Europe’s new political alignment

Harold James

PRINCETON, New Jersey - Many Europeans tremble at the likely outcome of the upcoming European Parliament election: a strong showing for anti-European protest parties, which will almost certainly try to present themselves as the real winners. But hand-wringing will not resolve the European Union’s political crisis.

And the crisis runs deep. Nowadays, anti-EU parties - Marine Le Pen’s National Front in France, Geert Wilders’ Party for Freedom in the Netherlands and Nigel Farage’s United Kingdom Independence Party - have been the most effective at organizing themselves into a single political “family.” Meanwhile, the established families - social democrats, liberals, and the European People’s Party (EPP) bloc - have been discredited in many Europeans’ eyes.

The problem is that the old European parties’ intellectual and moral foundations have rapidly eroded in recent years, owing partly to their failure - or inability - to adapt to EU-level systems. If they do not act fast to re-establish themselves as credible and effective representatives of voters’ interests, they risk fading into the political background, allowing irresponsible populists gradually to take center stage.

Consider the social democrats, whose mission has historically been to facilitate the redistribution of resources. Given that such redistribution in Europe occurs fundamentally at the level of individual countries - which have the needed fiscal authority - it is difficult to view it as a suitable project for Europe as a whole.

Indeed, it may be impossible to Europeanize social democracy under current conditions. The more deeply integrated Europe becomes, the less capacity national governments have for redistribution, because individuals, companies and jobs can simply leave countries with higher tax rates, as has already happened in countries like France. And an EU-level social-welfare state funded through taxes on corporate or personal income would require large transfers among countries, exacerbating already-high tensions among EU member states.

Economic liberals’ capacity to appeal to a broad electorate has also suffered. In the wake of the global economic crisis, voters have demanded government intervention, suggesting that many have lost confidence in the lightly regulated systems of the past.

Finally, there are the EPP’s center-right Christian Democratic forces, which emerged in the immediate post-World War II period with a religion-based emphasis on social solidarity that provided an alternative to the inhumane collectivism of fascism and communism. Since then, however, Western Europe has secularized considerably, and the notion of basing political decisions on Catholic social teaching now strikes voters as quaint. As a result, the center-right parties appear intellectually thin - do-nothing parties that resist change and offer no new ideas.

As it stands, the anti-EU parties’ enthusiastic embrace of Russian President Vladimir Putin, with his profoundly anti-liberal economic and social policies, may well be the only thing working in the established political families’ favor. But it does not have to remain this way. With a new political vision shaped by current trends and imperatives, Europe can create an effective political system fit for the 21st century.

Such a vision, like all of Europe’s most effective conceptions, would be a blend of French and German ideas. France is currently gripped by the massive success of economist Thomas Piketty’s book “Capital in the Twenty-First Century,” which analyzes how inequality rises in the absence of exceptional levels of economic growth. The book’s message - a call to address rising inequality and a plea for stronger economic growth - has strong policy implications. But Pikettism does not require income taxes, so much as wealth taxes.

The idea of using a wealth tax to overcome Europe’s debt crisis also has considerable support on the eastern side of the Rhine River, but for different reasons. Germans remain worried that they will be called upon to bail out the over-indebted governments of southern Europe. Such a transfer of public debt would be unfair, Germany contends - not least because high levels of public debt are often accompanied by higher levels of household wealth than in northern Europe. This argument, made by the Bundesbank, seems to support a wealth tax.

In fact, a wealth tax could spark economic activity and growth. Empty houses and uncultivated fields - a common feature of southern Europe - represent a relatively secure investment that does not cost much, owing to low property taxes. A higher tax rate would spur owners to sell, leading to the restoration and improvement of land and buildings - effectively acting as a large stimulus package.

Given that a wealth tax would be used primarily to pay down high levels of existing public debt, it would be applied in the context of the individual member states. Its basis in real estate means that it would not depend on a precarious attempt to tax a mobile factor of production. And presenting the tax as a one-off levy to address the legacy of bad policy in the 20th century would ensure that it did not deter future economic activity.

The upcoming European Parliament election could be the wake-up call that pro-EU parties so desperately need. Fortunately for them, there is a compelling way to combine the fundamentally French concern about the dangers of inequality with the fundamentally German concern about excessive public debt. That is why property and wealth taxes are likely to become the foundation of a new political alignment in Europe.

Copyright: Project Syndicate, 2014.

*The author is a professor of history at Princeton University and a senior fellow at the Center for International Governance Innovation.

By Harold James