A warning from voters in Europe to Thai populists

If the elections in France and Greece serve as indicators, European governments will have a tougher time pressing their citizens to accept austerity measures. Voters in those two countries do not want to tighten their belts and they have punished the governments that led them down the path of severe cutbacks by voting them out of office. Francois Hollande announced after winning the French presidency that, “Austerity can no longer be the only option.” In Greece, two-thirds of the electorate voted for parties that seek to annul the austerity commitment. 

The debt crisis was the most contentious issue during the weekend elections in Europe. France was earlier this year downgraded from a triple-A credit rating status. Nicolas Sarkozy, the outgoing French president, was defeated partly because of the protest against the European fiscal compact led by Germany. Although Sarkozy initially resisted the German move, he later supported it to maintain investors’ confidence in the euro zone.

Greece is meanwhile struggling to stay afloat, in spite of a rescue deal from the International Monetary Fund (IMF) and the European Central Bank (ECB). Although the failure to contain the debt crisis in Greece could create a snowball effect continent-wide, Greeks don’t want to make further sacrifice by taking more bitter medicine, even though it might be the only the option for survival.

While euro-zone leaders have to make difficult long-term political decisions, European voters do not want to make short-term sacrifices. The belt-tightening programmes, with cuts in public spending, may be unavoidable but will make life less comfortable for millions after years of big spending and populist benefits. 

Thailand faced a similar crisis in 1997. The kingdom’s foreign reserves were haemorrhaging. Investors withdrew their capital from the country in haste after they lost confidence in the Thai economy. But the kingdom managed to recover largely because the then-government decided to take a bitter pill in exchange for standby credit from the IMF.

At that time, then finance minister Tarrin Nimmanahaeminda had to make a series of decisions, which were unpopular politically, such as sharply raising the interest rate to restore the credibility of the baht. Tarrin managed to help the Thai economy recover. But his difficult decisions cost him his political career because austerity has never been popular with Thai voters.

Subsequent Thai governments, and the present one, however, seem to be unfazed by the prospect of going back to the same crisis. The later governments introduced populist policies at full-stream ahead in order to lure voters, who naturally want to get freebies and full benefits without having to work hard. 

Thai politicians have realised how populism can be effective in enticing the voters. The bad news is that the effects of these populist policies can take years to accumulate before becoming a crisis. Irresponsible decisions by preceding governments can have severe consequences for later governments – as we have seen in the case in Greece. When voters become addicted to handouts and free benefits, the hardest part is how to end them when necessary. 

Last weekend, voters in Greece and France abandoned the politicians who had a commitment to austerity. Newcomers can easily win in this situation because they can tell the voters what they want to hear: that they will no longer have to swallow bitter pills. This is easy to achieve during the election season, to win the votes. But such promises cannot be fulfilled without certain sacrifice.

German Chancellor Angela Merkel this week said she will not renegotiate the fiscal pact that sets tough budgetary rules for EU states, which she spearheaded along with Sarkozy. In the meantime, the EU leaders are unlikely to allow Greece to renege on its bailout commitment. Otherwise, the crisis will be contagious and spread to other countries such as Spain. The euro-zone debt crisis has also raised concerns among non-euro zone countries because the global financial markets are now so closely connected.

Meanwhile, this political reality check in France and Greece should serve as a lesson for Thailand, which could fall into the same trap if the country fails to curb its excessive populist spending.