Things must get more hellish in Italy and France before they stand any chance of getting better
THEY are two seemingly unconnected events, but they yield a common, depressing conclusion. The events were the decision by France's government to tear up its controversial law creating a more flexible job contract for the young, and the razor-edge outcome of Italy's rancorous election. The conclusion: the core countries of Europe are not ready to make the economic reforms they so desperately need--and that change, alas, will come only after a diabolic economic crisis.
"its controversial law creating a more flexible job contract for the young" or creating yet another flexible job contract for the youth.
"the razor-edge outcome" has produced, as per the electoral law, a real majority in the lower chamber. Why does it need to be called "razor-thin"? The only thing that makes the election "outcome" a topic of debate is Berlusconi's refusal to recognise its results. Why on earth let him frame that debate?
As to "economic reform" - never forget, that means ONLY less regulation of corporations, lower wages, fewer rights for workers, and weaker unions
So, "the economic reform that they so desperately need" begs the question "that WHO needs?" The countries, or the business world alone?
If you accept, of course, that the health of a country is measured by that of its corporations, then the question is made irrelevant, of course.
Italy's dramatic election has grabbed the headlines, after the centre-left opposition under Romano Prodi was deemed the winner by the narrowest conceivable margin (see article). Mr Prodi has declared bravely that he will form a government, but it seems sure to be a hobbled creature dependent on the support of a rabble of far-left parties. His discomfort owes much to a final poisoned gift from the outgoing centre-right government under Silvio Berlusconi: an electoral system that restored proportional representation, imposed with the aim of recreating Italy's unstable politics of the past. But it must also be conceded that Mr Berlusconi did better than expected. For all his faults, he remains popular with many voters.
"Romano Prodi was deemed the winner"?? Why "deemed"? He IS the winner. Is the Economist trying to not-so-subtly undermine its legitimacy? Strange how they only do that with guys from the left...
"a rabble of far-left parties" - that's the real issue, right? Parties of the left are rabble rousers, communists, rioters, conservative, reactionary enemies of "reform" and must thus be demonised at every opportunity. Again, funny how a coalition of the left includes centrists and harder elements, just like the coalition of the right included extreme right elements (and borderline fascist ones, too). I don't remember Mr Berlusconi's coalition in government being called a "hobbled creature dependent on the support of a rabble of far-right parties" - and yet it clearly was. Do you?
Prodi was in an electoral coalition with the various leftist groups, so it's not like it's a surprise to see them as part of the coalition, is it?
Of course, what the Economist fears is that a narrow majority might allow every pressure group of the left to hold the government hostage. But that dynamic is never so simplistic. Oddly enough, narrow majorities are often more disciplined than wide ones, because they have to be - if they aren't, they fail, and the left knows all too well, from recent experience (in 1998, the communists brought down the first Prodi government - after 3 successful years), what failure can bring. So again, it is simplistic to assume, like the Economist does immediately, that the narrow majority in the Senate will cause Prodi's government to be led by the eee-vil communists.
As to the reformed electoral system, I am not a specialist, but from what I understand, it worked as hoped for by Berlusconi, by providing a governing majority to a coalition getting only a realtive majority of the votes - except that it wasn't his coalition!
That he lost, just, to the uncharismatic Mr Prodi must largely reflect growing dissatisfaction with the sluggish Italian economy. Many voters backed Mr Berlusconi in 2001 because they believed his promises to reform Italy and get its economy moving again. They deserted him this time because he so abjectly failed to deliver on those promises. Yet enthusiasm for the alternative was deafening by its absence. Mr Prodi understands the need for change in Italy. But he is no free-market liberal, and his 13-strong coalition includes two unreformed Communist parties that are viscerally opposed to economic reforms. Under their influence, an early pledge by the centre-left is to overturn parts of the centre-right's "Biagi" law, which has permitted a boom in temporary and part-time jobs.
According to the Economist, it's ONLY about the economy. Nothing about morality in politics, Berlusconi's focus on his private interests while governing, his populist and attention grabbing ways - which the Economist has extensively chronicled and violently (and rightly) criticised. No, the election was about the lack of reforms (less regulation of corporations, lower wages, fewer rights for workers, and weaker unions). Riiight...
It was an attempt to create a similarly flexible contract for the young that has just failed in France (see article). Dominique de Villepin, the prime minister, had come to accept that a main cause of France's high unemployment, especially among the young, is an overly regulated labour market, with a high minimum wage and fierce restrictions on firing people. But he also knew that a vocal opposition would hold up his attempts to change any of these rules. Hence his decision to push through the new contract not after full consultation but by decree, in the hope of facing down subsequent resistance.
Note this sentence: Villepin "had come to accept" - meaning: of course it's "rigid labor markets" that cause unemployment, but the French politicians took their time, stupid as they are, to acknowledge this simple truth - and subtly presenting what is only an ideological belief as established fact. Note also the use of adjectives: a "high" minimum wage (strangely enough the same as in the UK, and burdened in France with almost no social contributions after too many "reforms" to cut these); and "fierce" restrictions on firing - and yet they are about the same as in Ireland, the supposed economic model of the Economist.
In hindsight, Mr de Villepin made two big mistakes. The first was to reckon without the power of the street. Recent history is littered with examples of French governments that have backed off reforms in the face of large-scale protests. Mr de Villepin's surrender can now be added to the list. His second mistake was to count on the full support of his president, Jacques Chirac. Yet after 11 years in office Mr Chirac has shown beyond a doubt that he is a weak president who has no grasp of the urgency of reform. There is now no chance of change in France before next spring's presidential election.
