Conservatives and Liberals in the Financial and Economic Crisis
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Doctor of History, Chief Researcher of the RAS Institute for European Studies
Since fall 2008 EU countries’ financial and economic systems have clearly been subject to a series of severe shocks. In some EU countries, these measures have failed, for a number of years now, to revitalize the economy, while in others, despite cash injections by the European Commission, ECB or IMF, they have failed to promote a speedy recovery. These anti-crisis measures aim to support different kinds of private owner, while effectively ignoring the interests of poorer citizens.
Since fall 2008 EU countries’ financial and economic systems have clearly been subject to a series of severe shocks. In most cases, the conservative and liberal-leaning governments are trying hard to overcome the crisis by relying on a combination of economic incentives and reduced government expenditure, in particular in the social sphere. In some EU countries, these measures have failed, for a number of years now, to revitalize the economy, while in others, despite cash injections by the European Commission, ECB or IMF, they have failed to promote a speedy recovery. These anti-crisis measures aim to support different kinds of private owner, while effectively ignoring the interests of poorer citizens: the unemployed, pensioners, undergraduates or immigrants.
Conservatives and Liberals in the Financial and Economic Crisis
The era of financial and economic crisis that dawned in fall 2008 and continues, albeit somewhat mitigated, to the present day, encompasses a significant number of West European countries. The liberal and conservative-leaning ruling parties, which either remain in power indefinitely or alternate with the Social Democrats, have had to look for ways out of this extremely unpleasant situation in Europe, which some countries saw face slower growth while others faced near-total economic collapse. Initially the authorities were primarily concerned with reviving the banking system, but then the focus shifted toward saving the euro zone. Almost all European countries, to varying degrees, had to face growing unemployment, which in southern Europe assumed catastrophic proportions. In late 2012 – early 2013, the unemployment rate hit 26.4 percent in Greece; 26.3 percent in Spain, and 17.5 percent in Portugal (ITAR/TASS Compass, No 16, 11.04.2013 P.4). All West European governments had to prioritize budget deficit issues. And while all EU member states continued to grow both foreign and domestic debt, countries with liberal/conservative governments were clearly split between those that did fairly well (Germany, France, the Netherlands, Sweden, Denmark and the UK) and those that were lurching toward economic collapse (Greece, Spain and Portugal).
In the Fairly Safe Zone
The national anti-crisis strategies in those European states that are performing relatively well were clearly not identical, but they all shared one common feature: these countries were developing and implementing policies that, short of desperate fire-fighting measures, were intended largely to adjust economic processes. In Germany, by far the best performer socially and economically, the SDU/CSU – FDP coalition government embarked on policies to stimulate domestic demand, in part through increased employment opportunities for immigrants, wage and salary regulation and a focus on social policies.
The French government under President Sarkozy relied on government regulation to overcome the impact of the 2008-2009 banking crisis. Special government entities were introduced to budget outlay among the economic sectors hardest hit by the crisis. The ruling Conservatives concentrated mostly on the middle classes, in particular, small and medium businesses, which could be expected, eventually, to suffer from the crisis.
The third European Union giant, Great Britain, also remained largely safe throughout the crisis, thanks to its key social and economic indicators. However, the authorities had to respond to the looming slowdown in growth, the inflation implications, higher unemployment, an increasing budget deficit and a slower rate of GDP growth. Under these circumstances, David Cameron’s government developed and partly implemented some steps that combined tough financial measures with an easing in monetary policy. Unlike other EU states, the UK was able to opt for the latter because it was not directly linked to the euro zone’s negative environment. The austerity policies were aimed at reducing employment in some manufacturing sectors and in the public sector, and introducing a pay freeze. In working to address challenges of the day, David Cameron’s government was building policies within an overall strategic course toward economic modernization. The plan was to reduce the government’s presence in the economy, incentivize the private sector, and achieve a technological breakthrough across all sectors of the British economy. Some of the specific steps were taken to stimulate innovation. In taxation, the ruling coalition of Tories and Liberals, despite some differences in their positions, was unanimous in arguing for the need to slash the tax burden for large businesses and offer incentives to small and medium-sized enterprises. The issue of employment was to be addressed by offering additional funding for vocational education.
Variations on a Theme of Crisis
The national anti-crisis strategies in those European states that are performing relatively well were clearly not identical, but they all shared one common feature: these countries were developing and implementing policies that, short of desperate fire-fighting measures, were intended largely to adjust economic processes.
The Nordic spin on this Conservative-Liberal approach to addressing the crisis involves several specific features, the key one being the deeply rooted welfare state system. The coalition of Conservatives, Liberals and Christian Democrats that has governed Sweden since 2007 has been trying to find a balance between its socially minded focus on various sectors of the domestic business community and measures that aim to protect the material well-being of other parts of Swedish society. The British approach to unemployment (slashing unemployment benefits and stimulating vocational training) is combined with higher allowances for larger families and lower taxes on pensions. However, the government also demands that trade unions increase workers’ contributions to the unemployment benefit fund. Denmark in 2008-2011 pursued policies favoring incentives to the business community. Danish Liberals and Conservatives, within the limits of the welfare state, decided to reduce expenditure to support the poor, slashed unemployment benefits, and froze family allowances.
In the Netherlands, just as in Denmark, the right-wing groups that enjoyed the support of the local radical nationalists, also tried to play the “immigration” trump card. Their arguments ranged from party-typical allegations of immigrants’ “cultural incompatibility” with the locals to the crisis-specific claim that it was no longer possible, in this changed environment, to offer social welfare safeguards to non-locals.
