This week’s electoral results in Europe undermine the prospects for the European Union to resolve its financial crisis, and the U.S. markets take notice.
The stock market fell, and even the cattle markets this week were hurt by concerns over the electoral results in Europe. The defeat of the incumbent conservative in France, Nicolas Sarkozy, by socialist Francois Hollande, as well as new leadership in Holland, was widely interpreted as a rejection of the austerity measures that most of Europe has had to adopt in order to stave off immediate bankruptcy.
However, one needs to delve a little deeper into the results. Without question, the governments of these countries are not only the dominant employer, but the driver in terms of economic activity. So, without question, the austerity measures have been unpopular and some quarters have capitalized on the anguish with populist rhetoric. However, there’s also a widespread understanding that these countries are on the verge of a Greece-like collapse if something isn’t done.
Truth be told, however, the austerity measures enacted by these countries have been nothing of the kind, as government spending has continued to increase, and at a faster rate than revenue. It amounts to pain with no gain, and the leadership – regardless of whether they lean left or right – has essentially followed the path of least resistance. It amounts to just a less-enjoyable version of the status quo.
The situation has served to strengthen both the right and the left in these countries, something the U.S. has also seen with the growth of the Tea Party and the Occupy Wall Street movements. The U.S. is also witnessing similar election results where the moderates of both parties are being defeated as the country increasingly rejects the status quo.
The interesting aspect in the U.S. is that we are witnessing left-leaning candidates being defeated in left-leaning districts, as they’re considered to be not far enough left. Meanwhile, right-leaning candidates are being ousted for not being far enough right. Perhaps a world economy tilting on the brink of collapse has widened the political divide, but the current trend is making things interesting.
Independents or middle-of-the-road people have always been the key to elections in the U.S., as the ideologues are fairly evenly divided. Today, however, the extreme ends of the political spectrum are breaking off and refusing to support the more traditional candidates. Ironically, this development has given those driven by ideology more power while resulting in less electoral results.
The reaction in the markets is probably right in that the election results are a bad sign for the economy, but it is not so much a rejection of attempts to fix the problem as much as it is a vote against the status quo. Just like what has occurred in this country, one wonders if fiscal sanity is something that elected politicians have the courage to muster. It’s the reason why our founding fathers rejected democracy for a representative form of government; but perhaps our representative republic, too, is fundamentally flawed when the elected officials become more politicians than statesmen.