EUROPEAN DIARY:Public resentment of cuts will inform EU states' response to Irish demands for better bailout terms, writes ARTHUR BEESLEY
JOSÉ LUIS Zapatero’s decision not to seek a third term as Spanish premier in 2012 underlines the frailty which besets most European leaders. Even the strongest among them have seen their authority crumble as they confront what may well be the defining test of European integration.
This will have a key bearing on the eventual outwork of the sovereign debt crisis. More immediately, it also a telling factor in the response to Ireland’s demands for better bailout terms. European leaders are years into the battle, but it is not yet won. The sheer length of the struggle, though it is frequently overlooked, is not to be underestimated.
Documents released by the Federal Reserve Bank of New York show how Commerzbank of Germany took out $350 billion in emergency funding as early as August 2007. Other big European lenders would quickly follow. The sovereign debt crisis stemmed from these troubles. We will soon be into the fifth year of the debacle.
Waging a campaign of this duration is significant for the longer it goes on, the more difficult it is to keep going. The present malaise exerts political pressure like a medieval stretching machine, slowly, painfully, irreversibly.
In struggling economies, public resentment at accumulated fiscal pain makes it more and more difficult for leaders to dole out new bouts of austerity. Even in stronger ones, making the case for increased solidarity with the weaklings carries its own risks.
After all, the electoral cycle inevitably comes back to haunt leaders. This is the backdrop against which Zapatero signalled he will not seek a new mandate when his term expires next March. That’s rather a long time away, but his socialist party faces municipal elections in May in which voters are expected to mete out punishment for grinding spending cuts and a 20 cent unemployment rate.
The calculation that the party’s dire prospects will be better served by a new leader illustrates just how bad things are. It remains the case that many close observers saw little prospect only months ago of Spain coping without a bailout. So low were expectations in fact, that it might be seen as an achievement to have survived thus far at all.
Yet the finishing line is still far away and Spain’s many doubters doubt her. Whether the country pulls through may depend on whether Zapatero continues down the vexed path of austerity.
Although he has pledged to stay the course, internal frictions set off by the succession process have potential to undermine that effort. External conditions are crucial too, but he cannot control them.
In the cauldron of European politics, this is the way they live now. What is striking are the similarities between the pressure on Zapatero and that on many of his counterparts. The experience varies by turns, but the echoes are clear enough.
In Portugal, fellow socialist Jose Socrates talked himself into an early election a few weeks ago by failing to win support for a new austerity drive. The country is said to be in a funk of despair over the prospects of a bailout.
Look northwards from Spain and similar public pressures are at work. From France to Finland, domestic forces make it more likely that leaders will play hard for big concessions from Ireland for lower interest on bailout loans.
French president Nicolas Sarkozy received a walloping so bad in local elections 10 days ago that some media are asking whether he might face rivals for his party’s nomination in presidential election next year.
German chancellor Angela Merkel has had a similarly bruising time in regional polls, losing the key state of Baden-Württemberg in her latest setback. At the weekend the head of her junior coalition partner and foreign minister, Guido Westerwelle, called it a day as head of the liberal Free Democrats. Less than two years into her current term, the chancellor’s room for manoeuvre on the European stage seems to narrow by the week. Given the pivotal role she plays in the debt emergency, this is crucial.
But she is not the only one feeling the strain. In the Netherlands last month, liberal prime minister Mark Rutte failed to win a senate majority for his minority coalition with the centre-right. This is the first time since 1918 that a new government did not take the senate, making it difficult for Rutte to pass laws.
Finland’s centre-right government derailed plans to up the lending capacity of the single currency bailout fund because of electoral pressure from a surging eurosceptic party.
In recent weeks, each of these four countries angled in their own way against any “easy” deal for Ireland on bailout interest. The Government may feel it has the weight of moral and economic right on its side, but this is not a moral question for its sponsors.
Right now, however, the argument goes that the contentious decision to leave senior bondholders whole in the latest bank bailout should suffice. Whether this is enough to keep the claws of others from Ireland’s corporate tax regime is anyone’s guess. What is clear is that Dublin’s perspective will not be the defining one.