In Italy, the immigration topic also served as a coalition bond between Berlusconi’s PdL (People of Freedom) and National Separatists from Lega Nord (Northern League). The coalition partners argued that, in times of crisis, the inflows, legal or illegal, of foreign labor would not only undercut employment opportunities for locals, but would also undermine the country’s social welfare system, which no longer had the capacity to meet higher expenditure on subsidies, social allowances, education and healthcare for immigrants. The issue of fiscal federalism proved a bone of contention in the coalition partnership, when the Northern League demanded that the PdL agree to allow the local authorities to retain the lion’s share of tax revenue. Ultimately, this issue caused the downfall of Berlusconi’s cabinet and ushered in the 6-month rule by the technocratic cabinet of non-partisan Mario Monti. Overall, Berlusconi’s anti-crisis policies were largely in line with those of other liberal conservative forces in Europe.
Dictated by the EU
While in better performing European countries liberal conservative authorities were generally in a position to address independently the challenges the crisis posed, consulting the EU’s supra-governmental institutions only occasionally as the need arose (Italy), the four weakest links in the EU – Greece, Spain, Portugal and Ireland – found themselves almost fully dependent on directions issued by the EU’s governing bodies.
While in better performing European countries liberal conservative authorities were generally in a position to address independently the challenges the crisis posed, consulting the EU’s supra-governmental institutions only occasionally as the need arose, the four weakest links in the EU – Greece, Spain, Portugal and Ireland – found themselves almost fully dependent on directions issued by the EU’s governing bodies.
In fact, the first steps toward bringing national economies to into alignment with supranational directives issued by the European Commission, European Central Bank, and International Monetary Fund were taken by the Conservatives’ predecessors in power – the once influential local socialist parties. Those who replaced them found it even easier to comply with Brussels’ instructions since ideologically, the leadership of those governing bodies adhered to the same principles of liberal conservatism in dealing with this crisis.
Portugal’s approach to confronting the crisis, implemented by a coalition of Conservatives and Christian Democrats, was to rely on a far-reaching privatization program. Measures aimed at both Portuguese and foreign capital included, inter alia, reducing the charges paid by entrepreneurs toward the social allowances fund, and lower corporate taxes. Electricity prices were liberalized; some large national banks fell into private hands; VAT was increased, and education and healthcare exposed to privatization. At the same time, pensions for some retirees were cut. Simplified dismissal and layoff procedures in both private and public sectors clearly favored business circles, and there were concurrent cutbacks in unemployment benefits and severance pay. All these measures were encouraged by the troika of the ECB, IMF and European Commission. Indeed, the IMF advised laying off over 100,000 officials. Virtually at the same time, similar recommendations, allegedly to help “fiscal rehabilitation”, were given to Greece’s Conservative-led coalition government.
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The Portuguese approach to tackling the crisis, albeit without formal dependence on the troika, was also tried in neighboring Spain. Having come to power in November 2011, the People’s Party and its leader, Prime Minister Mariano Rajoy, had clear priorities. While the business community was offered a tax amnesty and incentives favoring various groups of businessmen and bankers, the other end of the social spectrum was left to fall on hard times. Those nearing retirement risk seeing retirement age increased; workers may face a pay freeze, while the jobless could have their benefits cut. Almost all medical services will have to be paid for; government support for secondary schools will be reduced, while private educational establishments, conversely, will enjoy higher subsidies. The Government is also promising to cut funding for Spanish universities. Labor market reform is central to the People’s Party’s anti-crisis plans. Apart from the already mentioned cuts to severance pay, they propose reviewing the collective bargaining system. Performance-related pay schemes will be introduced, and those in place – expanded. Young people joining manufacturing industry companies can only hope to get a temporary contract with a one-year trial period. The new labor code will significantly extend the list of grounds for dismissal.
Outcome and Prospects
The five years of the crisis, because of its limited duration, are not long enough to offer absolute conclusions regarding the effectiveness of the strategies and tactics employed by these liberal/conservative governments. However, some initial lessons are quite clear.
The central issue in the anti-crisis strategy and tactics developed by those on the right is identifying the optimum way to overcome the budget deficit with the help of a new model of economic growth. At the same time, social policies are doomed to either stagnate in more affluent countries or erode in Southern European countries. The focus here is increasingly on state regulation, with right-wing governments defining the immediate and longer-term steps to regulate the economy.
The central issue in the anti-crisis strategy and tactics developed by those on the right is identifying the optimum way to overcome the budget deficit with the help of a new model of economic growth.
Assuming that the crisis will only augment economic imbalances already present, the government assumes the function of a manager. Clearly monetary neo-liberalism has not been forgotten either.
Key banks enjoy government support, while large businesses are offered tax breaks to encourage innovative economic growth; and small and medium-sized enterprises get incentives to keep them afloat in these difficult times. Massive privatization initiatives underscore yet again the right-wing focus on private owners. During the crisis, the socially vulnerable are asked to buckle down and wait for better times, while policies are chosen based on the stated need to shore up the economy without which social policies cannot be improved.
Although it may be hard to arrive at some common denominator in an analysis of the anti-crisis policies pursued by the powers that be across Europe, be they Conservatives, Christian Democrats or Liberals, it is important that reforms in key economic sectors such as banking, manufacturing, or the social sphere,are of necessity painful, and will always entail some suffering. The question is only which groups of the population suffer most from such policies, in relative or absolute terms, and how fair the losses inflicted by the right-wing’s choice of anti-crisis policies, are. The forthcoming European Parliament election scheduled for May this year could offer an insight into the degree of support that European voters are prepared to offer the right-wing camp that today holds the reins of power in Great Britain, Germany, Sweden, Finland, the Netherlands, Luxembourg, Ireland, Portugal, Greece and Spain.
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