Nationalism, like any political
idea, is a spectrum of views not an absolute. As UBS notes in an interesting
article today, the policies of Golden Dawn are not the policies of the True
Finns of Finland, or the Freedom Party of Austria. However, there is undoubtedly
a trend within the Euro area in favour of those parties that promote
nationalistic policies (perhaps defined as the aggressive pursuit of
domestic or indigenous interests over regional interests) and this trend raises
considerable questions over the future of the Euro. The first and most obvious
consequence of a rise of nationalism within the Euro area is that it will
make managing the Euro crisis ever more complex to resolve. The other issue
that arises from the rise of nationalist parties in the Euro area takes us away
from the specifics of the Euro integration. Nationalism very readily turns into
prejudice against others. UBS' Paul Donovan adds that the Euro area will
work best when it recognises and uses its economic resources (people in this
instance) to the best advantage. Festering resentment and nationalism is unlikely
to produce that sort of a climate. Given how important it is to restore
competitiveness to the Euro area economy, this is not a negligible economic
cost.
UBS
- Paul Donovan: My country, right or wrong
The noise
around Greek politics and indeed European politics in general is not likely to
dissipate any time soon.
Indeed, the cacophony seems only likely to increase. Investors who expected to
spring from their beds on Monday morning to find a Greek government in place,
stable, and willing to carry on with the Troika’s memorandum of understanding
are sadly (if predictably) disappointed. Ahead lies a lot more politics, which
financial markets are singularly ill equipped to factor in to asset prices, and
which media and markets alike are more likely to be misled or misinformed
about. Beneath the political noise about negotiating coalitions and
renegotiating bail outs, there is a sub-current in Euro politics that markets
might wish to examine.
Recent
elections have brought with them an undercurrent of political nationalism.
Golden Dawn in Greece captured almost 7% of the vote in the 17th June
elections, having held onto their popular support levels from the earlier poll
this year. One can readily argue that, from the other end of the spectrum,
Syriza has also campaigned on a nationalist platform. In France, the Front
Nationale has achieved national assembly representation for the first time in
decades, and established itself as the third party of France with 14% of the
popular vote in the assembly first round. The True Finns are already the third
party of Finland, with over 19% of the vote in the last parliamentary election.
Ireland’s Sinn Fein lies in second place in recent opinion polls. Nationalist
or nationalist inclined parties have gained and retained support in the Euro
area as the Euro crisis has developed.
Nationalism,
like any political idea, is a spectrum of views not an absolute. The policies of Golden Dawn are not
the policies of the True Finns of Finland, or the Freedom Party of Austria. However,
there is undoubtedly a trend within the Euro area in favour of those parties
that promote nationalistic policies (perhaps defined as the aggressive
pursuit of domestic or indigenous interests over regional interests).
Why
nationalism now?
The
question of why nationalist parties are gaining electoral support is important,
as it may help to understand the potential impact on more mainstream political
thinking. It may also give some guidance as to the longevity of any nationalist
movement. While nationalist parties have often had high profile, charismatic
leaders it is clear that leadership alone is not the deciding factors. Many
Euro area nationalist parties have maintained electoral support after the loss
of their leaders.
There
appear to be two common factors that characterise the supporters of Euro area
nationalist parties.
The first, and perhaps the least surprising, is that they tend to come from
the economically insecure. This is not (necessarily) the same as the lowest
income groups in society – though that is the case in some instances. Rather,
it is more likely to be those in society who feel themselves as being most at
risk in economic terms. That implies that they have something to lose (thus are
not the lowest income groups) and that they feel threatened The global
financial crisis, and the particularly protracted nature of the Euro financial
crisis, has facilitated the growth of the economically insecure as a political
class. It also helps to explain why nationalism is as prevalent (if not more
prevalent) amongst the non-peripheral economies than it is amongst the
periphery. The better off economies contain voters who fear for their existing
prosperity, and who turn to nationalism as a defender of that prosperity.
