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The European crisis and the recent round of elections in Europe have shown an undercurrent of political nationalism, writes UBS economist Paul Donovan.In Greece, Golden Dawn got nearly 7 per cent of the vote in June 17 elections, and Syriza also campaigned on a nationalism platform. In France, the Front Nationale secured 14 per cent of the vote in the first round and managed national assembly representation for the first time in decades.
Meanwhile, The True Finns are the third party of Finland, while Sinn Fein is in the second spot in Ireland if recent opinion polls are to be believed.
And this nationalism is making it harder to resolve the European crisis.
What’s causing the wave of nationalism?
Donovan believes nationalist parties are gaining political support because of two common characteristics among their supporters.
First, they tend to come from the economically insecure strata of society though not the lowest income groups. “It is more likely to be those in society who feel themselves as being most at risk in economic terms,” writes Donovan. “That implies that they have something to lose (thus are not the lowest income groups) and that they feel threatened.” This also explains why nationalism is as prevalent in non-periphery, as it is in peripheral Europe.
They are also hostile to immigration and perceive outsiders to pose an economic and a cultural risk.
Nationalism can only hurt the euro
The major consequence of this nationalism according to Donovan, is that it will make the European crisis harder to resolve.
Weaker countries are resentful of conditions imposed on them by outsiders. At the same time, the stronger economies are resentful that their relative wealth is being channeled away from national uses.
“The challenge is that if the Euro is to hold together (and we believe it will) these nationalist sentiments must be subsumed into a regional sentiment. Fiscal confederation should not be about “German money” going to “Greece”, or whatever combination.
Instead fiscal confederation should be about wealthier Euro citizens funding assistance to less wealthy Euro citizens. To get beyond the national boundaries implicit in the current national sentiment is essential to the eventual and necessary integration of the Euro area.”
Just as importantly, such nationalism will make the economies less competitive:
“There is a real risk that by fostering an environment where political nationalism develops, the ensuing prejudice will undermine competitiveness and productivity in the Euro economy. …Festering resentment and nationalism is unlikely to produce that sort of a climate. Given how important it is to restore competitiveness to the Euro area economy, this is not a negligible economic cost.”