April 18, 2011 / 12:43 PM / in 8 years

Analysis: Crisis-driven populism threatens euro zone rescues

PARIS (Reuters) - Rising political populism around Europe, driven by public anger over the impact of the financial crisis, threatens to make solving the euro zone’s debt woes increasingly difficult.

It also heralds a new clampdown on immigrants and asylum seekers as Europe’s aging societies seek to protect their jobs, welfare benefits and living standards amid public spending cuts.

The stunning surge of the True Finns party from obscurity to become the third force neck-and-neck with the mainstream parties in Sunday’s election means Finland is bound to become a much more awkward member of the single currency area.

“Indeed in terms of European Union policies, Finland will become a more difficult partner. It will have more questions, a lot of requests,” said Sixten Korkman, managing director of the Research Institute of the Finnish Economy.

The True Finns’ main campaign plank was opposition to funding a bailout for Portugal, the latest euro zone country to request financial assistance after Greece and Ireland. But they were also hostile to immigration, which is tiny in Finland.

The vote mirrored gains by anti-establishment protest parties, often hostile to Muslim immigration, in Sweden, Denmark, Austria, the Netherlands, France, Italy and Belgium.

Across wealthy northern Europe, a prime target is the cost of bailing out debt-laden states on the euro zone periphery, seen as guilty of fiscal or financial recklessness.

While no new populist party has yet emerged in Germany — Europe’s reluctant paymaster — the Free Democrats, junior partners in Berlin’s center-right coalition, are taking an increasingly Eurosceptical line as they fight for survival.

German political debate is strongly influenced by critics of the euro who see the EU drifting toward a dreaded “transfer union,” in which thrifty, well-managed states sign over large checks to ill-governed, profligate countries.

FDP lawmakers want the German parliament to have a veto over all future bailouts, similar to the powers of Finland’s legislature, and some want a future permanent EU rescue fund to include a provision to expel countries from the euro zone.

“It’s hard to tell who are more obstructive and less European, the True Finns or the Free Democrats,” said a senior European official involved in the financial rescues.


The growing “we won’t pay” mood in northern Europe may soon be matched by a “we won’t save” mood in high-debt countries.

A public backlash against austerity and recession, seen as imposed from outside, is starting to constrain governments’ ability to implement fiscal consolidation measures agreed with the EU and the International Monetary Fund.

Ireland’s last government suffered a historic drubbing in a February general election as much due to the terms of a bailout deal with the EU and IMF as to its handling of a banking crisis.

The new government vowed to make private sector bondholders share the cost of cleaning up Irish banks, only to retreat when Brussels and Frankfurt rejected such burden-sharing as a threat to financial stability — that is, to German and other banks.

Portugal’s minority Socialist government fell last month after parliament rejected austerity measures taken to appease euro zone partners and fend off a bailout, which Lisbon has since had to request.

In Greece, Prime Minister George Papandreou is encountering resistance, within his Socialist party as well, to ever deeper wage and public spending cuts and the prospect of selling off swathes of state property to satisfy creditors. Opinion polls show the hard-right nationalist LAOS party picking up support.

Some Greeks are reacting to austerity with a form of civil disobedience, refusing to pay taxes, road tolls and transport fares in a blow to revenue collection.

Economics is not the only battleground of the new European populism.

France and Italy are at loggerheads over how to handle a so far relatively small inflow of 26,000 migrants from Tunisia and Libya caused by the political upheavals in North Africa.

EU interior ministers failed to agree on a joint European response last week and the French government, with the far-right anti-immigration National Front dramatizing the issue, has closed its border to the migrants.

In the euro zone, a crunch may come next month, when member states will be asked to approve an 80 billion euro financial rescue for Portugal, or it may come a little later, as pressure mounts for Greece to restructure its debt.

Finland may be persuaded by peer pressure, and the key role of Finnish EU Commissioner Olli Rehn, to relent on Portugal. The Nordic country has been a huge beneficiary of EU membership since it joined in 1995, emerging from the historical shadows of two powerful neighbors, Russia and Sweden.

Since the Portuguese negotiations have not yet really begun, EU officials say there is scope to show that Lisbon is being made to accept tough conditions to satisfy Finland.

True Finns leader Timo Soini is seen by some as hungry for office and may accept a compromise if offered cabinet seats.

But even if Portugal gets under the wire, at some point in the coming months, the conflicting domestic political pressures on lender and recipient countries in the euro zone seem bound to lead to a serious clash.

Faced with a choice between extending further aid to Greece or seeing their own banks and insurers take losses if Athens has to reschedule its debt, the angry brigades of German, Dutch, Austrian and Finnish voters are likely to increase pressure on their governments to stop the bailouts.

Whether European authorities can keep the lid on the populist pressure cooker remains to be seen.

Editing by Mark Heinrich

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