Politics in hard times

The FT is full of depressing news stories this morning, none of which are surprising.

In the US, a Tea Party candidate won the Republican nomination for the Senate elections in Delaware.

In France, Sarkozy suggested that Luxembourg (home of the Commissioner who sharply criticized him for the Roma expulsions) would do well to welcome a few Roma itself.

In Sweden, the Sweden Democrats, a party with roots in the neo-Nazi movement, may be on the brink of an electoral breakthrough that might see it hold the balance of power after the elections there.

And the Japanese decision to weaken the yen is provoking tension with Europeans and Americans.

Lots of zero sum thinking out there this morning: history rhyming.

The political impact of the Great Recession

Dan O’Brien has an optimistic piece in today’s IT on why the political effects of the crisis have not been as noxious as the impact of the Great Depression. He lists three reasons: incomes have declined, but from a much higher base; there are no credible political alternatives, such as were offered by communism and fascism in the 1930s; and we are more tolerant and less nationalistic today.

I am surprised that he doesn’t mention a rather obvious fourth candidate: the size of the economic collapse has been much less this time around (except in a few unimportant countries such as our own). The duration has been shorter, also, and I think that is very important: after 1929 some economies continued to contract until 1932 or 1933. And this crucial difference is due to different policy responses:  much more aggressive monetary policies, fiscal stimuli, and much more important automatic stabilisers.

The extent to which Europeans have become more tolerant can be exaggerated. In 1928, the Nazis only got 2.6% of the German vote. Contrast this to the 13.9% received by the anti-immigration Dansk Folkeparti in 2007, before our crisis started, or the 5.9% achieved by Geert Wilders’ revolting party in 2006. Since 2008, the political extremes have benefitted, just as Hitler did (the Nazis’ share of the vote jumped to 18.3% in 1930).  Wilders’ party received 15.5% of the vote in 2010, while the terrifying Jobbik got 16.7% of the vote in the first round in Hungary. Sarkozy has been actively courting the xenophobic vote in France this summer. There are probably a few other examples around which people could point to.

Severe recessions can still bring out the worst in people, it seeems.

RTE and the new Dutch cabinet

Yesterday morning and again this morning, there was an item on RTE Radio 1 claiming that Geert Wilders’ Freedom Party (PVV) is about to join the Government of the Netherlands. This is not true. As the negotations stand, the new cabinet will be formed by VVD (right or centre), PvdA (left of centre), D66 (left of centre) and Greens. The PVV would be the largest opposition party.

‘Regulation in the Age of Crisis’

An international and interdisciplinary conference on regulatory governance is being held at UCD next week, 17-19 June, under the auspices of the European Consortium of Political Research Standing Group on Regulatory Governance. There will be more than 200 papers presented. Streams include 8 panels on regulation and the financial crisis, and also streams on regulating for sustainability, the politics of regulation, the governance of risk and technology regulation, non-state regulation and regulating network industries. A variety of disciplines are represented, including political science, socio-legal studies, business and economics. The programme, including details of registration, is available on the conference website. The conference papers are being uploaded to this site also and are freely available.

The Lisbon Agenda: An Assessment

The CPB has come a long way since it was founded, as the Central Planning Bureau, by Jan Tinbergen shortly after WW2. Besides giving solicited and unsolicited advice to the Netherlands Government — polite but frank — it is acquiring a similar role in Europe. Their latest publication is bafflingly in Dutch, but relevant to anyone in Europe. It is an assessment of the Lisbon Agenda.

At the beginning of the decade, European politicians promised all sorts of wonderful stuff for 2010. The CPB report wonders what came of that, comparing progress in the period 1990-2000 to the period 2000-2010.

