Running out of other people's money

Francois Hollande’s election victory is a symbol of the EU’s decline

By Nile Gardiner

Nicolas Sarkozy’s defeat at the hands of French Socialist leader Francois Hollande has sent shock waves throughout Europe, and will significantly challenge the fragile austerity consensus across the EU. Jean-Marc Ayrault, the likely next prime minister of France, puts it in uncompromising terms:

"We must get out of this austerity in Europe and tonight all our partners in governments around Europe have understood that was the choice of François Hollande to re-orient Europe."

Hollande’s victory spells trouble ahead for both Angela Merkel and David Cameron, who face general elections in 2013 and 2015 respectively. Both Merkel and Cameron have championed the need for budget cuts in the face of Europe’s massive debt crisis, and face growing domestic opposition to their support for austerity measures. If Merkel falls in the Autumn of next year, the balance of power within the EU will shift dramatically to the Left, with Britain and Spain as the two leading conservative-led governments in Western Europe confronting a re-engineered Franco-German axis that would back greater stimulus measures as a solution to Europe’s problems.
But regardless of the electoral landscape in Berlin and London over the next three years, the inescapable fact remains that the European Union, and the Eurozone in particular, is in a state of decline. As my Daniel Hannan noted in his excellent Encounter Broadside pamphlet ‘Why America Must Not Follow Europe’, Western Europe's share of world GDP fell from 36 percent in 1974 to just 26 percent in 2011, with a projected fall to 15 percent by 2020. In contrast, the US share has remained steady at about 26 percent of world GDP.

As economic freedom declines, EU member states are becoming less and less competitive on the world stage, while emerging economies from Asia to South America are gaining ground. Decades of big government policies have now brought several European economies to their knees. Soaring taxes, spiraling unemployment, mountains of red tape, stifling labour regulations, and ruinous levels of public spending needed to fund vast and unsustainable welfare states and entitlement programmes have created a perfect storm of economic malaise. And France is a potent symbol of that decline, with huge levels of public debt, now standing at more than 80 percent of GDP, government spending at 55 percent of GDP, and a tax burden equivalent to 42 percent of total domestic income.

In addition, Western Europe’s problems have been exacerbated by the relentless centralisation of political and economic power in Brussels, which has added layers of suffocating regulations for businesses operating within the EU, as well as onerous regulations on financial institutions, while the single currency has made it increasingly difficult for national leaders to address their own countries’ economic woes.

The European Project has become a yoke around Europe’s neck, a symbol of rampant supranationalism and big government intervention, and a warning to the United States if it chooses to go down the same path as the European social model. The much touted EU Fiscal Compact, heralded as a saviour for the Eurozone’s economic woes, is merely an extension of the European Project and will not solve the long-term economic problems the EU faces. In addition it will only exacerbate the democrat deficit that currently exists, leading to mounting tensions between the EU’s Executive and many of its member states. The Compact represents an unacceptable transfer of power from national capitals to Brussels, another major step towards a federal Europe, and will likely collapse as it proves to be unworkable.

Francois Hollande has pledged to re-negotiate the details of the Fiscal Compact for different reasons, which he views as too austere. But he remains a staunch Eurofederalist, and a firm believer in the ideal of ‘ever-closer union’, with his victory warmly lauded by European Commission President Jose Manuel Barroso. Above all Hollande is a supporter of the kind of deeply entrenched socialist policies that continue to wreck Europe’s economies. His election will advance not only France’s decline but the EU’s as well. Hollande has declared “the world of finance” to be his "real enemy", and will implement a top rate tax of 75 percent, increase public spending by €20 billion and significantly expand the size of the public sector. For a country which hasn’t balanced its budget since 1974, that is a recipe for economic disaster.

Francois Hollande offers France a big government nightmare, and the French people are embracing it. His government promises to be a symbol of everything that is wrong with Europe today and a standard bearer for the EU’s decline, delivering policies that are the antithesis of economic freedom. As Margaret Thatcher famously declared back in 1976:

Socialist governments traditionally do make a financial mess. They always run out of other people's money.