Opinion

The EU must confront the populist challenge in 2016

In France, the US and elsewhere, populist parties are growing in popularity. Such parties radically challenge the consensus of traditional parties and their representatives. This year traditional parties must give informed answers to the problems identified by populists.

By: Date: January 11, 2016 Topic: European Macroeconomics & Governance

This op-ed was also published in Die Zeit, Kathemerini, Linkiesta, Hospodárske Noviny and Caixin, and Finance .

Die_Zeit-Logo-Bremen.svg

Kathemerini

Linkiesta-300x70

HOSPODARSKE_NOVINY_logocaixinFinance (slovenia) logo

 

 

One of the clear trends of 2015 has been the rise of parties that radically challenge the consensus of traditional parties and their representatives. This trend is perhaps most visible in France and in the US but is also strong elsewhere. It will likely be a major force shaping European and global policies. A reflection on its causes is imperative to define the right policies for 2016.

One of the main drivers of this political phenomenon is arguably an increasing sense of insecurity in large parts of the middle class. Many voters for the surging parties come from a middle-class or working-class background. For example, support for Donald Trump is particularly large in the income group of less than $40000, followed by the income group $40-75000 . And while the theory of “angry-white-man” voting for Donald Trump may fall short of a full explanation of the changing voting behaviour, it is undoubtedly true that these groups of society are under pressure to preserve their status and stay in good jobs.

Data published by the Pew Research Center shows that the American middle class is losing ground. For example, the real income of the 60th percentile of a US household has not changed since 2000. In France, the issue may be less one of income inequality, which has barely changed but rather a growing sense of job insecurity. And while long-term unemployment has “only” increased from 2.8 to 4.4% since 2008, the French unemployment rate has been above 7% for 30 years now. Youth unemployment is also stubbornly high in several European countries.

This trend of increasing pressure on working population requires an adequate answer from established parties. So what is behind these pressures? One of the key issues to look at is the future of work. The share of labour income in national income has been falling in several advanced economies and most notably in the US.

The root causes of this fall in labour income are subject to debates. Some argue that the decline is a result of technological change that results in loss of jobs through mechanisation. Technological change undermines traditional business models through new sharing economy models. Trade integration, in turn, exposes the remaining workers to tough global competition. Political scientists  have argued that there has been a shift in bargaining power towards capital. Others have highlighted that the lack of capital investment reduces the share of labour income by lowering productivity and thereby wages.

Irrespective of the reasons, a falling labour share raises important questions for the future of the welfare state. The welfare state has shielded households somewhat from the impact of increasing inequality and the risks of unemployment. Yet, the welfare state is based on taxation of labour income. With an increasing share of income going to capital, its revenue sources are under pressure – while unemployment and financial crisis weigh on the spending side and erode revenues.

Simple answers to these complex questions will fail, contrary to the claims of the surging parties. For example, closing borders to trade will only make imported goods more expensive and undermine our ability to export. This would be a heavy burden on many companies in France and elsewhere destroying jobs without bringing benefits. Migrants, in turn, are not only contributing daily to our economies but they are also net contributors to public finances and aging Europe certainly needs migrants to safeguard the welfare state that is under pressure from aging. Closing borders to any immigration would seriously undermine our economic performance.

Instead of such easy answers, informed debates and forceful actions are needed. The EU in particular needs to show that it can give answers and implement them effectively. If falling labour income is the result of a lack of capital, taxing investment would put further pressure on labour income. If, however, the robots are taking our jobs, we will need to find ways to make sure that robots (and their owners) pay. Yet, taxing capital owners requires cooperation across countries in order to prevent companies from avoiding taxes. This is a clear example of how the EU could show its effectiveness.

The EU was conceived as a way to address our common problems in a more effective way. In trade, it was designed to not only remove internal tariffs, but be a global player that can define clear social and environmental standards on imported products. In terms of mobility, internal border controls were removed to improve lives, but the adequate external border controls and better internal security cooperation were not built up. And yes, monetary union was started with inadequate structures in place and remains in need of repair and growth. In 2016, traditional parties need to deliver on the issues identified by the populists with informed answers.

 


Republishing and referencing

Bruegel considers itself a public good and takes no institutional standpoint.

Due to copyright agreements we ask that you kindly email request to republish opinions that have appeared in print to communication@bruegel.org.

View comments
Read article Download PDF More on this topic

Book/Special report

EU–China Economic Relations to 2025. Building a Common Future

The EU and China, as the world’s second and third largest economies, share a responsibility in upholding the rules-based, global free trade system and other forms of multilateral cooperation, especially on combating climate change. This report sets out the main conclusions of a research project between European and Chinese think-tanks, which addresses the prospects for the EU–China economic relationship. A Joint Report by Bruegel, Chatham House, the China Center for International Economic Exchanges and the Institute of Global Economics and Finance at The Chinese University of Hong Kong.

By: Alicia García-Herrero, K.C. Kwok, Tim Summers, Liu Xiangdong and Zhang Yansheng Topic: Global Economics & Governance Date: September 13, 2017
Read article More on this topic More by this author

Blog Post

Speech by Peter Kažimír at Bruegel Annual Dinner 2017

Peter Kažimír, Slovakia Finance Minister, delivered the keynote speech at Bruegel's Annual Dinner 2017, held on 7 September 2017.

By: Peter Kažimír Topic: European Macroeconomics & Governance Date: September 7, 2017
Read about event

Past Event

Past Event

Bruegel Annual Meetings 2017

The Annual Meetings are Bruegel’s flagship event. They offer a mixture of large public debates and small private sessions about key issues in European and global economics. In a series of high-level discussions, Bruegel’s scholars, members and stakeholders will address the economic policy challenges facing Europe.

