Defeating populism: First, admit there are reasons for its success

Giles Merritt looks at the economic policy shortcomings fuelling populism in the EU in the first of a two-part article on how to counter its threats.

There’s no denying that populist parties are popular with more and more voters. So much so that the next European Parliament probably can’t be counted on to support some of the EU’s key ambitions. But disparaging populist policies as morally distasteful and unworkable clearly hasn’t worked, so it’s time to re-examine the reasons for their success and fashion a Europe-wide response to it.

Populists exploit people’s fears, but they also capitalise on genuine hardships. Their eurosceptic opposition to deeper EU integration robs them of most credible policy solutions, but voters tend to overlook this. That’s because so many understandably feel that incumbent centrist governments have let them down.

Discontent is beginning to poison Europe’s politics, whether it’s militant farmers or striking public sector employees. The consequences of the widening wealth gap between haves and have nots are alarming. A third of Europeans tell pollsters they are impoverished by housing costs, low wages and job insecurity blight younger workers’ lives and for many people the cost of living ‘crisis’ is a trend and not a blip. Meanwhile, a relatively small ‘elite’ is getting wealthier.

Europe’s long-term challenges are deep-seated, so mainstream politicians need to come clean on the radical measures needed to confront them. They must tell voters the truth, and instead of warning that the populists will get us all into trouble with their eurosceptic, authoritarian ambitions, they should admit Europe is already in trouble and the question is how best to overcome it.

There are no magic wand solutions to stagnant productivity and decades of inadequate public and private sector investment. Huge increases in taxation will be needed to pay for defence and re-armament, for ageing’s snowballing healthcare and pensions costs, and for overhauling infrastructures for housing, transport, agriculture, climate change and industrial renovation.

How to structure far-reaching tax reforms has to become the core of a European political debate. It will be uncomfortable for mainstream political parties, but it’s a discussion that will be to the advantage of responsible politicians much more than to opportunistic populists.

It is likely that over the next ten years EU member governments will have to boost their tax receipts by 10-15 per cent, and perhaps more. They may trim this a bit through greater cooperation in areas like defence, but there’s little they can do about steeply rising social costs. By mid-century, a third of Europeans will be over-60s, while the EU’s present tax-paying workforce of 220 million people will have shrunk by 50 million.

The key solution will be EU-level fiscal collaboration, an avenue that’s denied to populists by their opposition to cross-border policies. Striking a new balance between corporate and personal taxation will be difficult, though, until EU member states overcome their tax rivalries. Major companies currently take advantage of competing national loopholes and offshore havens to protect their profits from the taxman. Billionaires’ fortunes have also ballooned obscenely for the same reasons, becoming a scandal that is stoking support for the populists.

There are many reasons for Europe’s economic decline. Some of them have been unavoidable external shocks like the 2008 global financial crisis, Covid-19 and the war in Ukraine. Others resulted from sterile political infighting in which mainstream parties have sought short-term electoral gain by glossing over the long-term difficulties that threaten Europe.

Branding newcomer political parties as unacceptable populists has been the mainstreamers’ default position, and has clearly failed to convince voters. It has also been an alibi for governments’ inaction on long-overdue tax reforms that would ease the financial difficulties of the less privileged. The way to defeat populism is to acknowledge Europe’s vulnerabilities and focus public attention on the fiscal re-think they demand.

The second part of this article examines taxation reforms that could defeat populism. It will be published on 12 March. The views expressed in this Frankly Speaking op-ed reflect those of the author and not of Friends of Europe.