Where is Europe Headed?

Brexit, the results of the elections held in Italy and Austria on December 4, 2016, and certain related recent developments in Europe raise questions about the future of the Union. There is mounting popular discontent against the status quo, the Euro, and, in some cases, against the very idea of the European Union (EU) itself. There is a discernible move towards the far right that needs close watching as elections are due next year in France, the Netherlands, Germany, and, perhaps, in Italy and the UK too. Europe might see growing political instability resulting in the unravelling of the Union.

Elections in Italy

In Italy, Matteo Renzi, who at 39 was the youngest to be Prime Minister when he took office in 2014, has repeated the act of political suicide patented by the UK’s David Cameron. Renzi put to referendum a rather complicated set of constitutional amendments. The 65 per cent of the eligible population that voted rejected Renzi’s proposals by a margin of 60 to 40 per cent, despite his threat to resign in the event of the amendments being rejected. Little did he know that his threat to resign will boomerang.

Essentially, Renzi wanted to reform Italy’s rather brittle constitution by giving more powers to the central government in Rome at the expense of provincial governments, apart from reducing the number of elected Senators from 315 to 95 and taking away the powers of the Senate to stand in the way of legislation approved by the House of Representatives. More than a rejection of the proposals as such, the vote was a rejection of Renzi’s performance as Prime Minister in the face of the worsening economic crisis characterised by unsustainable debt and deficit. Italy’s economy in 2016 is 12 per cent smaller than it was in 2008 when the recession started.

While the Euro has recovered, the referendum result has aggravated the crisis in Italy’s banking system burdened with a debt of USD 385 billion. While the EU was able to find money to prop up the failing Greek banks, it is painfully clear that it is beyond the capacity of the EU to prop up Italy. One of the banks in deep trouble is Banca Monte dei Paschi di Siena, the oldest bank in the world, founded in 1472. Renzi wanted to provide funds to the bank, but Germany opposed the move. The bank urgently needs at least USD 5 billion and it is not certain now that private lenders will lend that amount to the bank post the referendum. If the bank falls, other banks also might follow.

Whether Italy’s President Sergio Mattarella decides to ask the ruling party to form a new cabinet, or appoints a cabinet of technocrats, Italy will enter a period of political instability which even a general election in 2017 might not put an end to. The anti-Establishment Five Star Movement (Movimento 5 Stelle) founded in 2009 succeeded in getting more than 25 per cent of the votes in 2013, making it the second largest party in Parliament. The party is known for its populist, Eurosceptic, anti-globalist and anti-Euro stand, effectively projected by Beppe Grillo, a famous comedian and one of the movement’s co-founders. But there is nothing comic about what is happening to Italy. It is truly tragic.

The Presidential Election in Austria

Norbert Gerwald Hofer of the Freedom Party of Austria, founded by some former Nazis in the 1950s, lost by 6.6 per cent to Alexander Van der Bellan, former head of the Green Party who won 53 per cent of the votes cast. What is significant is that neither of the two established parties, the Austrian People’s Party or the Austrian Socialist Party, who have till now shared power, had a candidate in the final round of voting. Hofer’s party stands a good chance of winning the Parliamentary elections due in October 2018. Opinion surveys show that it might get 35 per cent of the votes if the election were to be held now.

Hofer has asserted that he would ask for a referendum on Austria’s membership of the EU if the European Parliament assumes more powers or if Turkey were to be admitted to the EU. He is against the Transatlantic Trade and Investment Partnership between EU and US, already rejected by President-elect Trump. Hofer maintains that Islam has no place in EU and he wants to take back South Tyrol, now part of Italy. His motto is ‘Austria First’. He gained 35 per cent of votes in the first round held in April 2016, with his nearest rival Alexander Van der Bellen getting only 21 per cent. However, in the second round, Hofer lost narrowly. With the counting contested, the court ordered a new election in December. The final result shows that the foes of Hofer succeeded in uniting against him. While the post of President is largely ceremonial, it remains to be seen what will happen in the general election due in October 2018.

The Far Right trend in Europe

Support for the European Union has been dwindling elsewhere in Europe, not just in Austria and Italy. To understand the Far Right trend in Europe, we only need look at the anti-Establishment parties gaining strength in other countries: Podemos (Spain), Syriza (Greece, ruling), National Front (France), Freedom Party (The Netherlands), Alternative for Germany, and the UK Independence Party which succeeded in the referendum on Brexit. We cannot predict how well these parties will fare when France, Germany, and the Netherlands go to the polls in 2017. In Germany, Angela Merkel has announced that she would contest for a fourth term, but it is difficult to say whether she will win. In France, Marine Le Pen, leader of the National Front, is hopeful of capturing the presidency next year. Whether she gets elected or not, her party should do well in the legislative elections due in June 2017.

Is Capitalism in danger?

A related fall-out of the resurgence of the far-right would be renewed attacks on globalisation. In a recent speech, Mark Carney, Governor of the Bank of England said, “Globalization is associated with low wages, insecure employment, stateless corporations and striking inequalities.”

Carney’s warning is to be taken seriously. As Raghuram Rajan put it, “Democratic capitalism’s greatest problem is not that it will destroy itself economically, as Marx would have it — but that it may lose its political support.” It is obvious that if capitalism fails to deliver the expected benefits to the majority, the political support for it will erode.

In conclusion, Europe is likely to experience serious political turbulence and economic instability in the near future. The dream of ‘an ever closer union among the peoples of Europe’ inserted in the preamble to the 1957 Treaty of Rome and reaffirmed in the 2007 Lisbon Treaty is as dead as a Dodo. The plans for a common defence and foreign policy are in tatters. Europe has entered uncharted seas and there is an impression that its current leaders are not up to the task of navigating through it.

Views expressed are of the author and do not necessarily reflect the views of the IDSA or of the Government of India.