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A. Draft resolution
(open)
6. European public opinion
Report | Doc. 12282 | 07 June 2010
The political consequences of the economic crisis
Committee on Political Affairs and Democracy
Summary
The present global financial and economic crisis is the worst since the great depression in the 1930s. The Parliamentary Assembly is worried by the political consequences of the European sovereign debt, its impact on society and on the functioning of democracy.
It recommends an active involvement of national parliaments in European affairs and in the process of economic and financial governance and calls on governments to adopt a more European co-ordinated and unified approach to face the crisis.
A. Draft resolution 
(open)1. The history of Europe and the world has shown that
economic crisis may have extremely nasty consequences at many different
levels. The Parliamentary Assembly discussed the consequences of
the global financial crisis in January 2009 and the social impact
of the economic crisis, the impact of the global economic crisis
on migration in Europe, women and the economic and financial crisis
and investing in family cohesion as a development factor in times
of crisis in April 2010.
2. Already in January 2009 Resolution
1651 (2009) hinted that the present crisis “could possibly threaten to
undermine the very foundations of democracy” and proposed to remind
governments “that despite financial difficulties, citizen’s social,
economic and human rights must be safeguarded”. Unfortunately, one
and a half years later, many Council of Europe member states are
no longer in a position to “stimulate the economy, notably by increasing
aggregate demand in order to boost consumer spending, through greater
public authority investment in infrastructure and housing”.
3. On the contrary, some governments are bound to reduce spending
and therefore they will need one or more of the following measures:
reduction of public investment, freezing or reduction of public
service labour force, increase of taxes, increase of retirement
age and freezing or reduction of salaries and pensions. Several governments
have already announced cuts in public sector salaries. The social
consequences will certainly be much more severe than those foreseen
in previous Assembly debates. We already deplore the loss of three lives
in Athens in the beginning of May.
4. The global economic crisis which confronts Europe today is
extremely serious and challenges us all at not only national but
also at European and international levels. It is therefore very
important that European politicians work together to solve it on
the basis of an equitable burden sharing for their population.
5. This crisis provides parties and movements of the extreme
left and right with the opportunity to blame failures on mainstream
parties in order to gain more popularity for themselves. It is to
be regretted that in some countries mainstream parties adopted extremist
language.
6. Recent national and European elections do not seem to confirm
the fear that dissatisfaction with mainstream parties would lead
to massive votes for extremist parties and movements. Extremist
parties remain however a concern, in particular in the circumstances
where populations refuse to accept the austerity packages imposed
upon them.
7. The Assembly recalls that a common currency (a monetary union)
implies a common monetary policy and notes that such policy does
not work in the long term when there are wide differences on economic, budgetary
and fiscal policies among their members. It regrets that the stability
and growth pact which accompanied the introduction of the euro was
not rigorously observed by many of the member states to which it
applied.
8. The Assembly welcomes the announcement on 10 May 2010 of a
package of emergency measures amounting to 750 billion euros – of
which 250 billion from the International Monetary Fund – “to defend
the euro and euro-zone economies”.
9. The on-going crisis has shown that we are still very far from
a Europe without dividing lines: among the member states of the
Council of Europe, there are members and non member states of the
European Union. And among the European Union member states, there
are those in the eurozone and those outside of it. It is worrying
to see the difference in treatment of each category.
10. The Assembly therefore recommends that member states:
10.1. adopt a less national policy
and a more European coordinated, unified and coherent reaction to
face the global economic crisis;
10.2. pay more attention to the fight against corruption inside
state institutions;
10.3. reinforce the democratic process within the European Union
through the active involvement of national parliaments.
11. The Assembly recommends that national parliaments:
11.1. assess much more effectively
the short, medium and long term economic consequences of legislation,
with a particular emphasis on national budgets;
11.2. monitor closely the reform process of economic and financial
governance.
12. Finally, the Assembly welcomes the initiative of the Political
Affairs Committee to organise, together with the Committee on Economic
Affairs and Development, a hearing on the political impact of the
economic crisis on society, with the participation of the Human
Rights Commissioner.
