There is a backlash against austerity sweeping across Europe. It started in Greece earlier this year with increasing voter support for totalitarian parties. It then moved to France with a socialist election victory and to Spain with signs of social unrest. Voters are protesting austerity and asking for a return to the welfare state they perceived that they had before austerity began. This is not good on any level:
- The European fiscal crisis is caused by over-spending on entitlements, and entitlements are what define the welfare state;
- Austerity, in turn, has been put in place by politicians eager to save the welfare state by making it fit within a tax base that is constantly shrinking relative to the promises made through the welfare state.
Socialists and other authoritarian parties, including the Nazis and others now representing almost 40 percent of the voters in Greece, all want to preserve the European welfare state at any cost. Austerity is the only response that European policy makers have come up with in response to the crisis caused by the welfare state. Because austerity has disastrous consequences, and because it does not solve the underlying problem, it is unfortunately understandable that the anti-austerity left turn in European politics continues. So long as no one is presenting a truly libertarian alternative to the welfare state, Europe’s voters will cling to their entitlements for dear life.
The latest country to fall into the ranks on the left flank is the Netherlands, and again we are watching a backlash against austerity. In May I reported that the Netherlands was on the list of austerity-ridden economies, putting a total of one quarter of the euro-zone GDP under austerity pressure. If the socialists win the coming election, then as the EU Observer reports, the Dutch may very well follow in the French footsteps:
The left-wing Socialist party is expected to seize the largest gains in September’s Dutch elections, threatening to deprive German Chancellor Angela Merkel of one of her closest allies in response to the eurozone debt crisis. With Dutch voters set to go to the polls on 12 September 12, opinion polls indicated that the Socialist party, which has never formed part of a government, is running marginally ahead of caretaker Prime Minister Mark Rutte’s Liberal party (VVD). According to a survey released on Wednesday (22 August) by opinion pollsters TNS-Nipo, both parties are projected to win 34 seats in the 150 member Parliament, with the centre-left Labour party (PvdA) expected to poll in third place with 21 seats.
Needless to say, the socialists offer no rational explanation as to why country after country in Europe is having fiscal problems. This is interesting not because of the lack of explanation – after all, we are talking about socialists – but because so many voters are willing to accept the socialist alternative to austerity without question. Again, the reason is not primarily that people want the welfare state, but that there is no libertarian alternative available on the European policy scene.
Even Europe’s conservatives have de facto accepted the welfare state. Their offering is more austerity, meaning higher taxes and less spendign; the socialist alternative is higher taxes and more spending. The Dutch election is a perfect illustration of this tension. The now-defunct Dutch prime minister and his cabinet were kicked out over austerity:
Geert Wilders’ Freedom party (PVV) … toppled the Rutte administration in April by walking out of negotiations for further budget cuts demanded by the European Commission. Rutte had promised to make further spending cuts in a bid to reduce the country’s 4.7% deficit in 2011 below the 3% threshold.
And now it is time for the equally destructive socialist alternative:
A poll of polls compiled this week by the University of Leiden pegs the Socialist and VVD parties at 35 and 33 seats respectively. The election … comes after the centre-right coalition led by Liberal leader Mark Rutte collapsed in April over budget cuts. … Last week, the Socialist party leader Emile Roemer promised to hold a referendum on the fiscal compact treaty, describing it as “idiotic” to impose a 3% limit on budget deficits. The treaty, which was designed by Merkel and former French President Nikolas Sarkozy, and enthusiastically backed by Rutte, would put the deficit and debt brakes from the Stability and Growth Pact into national constitutions.
Actually, the three-percent rule has been part of the EU Constitution since the Maastricht Treaty was signed 20 years ago. Therefore, as Greece has experienced over the past three years, it is not going to be easy for an EU member state, which also happens to be part of the euro, to run excessive deficits with impunity. But even if the Netherlands would be able to do so, the deficit cap is not the cause of the fiscal problems in the country today. The root cause is structural over-spending, something that plagues every welfare state.
If the Dutch elect a socialist government and that government decides to run up bigger deficits in defense of the welfare state, the only result will be further erosion of the euro. The Dutch would be borrowing on Germany’s good credit; or, looking at it from the German perspective through Dan Mitchell’s always sharp lenses, you re co-signing a loan “for your unemployed and alcoholic cousin with a gambling addiction”. That would only accelerate the ongoing weakening of the euro as a currency. It would motivate better-run countries to exit – think Finland and Austria – and leave the Germans with an even bigger tab to pay.
What Europe needs is a huge dose of true-to-the-core libertarianism. This means:
- A set of principles that explain why individual and economic freedom are superior to collectivism and big government;
- A solid economic analysis that explains why small-government economies always do better than big-government economies; and
- A realistic plan for ending the welfare state.