At the latest ECB conference, President Mario Draghi stated that the euro is “irrevocable and irreversible”, in a spirited defence of the currency against populist attacks. Pointedly, Draghi announced the omission of a phrase from the ECB’s standard introductory statement; the bank will no longer pledge to act “using all the instruments available within its mandate if needed to achieve its objectives”. This was intended to signify an improving outlook for the market and for the euro. That said, signs of growth – including inflation beating the two percent goal – have been tempered by the uncertainty surrounding elections in France, Germany and the Netherlands.
Those elections will be held during the EU’s most significant existential crisis since its creation, an atmosphere that owes much to Brexit, Italy’s constitutional reform referendum, and the US’ protectionist swing under Donald Trump. Though a liberal-led coalition looks to be the outcome of the March 15 Dutch election, this was only the first test of the year for the European status quo – populist parties will compete across the continent throughout 2017.
The right choice
The French election, beginning in April, is a battle between pro and anti-European powers. A victory for Marine Le Pen, who has promised a ‘Frexit’ referendum, could turn the EU completely upside down. The result apart, even the announcement of such a referendum would cause significant funding and liquidity stress; European equities would crash and the euro would see a massive devaluation.
Nationalism has not survived long in the past, and there is no evidence that it will succeed in its project now
In a recent report, ratings agency Standard & Poor’s confirmed that, should France leave the EU, the country would be classified as insolvent and the subsequent default would spell the end of the eurozone. In spite of this chilling prediction, Le Pen is optimistic about her chances, though in my view France will elect either my chosen candidate François Fillon (provided he can recover from his personal scandals), or the independent newcomer Emmanuel Macron.
September’s German election will be a stern test for the EU’s ‘woman of the hour’ Angela Merkel. She must not only lead Germany towards greater responsibility for the wider world, she must also work with other moderate European leaders to ensure a union that is close, but not uniform – a ‘multi-speed’ EU.
After the Dutch election, the EU can at least reassure itself that the rise of populism is not an unstoppable snowball of negativity. It is possible to overcome it and reverse the trend, and this may even come to be seen as the beginning of the end for the populist movement.
A glimmer of hope
Should the EU be rejected in favour of nationalism, international trust and confidence will be lost, and economic growth will be severely derailed. However, the concept of nationalism has not survived long in the past, and there is no evidence that it will succeed in its project now. There has been a lot of fear around the effects of Brexit and Donald Trump’s US presidency, but we shouldn’t forget that Greece’s Syriza – perhaps the first success of the populist wave, though on the left rather than the right – called for wholesale changes to the EU, but has failed to enact many.
In my opinion, despite the fact that the EU is facing a historic crisis, it is time for realism. Without the single currency and the single market, there is no EU – it’s unrealistic to think that any alternative to the single currency could be a positive step. Disturbing the established order now would be especially dangerous, given the geopolitical challenges Europe faces – including mass migration and the threat of terrorism.
It’s also time for optimism. Brexit, Trump and the Italian referendum have failed to destroy the European economy. The latest ECB figures reveal that economic sentiment is at a six-year high, trade is rebounding, and services and manufacturing output is rising. Eurozone growth forecasts stand at 1.8 percent for this year and 1.7 percent for next year, while unemployment is at its lowest level since 2009. There’s every reason to believe the worst may soon be over, but the future depends on the choices we make today.