Here’s a summary:

-Income per capita (Geary-Khamis): Economic growth in EU15 was slower after 2000 than before; ditto for Ireland; US and Australia show same pattern, but economic growth accelerated after 2000 in China, South Korea, Japan and New Zealand

-Labour participation (share population 15-65): Increase in EU15 was slower post 2000; ditto for Ireland

-R&D expenditures (share GDP): Increase in EU15 was slower post 2000; ditto for Ireland; US increase before 2000 but decline after 2000; China decline before 2000 but sharp increase after 2000; Japan and South Korea small increase before 2000 and sharp increase after 2000

+Education expenditure (share GDP): Fell in EU15 before 2000, rose after 2000; ditto for Ireland; US and China increase before and after 2000; Japan increase before 2000 but decrease after 2000

+Domestic waste (kg/cap): Rose in EU15 before 2000, fell after 2000; rose in Ireland before 2000, rose very rapidly after 2000

+Particulate matter (load): Rose in EU15 before 2000, fell after 2000; fell in Ireland before and after 2000

-Carbon dioxide (kg/cap): Fell in EU15 before 2000, stationary after 2000; rose in Ireland before 2000, fell after 2000; US, Canada, New Zealand increase before 2000 and decrease after 2000; China decrease before 2000, virtually no change since 2000; Japan increase before and after 2000

-Trust in peope: Fell in EU15 before 2000, stationary after 2000; ditto for Ireland; US, Canada, South Korea fell before 2000, rose afterwards; Japan rose before 2000, fell after 2000

+Corruption: Increased in EU15 before 2000, stationary after 2000; increased in Ireland before and after 2000; increased in US before and after 2000; increased in China before 2000 but fell after 2000; decreased in Japan before 2000 but rose after 2000

-Poverty (share of population under poverty line, before transfers): Fell in EU15 before 2000, rose after 2000; ditto for Ireland

-Poverty (share of population under poverty line, after transfers): Fell in EU15 before 2000, rose after 2000; rose in Ireland before 2000, fell after 2000

-Children in jobless families (share of population 0-17): Fell in EU15 before 2000, fell slightly after 2000; fell in Ireland before 2000, rose after 2000

That’s 8 negatives and 4 positives for EU15, and 8 negatives and 4 positives for Ireland (albeit different positives and negatives).

The debate on the EU budget after 2013 gets underway

A draft Commission communication on reform of the EU budget has been widely leaked yesterday. The full communication is expected to be published next month in response to the consultation exercise on the EU budget which was mandated as part of the Inter-Institutional Agreement in May 2006 on the EU medium-term financial framework (MFF) for the 2007-2013 period. It is not, in itself, a proposal for the next MFF to start in 2014 which will be the prerogative of the new Commission when it takes up office at the start of next year, and which will not be presented until the first half of 2011. Nonetheless, the forthcoming communication sets out the choices facing Member States as they prepare for these negotiations in a clear fashion.

I discussed some of these choices in my paper to the recent ESRI/FFS Annual Budget Perspectives conference. On the expenditure side, the make-up of EU budget expenditure in 2013 will be roughly one-third for CAP income and market support measures, one third for cohesion policy, and one-third for everything else – rural development, research and external actions being the most important.

There is broad support for shifting the composition of budget expenditure towards meeting some of the global challenges facing the EU, including addressing issues of energy security, climate change, competitiveness, migration and projecting a more ambitious global European presence. The key principle is that budget spending should only be undertaken where it can be shown that there is a clear European value added over national spending. Continue reading “The debate on the EU budget after 2013 gets underway”

ESRI Budget Perspectives 2010 conference

This ESRI conference is taking place this morning.

The new Governor Patrick Honohan delivered an opening address which provides an interesting analysis of the Irish economic and fiscal situation: his speech is here.

The ESRI has also released its new quarterly forecast: here.

The conference also features a number of research papers, which can be found here.

In addition,  there was a roundtable on the Commission on Taxation Report: my contribution to that roundtable is available here.

Forecasting the European Parliament Elections

2009 is an important year for the European political process. In addition to the Lisbon II referendum, we also have European Parliament elections.  Michael Marsh of TCD and Simon Hix of LSE will be providing regular forecasts of the likely electoral outcome, with the first set of predictions released today.

The Irish forecast is here.

The full forecast is here.

It gets worse

It was always obvious that the crisis would put global economic multilateralism under pressure. But today’s roundup from Eurointelligence makes grim reading. Incredibly, the crisis seems to be threatening economic openness within the European Union itself, as a result of President Sarkozy’s comments on French car companies operating in eastern Europe.

I don’t believe that the future of the European project will depend on what happens in a couple of peripheral economies of marginal significance. Rather, it will depend on the answer to two fundamental questions. How much do the Germans really want the Single Currency? And how much do the French really want the Single Market?

While I remain optimistic, we are only a year into this crisis. By the time we are through with it, the answer could yet turn out to be: ‘not enough’.