European Central Bank's Chief Economist: Beware the Rise of Populism

The European Central Bank's chief economist has warned against rising populism and said that governments must focus on economic growth and push through structural reforms.

Peter Praet, a member of the European Central Bank (ECB) executive board, made the comments in an interview with the German financial newspaper Borsen-Zeitung published Wednesday. The interview was made available on the ECB's website.

"The rise of populism should be a wake-up call," Praet said. "The governments have to give priority to difficult political decisions and follow through with the much-needed reforms."

Praet dismissed the idea that some countries could leave the euro area in the coming years.

"Populist parties in some countries promise quick solutions--but they offer only recipes for disaster. Nobody should be under the illusion that you only need to return to the old system and everything will be better," the economist said. "All these countries have had their reasons for joining the euro area: the old system of constant devaluation was not working. What is needed now is to make the much needed structural adjustments."

Thought Praet said that his organization isn't worried about a new recession, he said that a concern was that "businesses and households are reducing their long-term growth expectations." He added that "urgent action is necessary... on the fiscal, structural and monetary policy side."

Among those who have criticized the growth-focused economy and its wide-ranging impacts is Naomi Klein, whose latest book is This Changes Everything: Capitalism Vs. the Climate.

In an interview with Ricochet this fall, Klein spoke to how the sort of austere reforms as advocated by the ECB not only attack needed public systems but are incompatible with addressing the urgent climate crisis. From the interview:

...I spent some time in Greece, which is probably the most austerity-ravaged country in Europe, and it's just been punished again and again by the European Central Bank. Germany just forced it to accept round after round of brutal austerity. We hear about that, and we see the protests in the street, and I think we understand that tragedy of how people are being sacrificed on the altar of economic crisis and in the name of coming back to growth.

What is less reported is that part of this has also meant a full-scale attack on some really strong environmental policies in Western Europe. This is happening in Greece, it's happening in Spain, it's happening in Portugal, where countries are told that they can no longer afford their renewable energy programs, their subsidies. And more than that, in Greece they're being told that their way out of crisis is to drill for oil and gas in their beautiful seas in the Mediterranean and the Ionian. The message is very explicit: you have to sacrifice your beautiful environment -- which in fact is at the centre of Greece's economy, because it's a tourism-based economy and a fishing-based economy -- in order to attract foreign investment and come to growth.

So we're already being told that capitalism and climate are at war. All our politicians are saying it, even if they're not using that language. And what I'm saying is that capitalism is winning, and that's a really big problem, because this is the only home we have.

If you see the many other problems with this growth-based system, which is ravaging social programs and causing massive unemployment and ever-widening inequality, then the fact it is also destabilizing the life support systems on which we depend should be supercharging all of our movements.

Echoing Klein, Federico Demaria, author and member of Research & Degrowth in Barcelona, told Inter Press Service that looking at the big picture makes it obvious that dropping that default assumption that growth is necessary.

"Once we decide that we are not afraid to talk about the full implications of development, be they economic, social or political," Demaria said, "then we begin to see that it is actually utopian to think that our societies can be based on economic growth for ever. Degrowth, by contrast, really offers the most common sense of all."