Bad monetary policy and the renaissance of European national socialism

Reading today’s FT on the upcoming European Parliament elections, I’m all the more convinced that Europe is in for a period of politics dominated by a renascent national socialism.  As I’ve written before, this will be far kinder and gentler than anything from the 30s and early 40s, and on its face, might not seem to have anything in common with the fascism of that era.  But again we see the rise of parties and politicians who promise to take far more active control over all manner of economic activity – especially the movement of money and people across borders – in order, in turn, to redistribute wealth and power to members of in-groups defined along explicitly national and in some cases ethnic lines.  This movement – and at this point, I think, it’s indisputably a movement – profits from the frustrations of voters all across Europe, who feel they’ve lost control over their local affairs, to the EU, to foreigners, to big business, and in the bargain they’ve gotten little.

I think that contrary to what one reads in the mainstream press, this development is not all negative.  The EU is a fundamentally un-democratic institution.  Under pressure from MEPs and national-level leaders demanding more of a say in how it divvies up resources and wields its enormous administrative power, it can only become both less powerful and more democratic, and that’s all to the good.  The bad, however, is indeed bad.  Particularly worrisome is the anti-immigrant sentiment common to the various neo-right parties.  Also a problem: many of these groups, notably the French FN and the left of the French Socialist Party, are explicitly dirigiste in their economic views.  They may well want more power returned from Brussels to national-level leaders.  But they also want the latter to make active use of bad-old-days practices such as nationalization and radically restricting the right of foreigners to buy “native” assets.

What’s to be done about this?  I don’t think mainstream parties can fight this trend without a radical change in an area that seems, to most, to be only tangentially related to the problems that have so pissed off so many European voters.  The change that needs to happen is in European monetary policy.  As Scott Sumner and Ambrose Evans-Pritchard have written, the real problem in Europe, the one that underlies so many of Europe’s other problems, is exceptionally tight money.  That is, the far too slow growth, for some years now, in the supply of Euros issued by the ECB.  Too few Euros on the market radically limits both available credit and investment options.  Moreover, investors believe – and are right to believe – that this will continue indefinitely.  So investment is meager, with too much money sitting in banks or sent elsewhere.  The result is stagnation and in some countries, active contraction.  In a few countries, notably Germany, the economy is so efficiently run that there are still investment options, and the local pie is still growing, a bit.  The result is an electorate that’s not as pessimistic and angry.  And in turn, the German neo-right is still relatively small and its views more mainstream, if only just.  But in so many other places – including the other two of Europe’s big three, the UK and especially France  – the neo-right parties are both more popular and more worrisome.

The European parliament, after tomorrow’s vote, will likely be dominated by these parties.  Will it find a way to take direct control over the ECB, and force the bank’s leadership to change course in monetary policy?  I doubt it.  The problem is that if anything, these parties and their leaders are more dirigiste, as a whole, in their economic views than are most mainstream parties.  They want more control for politicians and government institutions, not a state or a supra-state that, by looser money or other means, puts more economic might in the hands of private investors and ordinary citizens.  And for most of them, control over immigration and EU regulation are the key issues, with monetary policy an afterthought.

So while we may well see some real power devolve to the national level, the ECB won’t likely be pressured to do much different, anytime soon.  It will continue to fumble along, making “rookie mistakes” such as treating low interest rates as a sign of easy money, and focusing on making weak economies push through harsh austerity plans.  Just as the US Federal Reserve did, in the 30s.  In politics, the nationalist neo-right will likely continue to boom, as its moves to close immigration and re-distribute power and resources win it, at least at the beginning, even more popularity.  Just as fascist parties did, in the 30s.  Throughout Europe, many more may well come to see that these parties have the answer to help Europe escape a period of stagnation and ennui that seems to have gone on forever.  Neo-fascism will in turn become at once more powerful, and more virulent.  Just as in the 30s.  How far this goes is up to the ECB.  And that’s what worries me.

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