Europe On The Edge

This weekend's elections in France may portend a serious shakeup in European politics. Nicolas Sarkozy lost the first round of elections to the Socialist candidate, Francois Hollande. There will be a runoff election between these two leading candidates on May 6.

I had previously suggested that the first decade of the Euro could well be the last. For awhile, it appeared that the Greek government might be the most vulnerable in Europe to a repudiation by the electorate of austerity measures. Clearly this past weekend, French voters sent a strong signal. It seems increasingly likely that European voters in other countries will reject the austerity forced on them by the European Central Bank under the strong influence of Germany.

"It [the election] may also represent the first stirrings of a challenge to the German-dominated narrative of the euro crisis, which holds that public debt and runaway spending are the main culprits and that austerity must precede growth." - NY Times.

It has been obvious to what I would call the sensible economists (those of a Keynesian bent) for a long time that austerity in a time of recession will not lead to growth. It should have been equally obvious to political leaders that intentionally causing a depression in one's own country is not a recipe for reelection.

Over the weekend, the Dutch government failed to gain majority support for austerity measures, and more Czechs turned out to protest a tax increase and budget cuts than any protest since 1989.

Other countries whose voters increasingly press for growth instead of austerity include Great Britain, Spain and Italy.

It may be possible to rescue the Euro, but it looks more and more difficult.