Severe recessions -- depressions -- have effects that go beyond economics:
Depression and Democracy, by Paul Krugman, Commentary, NY Times: It’s time to start calling the current situation what it is: a depression. True, it’s not a full replay of the Great Depression, but that’s cold comfort. Unemployment in both America and Europe remains disastrously high. Leaders and institutions are increasingly discredited. And democratic values are under siege.
On that last point, I am not being alarmist. ... Let’s talk, in particular, about what’s happening in Europe... First of all, the crisis of the euro is killing the European dream. The shared currency, which was supposed to bind nations together, has instead created an atmosphere of bitter acrimony.
Specifically, demands for ever-harsher austerity, with no offsetting effort to foster growth, have ... failed as economic policy...; a Europe-wide recession now looks likely even if the immediate threat of financial crisis is contained. And they have created immense anger, with many Europeans furious at what is perceived, fairly or unfairly (or actually a bit of both), as a heavy-handed exercise of German power.
Nobody familiar with Europe’s history can look at this resurgence of hostility without feeling a shiver. Yet there may be worse things happening.
Right-wing populists are on the rise from Austria, where the Freedom Party (whose leader used to have neo-Nazi connections) runs neck-and-neck in the polls with established parties, to Finland, where the anti-immigrant True Finns party had a strong electoral showing last April. ...
Last month the European Bank for Reconstruction and Development documented a sharp drop in public support for democracy in the ... nations that joined the European Union after the fall of the Berlin Wall. Not surprisingly, the loss of faith in democracy has been greatest in the countries that suffered the deepest economic slumps.
And in at least one nation, Hungary, democratic institutions are being undermined as we speak. One of Hungary’s major parties, Jobbik, is a nightmare out of the 1930s: it’s anti-Roma (Gypsy), it’s anti-Semitic, and it even had a paramilitary arm. But the immediate threat comes from Fidesz, the governing center-right party.
Fidesz won an overwhelming Parliamentary majority last year, at least partly for economic reasons... Now Fidesz ... seems bent on establishing a permanent hold on power. ...
Taken together, all this amounts to the re-establishment of authoritarian rule, under a paper-thin veneer of democracy, in the heart of Europe. And it’s a sample of what may happen much more widely if this depression continues. ...
The European Union missed the chance to head off the power grab at the start... It will be much harder to reverse the slide now. Yet Europe’s leaders had better try, or risk losing everything they stand for.
And they also need to rethink their failing economic policies. If they don’t, there will be more backsliding on democracy — and the breakup of the euro may be the least of their worries.