B. Explanatory memorandum by Mr Zingeris, rapporteur
(open)1. Introduction
1. The report has its origin in the motion for a recommendation
on “The economic crisis and
the legitimacy of democracy in Europe” (Doc. 12066). At its meeting in January 2010, the Political Affairs
Committee wished to change the title as it was not the legitimacy
of democracy but its functioning which was at stake. At its meeting
in March the committee approved the new title proposed by the rapporteur.
2. The global economic crisis has had an impact on the minds
of people in Europe, paving the way to increasing radicalisation.
Leaders of non-parliamentary parties of the extreme left and extreme
right are taking every opportunity offered by the harsh economic
situation to gain more popularity. Dissatisfaction for the ruling parties
tends to increase abstentions and this also plays in favour of extremist
parties. On the other hand, the dimension of the crisis in Greece
(and other countries) and the brutal measures implemented to fix
the situation have already triggered social unrest, which could
undermine democracy itself. If there is a danger for democracy in
Europe, what should the Parliamentary Assembly do to avoid it?
2. Historical reminder
3. In October 1929, the collapse of the New York Stock
Market gave way to the Great Depression. American investors recalled
their short-term loans from Germany and, in early 1931, one of Germany's
three largest joint-stock banks collapsed. The German economy depended
on American loans and, without them, production dropped and exports
also declined. The number of unemployed rose from two million in
1929 to 6 million (one fourth of the working population) in the
early months of 1932. The German governments from 1929 to 1933 failed
to solve any of the grave economic problems of the day: mass unemployment,
inflation and industrial decline.
4. Faced with economic hardship, the Germans lost faith in the
functioning of democratic institutions. The middle classes and the
working classes were the most discontented groups, having been ruined
by two economic collapses within six years. They turned to the two
extreme parties for desperate remedies: the Nazis and the communists.
In the general election of September 1930, the Nazis won 6.5 million
votes, took 107 seats in the Reichstag and became the second largest
party in the country. The communists obtained 4.5 million votes
and 77 seats. Although the social democrats remained the largest
party, they had lost much popularity and support.
5. In order to avoid what was perceived as a real threat of a
Bolshevik Revolution in Germany, Hindenburg invited Hitler to become
Chancellor in January 1933. It took him very little time to crush
opponents and to become the autocratic ruler of Germany, thus paving
the way for the Second World War and for the Holocaust.
6. The Great Depression was not the single, or even the most
important cause of the Second World War. In addition, for a substantial
number of reasons – not least the existence of the Council of Europe
and the European Union – the situation today cannot be compared
to that of the 1930s. It is, however, our role to avoid, by all
means available, any serious consequences of the present financial
crisis.
3. The economic crisis in Europe
7. The financial crisis that has hit the global economy
since the summer of 2007 is the worst since the Great Depression
of the 1930s.
8. It was triggered by an unreasonable growth of “bad” credit
and amplified when a major US investment bank (Lehman Brothers)
defaulted in September 2008. Confidence collapsed, investors massively
liquidated their positions and stock markets went into a tailspin.
From then onwards the European economies entered the steepest downturn
on record since the 1930s.
9. The transmission of financial distress to the real economy
evolved at record speed, with credit restraint and sagging confidence
hitting business investment and household demand, notably for consumer
durables and housing. The cross-border transmission was also extremely
rapid, due to the tight connections within the financial system
itself and also the strongly integrated supply chains in global
product markets. Real GDP in the European Union area is estimated
to have shrunk by some 4% in 2009, the sharpest contraction in its history.
Forecasts for 2010 indicate a very limited growth. Unemployment,
which has risen some 4% in the last two years, is not expected to
ease in 2010.
10. The crisis affected all countries in some ways, but certain
countries were more affected than others. By measuring currency
devaluation, equity market decline and the rise in sovereign
bond spreads, a picture of financial devastation emerges.
