A Call to Europe’s Leaders to Fight the Rising Tide of Populism

European leaders must address the economic factors that have contributed to the rise of populism in the West and cater to their constituents who have been on the losing end of globalization, said George Alogoskoufis, a former finance minister of Greece.

Alogoskoufis contended that globalization is good for societies as a whole, but there are individuals who lose in this system. “Europe cannot go on ignoring the losers,” he said, because “the losses are real enough for those who suffer them,” and nationalist, populist movements target these disaffected people.

According to Alogoskoufis, who now serves as a professor of economics at the Fletcher School at Tufts University, “there is little doubt that the resurgence of nationalism in Europe has serious economic underpinnings that we cannot ignore,” many of which are tied to the effects of globalization. 

Ana Palacio, a former foreign minister of Spain, built on Alogoskoufis’ sentiments, stating that economic reform designed to counter the economic roots of populism and discontent among Europeans must be presented in a way that resonates with the people. “We need to connect with the people and what connects today are complete, real issues,” she said. “Just the idea of more Europe today doesn’t sell anywhere.” 

US President Donald Trump recently expressed his indifference to the EU, saying “the EU was formed, partially, to beat the United States on trade, OK? So, I don’t really care whether it’s separate or together, to me it doesn’t matter.” The prospect of continued transatlantic trade and economic cooperation now hangs in the balance. “Keeping Europe whole and free is something that seems to have vanished from the radar screen of the commander in chief of [the United States],” said Palacio. 

Alogoskoufis and Palacio joined C. Boyden Gray, a former US ambassador to the EU; and Shekhar Aiyar, deputy chief of the European Department at the International Monetary Fund, at the Atlantic Council on January 26 to discuss proposals to reinvigorate economic growth in Europe. The event was hosted by the Global Business and Economics Program at the Atlantic Council, as part of its EuroGrowth Initiative. Andrea Montanino, director of the Global Business and Economics Program, moderated the discussion. 

Each of the panelists shared their ideas for concrete steps that might be taken to boost the EU’s economy and address the concerns of its citizens. Palacio emphasized the need to invest in dynamic and lucrative areas, such as the energy and digital sectors, at a European level. She said these are “two frontier territories of the EU,” both of which “resonate with citizens, which is in the end what we need to do.”

In addition, Palacio called for a “common effort” to improve the security of EU borders. 

According to Gray, the quickest way to stimulate real growth is to implement massive deregulation. In the current state of the EU’s single market, designed to facilitate cross-border investment and innovation, an individual needs approvals from all of the EU’s twenty-eight member states for any new initiative, from cells phones to vineyards. “Massive deregulation would give hope, would spark innovation,” said Gray. He said that if EU leaders “announced it with seriousness and the intent to cooperate with the US on this, I think you would get very quick results.” 

“Whatever we do in the short term has to be consistent with the long-term target,” said Alogoskoufis. As a short-term fix to better redistribute the gains of globalization and appeal to people on a personal level, “we need more Europe in the social area.” He called for an increase of the EU budget from 1 percent of gross domestic product (GDP) per country to 3 percent. Doing so, he said, would allow for a more effective redistribution of wealth throughout the Union to accommodate the losers of globalization and ensure that individual countries “do not need to shoulder the cost of unemployment.” 

However, in response to a plan to increase the budget of an institution many European citizens do not understand, Palacio said that EU leaders must explain, in concrete terms, why it is necessary. Populism uses “preconceived mantras of the bureaucracy,” she said, therefore, “unless we explain, and unless the citizens understand that we have to go from 1 percent to 3 percent… we are on the losing side.” 

Aiyar focused on the issue of productivity slowdown in Europe and the need to create jobs, claiming that “labor markets can be sensibly liberalized in many places.” However, “there’s a whole host of policy recommendations which can be put forward,” he said, “but I’m not sure any of them are quick fixes.”

“Beyond jobs, we need a perspective for the future,” said Palacio. She called for the EU to revamp its economy in such a way that it reinvigorates hope. “People are afraid of the future. Our people in Europe do not see a future for their children,” she said, adding that in the current environment, young people find it hard to get a good start in life. 

Ultimately, according to Palacio, “we need a cultural change.” However, she warned that “we need to believe in the future, because the moment we don’t believe in the future, the European Union is gone.” 

Montanino said that a belief in the future translates into greater investment. However, there have been no major EU initiatives in the past few years, said Alogoskoufis. Europe has been on the defensive, dealing with one crisis after another. He called for new federal initiatives, and new areas where there can be a collective effort to create more Europe. 

In order to achieve this ideal, Aiyar emphasized the “need to reduce bureaucratic barriers to cross-border investment.” The only short-term solution to “anemic” economic recovery, according to Aiyar, would be a version of fiscal expansion. He said Germany is the only country with a strong enough national economy to lead economic recovery on a European scale. Though it is a daunting prospect from a political point of view, “from an economic point of view, it’s the only short-term solution we can have, and it would stop populism in its tracks if Europe were to recover,” he said. 

Whether the United States can play a role in the EU’s economic recovery remains uncertain in light of Trump’s indifference to the Union and his focus on negotiation the best trade deals for the United States. 

Gray called for “regulatory harmonization,” between the EU and the United States. “If we look at the Atlantic as one great internal economy, which it is… let’s get to an internal market that is free of meddlesome regulation,” he said. The Transatlantic Trade and Investment Partnership (TTIP) would have been a positive start down this road, however, the prospects for the trade deal appear dim. 

According to Palacio, Trump is not to blame for TTIP’s stagnation. She said TTIP was doomed well before Trump took office, due to the negativity of European leaders. 

In response to concerns about US protectionism with regard to trade, Gray said: “What Europe and the United States have now is much more than a trading relationship, it’s the same economy. How are you going to be protectionist with your own economy?” However, Alogoskoufis struck a more cautionary tone, saying, “protectionism is a major threat, and I don’t see the silver lining in this.” 

If the United States begins to discriminate against countries producing goods outside its borders, the results could be detrimental to the global economy, he said. “If the US starts discriminating, Europe will start discriminating.” With both parties involved in transatlantic trade discriminating against foreign production, Alogoskoufis sees only negative consequences. He conceded there may be short-term benefits “if Trump gets his way,” but the threat is “extremely dangerous.” 

Rachel Ansley is an editorial assistant at the Atlantic Council. 

Related Experts: Andrea Montanino

Image: Pound coins are seen in front of a displayed EU flag in this picture illustration taken January 18, 2017. (Reuters/Dado Ruvic/Illustration)