Europe: Goodbye Reform?

The Far Right's rise may spell the end to economic change

With his xenophobic rhetoric and penchant for brawling with his adversaries, 73-year-old Jean-Marie Le Pen looked to many like a brutish relic from a bygone era. Until Apr. 21, that is. That's when Le Pen beat Socialist Prime Minister Lionel Jospin and ran a close second to conservative President Jacques Chirac in the first round of France's presidential elections. True, Le Pen will almost certainly lose to Chirac in the runoff scheduled for May 5. But his strong showing underscored the disgust of voters with France's political mainstream, particularly its failure to acknowledge the growing anger of les citoyens against immigrants, the European Union, and the Establishment itself. "We screwed up," admits Pierre Lellouche of Chirac's Rally for the Republic (RPR) party.

Indeed they did. But so have nearly all the politicians of traditional parties throughout Europe. And now a crowd of Far-Right politicians is making so much noise that the ruling parties can no longer ignore them. These populist rightists are hammering away at hot-button issues such as crime and immigration. And they are getting results, from Cabinet seats in Italy to anti-immigrant laws in Scandinavia. The outcome could be a turbulent new era in the Continent's politics. "The populist right is against economic reform by definition. They are against globalization, the European Union, and its liberal influences," says Charles Grant, director of the Center for European Reform, a London-based think tank. That means the political center faces a stark choice. Either mainstream politicians figure out how to quell this uprising and finally push through the changes Europe needs, or they pander to the hard Right--and abandon the cause of reform.

How did Lepenisme--once dismissed as a spent force--as well as other hard-right ideologies get to reassert themselves? Chalk it up to the tin ears of the mainstream politicians. Since the mid-1990s, established parties of the Left and Right in France, Italy, Germany, Spain, and Scandinavia have been grappling over how fast to push through economic reforms. The debate has ranged from labor flexibility to pension overhauls to cuts in public spending. In fact, a broad consensus was emerging that such reforms had to go forward. Not fast enough to turbocharge growth to U.S. levels, but the forward motion was there. That was good: Pruning back the welfare state is the only way to get faster growth, which is the only way to make Europeans feel more prosperous.

But the Establishment has forgotten to explain to voters just why labor reform was necessary, why a single currency was a good idea, and why the EU was better than European disunion. The effort to explain the overwhelming need to loosen labor laws, for example, fell well short of the mark. "The political class hasn't succeeded in communicating the value of flexibility as a positive value for society," says Chief Executive Marco Tronchetti Provera of Pirelli.

At the same time, the slowdown has boosted unemployment, and crime is on the rise. People want scapegoats--whether it's EU bureaucrats in Brussels who block subsidies to prop up failing companies, or immigrants who are accused of sponging off Europe's largesse. It adds up to a whole lot of anger-- and pols like Le Pen know it. "I am the candidate of the people," he says. French exit polls show that Le Pen's biggest backers were have-nots: the unemployed, lower-income workers, and people under 25, many of whom are jobless or have temporary work.

The Le Pen groundswell is just the latest gain for Europe's Far Right. All the Center-Right governments elected on the Continent over the past year--in Italy, Denmark, Norway, and Portugal-- have had to include Far-Right parties in their coalitions to secure parliamentary majorities. Even in the ultraliberal Netherlands, polls predict the populist, anti-immigrant party led by Pim Fortuyn could win as much as 16% in May 15 elections. Electoral laws in most European countries strengthen the extremists' hand, by guaranteeing them a proportional share of seats if they win as little as 4% of the popular vote.

Europe's centrist politicians haven't found an effective way to counter the rightists. After Le Pen's strong showing, crime has moved front-and-center in France's June parliamentary elections, which will pit Chirac's forces against the Socialist-led coalition that now controls the government. Both sides are likely to promise tougher sentencing guidelines and increased law-enforcement spending. Neither has yet figured out how to address voters' anger over immigration.

An even more worrisome question is whether the rightist wave could slow economic reforms. Most Far-Right politicians are scarcely free-marketeers. Le Pen proposes to withdraw France from the EU, enact protectionist tariffs, and slap a surtax on immigrant workers to discourage them from seeking jobs in France. Indeed, the Ultra-Right vision often embraces big government--so long as immigrants don't benefit. With this new force in play, centrist governments will find it tougher than ever to ask voters to make more sacrifices in the name of the markets.

Certainly there has been little headway in Italy since Center-Right Prime Minister Silvio Berlusconi took power last May as part of a coalition that includes the Far-Right Northern League and National Alliance. Insiders say that privatization and market-liberalization measures have stalled in recent months, in deference to the statist leanings of the National Alliance, whose leader Gianfranco Fini is deputy prime minister.

Not all of Europe's ascending rightists are anti-reform. Bavarian Prime Minister Edmund Stoiber is mounting a stiff challenge to German Chancellor Gerhard Schröder in elections this fall, and got a boost on Apr. 21 when the Center-Right Christian Democrats scored a major win in the economically depressed region of Sachsen-Anhalt. Although Stoiber has Far-Right leanings, including a long record of anti-immigrant rhetoric, he is likely to push more vigorously than Schröder has for labor reforms and tax cuts.

Still, he's hardly a free-market devotee and, like Schröder, has often used state banks and political pressure to prop up troubled companies. With the mood changing in Europe, Stoiber may find it hard to push for significant changes. And other mainstream politicians could become immobilized for fear of provoking a further extreme-Right backlash. "They will avoid anything that endangers their reelection," says Daniel Gros, director of the Center for European Policy Studies in Brussels. If the center is too paralyzed to lead, others will change the status quo instead--with unpredictable results.

By Carol Matlack in Paris, with Gail Edmondson in Rome and Jack Ewing in Frankfurt

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