The European People's Party at the height of its power

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After its electoral successes, the only thing the EPP lacks is a common political agenda.

Five days before the Spanish parliamentary elections last sunday, Alfredo Pérez Rubalcaba, top candidate of the governing party PSOE (PES), delivered a speech on the economic problems of the country, the main issue of the electoral campaign, and proposed his solutions for them. The options were two: either the European Central Bank should intervene massively and buy Spanish government loans – or the European Council had to adopt a public investment programme which Spain itself can't afford. The problem: Both options depend on European institutions, which means that even winning the elections Rubalcaba would not have been able to impose them himself. But, as El País wrote with some mockery: "at least, it should not fail because of lack of ideas". By contrast, the leader of the opposition, Mariano Rajoy from the conservative Partido Popular (EPP), didn't even bother to formulate an economic agenda. Instead, both candidates just went complaining around about "Merkozy" (see El País), until finally this paradoxical campaign came to an end and the PSOE suffered the disastrous defeat everybody expected, which means that over the course of 2011, there has been a government change in all five countries suffering most from the Euro crisis: Ireland, Portugal, Geece, Italy, and Spain.

What happens if Europe becomes German

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As the German federal government appears to be both decided and capable to impose its models of economic policy to the rest of the eurozone, we should pose the question what purposes it aims at and in which way it is planning to solve the debt crisis. Of course, it is not entirely sure whether the federal government has any plan at all – but supposing it has, its demands from the other member countries allow the following conclusions on the German strategy for Europe:

The guiding concept of the German reform approach appears to be the mercantilist idea that imports are bad and exports are good. If a country buys many goods from abroad in order to consume them, it has to pay for them, becomes poorer and has to incur debts. If, on the contrary, it sells many goods to other countries, it will get foreign exchange, so it will gain wealth; and, moreover, thanks to the foreign demand its production will rise, so that new jobs are created. Thus, in order to escape from an economic crisis, a country has to increase its exports and lower its imports as much as possible.

Strategies of economic policy – and why it matters who decides

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If this is not a case for the European Parliament, then what is?

If a country (or let's say, a continent) is at the same time in an economic depression and a massive sovereign debt crisis, there are only two possible ways out. One of them consists in fighting the debt crisis by raising taxes and cutting expenses – in the hope that this public austerity will bring back market confidence and the economic crisis will resolve itself. The other consits in revitalising the economy by a publicly financed stimulus package – in the hope that the restored economic growth will also increase tax income, solving the sovereign debt crisis.

Which way for recovery: saving or spending money?

Both strategies are based on different economic theories. A neoclassic will doubt the effectiveness of stimulus packages and therefore prefer the austerity option. A Keynesian, by contrast, will argue that business confidence doesn't rise out of nothing just because the state spends less money, and therefore defend an expansionary policy in order to raise aggregate demand. At the same time, both strategies have their own characteristic risks: if austerity fails, the economy will sink even deeper into depression, enteprises will go bankrupt, unemployment will grow and due to lower tax revenue also the public debt itself. On the other hand, if the economic stimulus fails, the government has just increased its debts even further and possibly also fueled inflation by the additional spending.