How the Eurocrisis Will Affect the West
Next Sunday, the first ballot of the French presidential elections will be held. The two candidates with the most votes will run against one another in the second and final round on May 6. The big surprise of the French electoral campaign so far has been the rising support for Jean-Luc Mélenchon, the leader of the far-left Left Front. Mélenchon will not be able to make it to the second round, but the party, which he established in 2009 after leaving the center-left Socialist Party (PS), is expected to do very well in the parliamentary elections next June.
Mélenchon could become the kingmaker, deciding which of the two major candidates, the incumbent center-right Nicolas Sarkozy or PS candidate François Hollande, will win the second round. If Hollande manages to win thanks to Mélenchon's support, there are bound to be consequences for France's relations with the United States and Israel.
The rise of the French far-left is not an isolated case. One can see this phenomenon all over Western Europe. While Europe is facing economic decline, the far-left is gaining popularity. The rise of the far-left is a direct consequence of the eurocrisis. As this crisis deepens, the appeal of the far-left grows.
Last week, the eurocrisis was back with a vengeance. All over Europe stock markets fell dramatically. Spain took the hardest hit. Spanish 10-year bond yields surged above 6 percent. Spain's economy is expected to contract this year by 1.7 percent. The "Spanish fever" is now infecting the entire eurozone, the group of 17 European Union member states which use the euro as their common currency.
The problems of the banks are dragging Spain down. Spanish banks stand to lose €80 billion as a result of a 20 percent loss in real estate value, while they have only €50 billion available to cover their losses. Moreover, a further steep decline of Spanish real estate prices is expected. In December and February, the European Central Bank provided cheap loans to European banks for €1,000 billion. Meanwhile, however, the effects of the ECB's interventions have worn off.
The Spanish government will have to bail out its banks, but the Spanish state itself is teetering on the brink of bankruptcy. It is urgently in need of a eurozone bailout itself. Unemployment has risen to 23 percent of the Spanish workforce. In the eurozone, too, unemployment has risen to almost 11 percent. In Greece and Portugal, which already received eurozone bailouts, the situation has gone from bad to worse. Portugal needs a second bailout, while Greece already got one. Italy, however, is doing barely better than Spain. Italy's GDP will contract this year by up to 1.5 percent.
Rumors last week had it that Spain will soon follow the example of Greece, Portugal and Ireland and ask the other eurozone countries for a bailout. Spain's economy, however, is twice as big as the economies of Greece, Portugal and Ireland combined. Saving Spain will put an enormous strain on the entire eurozone.
Productivity in southern eurozone countries like Spain, Italy, Greece and Portugal is about 30 percent lower than in northern eurozone countries, such as Germany. The southern countries cannot devaluate in order to make their products cheaper. They can only keep their economies afloat with bailout money provided by the countries in the north or by introducing severe austerity measures. The peoples in the north, however, resent that they, too, are being submitted to a severe fiscal austerity which is needed to provide their governments with the billions they are using to bail out the south. As a result, the euro is becoming hugely unpopular in both the south and the north.
Hence, a formal Spanish request for European aid will not be placed until France has elected its new president on May 6. Nicolas Sarkozy, the incumbent president seeking reelection, is in favor of saving the euro by bailing out countries in distress. This is done mostly with German money anyhow, although the French taxpayers are also footing part of the bill. Sarkozy is well aware that he would lose the elections if he were to announce today that the French taxpayers are helping Spain.
Sarkozy's main opponent, François Hollande, leader of the Socialist Party, is an outspoken critic of the official policy of the European Union of imposing austerity on EU member states by forcing them to keep their budget deficit at a maximum of 3 percent of GDP. Hollande is feeling the pressure of the far-left, whose candidate Jean-Luc Mélenchon, is polling over 10 percent of the French vote – twice as much as was originally expected. Mélenchon is even more critical of the EU's austerity policies.
Two weeks ago, a convention of Mélenchon's party in front of the Bastille in Paris drew over 100,000 people. Many were wearing Phrygian caps, the symbol of the French Revolution. To win the second round of the elections, Hollande needs Mélenchon's support. Some have already speculated that if Hollande wins the elections he will have to include Mélenchon in the next French government, which will be formed after next June's parliamentary elections. This will not only have repercussions for the EU, but also for the U.S. and Israel. The French Left is traditionally very anti-American, although Barack Obama can count on a lot of sympathy among the European Left. France's relationship with Israel will also be influenced because the French far-left is fiercely pro-Palestinian. Hollande has announced that he will recognize a Palestinian state within the West Bank's 1967 borders. Mélenchon has even declared that East Jerusalem should be the Palestinian capital.
The eurocrisis has breathed new life into the far-left, not just in France, but all over Europe. May 6 is not only the day when the French appoint their new president; on the same day Greece will elect its new parliament. Here, too, the far-left is expected to do well. The conservative New Democracy party and the socialist PASOK party, which currently hold a majority and have both accepted the EU's austerity measures, are polling less than a third of the votes. The EU is adamant that if the new Greek parliament rejects the austerity program, the agreed second bailout of Greece will not go ahead. Without the bailout, the Greek government has no other option but to default and leave the eurozone.
This would lead to great civil unrest. Much greater than the outbursts of violence by far-left activists which Greece has witnessed over the past months. The summer of 2012 is going to be hot in Europe. And the repercussions might be felt as far away as Washington and Jerusalem.Related Topics: Peter Martino receive the latest by email: subscribe to the free gatestone institute mailing list.
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