Eurozone Watch

Regarding the SPE’s performance in the European elections, a recurrent question was why the Socialists/Social Democrats did not reach better scores: Why hasn’t the left been able to capitalise on the shift in public attitudes against conservative economic liberalism and right wing individualism in the current crisis? The SPE’s election manifesto does start with the observation that "this crisis marks the end of a conservative era of badly regulated markets". The voters in last week-end’s European election however do not seem to have noticed.

The manifesto recognises that "the euro has played a very effective role in protecting European economies in the context of the global financial crisis. More must be now done simultaneously to  reform the financial markets, counteract the recession and re-launch the economy to create new growth and jobs.” It hence wants to turn the Lisbon Agenda into a “European strategy for smart green growth and jobs [...]  which will create 10 million new jobs by 2020 – with two million in the renewable energies sector alone – and help make Europe a world leader in innovation, new green technologies and products. and in the implementation of which the social partners should play a dominant role.

The SPE's new strategy is formulated against the background of climate change and seeks to transform "transport in Europe into the most efficient, affordable and ‘clean’ for people and businesses”, expand “energy and broadband infrastructure for the purposes of economic modernisation”, enhance “cooperation between the EU, governments, regional and local authorities to improve energy efficiency and reduce consumption” and to “raise investment in research, development and innovation to levels higher than those in the US”.

Logically, the EU budget needs to play a larger role in this, by serving to “improve living standards and foster social cohesion and growth throughout Europe as well as supporting convergence of the least-developed EU regions, not least in the new Member States. “ The SPE also wants to increase EU public spending on education.

The SPE does not say much on the question how this stronger role of the State both on the national and on the EU level should be financed. The only obejctives regarding the income side of the budgets are to put “an end to tax havens, tax avoidance scams and tax evasion, and step up the fight against money laundering in the European Union and globally so that all market actors pay their fair share of tax to the countries in which they operate.”

This agenda should be supported by a “European Central Bank [that] must encourage growth and employment while maintaining price stability”. Apart from this, the manifesto remains strikingly silent on macro-economic cosiderations.

The SPE has a rather strong agenda on re-regulation of financial markets – very much in contrast to the PPE (see previous post): “regulation should cover all financial players and implement a new standard for transparency and disclosure.” It asks for “rigorous capital requirements for all financial players, and limits on excessive borrowing and bad loans to prevent excessive risk taking and debt.” It wants to improve the European system of supervision and intends to force financial institutions to state all risks on their balance sheets. It also criticises detrimental short-selling which “should be curbed by regulatory authorities.” It wants to monitor and regulate hedge funds and private equity funds more effectively. Many of these points are actually currently under debate in policy makers' circles. There is little controversial to this.

The SPE's program plays on economic populism when it asks for limits on top executive pay and bonuses. It also demands to improve workers’ rights to information and consultation during all takeovers and that employees paying into pension funds know where and how their money is being invested.

Opinion surveys on specific questions of financial market regulation, or the regulation on executive pay suggest that the SPE should have received a larger share of the votes than it actually did. One of the main reasons which this was not so is probably the strategic error of the SPE not to put forward a Socialist candidate for the post of the President of the European Commission.

Another explanation is that at least some of the SPE’s demands are not very credible or do not seem to be overly consistent. In a lot of EU countries, social democrats and socialists actually controlled the finance ministry at least over a significant time period before the crisis, but yet failed to act decisively to regulate financial markets. A good example is Gordon Brown who for a long time was supportive of deregulation for financial markets and financial institutions, but also the German finance ministry which has been controlled by social democrats for more than a decade during most of this time was pushing for deregulation of hedge funds and private equity funds.

Having been in favour of a small state and deregulation consistently might be more attractive to voters than advancing deregulation and a small government in times of a boom and rediscovering big government and regulation in a crisis.