Tuesday, June 09, 2009

Europe Swings To The Right - U.S. Fails To Learn Lesson From Europe


The establisment Left had been crushed across most of Europe, just as it was in the early 1930s.

We have seen the ultimate crisis of capitalism -- what Marxist-historian Eric Hobsbawm calls the "dramatic equivalent of the collapse of the Soviet Union" -- yet socialists have completely failed to reap any gain from the seeming vindication of their views.

It is not clear why a chunk of the blue-collar working base has swung almost overnight from Left to Right, but clearly we are seeing the delayed detonation of two political time-bombs: rising unemployment and the growth of immigrant enclaves that resist assimilation. (sounds like the US to me?)

Note that Right-wing incumbents in France (Sarkozy) and Italy (Berlusconi), survived the European elections unscathed.

Left-wing incumbents in Germany, Austria, the Netherlands, Spain, Portugal, Hungary, Poland, Denmark, and of course Britain were either slaughtered, or badly mauled.

The Dutch Labour party that has dominated national politics for the last half century fell behind the anti-immigrant movement of Geert Wilders (banned from entering Britain). It serves them right for the staggeringly stupid decision to force through the European Constitution (renamed Lisbon) after it had already been rejected by their own voters by a fat margin in the 2005 referendum.

The Portuguese Socialists face Siberian exile after seeing a 18pc drop in their vote. The slow drip-drip of debt-deflation for a boom-bust Club Med state, trapped in the eurozone with an overvalued exchange rate (viz core Europe, and the world), has suddenly turned into a torrent. The country is already in deflation (-0.6pc in April). It has been suffering its own version of Japanese perma-slump for half a decade.

Portugal's opposition is calling for an immediate vote of no censure, while the Government clings to constitutional fig-leaves to hide its naked legitimacy. "O Governo está na sua plenitude de funções," said the chief spokesman. You can guess what that means. Not long for this world, surely.

In Germany and Austria, the Social Democrats suffered their worst defeats since World War Two. I don't say that with pleasure. A vibrant labour-SPD movement is vital for German political stability. It was the peeling away of Socialist support during the Bruning deflation of the Depression years -- so like today's Weber-Trichet deflation -- that led to the catastrophic election of July 1932, when the Nazis and Communists took half the Reichstag seats.

This will not happen again, thankfully, because there is no Bolshevik threat luring business into a Faustian pact with Fascists. But the picture is not benign either. Unemployment in Germany may reach 5m by the end of 2010, according to the five 'wise men' , even if recovery comes on schedule.

But as readers know, I still fear that this depression is quietly deepening. The savings rate is rocketing in the deficit states of the US, UK, Spain, et al, as the "sinners" belatedly tighten their belts, but their fall in consumption is not being matched by an offsetting rise among the surplus "saints" states, China, Japan, Germany-Netherlands, which all points to an implosion in world demand. Yes, the West is printing money.

But that is a harder to trick to pull off than Friedman and Bernanke ever realized. And core Europe is not really printing anyway beyond its chump-change dallying in the covered bond market.

In Ireland -- now crucifixion laboratory for the EMU, and downgraded again today to AA by S&P -- the ruling Fianna Fail was reduced to three seats in the European Parliament. It is the party's worst defeat since the creation of the Republic. Premier Brian Cowen cannot be long for this world either.

As for Gordon Brown, I can only say that having derided UKIP as fringe losers, his attempt to cling top office after UKIP trounced him is quite astonishing.

I find it odd that the press continue to talk about a leadership change as if Labour could possible keep going for another year, with yet another unelected prime minister, and with its authority reduced to tatters. This Parliament ought to be dissolved immediately. An election ought to be called this week.

It is shocking that Westminster's inbred family still cannot see the writing on the wall. If this sorry saga goes on much longer, we may have to conjure up some sort of medieval impeachment process. (My colleague Phil Johnston says no such mechanism exists. Pity)

So, we may lose three or four governments in Europe in coming days or weeks -- or even worse, they may survive. The drama is unfolding as I feared. Half way through the depression, we are facing the exactly the sort of political disintegration that occurs in times of profound economic rupture.

Remember, the dangerous phase in the Great Depression was Stage II, after the collapse of Austria's Credit-Anstalt in mid-1931 set off a disastrous chain-reaction that Autumn (until then, most people thought they faced no more than a bad recession, like today).

Don't count on the political fabric of Europe holding together if our green shoots shrivel and die in the credit drought of the long hot rainless summer that lies ahead.

No comments: