Podemos: Asamblea Ciudadana "Sí Se Puede"

Radical left is right about Europe’s debt
Wolfgang Münchau

It is logically inconsistent for the eurozone to enter secular stagnation and not restructure

Let us assume that you share the global consensus view on what the eurozone should do right now. Specifically, you want to see more public-sector investment and debt restructuring.

Now ask yourself the following question: if you were a citizen of a eurozone country, which political party would you support for that to happen? You may be surprised to see that there is not much choice. In Germany, the only one that comes close to such an agenda is Die Linke, the former Communists. In Greece, it would be Syriza; and in Spain, it would be Podemos, which came out of nowhere and is now leading in the opinion polls.

You may not consider yourself a supporter of the radical left. But if you lived in the eurozone and supported those policies, that would be your only choice.

What about Europe’s centre-left parties, the social democrats and socialists? Do they not support such an agenda? They may do so when they are in opposition. But once in government they feel the need to become respectable, at which point they discover their supply-side genes. Remember that, François Hollande, France’s president, explained the policy shift of his government by saying that supply creates demand.

Of the radical parties that have emerged recently, the one to watch is Podemos.It is still young, with an agenda in the making. From what I have read so far, it may be the one that comes the closest of all those in the eurozone to offering a consistent approach to post-crisis economic management.

In a recent interview, Nacho Alvarez, a senior member of the party’s economics team, laid out his programme with a refreshing clarity. The 37-year-old economics professor says the Spanish debt burden, both private and public, is unsustainable and needs to be reduced. That could include some combination of a renegotiation of interest rates, grace periods, debt rescheduling and a haircut. He also said Podemos’ goal was not to leave the eurozone – but that equally the party would not insist on membership at all costs. The aim is the economic wellbeing of the country.

To an outsider, that seems a balanced position. Not so in Spain. The establishment fears that this agenda will turn the country into a European version of Venezuela. But there is nothing controversial about the statement that if debt is unsustainable it needs to be restructured. Or that if the euro were to bring decades of suffering, it would be perfectly legitimate to question the eurozone’s institutions and policies.

The parties of the centre-left and the centre-right are allowing Europe to drift into the economic equivalent of a nuclear winter

The Podemos position recognises a simple truth about the eurozone in late 2014. It is logically inconsistent for the single currency to enter a secular stagnation and not restructure its debt. Since nothing is being done to avoid the former, there is a probability approaching 100 per cent of the latter happening.

Yet, for the moment, European governments keep playing the “extend and pretend” game. Where such a short-sighted strategy leads to can be seen in Greece. After six years of economic depression, the government finds itself in an acute political crisis. Syriza is leading in the polls, and stands a good chance of assuming power at the next general elections, possibly in 2015.

Spain is not yet at that juncture. Podemos might deprive the largest parties – the Popular party of Prime Minister Mariano Rajoy and the opposition Socialist party – of an absolute majority in next year’s elections. It might force the two into a German-style grand coalition – which would establish the new party as the main opposition.

The situation in Italy is different but no less serious. If Prime Minister Matteo Renzi fails to generate an economic recovery in his remaining three years in office, the opposition Five Star Movement would be in pole position to form the next government. Unlike Podemos, this is a truly radical party, a firm advocate of euro exit. So are the National Front in France and Germany’s Alternative für Deutschland.

What Podemos still needs to do is offer a coherent vision of life after a debt restructuring. It would be a good idea if the party organised itself at eurozone-level beyond its alliance with Syriza in the European Parliament, because that is where the relevant policy decisions are made. A debt resolution for Spain, necessary as it is, can only be the start of a wider policy shift.

The tragedy of today’s eurozone is the sense of resignation with which the establishment parties of the centre-left and the centre-right are allowing Europe to drift into the economic equivalent of a nuclear winter. It is a particular tragedy that parties of the hard left are the only ones that support sensible policies such as debt restructuring. The rise of Podemos shows that there is a demand for alternative policy. Unless the established parties shift their position, they will leave a big opening to the likes of Podemos and Syriza.

Wolfgang Münchau is considered one of the world's foremost experts on the eurozone. He writes the European economic column of the Financial Times. His latest book, The Meltdown Years: The Unfolding of the Global Economic Crisis, won the prestigious GetAbstract business book award in its original German-language version, Vorbeben. He is the recipient of the 2012 SABEW award for best international columnist.

Together with his wife, the economist Susanne Mundschenk, he co-founded Eurointelligence.com, a website dedicated to providing information and debate about the economics, finance and politics of the eurozone. The Eurointelligence Daily Morning News briefing is widely considered to be most incisive daily information source on the Eurozone.

Mr. Münchau speaks with authority on the complexities of the European economy and the eurozone crisis. Is the eurozone going to survive, and if so, in what form? What scenarios should investors prepare for? What is Berlin's perspective? How can we read the policies of the European Central Bank? What can we expect of the European Stability Mechanism? What's the future of Greece — and what are the implications for the rest of the world? Wolfgang answers these questions and many more with characteristic assurance, sophistication and humor.

He is a member of the Euro50 Group as well as the European Council on Foreign Relations. He has written three other German-language books, Kernschmelze im Finanzsystem (Meltdown in the Financial System), Das Ende der sozialen Marktwirtschaft (The End of the Social Free-market), and Makrostrategie (Macro-Investment Strategy).

Before assuming his current position, Mr. Münchau co-founded and served as editor-in-chief of FT Deutschland. He holds Master's degrees in mathematics and journalism.