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EU elections become platform for austerity foes

Thursday - 5/22/2014, 2:59pm  ET

DAVID McHUGH
AP Business Writer

FRANKFURT, Germany (AP) -- European Parliament elections have been sedate affairs in the past but this week's voting has the potential to shake things up -- particularly national governments' approaches to cutting debt and spurring growth.

Parties that oppose bringing the 28 European Union nations closer together are being buoyed by protest votes and economic misery in the wake of the continent's slowly healing debt crisis. They're expected to get up to 30 percent of the vote that began Thursday in some nations and ends Sunday.

That won't change much at the 751-seat parliament that meets in Brussels and Strasbourg, France. But a strong anti-EU protest vote could hurt the credibility of national governments and their efforts to cut debt, rein in spending and promote growth through often politically difficult reforms.

"The results in France, Italy and Greece will be very important as they could again derail national politics and policies, giving rise to renewed discussions and controversies about austerity, reforms and debt sustainability," said analyst Carsten Brzeski at ING.

Indebted governments are trying to hold down spending and, with varying degrees of enthusiasm, make their economies more business-friendly by clearing away excess regulation, taxation and protections for established workers.

While those efforts -- along with easy monetary policy from the European Central Bank and the U.S. Federal Reserve -- have helped calm markets, the budget cutbacks and tax increases have also hurt the incomes of ordinary people in the short term, raising unemployment and slowing the recovery.

It's the first EU election after the disastrous eurozone debt crisis that started in late 2009. But economists caution that the vote's impact on the parliament itself is likely to be limited as anti-EU forces will remain in the minority and have struggled to coordinate their policies. The parliament can't itself initiate legislation and is confined to reviewing and amending proposals from the European Commission, the EU's executive branch.

The key for this vote is at the national level, they say. Here's what's at stake in some of the most important countries.

FRANCE

Socialist Prime Minister Manuel Valls is trying to get a stagnant economy moving, pushing unpopular spending cuts so he can lower business taxes. A poor showing by the Socialists in the European Parliament vote could undermine his backing from the more left-wing Socialists and make it harder for Valls to achieve his aims. France's economy, Europe's second-largest, failed to grow in the first quarter, one reason the continent's recovery is so muted.

ITALY

Prime Minister Matteo Renzi of the center-left Democratic Party faces his first major electoral test since taking office in February. Renzi is trying to shake up Italy's bloated bureaucracy and reform its cumbersome electoral laws.

"His opponents, both within and outside his own party, could use a poor result to water down his reform efforts," says James Howat, European economist for Capital Economics.

Italy's economy has been a drag on the 18-country euro currency union where it is the third largest: output declined by a quarterly rate of 0.1 percent in the first three months of the year. Without growth, Italy will struggle to reduce its massive debt load, which amounts to 133 percent of the country's annual national income. At the height of the financial crisis, there were fears Italy might default on its debt, a move that could have caused the eurozone to break up.

GREECE

The voting gives an opening and a platform for the left-wing Syriza party, which calls Sunday's vote a referendum on the country's bailout and its conservative-led government.

Syriza's leader, Alexis Tsipras, says he wants to tear up Greece's bailout deal with the other eurozone countries and the International Monetary Fund. He is the Europe-wide candidate put forward by left-wing parties to head the EU's executive commission.

Greece promised to cut spending to qualify for bailout loans from its international creditors that prevented Greece's financial collapse and a possible exit from the eurozone. But the austerity policies worsened Greece's recession, which shrank the economy 25 percent and left unemployment at a miserable 26.7 percent -- and an astonishing 56.8 percent for those between 15 and 24 years old.

Prime Minister Antonis Samaras' struggling Socialist coalition partner, Pasok, could perform poorly in local and European elections this week, undermining the government. Opinion polls suggest that Syriza could win a general election.

Holger Schmieding, chief economist at Berenberg Bank in London, said that outcome "would create huge political uncertainty with a serious negative impact on the Greek economy and possibly some ramifications around Europe."

BRITAIN

A good showing by the UK Independence Party -- normally a fringe presence in mainstream British politics -- and its leader Nigel Farage could increase business concerns about Britain leaving the EU over the long term.

Farage's party has been pushing for a referendum on that topic.

"If everyone shrugs it off" as a protest vote "then the economic impact is zero," said Schmieding. "If that gets us into a serious debate over, 'Do we change our domestic policies?,' then of course that could have an impact."


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