with us mentioning the True Finns in the same breath as the Front National and FPÖ (the expression "not as bad as FPÖ" has caused particular offence).

But on the point about the True Finns, a clarification might be appropriate. The True Finns party, or Perussuomalaiset in Finnish, has its roots in an anti-incumbency, rural protest movement from the 1950s, leading to the formation of a political party, eventually named the Finnish Rural Party. The party's dissolution in 1995 led to the creation of the True Finns (one of the party's slogans, "Crush the power hold of the old parties", is testament to its heritage). More than anything else, its euroscepticism seems to flow out of this tradition (which also explains its opposition to providing more cash to the temporary eurozone bail-out fund, the EFSF, for more bail-outs - bail-outs which we agree aren't really working).

So clearly, the party has very different roots compared to other Scandinavian populist parties, such as the Sweden Democrats and the Danish People's Party (for Swedish speakers, here's an article breaking it down). The Front National, Geert Wilder's Freedom Party etc are much farther away again from the True Finns.

In other words, the party cannot be described as "far right", as some non-Finnish media insist on so doing. However, it cannot be described as "centre-right" either, as it draws heavily from an old school, social democratic agenda (i.e. high taxes and a big welfare state). Kind of like a social democratic tea party, with a lot of emphasis on national sovereignty and independence.

According to an opinion poll published today, the party has lost some ground over the last few days, and are now fourth in the race (compared to second in a poll published the other week) - a race that is still wide open it has to be said.

What makes this interesting for the EU and the eurozone is that Finland is the first Triple A eurozone country in which euro bail-outs have become a national election issue. As the leader of the True Finns, Timo Soini, put it, the election might evolve into the referendum which the Finnish people were refused when the euro was first introduced.

We shall see.

A populist warning light?

A new opinion poll shows that Austrian, anti-immigrant, populist party FPÖ would end up on top if elections were held today, beating both the social democratic SPÖ and conservative ÖVP. There are of course multiple reasons for the party's rise, but we note that FPÖ leader Heinz-Christian Strachewhich last week slammed Austria's participation in, and the cost of, eurozone bail-outs. "Thank you, [Austrian Chancellor] Werner Faymannm," he said sarcastically.

In Finland, the "True Finns" party, under the leadership of Timo Soini (pictured), has seemingly come from nowhere and transformed itself into a full-scale political force. A recent opinion poll put it second, ahead of this month's national elections. Though not nearly as bad as FPÖ, it does run on a highly populist platform with a strong anti-euro flavour. The party was almost single-handedly responsible for derailing the EU deal on how to increase the size of the eurozone's bailout fund, the EFSF. The decision is now postponed until June, after the Finnish elections. And as Jan Sundberg, Professor at University of Helisnki puts it, "Portugal crashing would be a gift to the True Finns".

In the Netherlands, the government does not have a majority in Parliament, but has to rely on Geert Wilders' Party for Freedom, which is the third largest party in the country. Wilders has also spoken out against the euro-bailouts. So far, the Dutch government has relied on the other Dutch opposition parties to get its EU measures though parliament.

In France, far-right Front National leader Marine Le Pen is gaining popularity, and one poll even showed her ahead of all other candidates ahead of next year's Presidential elections. Le Pen has called for France to leave the eurozone, along with Spain, Greece and Portugal, saying:

"They promised us that this currency would bring growth and welfare, and what happened? People were destroyed, we are talking about a real tragedy. Look at what happened to Greece."

Again, there are numerous factors at work here - and we should be careful to over-simplify or generalise - but it's hard not to detect a worrying trend: four of the eurozone's main creditor countries (and incidentally net contributors to the EU budget), which are underwriting struggling euro governments' debt to the tune of hundreds of billions, are experiencing a dramatic surge in support for populist parties. These parties would not only reject the bail-outs and the Single Currency but also, in all likelihood, the EU itself.

So what about the big kid on the block: Germany?

Germany doesn't really have its own version of the populist parties we see in other parts of Europe - on the left, Die Linke might fit part of the bill, but it's still not quite the same. Therefore, there's no real political platform for the kind of aggressive anti-euro sentiments that we see in Austria for example (which also plays on anti-immigration and anti-incumbency) - and there's unlikely to be one in the immediate future.

It's clear, however, that German public opinion is growing increasingly wary of the direction of the euro. Slowly, these sentiments are beginning to trickle through to party politics. The motion which was passed by a near-unanimous German Parliament asking Merkel to backtrack on an agreement between eurozone leaders, is one example (though it shouldn't be overstated either). But there clearly is a vacuum in EU politics in terms of voicing alternative visions for the direction of the Single Currency and the EU - and a mismatch between public opinion and the political class.

Writing in FTD last week, Wolfgang Münchau - who, until recently, was the arch-optimist amongst eurozone commentators - argued that "a right-wing spot is free" in Germany. He suggested that the liberal FDP will fill the vacuum and turn into a 'eurosceptic' party. Perhaps. If so, the hope is that the FDP could transform itself into a sensible, EU reformist party, pushing for the revolutionary idea (yes, sarcasm) that the single currency and the EU should be based on sound economics and democracy. Such an outcome would benefit both Germany and Europe.

The fear, as ever, is that the vacuum will be filled by other, nastier political forces.

A Europe in which populist, anti-immigrant parties hold strong positions in creditor (or triple A countries), while far-left parties gain prominence in debtor nations such as Greece or Portugal, would really be the worst of all worlds.