Since these three indicators show financial weakness, taken together,
they capture the impact of the crisis. The Carnegie
Endowment for International Peace reports in its International Economics
Bulletin that a central and an eastern European country – Hungary and Ukraine – were the European countries most deeply affected by
the crisis.
11. The International Monetary Fund (IMF) has already approved
financial assistance to Hungary, Ukraine, Iceland and Latvia in
2008 and to Serbia, Romania, Poland and Bosnia and Herzegovina in
2009. As is the usual practice, such assistance was linked to the
adoption of severe measures of financial and economic austerity.
4. First reactions to the crisis
12. In December 2008, Greece experienced extensive civil
unrest that continued into January 2009 and then again in late
February 2010 when many Greeks took part in a massive general
strike because of the economic situation and shut down schools,
airports and many other services. In January 2009, the Government
of Iceland was forced to call elections two years early after mass
protests and clashes with the police due to the government's handling
of the economy. Hundreds of thousands protested in France against
President Sarkozy's economic policies. Prompted by the financial
crisis in Latvia, the opposition and trade unions organised a rally
against the cabinet of Premier Ivars Godmanis. The rally, which
gathered some 10 to 20 thousand people, turned into a riot. Police and protesters also
clashed in Lithuania. Communists and others rallied in Moscow to protest
against the Russian Government's economic plans. Ireland and the
United Kingdom also experienced street protests.
13. Beginning on 26 February 2009, an economic intelligence briefing
was added to the daily intelligence briefings prepared for the President
of the United States. This addition reflected the assessment by
United States intelligence agencies that the global financial crisis
presented a serious threat to international stability. In March
2009, the British think tank Economist Intelligence Unit published
a special report entitled “Manning the barricades” in which it estimated
"who's at risk as deepening economic distress foments social unrest".
The report envisioned the next two years filled with great social
upheavals, disrupted economies and toppled governments around the
globe. Business Week stated
in March 2009 that global political instability was rising fast
due to the global financial crisis and was creating new challenges.
14. Eastern European governments seem more vulnerable as they
have limited policy options to address the crisis and little or
no room for fiscal stimulus due to budgetary or financing constraints.
Deeply unpopular austerity measures, including slashed public wages,
tax hikes and curbs on social spending will keep fanning public
discontent in the Baltic states, Hungary and Romania. Dissatisfaction
linked to the economic woes will be amplified in the countries where
governments have been weakened by high-profile corruption and fraud scandals
(Latvia, Lithuania, Hungary, Romania and Bulgaria).
5. The European sovereign debt crisis
15. The situation is, however, also extremely bad in
western Europe. Late 2009 the new government in Greece announced
that the country’s financial situation was much worse than what
was thought, not least because the previous government had falsified
the national accounts. Early in 2010 it was clear that Greece would
not be able to service its debt by itself. When such a situation
happens (and it happens regularly to many countries) the usual “treatment”
used to be IMF support linked to a more or less brutal austerity
package.
16. Greece, however, being inside the eurozone, was considered
different (from Hungary, Latvia, Romania and Poland) and European
leaders, while incapable of assessing the magnitude of the problem,
refused to seek IMF help fearing that this would strike a blow to
the euro. It took the European Union three months of discussions
about how to help Greece and at the same time making it pay for
its mistakes and issue a warning to other over-spending countries
and also to the markets.
17. 17 This delay, which the public opinion, rightly, blames on
Germany, did not avoid the implication of the IMF – with its austerity
package – and resulted, inter alia,
in the amount growing from some €30 billion to €110 billion. And
the euro reached historical lows against other currencies. The lack
of solidarity shown also fuelled nationalistic and even xenophobic
discourse. Social unrest in Greece led to the loss of three lives.
18. The present Greek crisis has both external and internal causes.
The external causes are of course linked with the global economic
and financial crisis. Speculation on the capacity of Greece to honour
its debt only made things worst. Among the internal causes are a
slow growing not much diversified economy, government overspending
(and cheating about it), endemic corruption and large-scale tax
evasion. In addition, being in the eurozone, Greece lacked the possibility
of using monetary policy to correct the situation where wages kept growing
faster than productivity.
