Europe's Populists Aren't Going Away

Big loss.

Photographer: Franco Origlia/Getty Images

Europe's revolt against politics as usual is anything but contained. Governments across the European Union were just beginning to celebrate the defeat of Austria's hard-right Freedom Party in Sunday's presidential election when the news arrived from Italy: Prime Minister Matteo Renzi will resign after his crushing defeat in the referendum on constitutional reform.

In neither case is it clear what happens next. But EU leaders need to think urgently about what they can do across the region to support orderly government in the service of liberal principles. Their failure to act up to now is the thread that ties these and other populist revolts together.

Austria's Freedom Party isn't going away. Norbert Hofer leads a movement that not long ago would have been seen as an extremist outlier -- proudly nationalist, anti-immigrant and anti-EU. Hofer was beaten in his bid for the presidency by Alexander Van der Bellen of the Green Party (running as a moderate independent), but he won an impressive 48.3 percent of the vote. Polls suggest the party will make a strong challenge in parliamentary elections due by September 2018.

In Italy, the populist uprising is still gathering force. Renzi's margin of defeat was so humiliating -- roughly 20 percentage points -- that he might find it difficult to play a main part in the coming negotiations about forming a new government, much less (as some had imagined) end up leading it. The prospect is for yet another caretaker government, pending new parliamentary elections. When they happen, the populist anti-EU Five Star Movement will be a foremost contender.

Meantime, an effectively rudderless Italy has a flatlining economy and a still-unresolved banking crisis. The financial mess may be about to get worse. Renzi's defeat has created such uncertainty that it calls into question plans to recapitalize Monte dei Paschi di Siena, the weakest of the country's big banks.

A banking failure in Italy would be especially potent in political terms because bank bonds are widely held by households, and current EU doctrine requires bondholders to carry much of the burden in the event of a collapse. The Five Star Movement is presumably praying for such a development. If Italy's government were instead to step in and take the debt onto its own balance sheet, the country's already enormous public debt would become even harder to sustain. Making the fiscal problem all but insoluble has been year after year of next to no growth. Renzi's program of supply-side reform, which had offered some hope of addressing that, is now stopped in its tracks.

Across the EU, economic stress and political turbulence are substantially national in character and must be grappled with, for the most part, country by country. Even so, the European Union surely owes its members a collective response to rising anti-EU sentiment.

This would be a very good time to emphasize the cooperative aspects of the European project over the punitive. Italy needs its partners' help, or at any rate their forbearance and flexibility, in dealing with its banking problem. The union as a whole needs a more supportive fiscal policy, and less stern talk about the need for fiscal discipline. It also needs a more conspicuous effort -- or really any effort at all -- to attend to the concerns of EU citizens on a range of issues, not least immigration.

To defeat anti-EU populism, the EU has to work better, and be seen to work better. Merely noticing that the project is in trouble would be a good start.

To contact the senior editor responsible for Bloomberg View’s editorials: David Shipley at davidshipley@bloomberg.net.