Does Tsipras Have a Better Plan for Europe Than Merkel?

09/03/2015 12:09 GMT | Updated 06/05/2015 10:59 BST

Until recently most Europeans trusted Angela Merkel and other proponents of austerity policies to lead them out of the crisis. Much has been made of the pressures exercised by the EU and northern European countries on the crisis countries. However, over the last years not only northern Europeans voters but also the electorate in the crisis countries consistently favored governments that supported austerity. Rather than being victims of external pressure, Europeans imposed austerity on themselves, hoping that the sacrifices would lead to financial stability and economic recovery. But now the tide seems to be shifting. Greek's new left government is pushing hard for economic regime change in the Euro zone, in Spain anti-austerity movement Podemos is poised to win the next election and even in Germany and other northern European countries voices critical of austerity can be heard louder than before. Two factors are causing this political shift: the weak economic results of austerity and the ability of the new left movements to formulate a credible alternative plan for Europe's economic future.

When austerity policies were first rolled out many economists predicted that severe cuts in government spending would aggravate the crisis rather than solve it. The actual outcomes proved them right: not only did low or negative growth lead to high unemployment but reduced tax receipts also meant that public finances in the crisis countries did not improve as promised. Even economies that are doing better than the crisis countries, such as Germany's, are performing at historically low levels of growth. Voters were remarkably patient and have given this economic experiment much time but now there is a clear sense austerity has failed and that an economic plan B is needed.

However, until the rise of the new anti-austerity movements there was nowhere to turn to for disaffected voters. Some turned to far-right parties but big parts of the electorate are luckily reluctant to accept their anti-European and xenophobic rhetoric. The natural place to go for voters who are angry about conservative governments slashing the welfare-state are Socialist and other moderate left-wing parties. However, these parties fail to offer a plausible alternative to the cocktail of government cuts and structural reforms proposed by conservative politicians. True, the leaders of the established left in Europe deplore the social misery that the cuts created and they castigate the weak recovery. But at the same time they loose no opportunity to stress that they are committed to balanced budgets and debt reduction through reduced government spending. They offer a lighter version of austerity that is less drastic and could be implemented over longer time frames but theirs is not principled opposition based on an alternative Keynesian analysis of the economic situation. Instead, the half-hearted position of the traditional left is inconsistent and smacks of political opportunism. Voters rightly doubt that the same fiscal policies that are already failing could be made to work by new governments.

The same is true of the economic long-term vision: proponents of austerity argue that efforts to balance government budgets need to be complemented by deregulation of labor markets in order to ensure competitiveness in the future and lower costs in the European periphery to bring them into line with Germany and other core countries. As critical economists have pointed out, the result of similar reforms is to depress wages and further weaken the already insufficient consumer demand. A sensible alternative position would be to call for wage increases, in particular in Germany and other core states. This would strengthen demand for the whole Eurozone and close the competitiveness gap between Euro countries by increasing costs in the core, not by lowering them in the periphery. However, politicians of the traditional left have embraced labor market reforms enthusiastically. In Germany the social-democrat Gerhard Schröder pioneered them in early 2000s. Today they are being pushed through by centre-left governments in France and Italy. No one embodies the shortcomings of Europe's traditional left better than Italy's Matteo Renzi. In the middle of the deepest economic and political crisis of Italy and of Europe since the Second World War he is entirely absorbed with political maneuvering and is incapable of formulating an alternative economic plan to the failed austerity policies.

In contrast, the new left movements of Greece and Spain offer a truly alternative economic vision. It may not be one that everyone likes but at least it is coherent and credible. In the short term their focus has to be on restructuring the debt burden with the help of the European Central Bank and other partners. But they also have a plan for the long term: they are committed balancing government budgets, when the time is right, not by cutting expenditure but by increasing fiscal pressure on high incomes and wealth. Besides the markedly different social implications compared with current austerity policies this type of redistribution also reflects an alternative economic analysis. Their aim is to engineer an economic recovery by strengthening demand and changing the economic and political structure of their countries. The proposed 'soak the rich' policies would reduce high incomes with their high savings rates. Large amounts of unspent wealth and incomes would be used to finance government expenditure bringing much needed economic stimulus.

Unlike Renzi's Italian government, Syriza and Podemos are credible when they promise to take on the vested interests of local elites and to act against corruption and tax evasion. They have both the broad political support and the alternative vision that is necessary to bring the fundamental change of political culture to their countries that is a precondition for economic recovery and long term financial stability.

It may be difficult for many European politicians and bureaucrats who have spent the last years promoting austerity to accept that electorates are turning away from them. But it is now crucial for Europe's future that this opportunity for a fresh start is not wasted. The new movements bring something to the political landscape of Europe that is currently missing: in contrast to Europe's conservative parties, they are willing to openly criticize the mistakes that have been made in handling the economic crisis; in contrast to Europe's moderate left they have an plausible alternative plan for Europe's economic future; and in contrast to the far-right movement they want Europe's unity to survive. Tsipras and his friends deserve a chance. It may be Europe's last.