European voters say no to austerity

Voters in France and Greece redrew Europe’s political map Sunday in a powerful backlash against the German-led cure for the region’s debt crisis: painful austerity.

In France, voters swept Francois Hollande into the nation’s highest office, ejecting President Nicolas Sarkozy and bringing the Socialists back to the Elysee Palace for the first time in 17 years. Along with Germany’s Angela Merkel, the blunt-talking Sarkozy was a chief architect of Europe’s push to restore confidence in the euro through tough fiscal discipline. In contrast, Hollande vowed to focus on economic growth, arguing that the singular emphasis on spending cuts has weighted down Europe with recessions and soaring unemployment.

Yet potentially more disruptive to Europe’s crisis management plans, furious voters in Greece dealt a powerful blow to traditional parties that backed the tough terms of the country’s massive international bailout. The result left centrists in Athens scrambling to form a fragile new government against strengthened ranks of the far left and right. Even the leader of a center-right party that earned the most votes — New Democracy — backtracked on a pledge to support the bailout conditions late Sunday, casting fresh doubt on Greece’s rescue deal and the nation’s ability to remain within the euro zone.

The results in France and Greece came after a tumultuous few weeks in which the Dutch government fell and Britain’s Conservative-led coalition received a licking in local elections. In all cases, front and center was the growing debate over austerity vs. growth, with opponents of strict cuts arguing that they are succeeding only in driving the region’s economies into the ground.

Lessons on spending cuts

The pushback in Europe could hold tough lessons for the United States, where government spending and the deficit have emerged as major election-year issues. Presumed Republican nominee Mitt Romney has vowed to cut the deficit at a faster pace than President Obama. But the mixed results of such policies in Europe — where a voter backlash has brought down leaders in Italy, Spain, Ireland, Portugal and now France and Greece — could make the argument for speedy deficit reduction increasingly difficult.

In Europe, the rapidly changing political landscape is throwing up new challenges as the region struggles to end a debt crisis that has loomed over the global economy for more than two years. That is especially true for Merkel, who has led the argument that such woes can be fixed only by foisting fiscal restraint — of the kind Germany imposed after its 1990 reunification — on heavily indebted nations that share the euro currency.

In Germany, meanwhile, Merkel’s party faced a setback in regional elections Sunday, with her Christian Democrats in danger of losing power in their fourth state in two years after their worst showing in Schleswig-Holstein since 1950.

Farther west, a triumphant Hollande said Sunday that he would work for “a reorientation of Europe, for growth, for employment, for the future.” He added that “in quite a few European countries” hit by austerity, his arrival marked “a relief, a sign of hope.” He conceded that France must get a grip on its deficit but said he wanted to add a “dimension of growth” to the debt-reduction struggle, adding: “This is what I will tell our friends, and, above all, Germany, in the name of the friendship that unites us.”

Analysts say voters across the region generally appear to support the notion of good-fiscal governance and balanced budgets. But those spending cuts have come too quickly for European electorates, and they see their leaders as unable to link the austerity measures with new engines of growth.

“We have a problem, and all of Europe has a problem,” with austerity, said Eleni Vardakis, 42, a nurse at a public hospital in Athens who voted in Sunday’s elections. Public health spending has been subjected to major cuts in Greece because of bailout conditions imposed by the International Monetary Fund and the European Union. “People have done enough. They’re willing to do even more if they see there’s a future. We’re trying to move toward the light, but it’s getting further and further ahead.”

Merkel’s French problem

Since the onset of Europe’s debt crisis in September 2009, the response has been largely guided by two leaders — Merkel and Sarkozy. That partnership was key in drafting the bailouts for Greece, Ireland and Portugal, and in the inking of a fiscal accord for the region in December that places strict and enforceable limits on public spending to reassure investors.

Hollande, however, has vowed to renegotiate that treaty. That position led Merkel to take the unusual step of endorsing Sarkozy ahead of Sunday’s vote.

Yet analysts say Hollande — who is set to make Berlin his first official destination as president — will try hard to reach a meeting of the minds with Merkel, who may have to reluctantly agree to new measures aimed at promoting economic growth. Those actions could include new investments in E.U.-funded infrastructure projects aimed at creating jobs and pulling some of the region’s hardest-hit economies out of recession.

Some say Hollande is presenting what could emerge as an alternative view to Germany’s message of cut, cut, cut. Hollande, too, agrees with the notion of balanced budgets — a goal he promises to achieve in France by 2017. But he is seeking to shift more of the burden on the rich — proposing a 75 percent tax rate for the wealthiest French citizens. At the same time, he is eyeing a higher minimum wage and a boost in job growth through the hiring of new educators funded at least in part through tax increases.

Some of his pledges could begin to address the concerns of those economists who say Europe is making things worse by pushing cuts too fast, too soon. But ahead of the election, France’s borrowing costs edged up as investors grew jittery about Hollande’s commitment to running a tight fiscal ship. If he is seen as leaning toward overspending, analysts say, France could quickly come under direct fire from investors, igniting a dangerous new chapter in the debt crisis.

At the same time, without Sarkozy, Merkel could find herself more isolated in the push to keep austerity at the top of Europe’s agenda. It could also make it harder for the Germans to force new waves of cuts later this year if indebted nations in the region miss their budget targets — a likely circumstance given how slowing economies are hurting national coffers across Europe.

“German politicians are worried. They know their domestic public is unsympathetic to the travails of the euro zone’s indebted countries, and what they’re worried about is Hollande coming in and talking a less firm line on cuts,” said Robin Niblett, director of Chatham House, a London-based think tank. “They want to keep the pressure on, and they don’t know how much of a partner they have in Hollande.”

Correspondents Michael Birnbaum in Athens and Edward Cody in Paris contributed to this report.

Anthony Faiola is The Post's Berlin bureau chief. Faiola joined the Post in 1994, since then reporting for the paper from six continents and serving as bureau chief in Tokyo, Buenos Aires, New York and London.
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