Italy - Europe's lost model identity

The anti-austerity wave that has crashed onto Europe after the last round of national and local elections has brought back to the fore the age-old face-off between the Keynesian socio-economic engineering and its Hayekian nemesis.

However, while the two opposing camps are bickering over the best recipe to save the Old Continent from the crisis, the European Union is progressively giving up geopolitical qualities that were worth emulating.

While the ghosts of new, dramatic elections are haunting Greece, European electors keep on slapping incumbent governments and traditional political forces backing the austerity policies conceived by the European Union (EU) and the International Monetary Fund (IMF) to tackle the sovereign debt crisis.

Yet, the winning front in this electoral spring across Europe appears to be extremely incoherent, since it is made up of both pro-EU and Euro-skeptic political forces which have in common only the aversion to the line of financial rigor embodied by the German Chancellor Angela Merkel and the former French President Nicholas Sarkozy. In France, the country's new president Francois Hollande (Socialist Party), will have to take into account the strong showing of Marine Le Pen (leader of the far-right National Front) in the first round of the presidential vote. Greek parliamentary elections saw the surge of parties rejecting the conditions of the second international bailout - devised to ward off the threat of a country's default - and the success of the neo-Nazi Golden Dawn (which asks for the border with Turkey to be mined against the flow of illegal immigrants into the country, just to make things clear).

Then, there have been the exploits of the anti-establishment forces: the Pirates Party in Germany's state ballots and the Five Stars Movement in Italy's local voting. Let alone the Conservative Party's debacle in the British local elections in favor of the Labour Party.

The strong point of both Hollande and Hannelore Kraft - the SPD leader in North Rhine-Westphalia - is the emphasis on the economic growth and the public spending. Hollande aims at renegotiating some terms of the EU's Fiscal Compact, the pact imposing stricter controls on the budget of 25 European countries (United Kingdom and the Czech Republic refused to sign it) . However, the rise of a new paradigm that overcomes the policy of budget austerity is hampered by the shortage of adequate resources.

Implementing expansionary actions in Europe is a hard task, since most of EU countries already find themselves in an uncomfortable position, faced with mammoth and expensive administrative bodies - both at national and local level - which account for a huge share of their public spending. And even "rigorous" Germany is not exempt from these troubles, as it faces a domestic dilemma: whether or not to bailout its debt-ridden local communities.

In this regard, disciples of John Maynard Keynes and Friedrich von Hayek are lining up again on the European field, with pro-growth Keynesians advocating more public intervention into economy and Hayekian supporter of rigor calling for much slimmer governments.

In the aftermath of the presidential election in France, the European Commission President Jose Manuel Durao Barroso declared that the logic of stimulating growth through deficit-spending was completely irresponsible.

In the opinion of Barroso, the way forward for the EU was to launch "projects bonds" (eurobonds), by seeking long-term private investments to fund the European infrastructural programs, and increase the lending capacity of the European Investment Bank.

Such a position is backed by Hollande but is dismissed by Merkel, who see as unsustainable plans to boost economy by the emission of eurobonds and the like. The simmering French-German rift on this issue is going to be at the center of an informal European Council on May 23.

In the meantime, in the desperate search for matching rigor and growth, von Hayek and Keynes, pundits continue to elaborate new solutions without realizing that their financial alchemy is often overtaken by events. For instance, talking to Reuters on May 8, Liaquat Ahamed stated that "the only way to make Europe competitive again is to let prices rise in the north and wages fall in the south".

The perspective of a two-speed Europe as envisaged by the Pulitzer Prize-winner is indeed out-of-date. The EU's Mediterranean countries are already grappling with plummeting wages. In Italy, where the crisis has provoked a spate of suicides among unemployed workers as much as indebted small entrepreneurs, the gap between salaries and prices is widening to levels last experienced back in 1995 (well before the euro's introduction). And in Spain the situation is quite the same, if not worse than in Italy.

The middle-classes of southern Europe are dramatically impoverishing. This dynamic is poised to tear down the social cohesion within the affected countries as well as within the EU as a whole. Paradoxically, in some respects the EU of today is looking ever more like the emerging countries towards which it should appear as a model of political and economic integration.

Under the terms of the Plan of Action to strengthen from 2013 to 2017 the enhanced partnership between the EU and the Association of Southeast Asian Nations (ASEAN), Brussels will support the ASEAN's economic integration and assist its efforts to achieve the free flow of goods among the 10 state members.

However, it is difficult to think of a European Union that continues to be a model for ASEAN countries while it is itself intent on replicating the labor structure of these nations, characterized by low wages, tough conditions of work and the lack of social security's systems (since the end of World War II, social security has traditionally featured Europe's market economy).

United States relies on the military power to build credible diplomatic and trade policies, and that is in Asia as in the rest of the world. On the other hand, there has been just one geopolitical "weapon" that Europe could have wielded since the end of the Cold War: its ability to induce a spirit of emulation among those developing countries sensitive to supranational integration's prospects. A popgun according to many. In reality the quality that has defined the Old Europe's strategic identity until now.

Emanuele Scimia

Asia Times

Emanuele Scimia is a journalist and geopolitical analyst based in Rome.

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