The second
common characteristic of the supporters of nationalist parties in the Euro
area would appear to be hostility to immigration. This is often
characterised as economic hostility, and very often the sentiment is expressed
in terms of a country being “full” – which has economic overtones and feeds
into the economic insecurity. However, cultural concerns also appear to have
played a role in fostering Euro area nationalism, at least in the run up to the
global financial crisis. Supporters of nationalist parties are fearful that
their own culture is being “overrun” by immigrants, and unique national
characteristics are being homogenised, or even replaced by alien cultures.
This
cultural concern of course resonates particularly strongly in some parts of the
Euro area where the national interests are viewed as being subordinated to Euro
policy prescriptions. As the Euro crisis encourages further common policy
approaches with occasionally painful economic side effects, this trend could
very well continue.
Consequence
1: The Euro
The first
and most obvious consequence of a rise of nationalism within the Euro area is
that it will make managing the Euro crisis ever more complex to resolve. Weaker countries that need to
receive assistance will resent the conditions imposed upon them from outside
(and may seek to cast the domestic problems as being caused by foreign forces).
This very much characterises the Greek attitude at the moment, but arguably is
evident in some of the political comment in economies like Ireland.
At the
same time, stronger economies that are called upon to provide economic aid for
the common good are likely to resent the fact that their relative prosperity is
being diverted from national uses – and that their economic outlook could
potentially be made more insecure by association with the weaker
economies.
This
unhappy combination then leads to resentment against the Euro or European
institutions –
despite the fact that the Euro’s crisis can ultimately only be resolved by
choosing to “integrate, or die” (with the fragmentation of the latter option
generating economic consequences that are likely to be very severe indeed). The
resentment seems to be stronger amongst the weaker economies – the latest Pew
Research Center survey on European attitudes reported that 83% of Greek’s
believe that the power of European nations is a major threat to their economic
welfare, and 70% that European integration has weakened their economy. This
sentiment is seen elsewhere – 63% of the French thought integration had
weakened their economy in the same poll.
The
challenge is that if the Euro is to hold together (and we believe it will)
these nationalist sentiments must be subsumed into a regional sentiment. Fiscal confederation should not be
about “German money” going to “Greece”, or whatever combination1. Instead
fiscal confederation should be about wealthier Euro citizens funding assistance
to less wealthy Euro citizens. To get beyond the national boundaries implicit
in the current national sentiment is essential to the eventual and necessary
integration of the Euro area.
For the
time being the presence of nationalism in the Euro area, and the impact it has
on mainstream politics, is likely to lead to “red lines” in Euro area
negotiations. There
are some issues that negotiating governments will not be able to compromise
over, in the current more nationally inclined environment. This applies to all
sides of the negotiating table, stronger as well as weaker. Distinguishing
between those points that are genuinely “red line” issues, and those that are
simply bargaining positions to be surrendered for other concessions will be
important to investors.
Consequence
2: Competitiveness
The other
issue that arises from the rise of nationalist parties in the Euro area takes
us away from the specifics of the Euro integration. Nationalism very readily turns into
prejudice against others. Indeed the hostility to immigration that is a common
characteristic of Euro area nationalism is something that arouses considerable
concern amongst economists. Prejudice is something that is economically
undermines competitiveness.
The issue
here is that prejudice is irrational discrimination against a group in society
(for whatever reason – but hostility on the grounds of nationality is one of
the commoner forms). As such, it is economically inefficient. Economic
efficiency is meritocratic, and has no room for irrational discrimination – effectively
prejudice is a manifestation of Luddite behaviour in the twenty first century
– rather than destroying physical capital, prejudicial behaviour wastes human
(intellectual) capital.
There is a
real risk that by fostering an environment where political nationalism
develops, the ensuing prejudice will undermine competitiveness and productivity
in the Euro economy. The
Euro area will work best when it recognises and uses its economic resources
(people in this instance) to the best advantage. Festering resentment and
nationalism is unlikely to produce that sort of a climate. Given how
important it is to restore competitiveness to the Euro area economy, this is
not a negligible economic cost.
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