The euro has survived a string of disasters, from the banking crisis in Ireland to the real estate collapse in Spain as well as nonstop economic chaos in Greece. But now the common European currency faces an even greater threat, one that it may be unable to overcome: democracy.
Quite simply, in most of the countries that make up the euro zone, there is no longer a substantial majority willing to make the sacrifices needed to keep the euro currency system together. This has always been true to some extent. Commentators have long talked about the euro zone’s “democratic deficit,” meaning Europe’s economic system is largely the creation of powerful political and business interests and lacks transparency, accountability and a broad popular mandate. But up until now, support by the elites has been more than sufficient to keep the system intact.
Over the next few weeks, however, the elites are likely to start losing their grip. A number of key European countries are facing elections, and the political parties that support the euro are expected to fare badly. In the most financially troubled European countries, popular resistance to austerity policies is mounting. At the same time, in those countries that are still financially stable, the electorate is growing increasingly unwilling to keep doling out money to keep the weaker countries from insolvency.
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The first round of the French presidential election, which took place yesterday, was a bellwether of diminishing popular support. President Nicolas Sarkozy has been strongly committed to saving the euro, and is the second most important political leader in the euro zone, after German Chancellor Angela Merkel. He polled just over a quarter of the vote, slightly less than his chief rival, Socialist François Hollande. Moreover, Sarkozy is expected to lose to Hollande by as much as 8 percentage points in the second round of the election on May 6.
Hollande is not opposed to the euro in principle. But he rejects austerity policies and calls for a greater emphasis on growth. Further, to the extent he has to reduce the budget deficit, he favors tax increases over spending cuts. In short, Hollande’s efforts to save the euro will probably be halfhearted. Sarkozy’s replacement by Hollande would therefore likely weaken the German-French axis, undermining confidence in European financial markets and leading to a general loss of direction in the euro zone.
The sentiment of the rest of the French electorate is perhaps even more important. Basically, the extreme parties are unwilling to do anything to save the euro if it hurts French workers. Marine Le Pen of the far-right National Front finished third with 18% of the vote. She has urged her supporters to “shout their rage” at the E.U. and focus totally on France’s national interests. She also wants France to move toward abandoning the euro and ultimately reintroduce a national currency.
At the other extreme, far-left candidate Jean-Luc Mélenchon, who finished fourth with 11% of the vote, has paid lip service to defending the euro but has also called for an end to austerity. In addition, he has stridently attacked the so-called fiscal pact — the March treaty that requires euro-zone countries to keep their national budgets more or less in balance. Together Le Pen and Mélenchon polled more than either of the two main candidates, which means that a victorious Hollande would feel more pressure to back away from the euro than to fight to save it.
Although France is the most important country in the current set of elections, the same trends are evident elsewhere. Elections for the Greek legislature will be held on May 6, the same day as the second round of the French election. Polls project big losses for the coalition of socialists and moderate conservatives that supports the implementation of austerity policies in Greece. In fact, the Washington Post projects that the coalition will lose 46 seats, reducing its huge majority to a margin of just a few seats.
During the same weekend in some parts of Italy, there will be local elections that are expected to show a conspicuous lack of enthusiasm for the current government. And even the Netherlands is at risk of having the current government fall because of resistance to proposed austerity policies. The crisis was triggered when the minority government in that country lost the support of the far-right Freedom Party, whose leader Geert Wilders summed up his party’s stance: “Against Europe, against the euro.”
The threat is not simply that parties may be voted in that would favor withdrawal from the euro and the reintroduction of national currencies. That would be incredibly disruptive financially and could cause huge losses for banks, international financial institutions and national governments — and everyone knows it. As a result, parties that win elections in European countries will most likely support the euro zone in principle.
The real problem is that as popular support for the euro diminishes across the political spectrum, governments will be less willing to take the aggressive and sometimes painful measures needed to keep the euro zone together. When leaders know that the majority — or at least a large minority — of their constituents oppose a policy and are unwilling to accept its costs, they will be tempted to stand aside and let nature take its course. And in this case, the path of least resistance is simply to deplore the failure of the euro while doing little to prevent it.