Now all Europeans are Peronists

LONDON – Jean Claude Junckerformer President of the European Commission and former Prime Minister of Luxembourg, once said: “We all know what needs to be done, but we don’t know how we will be re-elected once we have done it.” This observation sums up Europe’s current dilemma. Most European leaders understand what reforms and budget cuts are necessary to increase productivity, promote innovation, streamline regulation, control public spending and strengthen their defense. But after decades Expansion of social assistanceVoters are reluctant to give up their social security benefits.

The European electorate has become risk-averse and protects living standards that no longer reflect underlying economic fundamentals. Both parties give in to short-term incentives from left to right They are now competing to outdo each other with untenable promises, fueling a populist cycle that deepens polarization.

In his influential iReport 2024 on European competitiveness, Mario Draghiformer president of the European Central Bank and former Italian prime minister, warned that the continent risks becoming a beautiful, historical and irrelevant museum where tourism is the only competitive industry. Although most European leaders have defended Draghi’s work, they appear to be lacking in doing so political will necessary to implement its recommendations.

France’s attempt to reform pensions is exemplary. The French President, Emmanuel Macrontried to raise the retirement age in a country where people are over 65 highest average income than the working-age population, sparking months of protests and political unrest.

Populists on the left and right attacked the idea, arguing that the budget deficit could only be reduced by increasing taxes on the rich, even though France already had such an idea higher tax burdens between rich countries. The proposed pension reform ultimately proved so harmful that the government shelved it. As newly appointed Finance Minister Roland Lescure explained: “It is the price of compromise and the price of political stability.”

Another telling example is the urgent need to strengthen Europe’s defense posture in response to an increasingly hostile geopolitical environment. Many European leaders, aware of voters’ priorities, are reluctant to increase defense spending. SpainFor example, despite repeated warnings from its allies and the growing threat on Europe’s eastern flank, the country is falling far short of its NATO defense spending commitment of 2% of GDP.

The moment of truth for Europe

Italy, in turn, announced that it would increase its defense spending, but only to disguise it through accounting maneuvers Infrastructure projects as military expenditure. As Spanish political scientist Pol Morillas points out, Europe wants a place at the table of world powers but refuses to pay the price.

These examples are symptomatic of a broader European malaise. Across the continent, politicians face an electorate unwilling to accept the reality that the combination of population decline, stagnant productivity and debt accumulation is unsustainable.

Without a doubt, Europe is not Argentina. But European voters increasingly resemble their Argentine counterparts who, despite rampant inflation and repeated debt defaults, continued until recently to fall for the easy “solutions” of subsidies, clientelism and an ever-expanding public sector offered by left-wing Peronism/Kirchnerism.

As in Europe, Argentine politicians knew what had to be done. Between 2015 and 2019, then-President Mauricio Macri sought to combat the chronic mismanagement of the economy with a cautious and gradual reform program very unpopular and made it worse frustration the electorate. After his term, Kirchnerism returned and the crisis deepened.

After decades of irresponsible spending and declining living standards, voters in 2023 chose libertarian firebrand Javier Milei. As president, Milei has railed against “political elites” while pursuing economic policies designed largely by Luis Caputo, his finance minister and former JP Morgan banker, who previously attempted reforms as central bank chief during the Macri government.

Mileis “radical” cuts – the fastest and sharpest cuts in public spending in modern history, with the possible exception of Greece after the 2009 debt crisis – have helped stabilize public finances and achieved a budget surplus for the first time in more than a decade. But these fiscal improvements had social costs, including: significant increase in poverty (from just over 40% in the first half of 2023 to almost 53% in the first half of 2024), which rising income inequalitythe rise in unemployment and deepening political polarization.

No one knows how Milei’s experiment will end, but his mandate, confirmed in the October midterm elections, should not be viewed as an unconditional endorsement of libertarian orthodoxy. Rather, it reflects an electorate that, despite persistent economic and financial crises, had resisted sensible reforms in the past, reached a breaking point, and embraced an outsider, an “anti-populist populist,” whose promise of shock therapy meant the implementation of a conservative economic agenda with high social costs.

The transatlantic break is complete

Empirical evidence shows that, on average, democracies outperform populist regimes in terms of long-term economic growth, innovation and social well-being. But democracy also incentivizes short-term electoral success over long-term responsibility. When political short-termism takes control, populism is more likely to flourish, offering simple answers to complex problems, postponing difficult decisions and stoking resentment. To avoid this trap, leaders must be willing to tell voters what they don’t want to hear, and voters must be willing to reward them for it.

Current developments in Europe suggest that neither leaders nor voters are doing their part. But reality, as always, will confirm itself. The question is whether Europe will confront it on its own terms or whether, like Argentina, it will wait until a crisis forces it to act, whereupon today’s inviolable rights may be lost entirely.

Juncker’s cynical joke is increasingly resembling a prophecy. European leaders know what needs to be done. They just need the courage – and voter support – to do it.

Cristina Ramírez is an international political analyst for Panama live
and PhD candidate in the Department of Political Economy at King’s College London.