Given the catastrophic mantra rising in media reports and from certain pundits, one contrarian point needs to be made clear: democracy can’t and won’t kill the debt-stricken euro. As Europeans at the ballot box are demonstrating, economic policies—even amid the continent’s currency crisis—simply aren’t the zero-sum considerations that some commentators suggest. A range of credible choices always exists. European voters are now selecting from those, in some cases by embracing change that can help save the euro. Far from being terrified, markets seem to understand and even share the concerns driving such moves—particularly those attentive to growth.
The reason? Government-swapping European elections are far less a threat to the single currency than domination of the same conventional thinking, ideological myopia, and facile reflexes that led to Europe’s financial emergency in the first place. Should the euro eventually perish, it could be seen as the result of years of excessive spending—most recently by many of the same leaders now lurching to the opposite extreme with growth-stunting, austerity-focused measures that are arguably complicating the debt crisis.
Contrary to commentators claiming otherwise, changes resulting from crisis-framed elections in Europe also don’t correspond to stereotypes of welfare state-addicted societies smiting leaders brave enough to succumb to the one and only reality the euro zone faces. The social and political variables have been too varied for that. Elections since 2011 have ousted leftist governments (Spain and Greece) and toppled ruling conservatives (Ireland, Denmark, and now, as seems likely, France). Italy replaced one discredited right-wing premier with a more stable, sober conservative alternative. Even countries that aren’t facing elections have seen pressure mount for revised thinking about managing the euro crisis. That tension was largely responsible for the fall of the Dutch cabinet Monday. It’s also forcing German Chancellor Angela Merkel to join E.U. peers questioning her all-austerity prescription for Europe’s currency crisis.
(LIST: Merkel in the TIME 100)
So if there’s no one-size-fits-all political force at work, what’s common to the calls for change across Europe? A desire for a better balance and viability in responding to the situation, for starters. There’s also a demand for more common sense in finding cures that aren’t more debilitating than the illness they’re treating. European publics are ready to make sacrifices to save the euro, but they aren’t convinced the current leaders are making all the moves necessary to do that, either. What’s more, markets increasingly seem to share that view.
European voters and politicians calling for growth stimulus to compliment existing austerity measures generally echo something many economists and business leaders have been noting for months. To wit: that too much of anything is bad—including 100% spending cuts to battle debt. Without efforts to ensure the minimal economic expansion that keeps revenues flowing into state coffers, they say, governments can’t even finance debt they’ve already built up, much less reduce their arrears. Policies based on growth-choking austerity alone inevitably produce the exact opposite of their goal of lowering public debt levels, since sluggish economic activity or shrinkage not only dries up government income, but also raises outlays as more people become unemployed and require state assistance to get by.
That hasn’t been lost on financial experts and business leaders, including many who early in the crisis cried the loudest for clear and immediate steps by euro leaders to take the debt bull by its horns. They’ve begun heeding alerts from certain economists (notably Paul Krugman and Nouriel Roubini ) that European leaders must re-think their inflexible austerity faith in a manner they didn’t dare to before. Yes, debt-spooked investors demanded euro-zone governments make it clear they’d understood the gravity of the situation and were ready to take all the financial and policy steps necessary to save the currency. But no, markets don’t want so much austerity that the recessionary economic consequences undermine their own medium- and long-term investing planning and activity.
“Markets’ self-interest depend on a positive economic outlook, which in turn means insisting governments stimulate growth when expansion doesn’t look likely to happen on its own,” says Gilles Moec, a senior European economist at Deutsche Bank in London. “Bringing down debt is clearly essential to long-term economic stability. But with austerity measures and deficit rules now in place, many investors now expect efforts to be made to nurture growth. Those are completely contradicting demands in the current situation, but they exist.”
It’s becoming evident that voters in Europe now also expect their leaders to attempt that difficult, perhaps even impossible, dual act—or be shown the door. That thinking was behind the Socialist front-runner in France’s presidential elections, François Hollande, pledging to renegotiate the E.U.’s deficit- and debt-fighting treaty until growth mechanisms were added. Italian premier Mario Monti has since called for similar moves, as have officials in fiscally frugal Holland. Justification for those demands continue to accumulate.
On Monday, news broke of Spain re-entering recession amid draconian spending cuts there. As in austerity-emaciated Ireland before it, the causal role of spending cuts in Spain’s economic shrinkage has increased doubts about the wisdom of the all-stick/no-carrot line that has dominated euro-zone response to the crisis. Similar skepticism surged outside the euro zone Wednesday, when new figures showed Britain had also slumped back into recession under the Conservative government’s rigorous austerity regime.
Given the evident limits of spending cuts alone, European voters—and markets—are simply demanding governments invest in growth measures that will prove just as useful to debt reduction as belt-tightening. Leaders who refuse are being replaced. Time will tell whether those changes will help to save the euro—but it’s already clear they can’t possibly be the cause of the currency’s demise if it does end up dying.
PHOTOS: The Global Financial Crisis