In 2009, only 5% of Germans cited immigration as the core concern facing their country, compared to 8% in Greece and 6% in Spain. In 2014, this jumped to a staggering 37% in Germany, compared to 6% in Greece and 3% in Spain. Rising concerns about immigration now brings public opinion in Germany more in line with what is happening in the UK. The implication is that popular support for right-wing parties is likely to influence and increasingly shape the strategic position of the German government when negotiating with Greece. A comment by Dr. Aidan Regan, UCD School of Politics and Dublin European Institute (DEI).
The much anticipated Greek election produced what most commentators expected: a left wing Syriza-led coalition government, with a strong electoral mandate to renegotiate the conditions of their domestic debt and growth crisis, strong opposition to their European partners, and a call to confront the domestic oligarchs who control large segments of their political economy. The question going forward is whether domestic Greek politics or European institutions will shape the policy choices pursued by the Syriza government?
It is worth reminding ourselves that the Syriza party itself is a coalition of various left political groups, and therefore political instability in government is highly probable, regardless of their coalition with the nationalist right wing party, the Independent Greeks. The mandate both parties received is to pursue a different economic adjustment strategy to the memorandum of understandings (MOUs) agreed with the Troika: the ECB-European Commission and IMF, whilst remaining in the Euro currency area.
The German inspired Euro-adjustment strategy operates from the assumption that if the Greek government reduces the fiscal deficit and implements domestic structural reforms to enhance labour market competitiveness, they will be in a position to compete with their Eurozone partners in international markets, and kick start an export-led growth strategy to reduce their debt to GDP ratio, which currently stands at around 174% (depending on who you believe). In a nutshell: to pay off their public debt, Greece is being pushed to generate export-led growth. Debt restructuring is not only undesirable but unnecessary. Why has this not worked in Greece?
European policymakers blame political mismanagement by the Greek government. But when one looks at the composition and structure of the Greek export economy, this growth strategy looks rather naive. Greece is not an export-led economy: economic and employment growth is primarily driven by domestic consumption. Exports account for less than 30 percent of GDP (compared to over 100 percent in Ireland). In terms of product composition, 35% of these exports are made up of refined petroleum. Furthermore, their main trading partner is Turkey, followed by Germany and Italy.
Greece is a small-closed economy, and has much more in common with the domestic-demand structure of Spain and Italy. The implication is that the Euro adjustment, somewhat predictably, has had catastrophic implications for domestic growth and employment. In the absence of export-led growth the only way to kick start a political economic recovery is to reduce the debt side of the debt-GDP ratio (whereas in Ireland, export led growth is a realistic prospect, and therefore comparing the Irish recovery to Greece is wrong). Debt reduction, for good economic reasons, is central to the Syriza plan for recovery, in addition to a domestic stimulus for internal consumption.
Most commentary in the aftermath of the Syriza election has tended to focus on why debt restructuring will create havoc in financial markets and the Eurozone, and therefore won’t happen, or that Greece will be forced to leave the EMU. But markets have not panicked. Investors have arguably priced debt restructuring into their assessment of what needs to happen in Greece, where youth unemployment is 58%. The economics are relatively obvious. It is not markets but elected governments in Northern Europe, and technocrats in Eurozone institutions such as the ECB and the Euro-group council, that are most opposed to debt restructuring. They have the most to lose, both in terms of getting their money back, and domestic political credibility.
This leads to a complex institutional game with unpredictable consequences. Political science theories should help us navigate some possible outcomes, as it draws our attention to the relationship between political strategy, public opinion and institutions. According to the latest Eurobarometer poll, 60% of Greek citizens (much like most southern European countries) consider unemployment, and the economy, the primary problem facing the EU. German public opinion considers immigration, and the public debt of other countries, to be the biggest problem facing the EU, with almost 40% of Germans citing immigration as their primary concern. It is not unreasonable to suggest that concerns about immigration is feeding popular support for the right-wing anti-immigrant Pegida movement, and right wing Euro-sceptic AfD party.
Table 1: % of Population Concerned about Immigration
Data: Eurobarometer
Table 1 gives a striking picture of changes in German public opinion toward immigration from 2008-2014. Remarkably, in 2009, only 5% of Germans cited immigration as the core concern facing their country, compared to 8% in Greece and 6% in Spain. In 2014, this jumped to a staggering 37% in Germany, compared to 6% in Greece and 3% in Spain. Rising concerns about immigration now brings public opinion in Germany more in line with what is happening in the UK, and other northern European countries such as Denmark, Austria and Finland. The implication is that popular support for right-wing parties is likely to influence, and increasingly shape the German governments position, when negotiating with Greece.
But if there is one thing that we have learnt during the Euro crisis it is that elected governments are not necessarily responsive to public opinion. The only government in the Euro area where the incumbent majority party was not punished by the electorate, and voted out of office, is Germany. Therefore, it is not that unreasonable to imagine a situation where the German CDU coalition might ignore domestic public opinion, and agree to a Syriza mandate for debt restructuring. The risk is that this agreement might increase popular support for far-right political movements, such as the AfD, within Germany, with hugely negative implications for all of Europe after the next German election. In light of this, the CDU would probably prefer to leave it to the ECB to decide.
Furthermore, policymaking in the Eurozone, whilst shaped in the shadow of German hierarchy, is not determined by it. The Eurogroup, the DG for ECFIN and the ECB have all emerged as powerful actors in their own right, and must represent the Euro area. If the left-wing Podemos movement gets elected in Spain, on a similar debt restructuring and anti-austerity alliance to Syriza, then Greece will not be a lone wolf in negotiations. Different compromises and political coalitions will emerge in various new forms. The risk for Europe is that it deepens the asymmetry of integration between its northern and southern peoples. But, overall, Europe has much more to fear from the rise and influence of German nationalism, in the context of an increasing polarizing class structure, than the rise of Syriza and Podemos in the Mediterranean.
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