But if Europe's mainstream politicians continue to stick their heads in the sand, and refuse to speak about the problems facing the eurozone - they should not be surprised if voters turn to the parties that do engage in some straight talking, however flawed or nasty such talk may be.

Mainstream political parties and their leaders got it spectacularly wrong on the euro in the past. Perhaps it's time to think about some more fundamental solutions to the eurozone's problems?

The EU should impose sanctions on Gaddafi

Over on the Spectator's Coffee House blog, we set out the case for imposing sanctions on Gaddfi's regime (while also looking at the difficulties EU member states are facing in coming up with a common policy on Libya, in what is a painfully familar story).

We argue,

The EU spends €460 million a year in operational costs alone on its new foreign policy department, the External Action Service, headed up by Catherine Ashton. This body - created by the Lisbon Treaty - was Europe’s ‘great white hope’ for the global stage, finally allowing it to speak with one voice and therefore giving it leverage where it previously had none.

It hasn’t quite worked out that way. Caught between Cairo and Tripoli, the EU has received yet another reminder that its bureaucracies and institutions cannot magically replace 27 individual foreign policies, as EU leaders continue their bickering over what to do.

The EU’s response to the turbulence in Libya has been fragmented at best, and contradictory at worst. Italian PM Silvio Berlusconi – one of the few EU leaders with some clout in Libya – initially said that he didn’t wish to “disturb” Colonel Gaddafi since the situation was “evolving”. Czech Foreign Minister Karel Schwarzenberg maintained that the EU should not "get involved too much" because, "If Gaddafi falls, then there will be bigger catastrophes in the world”, though he later said he had meant something else.

In stark contrast, Finland, France – and in more careful language also Germany – have called for sanctions to be imposed on Gaddafi, including a travel ban and a freeze on his and his family’s assets, something categorically rejected by Italy and a few other countries. Still others have spoken in terms of general condemnation but proposed no concrete action, a group including Britain so far. Meanwhile, no one is paying much attention to the EU’s alleged foreign policy chief, Catherine Ashton. It all feels awfully familiar.

Does the absence of a common EU stance matter? I believe it does. While it’s true that the EU’s leverage in Libya and some other parts of Northern Africa and the Middle East is very limited, when Europe does pull together it can actually exert influence in its backyard. Enlargement remains the EU’s greatest foreign policy achievement made possible through a mix of aid and trade incentives.

So what should be done?

The UK should throw its full weight behind German, French and Finnish calls for sanctions, including an EU-wide travel ban on Gaddafi and his family, as well as a freezing of their assets across the bloc. Other possible responses, such as imposing a no-fly zone over Libya, should also be explored. The Colonel’s delirious speech yesterday – and his son’s comments that the family will fight “to the last bullet” – have confirmed that Gaddafi ranks amongst the Mugabes of this world (if anyone for a second thought otherwise).

Finnish Foreign Minister Alexander Stubb put it best when he said that "How can we on one side look at what's going on in Libya, with almost 300 people shot dead, and not talk about sanctions or travel bans, and at the same time put travel bans and sanctions in Belarus?". EU-wide sanctions could hurt Gaddafi – financially and politically – but waiting for too long will lessen their impact.

In terms of responding to the challenges in the wider region, David Cameron is absolutely correct in calling for radical reform of the EU’s neighbourhood policy, which together with other European programmes (such as the European Investment Bank), has dished out billions to the region, with few strings attached. In future, no reform on the human rights front should mean no cash.

At the same time, the EU needs to use other incentives and tools to promote long-term democratic and economic transformation in the region. For example, the EU should consider opening up its markets to more goods from North African countries on the path towards democracy. This should include agricultural products, which at the moment face a patchwork of tariffs in various guises before they can enter Europe. These barriers are contributing to rural poverty in North Africa and therefore instability. The UK is in a strong position to spearhead such trade reforms.

To give with aid on the one hand and take away through trade restrictions with the other makes no sense. Alas, it’s symptomatic of the inconsistency that too often characterises the EU’s relations with the outside world.

The Libyan protesters’ push for change presents an opportunity for Europe to put this right.

Finnish reservations

[Financial] aid isn't sufficient if a country's own correcting measures aren't tough enough. That's why Finland wants to introduce guarantees. This would ensure discipline in the borrowing countries. It would also send a strong signal to the citizens that it's not the EU but the country's own measures that are saving them.

Finnish Finance Minister Jyrki Katainen continues to insist that any eurozone loan to Ireland should come with strong guarantees to ensure that the money is paid back. According to Finnish media it's still possible that Finland will oppose loans to Ireland unless such guarantees are attached.

Flag of Finland: Google Images
Broadband: The Finns Are Putting Us to Shame
THE TELEGRAPH: Is broadband a human right? The Finnish government thinks so. From today, all Finns have the right to at least a one megabit-per-second internet connection. That’s not staggeringly fast. The UK average internet speed, for example, is around 3.6mbps.

However, by 2015, the Finnish government is promising its people blazingly fast 100mbps connections. That leaves our government’s commitment to speeds of 2mbps for all by 2012 looking rather mediocre.

Almost the entire Finnish population is online – 96 per cent of them, in fact. Granted there are only 5.3 million people in Finland – fewer than live in London – but given that their country is one of Europe’s most sparsely-populated, managing to connect such a huge proportion is quite impressive. Continue reading and comment >>> Shane Richmond | Thursday, July 01, 2010

Finland: Internet Access a Legal Right