19. It is worth mentioning that a common currency (a monetary
union) implies a common monetary policy and, as the recent evolution
tells us, it cannot work when there are such wide differences on
economic, budgetary and fiscal policies among their members. The
decision to create the euro was political, not economic, and it
was hoped that the economies of participating states would converge.
They did not. At the outset there were a number of criteria set
up to ensure compatibility but soon one country after the other
found excuses for derogations.
20. But the situation in Greece is not unique. Many other European
Union countries, within and outside the eurozone, share many of
its features. Spain and Portugal also have non-competitive, slow-growing
economies; Belgium, France, Germany and Portugal also have huge
debts as compared with GDP; the United Kingdom, Ireland, Spain and
France also have an important budget deficit as compared with GDP.
According to the media (and to credit rating agencies) the countries
most likely to experience some of the problems facing Greece are
Portugal, Ireland, Spain and Italy, the so-called PIIGS.
21. The main challenge for the European Union was to avoid contagion
to these countries. Otherwise it would be not only the euro and
the European Union as such which would be at stake but it could
very well be democracy itself.
22. At their meeting on 9 May 2010 the ministers for finance of
the eurozone agreed on a package of emergency measures amounting
to €750 billion – of which €250 billion came from the IMF – “to
defend the euro and eurozone economies”. The amount involved is
a clear indication that European leaders are prepared to go a long
way in defending the common currency. Markets reacted positively
to this agreement but it remains to be seen how it will work in
practical terms.
23. Above all, a mechanism needs to be set up to ensure that the
economies of states participating in the euro stop diverging and
start converging. This means inevitably that such states will have
to give up some of their sovereignty in the economic, fiscal and
budgetary areas to a yet to be defined supranational instance. National
parliaments will no longer have the last word in adopting national
budgets and this is certainly a major consequence for democracy,
in particular considering the present democratic deficit of the
European Union.
6. European public opinion
6.1. On the crisis
24. The Eurobarometer survey has registered significant
shifts in European public opinion since spring 2008, with the economic
crisis being the main driver of Europeans’ perceptions and opinions.
25. The peak of the economic crisis appears to have been reached
in the Autumn of 2009 and as of November 2009 we are at a turning
point. For the first time in two years, the European Union economy
is growing again. Whilst the worst of the recession may be over,
the full impact on the labour market and public finances is still
to come. Unemployment is now the main concern of Europeans for their
countries.
26. The “crisis surveys” have also shown that the economic crisis
widened the gap in living standards between the northern and western
European countries, on the one hand, and those in the south and
east of Europe, on the other. Vulnerable groups, in particular the
unemployed, have been most strongly hit by the crisis. In summary,
the economic crisis has had a profound impact; the recovery process
has only just begun but it will be a long time yet before life in
Europe is back to the pre-crisis situation.
27. In all European Union countries except Malta and Cyprus, expectations
regarding the European and world economies are now more positive
than was the case in spring 2009. The impact of the crisis is still
felt more strongly in central and eastern Europe. In some of these
countries, as well as in Malta, the change index records large negative
shifts.
28. Europeans believe that the European Union offers adequate
support to address the effects of globalisation. However, the view
that the European Union has sufficient power and tools to defend
its economic interests in the global economy has declined somewhat,
though it is still held by a clear majority. The Greek crisis at
the beginning of 2010 and the way in which it is being dealt with
by the Union may substantiate this view.
6.2. On how democracy works
29. Compared to the autumn of 2007, there was a progression
of the dissatisfaction on the functioning of national democracies
(particularly marked in the countries of central and eastern Europe
but also in Ireland, France, Greece and Spain).
30. Some 53% of Europeans declared themselves to be satisfied
with the way in which democracy functions in their country, whereas
45% expressed their dissatisfaction. Satisfaction on the functioning
of democracy at national level has reduced by 5 points compared
to the autumn of 2007. At the same time, the dissatisfaction grew
by 6 points.