Speakers: Carlos Sallé Alonso, José Antonio Álvarez Álvarez, Agnès Bénassy-Quéré, Pervenche Béres, Matthias Buck, Grégory Claeys, Zsolt Darvas, Jean Luc Demarty, Maria Demertzis, Anna Ekström, Lowri Evans, Ferdinando Giugliano, Sandro Gozi, Peter Grünenfelder, Reiner Hoffmann, Levin Holle, Kate Kalutkiewicz, Steffen Kampeter, Peter Kažimír, Emmanuel Lagarrigue, Matti Maasikas, Steven Maijoor, Reza Moghadam, Nathalie Moll, James Murray, Johan Van Overtveldt, Julia Reinaud, André Sapir, Dirk Schoenmaker, Mateusz Szczurek, Marianne Thyssen, Jean-Claude Trichet, Reinhilde Veugelers, Nicolas Véron, Ida Wolden Bache, Liviu Voinea, Guntram B. Wolff and Georg Zachmann Topic: Energy & Climate, European Macroeconomics & Governance, Finance & Financial Regulation, Global Economics & Governance, Innovation & Competition Policy Location: Square - Brussels Meeting Centre Date: September 7, 2017
Read article More on this topic

Blog Post

Should the EU have the power to vet foreign takeovers?

Should the EU have the power to vet foreign takeovers? André Sapir and Alicia Garcia-Herrero debate the issue, which has become topical in view of recent Chinese investment in Europe.

By: Alicia García-Herrero and André Sapir Topic: Global Economics & Governance Date: September 1, 2017
Read article More on this topic More by this author

Blog Post

EU posted workers: separating fact and fiction

After President Macron’s recent tour of Central and Eastern European countries, EU posted workers are getting a lot of attention. However, a major reform of the system is already underway and we should not confuse posted workers with long-term labour migrants. Posted workers are a small part of the labour force, and their labour market impact is likely to be minor.

By: Uuriintuya Batsaikhan Topic: European Macroeconomics & Governance Date: August 31, 2017
Read article Download PDF More by this author

Parliamentary Testimony

European Parliament

Could revising the posted workers directive improve social conditions?

This presentation was delivered in Brussels on 31 January 2017 at a hearing of think-tanks, to advise the European Parliament on the revision of the Posting of Workers Directive.

By: Zsolt Darvas Topic: European Macroeconomics & Governance, European Parliament, Testimonies Date: August 29, 2017
Read article More on this topic

Opinion

Europe must seize this moment of opportunity

As the EU enjoys a period of growth and relative stability, there is finally room to undertake long-needed reforms. But it is vital to act soon, and priorities must be set. There are three pillars of reform for the coming months: completing a robust euro area; building a coherent EU foreign policy; and harnessing the single market’s potential to deliver strong and inclusive growth.

By: Agnès Bénassy-Quéré, Michael Hüther, Philippe Martin and Guntram B. Wolff Topic: European Macroeconomics & Governance Date: August 12, 2017
Read article More on this topic More by this author

Opinion

The EU and the US: a relationship in motion

Europe’s post-crisis recovery has been disappointing in comparison with the USA. But lower rates of inequality are staving off populism and bolstering support for globalisation. With the USA an increasingly unpredictable partner, the EU must address internal imbalances and build alliances to defend the multilateral order.

By: Maria Demertzis Topic: Global Economics & Governance Date: July 28, 2017
Read about event More on this topic

Past Event

Past Event

Perspectives on Universal Basic Income

At this event, we discussed the possible benefits but also the possible disadvantages of Universal Basic Income.

Speakers: Grégory Claeys, Olli Kangas, Professor Philippe Van Parijs and Prof. Dr. Hilmar Schneider Topic: European Macroeconomics & Governance Location: Bruegel, Rue de la Charité 33, 1210 Brussels Date: July 12, 2017
Read about event

Past Event

Past Event

Is there a way out of non-performing loans in Europe?

At this event we looked at the issue of non-performing loans in Europe. The event also saw the launch of the latest issue of "European Economy – Banks, Regulation and the Real Sector."

Speakers: Emilios Avgouleas, Giorgio Barba Navaretti, Giacomo Calzolari, Maria Demertzis, Martin Hellwig, Helen Louri and Laura von Daniels Topic: European Macroeconomics & Governance, Finance & Financial Regulation Location: Bruegel, Rue de la Charité 33, 1210 Brussels Date: July 6, 2017
Read article More on this topic More by this author

Blog Post

Eurozone or EU budget? Confronting a complex political question

This week’s European Commission reflection paper is the latest document to ponder a distinction between EU and euro-area budgets. But do we need to split the two, and what would each budget be used for? In this post, I present an analytical framework for assessing this ultimately political question

By: Guntram B. Wolff Topic: European Macroeconomics & Governance Date: June 29, 2017
Read article More on this topic

Blog Post

Can EU actors keep using common law after Brexit?

English common law is the choice of law for financial contracts, even for parties in EU members with civil law systems. This creates a lucrative legal sector in the UK, but Brexit could make UK court decisions difficult to enforce in the EU. Parties will be able to continue using English common law after Brexit, but how will these contracts be enforced? Some continental courts are preparing to make judicial decisions on common law cases in the English language.

By: Uuriintuya Batsaikhan and Dirk Schoenmaker Topic: European Macroeconomics & Governance Date: June 22, 2017
Load more posts