Populism: Troublesome Signs for the EU

The rise of populism around the world, including in Europe, is certainly not a new phenomenon. It has been a major preoccupation for many decades, but it has resurfaced with growing vigor after the 2007 financial crisis. It features increasingly at the top of the EU’s list of concerns because of some serious recent developments. There are (at least) five reasons why the populist challenge is more dangerous than ever before.

First, while the standoff between the Polish Government and the European Commission over Poland’s judicial reforms has been boiling for years, it is extraordinary (perhaps unprecedented) that Warsaw is threatening to ignore any adverse judgment of the European Court of Justice on the Commission’s case against Poland. Warsaw’s continued membership in the EU would be open to doubt if it disputes the basic principle of EU law primacy. While it is still unlikely that this would occur, the mere threat emboldens populists and weakens the EU.

 Second, the rise of populism may well have serious practical effects on the outcome of next year’s European elections, and therefore on the composition of the European Parliament and on the ability of the EU institutions to deliver what the citizens expect. The continuing strength of Fidesz party in Hungary and the rising strength of the Lega in Italy, coupled with the declining strength of Germany’s Christian Democrats, Spain’s Popular Party and the French center-right, all mean that the center-right pan-European People’s Party (EPP) will be increasingly beholden to its members from Fidesz and Lega to maintain its influence in the next European Parliament. The result is that the EPP will likely be influenced by anti-EU nationalists in the next parliamentary term. It was only on Wednesday morning that the EU approved a censure motion on Hungary, which ultimately could lead to it being stripped of its voting rights in the EU Council.

 At the same time, the implosion of the center-left in Italy, Germany, France and the Netherlands in recent elections means that the center-left Socialists & Democrats bloc in the new European Parliament will likely be significantly weakened. It is uncertain how well French President Emmanuel Macron’s movement of pro-European liberals will fare. His movement has partnered with Spain’s Ciudadanos and the Italian Socialist Party, and is flirting with Poland’s liberal Civil Platform. But Chancellor Merkel has apparently made it clear that she frowns on any efforts by Macron’s movement to gain support in Germany.

 Euro-skeptic forces are on track to win around 150-200 seats, out of a total of 705, in the new European Parliament. At the same time, it is unlikely that the new parliament will continue to feature a functioning grand coalition between the EPP, the S&D, and the Liberals. Despite their differences, these three parties have been able to band together effectively on many key pieces of legislation. The loss of such a coalition would be a development of great significance because it would impede the ability of the European Parliament to get business done.

 Moreover, the ability of the next European Parliament President to exert control over the parliament’s work may be more limited than in the past. In a fractured parliament, the logic of the Spitzenkandidat system would be weakened. According to this system, promoted by the European Parliament, the leading candidate of the pan-European party that comes first in European elections must be named as the president of the European Commission by the member state heads of government. If the election result is that no party grouping has a strong result, the member states heads of government may reverse their prior (grudging) acceptance of the Spitzenkandidat system to appoint their own candidate. Macron’s political movement has already stated that it considers the system as a “democratic anomaly” and will not support any European political group that favors it. Even if the system continues, the president of a party without a strong electoral showing will struggle to assert authority.

 Some companies might be tempted to consider a fractured European Parliament as good news, at least in the short term, if it means less legislative activity, including on problematic legislation. The problem, however, is that dysfunction at an EU level would lead individual EU member states to move ahead with their own problematic legislation, including on taxation in the digital economy, resulting in greater EU market fragmentation. And, over the longer term, this development is bad news as it could lead to even greater populist backlash, extremism, economic instability and ultimately even a question mark over the EU project.

 Third, Italy has resurfaced as a source of economic and political instability for the Eurozone. Some observers make several arguments about why there is little reason to worry. After all, Italy has frequently been problematic, but prior crises were resolved. The anti-establishment Five Star party, whose main objective appears to be to explode traditional politics rather than to build anything new, is losing ground quickly to the Lega, its coalition partner. The Italian Government appears unlikely to carry out the coalition partners’ wilder threats of a referendum on the euro or EU membership. But these arguments miss the point.

 While Italian governments have occasionally been dysfunctional in the past, the situation today is worrisome because of the relative inexperience of many ministers and because the government intends to carry out electoral promises (rolling back pension reforms, limiting temporary contracts that represented that bulk of recent job growth, and implementing minimum income guarantees) that are bound to collide with EU fiscal constraints. It is true that Italy does have some “fiscal space” for more spending in the short term; but the policies of the current government nearly guarantee that necessary reforms (tentatively started under Renzi’s government) will be unwound and that Italy’s decade-long period of economic stagnation will continue for at least several more years. If another financial crisis hits or if Italy stops growing, it will be ill-equipped to cope.

 From being among the most ardent pro-Europeans a few years ago, Italians are increasingly euro-sceptic and supportive of the government’s declared intention of clashing with Brussels. (Two thirds of the electorate chose to protest against established party elites and traditional policies, including with regard to Europe). While this euro-skepticism is not unique, what happens in Italy matters more than in some other countries because it is an EU founding member and is Europe’s fourth largest economy. Not surprisingly, spreads between Italian and German government debt have widened significantly, requiring higher coupons on new debt to pay back older (and cheaper) debt. The EU will be very unhappy about Italian banks loading up on more Italian sovereign debt because that increases the state-bank “doom loop” that contributed to the last financial crisis.

 Fourth, although Chancellor Angela Merkel won another term, the Christian Democrats have lost ground, albeit much less than the Social Democrats, who now trail the far-right AfD party for the first time in national polls. Although the flow of refugees into Europe (especially into Germany) has been brought under control, the persistence of anti-immigrant and nationalist sentiments is greater than most observers expected. The risk of the AfD ever entering German government may be slim, but the risk of the Christian Democrats (along with their coalition partner) moving rightwards to head off rising AfD influence is real. The weakness of Germany’s leading party and its leader poses real problems as Germany is increasingly the country that makes all the key decisions in Europe.

 The fifth new element in this “witch’s potion” is that the forces of populism are receiving significant support from outside the EU, not only from Russia, but also from the United States. Moscow’s efforts to support extremist political parties and, more broadly, foment dissatisfaction with democratic institutions through disinformation continues unabated and may contribute to the electoral results of the next European elections. The Trump White House appears committed to encourage the export of populism abroad; former White House official Steve Bannon has launched a pan-European movement to promote euro-sceptic nationalists in the upcoming elections. The US Ambassador to Germany states that he considers it part of his mandate to promote conservative groups abroad (an absolutely extraordinary statement for a US diplomat). Moreover, it is clear that the White House is a cheerleader for Brexit and believes that there should be more exits from the EU, an organization it considers to be a “foe”.

 Some observers derive some comfort from the fact that these populist groups differ significantly from one another. While that is true, they have some key things in common. One of the key objectives of all the populist groups is to show that the EU is the source of most problems, and that the solutions are purely national. That means that these groups will be united in preventing the new European Commission from proving effective in any area. Many of Europe’s key challenges – including migration and border control, law enforcement (including counter-terrorism) and energy security – require pan-European responses. It is not clear that the EU will be able to deliver common policies to address these challenges because of deep fissures among the Member States and because of a fragmented European Parliament.

 

Anthony Gardner is a Senior Adviser at Brunswick Group and its Geopolitical offer, based across our London and Brussels offices. Anthony was previously the US Ambassador to the EU 2014-2017. These notes are his personal views.