31. National disparities are very strong on this subject. In 13
member states dissatisfaction is higher than satisfaction, with
particularly high rates of dissatisfaction in Romania (79%), in
Lithuania (79%), in Bulgaria (77%), in Latvia (76%) and in Hungary
(76%). On the other hand, satisfaction on the functioning of the
national democracy is highest in the Scandinavian countries – Denmark
(91%), Sweden (81%) and Finland (69%), in Luxembourg (90%), in Austria
(76%), in the Netherlands (72%) and in Germany (68%). It should
be noticed that the highest rates of dissatisfaction correspond
roughly to the countries where the economic crisis was more severely
felt.
32. Strong evolutions were noted compared to the preceding inquest
of autumn 2007, with a major tendency to the reinforcement of the
dissatisfaction into the functioning of national democracy in the
countries where this was already sharpest. Thus, dissatisfaction
is reinforced in the Baltic states and the eastern European countries
of the Union: it progressed 23 points in Latvia, 18 points in Romania,
14 points in Estonia, 12 points in Slovenia and 10 points in Bulgaria.
33. Recent events in Greece and speculations on what might come
for other countries of the eurozone, for the single currency and
for the European Union as such will certainly influence European
public opinion both on the crisis and on how democracy works in
a considerable way.
7. Results of recent elections
34. Elections to the European Parliament took place in
June 2009 in 27 member states of the Council of Europe. The economy
was then at its lowest point both according to indicators and to
the perception of Europeans. It was therefore a most suitable moment
to evaluate the impact of the crisis on the voting. A survey was
conducted one week after the elections.
35. The first indication was the steady decline of participation:
turnout was 43%, down from 45.5% in 2004. Excluding the three countries
where voting is mandatory, the highest turnouts were in Malta (78.8%),
Italy (65%) and Denmark (59.5%). The highest abstention rates were
in Slovakia (80.4%), Lithuania (79%) and Poland (75.5%). In certain
cases the level and evolution of the turnout are compatible with
the satisfaction/dissatisfaction of the functioning of democracy
but this is not systematic.
36. The survey showed genuine divisions between different types
of voter profiles: there were fewer women voters than male voters,
fewer young voters than elderly voters, fewer unemployed voters
than senior management voters, fewer voters who had left school
early than voters who had continued an education programme and slightly
fewer voters in big cities than in rural areas. This picture is
consistent with the idea that abstention was greater among the voters
who were more vulnerable to the effects of the crisis.
37. One third of the voters who said they voted in the national
elections also stated that they did not vote in the European elections.
38. The analysis also showed that most of the abstainers decided
not to vote primarily because of a lack of confidence in institutionalised
politics in general. With regard to the reasons for voting, the
most important factor by far for electors to vote was out of civic
duty. In fourth position comes the European dimension as a reason
to vote, after supporting a political party with whom voters had
an affinity.
39. Looking at the results of the elections to the European Parliament
country by country, 18 MEPs (out of 736) were elected from what
can be considered extremist parties in seven European countries:
- In Austria the Freiheitliche Partei achieved 12.8% of the vote and elected two MEPs. In national elections in 2006 this party had 11% of the vote and in 2008 17.5%.
- In Belgium the Vlaams Belang achieved 9.9% of the vote and elected two MEPs. In national elections in 2007 it had 12% of the vote.
- In Bulgaria the Attack Party achieved 12% of the vote and elected two MEPs. In national elections in 2005 it had 9% of the vote. Bulgaria being one of the countries most affected by the crisis, this result does not show any political radicalisation.
- In France the Front National achieved 6.3% of the vote and elected three MEPs. In the previous elections for the European Parliament in 2004 it had 9.8% and seven MEPs.
- In Hungary the Jobbik Party achieved 14.8% of the vote and elected three MEPs. In the national elections in 2006 it had not passed the threshold of 4%.
- In the Netherlands the PVV achieved 17% of the vote and elected four MEPs. In the national elections in 2006 it had 5.9% of the vote.
- Finally, the British National Party achieved 6.26% of the vote and elected two MEPs. In 2004 it had 4.9% of the vote and no MEP.
