Postcards from Old Europe – Four elections and a constitution

While much of the world has it’s eyes firmly fixed on the US election in the fall, this column looks at some of the developments coming up on the European political stage.

June will see elections to the European parliament and another chance at agreeing on an EU constitution. Some people seem to think now that Spain and Poland have dropped their opposition to the so-called double majority voting system the chances are pretty good for an agreement on the constitution. Keep in mind that agreement doesn’t mean that the constitution is ratified – some countries will elect to hold referendums. The outcome of these referendums is far from certain so it would be very premature to expect the EU constitution to sail through the ratification process.

The most interesting countries with regard to possible referendums on the constitution are the Netherlands, the UK and France. The Netherlands – formerly one of the most ardent supporters of European integration – are suffering from a bout of Euro-skepticism and are going to hold their first referendum. The UK is a special situation in which the electorate and much of the mainstream press is against most things European while the government (well at least the prime minister) is mostly for closer European integration. France is a very interesting story in this regard as the President Chirac can decide if the country will hold a referendum or not. As any election can – and will – be used to express discontent with the ruling party, the Elysee will probably try to avoid a vote if it can. The tricky thing is that UK prime minister Tony Blair has since openly called for a referendum and thereby heightened the pressure on Chriac to do the same.

The French not only face a potential referendum on the constitution but also a general election in 2007. The recent regional elections – which led to Chirac’s center-right party losing almost across the board seem to have dampened the governments reform-spirits. I doubt that the French government will attempt to cut entitlements or implement any kind of wide ranging health-care reforms before the next big elections. The only problem is that the Maastricht deficit criteria should – in theory at least – punish countries for running a budget deficit of more than 3% of GDP. As France is already above this limit it will probably have a hard time boosting government spending in a bid to enliven the economy. The smart money is on the government engaging in some creative book keeping to help “reduce” the deficit whilst at the same time borrowing and spending more.

Italy is scheduled to hold an election by mid-2006. The government of Silvio Berlusconi will probably play dead on the reform front until then and concentrate on heading off the impending challenge by the opposition. One should add that the Berlusconi government didn’t actually manage to do much in the way of reforms anyway. This disappointed quite a few voters who took the prime minister’s tough businessman persona at face-value and are now pretty disillusioned. The probable candidate, the outgoing EU Commission President Prodi is certainly no pushover.

The German situation is quite similar to the one in France. Most people will tell you that reforms are absolutely necessary – just as long as they won’t have to give up any entitlement themselves. The government’s disastrous performance in recent polls (and in regional elections) has lead to the reform caravan coming to a grinding halt. I guess the situation will have to get much worse before a broad national consensus to support reforms emerges.

The next election coming up will determine the composition of the EU parliament. Pollsters are predicting a (first time) center-right win. This could influence the makeup of the new European Commission as the old one is disintegrating as most of it’s members have jumped ship (or are going to).

What does it all mean? Most incoming governments have pushed a reform agenda and have been badly mauled for doing so. The reform window is in the process of slamming shut and the European Constitution is still a ways off. This failure to implement structural reforms will raise Europe’s Beta with regard to exports and will make any domestic recovery harder to come by. Not much good news for the old world.

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