We are staring a lost European decade in the face. This has consequences for Labour

“Send in the clowns” ran the Economist’s front page last week, in a biting but wholly apt comment on the disastrous election results in Italy, which looks likely to stop its progress towards vital economic reforms in its tracks.

Italy’s very own Laurel and Hardy show tells the Italian public what they want to hear: that no reform is necessary. On one side we have the now thoroughly-discredited Silvio Berlusconi; on the other, Beppe Grillo, a real-life comedian fronting an anti-politics party. The frightening thing is that these two might have any say whatsoever in the running of a major world economy; much less holding the balance of power, as they do, in negotiations over who will form the next government (55% of the vote went to these two between them).

But we might still be able to see the comic side, if Italy’s tragedy did not have wider ramifications for the whole of Europe. Italy has, on and off, been in the eye of the euro storm for some time. However, unlike Greece or Portugal, which are modestly-sized economies, it falls into the category “too big to fail”.


But surely, at least the other euro-zone economy which fits into that category, Spain, is starting to move towards some kind of political stability?

Not so fast. In fact, there is a third, highly eligible contender for the red nose. Step forward, Mariano Rajoy, leader of Spain’s currently little-loved Partido Popular (PP). While he was given a respectable mandate by Spanish voters, his government has now been engulfed by possibly the most important
political scandal since the transition to democracy nearly forty years ago – a scandal which has apparently thrown up evidence of a secret stream of cash-stuffed envelopes, from around 1999 regularly doled out to him and half his colleagues by Spanish property developers. Embarrassingly, his party continues to deny this in the face of contemptuous disbelief from most of the electorate, and even the right-wing media. All this is hardly good news for the bond markets.

As the Economist points out, the big loser from the political mess in southern Europe is the euro. And so, the isolated exit of either of these two countries considered a virtual impossibility, the euro-zone is now faced with two decidedly ugly options: either the euro breaks down altogether, resulting in a massive shock to all economies in the vicinity; or, possibly worse, the effects of breakdown are felt too awful to contemplate, with the result that the euro soldiers on in its current form, but kills growth for the next decade or so – the “Japan scenario”, after the country which has not seen significant growth since the 1990s.

Where does all this leave Labour? With a couple of things to think about.

First, if the European economy slumps, it seems difficult to imagine that the UK will be unaffected (given that Continental Europe is our primary trading partner). While this would obviously preclude the Tories romping home in 2015 on the back of booming growth, it also provides them with a semblance of an excuse; they will point to the lack of growth in all our neighbours, even when it returns, as it already has done in many cases, to the US and other major economies. With this in mind, we will need to make a compelling argument as to why Labour should be trusted not to get more indebted, while simultaneously returning the economy to growth. It’s not an easy sell.

And independently of that tricky sell, it means that, even if it didn’t before, Labour will inevitably have to pursue a fiscally conservative strategy, or rather, pretty much that outlined by In The Black Labour.

Second, the grimness of a European Union in “London Blitz” mode, digging in with tins of bully beef for a decade of misery, would give a great deal of ammunition to the Eurosceptics in Parliament and in the country. It will be much harder to rebut the emotional, dog-whistle politics of leaving the EU with hard-but-dry evidence, when it is an EU whose economy appears chronically sick, with no apparent hope of remission.

In the event of a Labour win, it shows that Miliband was wise to rule out a referendum, because in a broadly pro-European party which has the whip hand in common sense on this issue, it wouldn’t do to be the government who lost it.

And in the event of a Cameron win in 2015, we would have a much tougher fight than we had ever have previously experienced to convince the perennially Euro-grumpy British public to stay in.

It is one thing having a referendum whilst in government in 1975, with a lot of Europe experiencing erratic growth in between two oil shocks, and Britain the “sick man of Europe” – it must have looked quite attractive back then.

It is quite another having one in the middle of a long-term Euro-slump. Especially when the question has the advantage of being phrased by the leader of a party, whose grassroots and backbenchers, at least, apparently want us to be out.

Bottom line: if we really want to stay in Europe, it seems to be becoming increasingly important that we win the next election.

This post first published at LabourList, and was selected for Progress’ What We’re Reading and PoliticsHome’s Five At Five