Several recent elections in Europe were seen as a referendum on fiscal austerity (and fiscal discipline) and their results were presented as a mood shift in favor of more government spending and economic stimulus. If true, this should help Barack Obama’s re-election bid in the United States. However, over the past three years, electoral results the world over suggest not so much a leftward drift as disgust with all incumbents, regardless of their political stripe. This, on the contrary, could sink Obama in November, but it also bodes ill for his successor.
In a parliamentary election in May, Greek voters overwhelmingly rejected public spending cuts and tax increases agreed upon by their government as part of the bailout deal. Both main political parties, which backed austerity measures, got a drumming at the polls. French voters delivered a similar verdict, voting for a Socialist for the first time since the 1980s. Winner François Hollande had campaigned on a platform of tax hikes on the wealthy, more bank regulations and more government spending. At the same time, the governing coalition in the Netherlands fell apart because its members couldn’t agree on budget cuts.
Recent European data have been bleak. Greece is sinking deeper into depression, a severe downturn is now affecting Spain and Italy, and GDP in the euro area is forecast to shrink 0.5% in 2012. Britain, too, slipped into a double-dip recession in early 2012. Unemployment across Europe is severe. Spain takes the cake with a jobless rate of nearly 25%, followed closely by Greece with over 20% and Ireland with 15%. France is suffering from 10% unemployment.
Such performance has given plenty of ammunition to modern-day Keynesians who blame euro-zone deficit-cutting policies, initiated by Germany, for ushering in the second leg of a European economic downturn. An assault on austerity has been led by two Nobel Prize-winning U.S. economists, Joseph Stiglitz and Paul Krugman. Stiglitz, noting the lack of successful austerity programs in large economies, says Europe is headed toward “suicide” with public-sector spending cuts.
Budget cuts, especially at the state level, are slowing the U.S. economic recovery as well. Since bottoming out in early 2010, the private sector created over 4 million jobs through April 2012. Public-sector employment has declined by 1 million from a stimulus-induced peak in May 2010. The U.S. jobless rate remains over 8%, at levels close to those of the mid-1980s.
Nevertheless, it is far from clear that voters want more government spending or put much trust in left-wing solutions. In 2010, the right-of-center party scored an overwhelming victory in Hungary, and a month later the Conservatives in the U.K. ousted the Labour Party after 15 years in office by promising harsh fiscal medicine. In November 2010 the GOP scored one of the greatest mid-term electoral victories in U.S. history. They not only took the House of Representatives in Washington, but devastated the Democrats in many state capitals.
In early 2011, though, the Irish doubled the seats of their Labour Party as they kicked out the center-right Fianna Fáil, and then in November 2011, months before the supposed Europe-wide rejection of austerity, the conservative Popular Party threw out the ruling Socialists in Spain.
The trend is clear: rather than showing preference for any one party or ideology, voters have been systematically punishing those who held power before the election. It so happens that leftist parties were up for reelection first, and then rightist and centrist ones were. Even in Germany, where austerity measures remain popular and where the economy is Europe’s bright spot, the incumbent Christian Democrats went down in defeat in the local elections in North Rhine-Westphalia, Germany’s industrial heartland and most populous state.
This is a grim conclusion for the Obama campaign. The president is facing the voters when the mood seems to be “plague on both your houses,” with those who happen to be in office bearing the brunt of popular anger and frustration.
Debt and Growth