April 20 (Bloomberg) -- France kicks off this weekend a series of elections across Europe that together may prove as important as any since the late 1970s and early 1980s, the last time the Western world found itself collectively flailing for solutions to combat an economic slump.
It’s likely that, as they did just over 30 years ago (and again in December in Spain and last month in Slovakia), angry voters will sweep out incumbents. What’s less clear is whether, this time, the new crop of leaders will be as decisive as those who dominated recovery from the oil-price crisis and stagflation of the 1970s: Think Margaret Thatcher (1979), Ronald Reagan and Francois Mitterrand (1981), and Helmut Kohl (1982).
So far, the signs aren’t great, and that’s worrying. Strong political leadership is what European countries -- and the U.S. -- need most if they are to get their fiscal houses back in order and retool their economies to compete effectively with China, Brazil and other dynamos of the global economy that haven’t just emerged since the 1980s, but arrived.
What you’d hope to see on campaign trails in France, Greece, Germany and Ireland over the coming month is a group of politicians willing to say clearly what’s broken in Europe’s economies, what it will cost in financial transfers and loss of fiscal sovereignty to rescue the euro area, and how they plan to fix the problems. You’d hope, too, that voters would then reward the candidates with the strongest plans. That doesn’t seem to be happening.
Neither Nicolas Sarkozy nor his Socialist Party opponent for the French presidency, Francois Hollande, have been willing to tell voters the truth ahead of Sunday’s first-round vote: namely that France cannot pretend it’s an island, throw up barriers to global competition, work a 35-hour week, retire at age 60 and hope to thrive. As most in a series of op-ed articles on Europe’s social model we’ve run this week suggest, countries will need to slim government spending and loosen labor markets to compete globally.
Instead the two candidates for the French presidency focused on immigration policies and punitive, but fiscally marginal, taxes on the rich. Both promised to rein in the budget deficit, with Sarkozy’s plan the more plausible. Unlike Hollande, he has avoided pledges that would boost public spending beyond the already steep 56 percent of gross domestic product that it accounts for in France. Yet neither candidate has been honest with voters about what it will take to make France competitive.
True, Mitterrand arrived in office in 1981 as much more of a left-wing radical than Hollande is today. Mitterrand governed with Communist Party ministers, nationalized banks, cut the working week and imposed a ”solidarity” tax on the wealthy. Two years later, he reversed course in the face of high inflation, stagnant growth and a devalued currency. More important, he linked arms with Kohl, and on occasion even Thatcher, to strengthen Europe. They paved the way for the “single market” for goods in the EU, and for the Maastricht Treaty that founded the common currency.
Faced with economic crisis again, Europe’s leaders are talking up the need for further EU integration, but their actions don’t quite match up. German Chancellor Angela Merkel is reassuring voters in Schleswig-Holstein and North Rhine-Westphalia that she won’t risk German deficits to reflate the euro area or rescue Greece, let alone Spain or Italy. The two German states go to the polls May 6 and May 13, respectively, and are seen as dry runs for next year, when Merkel and her Christian Democratic Union will run for re-election.
If Merkel is being straight with her voters, then the euro area is destined for rolling crises to come. There’s precious little sense of European unity today in Greece, or Ireland -- which will vote on whether to accept Merkel’s euro area fiscal compact in a referendum on May 31. The Irish have a financial incentive to approve the treaty, and can’t block its adoption, yet there’s enough anger over EU-imposed austerity that polls suggest the result could be close.
Greece’s two mainstream parties, Pasok and New Democracy, don’t need to set out a vision of their own to fix the country’s dire problems ahead of parliamentary elections on May 6. The country’s creditors, particularly in Berlin, have done that for them. That lack of control is a big part of why a poll this week suggested Pasok and New Democracy will see their combined share of the vote tumble to about 30 percent, from 77 percent in the last elections three years ago.
Voters are in an ugly mood across Europe, and populists on the left and right are gaining support. France’s communists, until recently in freefall, are enjoying a resurgence. The political vacuum in Greece is being filled by radical anti-EU parties, including the Communist Party of Greece and the neo-fascist Golden Dawn. It’s a testament to the strength of the continent’s democratic institutions that these parties haven’t done more harm.
But no matter how angry they are, voters deserve -- and financial markets need -- a more honest account from their leaders of what must come next for their countries in a globalized economy, where national governments can no longer decide policy alone. France will have to cut back public spending and loosen its labor markets; Germany will need to risk more to bankroll the euro, import more from its neighbors and export less to them; and Greece will have to transform itself into a nation of taxpayers with clean, transparent political institutions. To convince voters of the need for any of these changes would demonstrate true leadership.
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