That paragraph is totally wrong. The "power of the street" is usually triggered by unwanted reforms forced upon the populace with no explanation and no justification, when there is no other way to get heard. Villepin ignored both unions and the parliament, thus avoiding the expression of any opposition - but also preventing any early compromise that could have allowed the (slightly amended) law to sail through. Both institutions (unions and parliament) are actually quite weak in France, but when they are ignored, indeed the street may take over.
As to Chirac's lack of support, this is so silly that it's laughable. Chirac supported Villepin beyond all reasonable limits - and well after it was clear that the law was dead as most of the other politicians of the right - and the representatives of the business world - wanted it dead. Chirac's weakness is that he followed Villepin too long, our of fear of losing him to a resignation, not that he did not support him enough...
He is indeed a weak president, but not because he "has no grasp of the urgency or reform" (they really sound like a broken record, don't they. A one-track mind is a kind way to describe them, or a relentless one). He is weak because he has done nothing in 11 years, he had little legitimacy after being chosen by less than 20% of the French in 2002, he is utterly corrupt, and he has failed in everything while president, while playing the dirtiest kind of politics.
But no, this is only about "reform" (remember: less regulation of corporations, lower wages, fewer rights for workers, and weaker unions)
At first glance, the prospects for reform seem brighter in the third big member of the euro zone, Germany. Growth has resumed, business has recovered its zip, unemployment is falling and Angela Merkel has made a good start as the Christian Democratic chancellor of a "grand coalition" with the Social Democrats. Yet, as in Italy and France, the split result of Germany's election last September revealed that there was only a limited constituency for reform. Ms Merkel's government may be able to put right the public finances--but it shows little sign of readiness to embark on deeper liberalising measures.
Simple really: lower unemployment, growth, and even business "zip" are not enough. The only thing that matters is "reform", which they kindly translate as "deeper liberalisation", and which means less regulation of corporations, lower wages, fewer rights for workers, and weaker unions
In search of a crisis
The sad truth in all three countries is that their voters are not yet ready to swallow the nasty medicine of change. Reform is always painful. And all three have too many cosseted insiders--those with secure jobs, those in the public sector--who see little to gain and much to lose. They are ready to fight against change even though it would help outsiders--the young, the unemployed--and, ultimately, their economies.
Okay, that's the most honest paragraph of the article (talking about reforms as a nasty medicine bringing pain), and one with a reasonable argument: that there is too much difference between insiders and outsiders. But it of course includes the perspective of a bright future, after the pain.
Does that mean that Europe, especially the euro area, is unreformable? It is fashionable to answer yes, and to conclude that the continent's destiny is one of gradual decline into a genteel poverty, as populations age and economies lose their last remaining vestiges of dynamism. Yet that is surely too gloomy. In the right circumstances, and with a braver political leadership, even the three core members of the euro should be able to change their ways.
How condenscending is this? Seriously... Unreformable. Gradual decline. Genteel poverty. Last remaining vestiges of dynamism. But let us show you the way...(less regulation of corporations, lower wages, fewer rights for workers, and weaker unions)
One reason for believing that reform can happen, even in Italy and France, is that so many other European countries have shown the way. Britain faced economic and social meltdown in 1979; there followed a decade of Thatcherite reform. Admittedly, Britain is not in the euro, but the Netherlands is. That country had an acute case of what became known as the "Dutch disease" in 1982; a string of reforms were then made that led, a decade later, to talk of a Dutch miracle. Another small country now in the euro, Ireland, almost fell off the cliff into poverty and bankruptcy in 1987; yet, after some years of painful change, it had transformed itself into the "Celtic Tiger". Similarly, Finland became an economic basket-case in 1990; it then implemented reforms that have today helped to make it on some assessments the world's most competitive economy, ahead even of the (far bigger) United States.
Two things came together to make radical reform possible in these countries. The first was wide agreement, among voters, businessmen, trade unions and others that there was a grave economic crisis. The second were determined political leaders prepared to risk unpopularity.
I don't have anything smart to say here on the specifics of each country. But is the claim that their succes is linked to "reform" demonstrated in any way, or is it more of the "repeat it enough and everybody will believe it"?
The real problem, not just for Italy and France but also for Germany, is that, so far, life has continued to be too good for too many people: there is not yet a general consensus that their economies are in serious trouble. All three have also lacked brave political leaders ready to leap in and explain the case for reform. There is one depressingly certain way to remedy the failings in the core European countries: to bring on a more serious economic crisis. This week will surely have brought that a lot closer.
So, Mr Economist, are you actually wishing a crisis on us? Life is good, so we need a crisis to convince us to "reform"? (to have less regulation of corporations, lower wages, fewer rights for workers, and weaker unions)
Basically, the Economist is admitting that "reform" (less regulation of corporations, lower wages, fewer rights for workers, and weaker unions) does not bring an outcome better than what we have now, only better than chaos and crisis. Well, don't worry, if there's a crisis in continental Europe, it will be the one brought about by the binge economies you love so much, those that have "reformed" most, according to you, when they drown in their ocean of debt.
Here's your dirty little secret: "reform" (less regulation of corporations, lower wages, fewer rights for workers, and weaker unions) works only on desperate people. And your only goal is thus to make us desperate. That's your ideology: make the other desperate so that s/he will be "free" to deal with you on your terms - choosing that over death, hunger or misery.