The Future Path of Social Democracy Will be Strongly Shaped in France and Italy

French PM Manuel Valls and Italian PM Matteo Renzi

French PM Manuel Valls and Italian PM Matteo Renzi

SINCE the spectacular global financial crash of 2007-2008, social democrats have struggled to forge a new political identity.

As national governments resorted to expansionary Keynesian policies and bank bailouts at the height of the crisis, it appeared that ‘Big Government’ was primed for a comeback. Indeed at the G-20 London summit in 2009, Gordon Brown affirmed that ‘the old Washington Consensus is over.’

However, to the disappointment of the Left, the financial crisis did not afford it the seemingly ideal opportunity to bring the state back into fashion. Instead, the positive case for the state has suffered from the climate of austerity and popular disillusionment with the political establishment.

Austerity has been more appropriately suited to the Right’s ‘Small Government’ policy prescriptions, while the Left has wrestled with articulating a viable alternative to austerity; often strongly criticising spending cuts, while also accepting the case for them.

In light of the strict fiscal straightjacket, social democrats can clearly no longer promise considerable spending commitments. The wretched example of Francois Hollande, who upon entering office in 2012 pledged there was an alternative to austerity before implementing deep cutbacks, serves as a cautionary tale. Austerity has forced social democrats to redefine their political priorities and macro-economic goals.

And it is the zealously reforming social democratic governments in France and Italy, which offer a particularly interesting perspective into the Left’s fraught process of political renewal.

In the case of France, the beleaguered President Hollande launched a major U-turn in March last year, purging rebellious left-wingers in a Cabinet reshuffle and embarking on a more moderate, business-friendly agenda. The most notable figures promoted were Manuel Valls and Emmanuel Macron, respectively Prime Minister and Minister of Economy, who embody the newly discernable, modernising streak of the French centre-left.

Valls has long called on his Socialist Party to align with Europe’s social democrats and enjoyed a close alliance with Macron, who has stridently expressed his opposition to the 35-hour working week; a sacred cow in France. Both men are determined to prevent France from becoming ‘Cuba without the sunshine.’

They exercised huge influence over the ‘Responsibility Pact,’ which offered businesses 40B of tax breaks to encourage them to hire workers, including relief on the French version of National Insurance contributions. Other key policies championed by the two firebrands have been the termination of the controversial 75% top tax rate (which heavily damaged France’s reputation among businesses) and labour market measures to allow staff to more easily change jobs and for employers to more easily cut salaries and hours during a recession- to allow them to keep on more staff, as Britain’s businesses did.

The sweeping pro-business changes are critical to reinvigorating job creation, economic competitiveness and business investment in the Eurozone’s second largest economy. It appears Hollande has belatedly learnt that a destructive rapport with business, which characterised his first two years in office, will prevent him from realising these key economic objectives.

Valls and Macron’s latest batch of ambitious reforms, announced in December last year, look to further boost business confidence. They include plans to loosen restrictions on Sunday shopping, widen access to restricted professions and liberalise the national bus routes. Surprisingly, the package has attracted moderate support from a traditionally reform-resistant population and is estimated to boost GDP and create over 120,000 jobs.

No longer deriding finance as ‘the enemy’ (as he did during the election campaign), the Hollande administration has clearly entered into a new phase heavily dictated by Valls and Macron. Though significant economic challenges remain, the innovative reform agenda may finally revitalise the economy and with it the country’s Socialist Party. Refusing to adapt their ideology for the rapidly shifting modern world, France’s socialists may have discovered a new political path and purpose.

 ‘Both Valls and Macron are determined to prevent France from becoming ‘Cuba without the sunshine.’

In Italy, Matteo Renzi’s arrival in office in February 2014 also represented an opportunity of potential revitalisation for the Left. Renzi has similarly pursued a pro-business, reform platform to arrest a stagnant economy. His much-publicised 1,000 day reform programme has included $23B worth of tax cuts for businesses and low-income households (both endure an enormous tax burden) and at its core, the Jobs Act.

The Jobs Act marks a real improvement on Italy’s notoriously rigid labour laws, which favour older workers. It dissolves the current system, in which those in permanent work (primarily older workers) are strongly protected, and is supplanted by a single employment contract offering younger staff gradually improving job security over time. This is particularly crucial, as the number of young Italians emigrating reached a 10-year high in 2013. The Act is predicted to boost GDP by around six percent over five years, according to the IMF.

It is proof of Renzi’s commitment to politically toxic but long over-due economic reforms, as the Act surmounted huge union demonstrations and fierce internal party opposition. If the reform project fails however, Renzi’s Democratic Party will likely lose this desire to enact desperately required modernisation and revert back to its comfortable position of irrelevance.

As France and Italy’s social democratic parties seemingly ran out of ideas, Valls, Macron and Renzi have bravely flown the flag of reform for their respective countries. In doing so, they have not simply surrendered to an orthodox conservative platform, as many internal critics have charged.

Though accepting large spending cuts, they have also engaged in fierce public debates with the EU over greater flexibility in their budget deficits. Valls has maintained that further fiscal retrenchment would damage France’s strong education and healthcare systems, while Renzi is keen for greater maneuver on investment for long-term growth (in R & D among other areas).

Securing some popular goodwill, this budgetary resistance reflects their desire to prioritise essential public services, cherished by voters, and promote long-term investment for growth rather than a solely ‘shrinking the state’ approach. Though their political rivals are admittedly divided at present, Valls, Macron and Renzis’ reasonably positive personal ratings perhaps point to a newfound popular appetite for a reforming, moderate and business friendly centre-left programme.

However this programme, if successful, will offer a road map to future social democratic governments in Europe (perhaps even for Ed Miliband), though major roadblocks lie ahead.

Most seriously, if France and Italy’s economies continue to stagnate, this could bring down their governments and with it hopes of a new, resurgent social democracy. Also, internal party unity has been fragile in France’s Socialist Party and Italy’s Democratic Party, with sizeable minorities abstaining on recent key votes.

There is also question of whether both countries’ reform agendas are driven by a genuine realisation of the necessity to modernise or simply represent a short-term response to the contemporary economic climate, before lapsing back into old habits. In short, is the centre-left serious about necessary structural reforms as opposed to big spending?

For social democrats in France and Italy, it is now the last throw of the dice. It is here where the future health and path of social democracy will be strongly shaped.

By Oscar Warwick Thompson, Junior Writer for Daily Political View.

Twitter: (@OscarWT_)

 

 

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