The Euro Cent finally drops

What has been economically obvious for some time even to the most obtuse or ideological observer has now finally had significant political consequences. The strategy of austerity plus market-oriented so-called ‘structural’ reforms pushed through by the centre-right governments and neoliberal-dominated European policymaking institutions has failed. This was a death foretold. Like in the episode of Fawlty Towers where the hotel management tries (and fails) to dispose of the corpse of a guest who has passed on without drawing attention to the fact, the dead body of austerity has increasingly become an embarrassment to its erstwhile champions. An exit strategy was already being sought, a brazen example of which was when ECB President Draghi with considerable chutzpa simply rebranded his wish-list of liberal reforms as a growth strategy.

With the election of Francois Hollande in France and the rejection of both the leading parties by the Greek electorate, that failure has now taken an unmistakable political form. The euro cent has finally dropped. Simple-minded austerity is dead politically as well as economically.

The game now being played by those in politics and the media responsible for the policy mistakes of recent years is now two-fold. On the one hand to tell Hollande that his job is now to manage downwards the expectations of the French electorate and all those elsewhere in Europe who have struggled against the austerity mantra: he should be ‘realistic’, not spook the markets or upturn the European apple-cart with a rejection of the fiscal compact. On the other hand to subtly shift their own position to a limited extent while insisting that they had been in favour of a growth strategy all along.

Hollande and all those who have been campaigning for an alternative to austerity should, as far as is possible within the constraints of EU and national politics, refuse to play this game. A sea-change is under way. And those responsible for the disaster of, among other things, an additional and entirely avoidable rise in European unemployment by more than 2 million since spring 2011, should be allowed to drown in the tide – I speak metaphorically of course – with as little compunction as the odious Marine Le Pen exhibited in refusing to save Sarkozy.

On the contrary, with more elections in the offing likely to generate similar outcomes, progressives should seek to push home their advantage. The case for an investment-led path out of stagnation and a symmetrical approach to resolving the imbalances plaguing the euro area (e.g. here) needs to be made all the more forcefully now that there is a realistic chance of at least some of it being implemented. And crucially the opportunity must be seized to block the fiscal compact or at least decisively weakening it.