40. From these results it appears that five “extremist” MEPs were
elected in the less rich countries where the economic crisis was
more severely felt (Bulgaria and Hungary), whereas 13 “extremist”
MEPs were elected in the richest European Union countries (Austria,
Belgium, France, the Netherlands and the United Kingdom). The sharpest
increases in extremist vote took place in Hungary, the Netherlands
and the United Kingdom.
41. Two of the countries where satisfaction with the functioning
of democracy is lower, Bulgaria and Hungary, elected five extremist
MEPs. However, two of the countries where satisfaction is higher,
Austria and the Netherlands, elected six of them.
42. In the first round of parliamentary elections in Hungary on
11 April 2010 the share of the Jobbik Party increased to 16.7%.
In the second round on 25 April it went down to 12%. Hungary is
the only example of a country severely affected by the crisis where
the vote for extremist parties increased significantly. The report on
“Democracy in Europe: crisis and perspectives” by my colleague and
good friend Andreas Gross (Switzerland, Socialist Group) also refers
to this situation. In the national elections in the United Kingdom
of 7 May 2010, the British National Party achieved 1.9% of the vote,
way below its score at the European Parliament election but slightly
up from the British national election in 2005.
43. According to the data available, there is therefore no indication
of a clear link between the economic crisis, its perception by the
European population or the judgment of Europeans about the functioning
of their democracies and the vote or the increase in the vote in
extremist parties.
8. Conclusions
44. It appears that, with the exception of Hungary, the
economic crisis has not yet resulted in a considerable increase
in the vote for extremist parties, at least in the countries of
the European Union. Therefore the motivation for electing MEPs from
extremist parties must be found elsewhere (see for instance Mr Agramunt’s report
on the “Fight against extremism:
achievements, deficiencies and failures”).
It would be useful, however, to extend the analysis to the other
members of the Council of Europe, and in particular Ukraine, Iceland,
Serbia and Bosnia and Herzegovina, which were among the most severely
affected by the crisis. The evolution in Russia and in Turkey, two
other large economies differently affected, would also be of great
interest.
45. It should be mentioned that one of the reasons why votes for
extremist parties did not increase significantly may have been the
fact that mainstream parties have shown a tendency of borrowing
some of the radical discourse of extremist parties in order, on
the one hand, to secure the votes of a part of the population and,
on the other, to blame someone else (immigrants, Jews, speculators,
etc.) for their own lack of efficiency.
46. The fact that the economic crisis has not increased the voting
for extremist parties does not mean that it will not do so in the
future. Much will depend on the ability of governments in coping
with the aftermath of the crisis, namely its social impact. The
increase of abstention throughout Europe is worrying because it
shows both a dissatisfaction with the functioning of democracy and
a distrust in politicians in general.
47. The vote for extremist parties is, however, a minor concern
compared to the very serious risk of democracy being disrupted altogether
as a consequence of social movements triggered by the refusal of populations
to accept the austerity packages imposed on them as a result of
what they see as the incompetence of their successive governments.
48. The clumsiness, to say the least, with which European leaders
have dealt so far with the “Greek crisis” is also very worrying.
The lack of mechanisms to face the situation at European level together
with the lack of solidarity within the European Union, shown in
the recent weeks not only by national leaders but also by European
commissioners and the general public, are dangerous weapons in the
hands of those who oppose the European ideals.
49. The crisis with which Europe is confronted is very much the
responsibility of European politicians, both at national and EU
levels. It is therefore very much the responsibility of European
politicians to solve it and to ensure that their populations do
not suffer too heavy a burden.
50. National parliaments should set up enquiry committees to investigate
the responsibility of politicians in the development of the crisis
and ensure that those found guilty are punished. In addition they
need to assess much more effectively the short, medium and long-term
economic consequences of legislation, with a particular emphasis
on national budgets.
51. The Parliamentary Assembly should investigate the matter further
in order to be in a position to recommend the right measures to
avoid possible threats and dangers to the functioning of democracy.
A conference on this subject should be organised by the Assembly.