SO, IT’S no longer “the economy, stupid”. Despite mounting anxiety in Britain that a consumer downturn will undermine the economy, it was Iraq, and trust in Tony Blair, that shaped the outcome of last week’s elections. The famous axiom of Bill Clinton’s 1992 US presidential campaign no longer applied.

Across the Channel, however, things are very different. In much of continental politics it is indeed “the economy, stupid” — and in spades — that is shaping the political agenda.

The protracted malaise gripping the eurozone’s big economies is igniting a growing sense of popular discontent. And with governments in France, Germany, and Italy about to face important electoral tests, this discord is forcing a response from Europe’s leaders. The political stresses that are emerging from this nexus now threaten to unleash some dangerous forces, with far-reaching repercussions.

That Europeans are getting fed up with their economic governance is scarcely surprising, given the present “state of the union”. The core of the eurozone faces yet another year in which hopes of a potent economic revival will be dashed.

This week brings the release of first-quarter growth figures for Germany, Italy and the eurozone as a whole. Germany is tipped to have seen respectable growth of 0.5 per cent and the eurozone economy to have expanded by a half-decent 0.4 per cent. But the Italian economy may have struggled to grow at all. And the worry is that these figures are as good as it gets for at least the present phase of this recovery, with signs pointing to flagging momentum across much of the eurozone.

For 2005 Goldman Sachs expects the bloc’s growth to be only 1.1 per cent. The danger is that widespread frustration with this lacklustre performance boils over in a popular backlash that then jeopardises governments’ willingness, or ability, to press on with critical economic reform.

This pattern is already emerging in France, where the electorate’s discontent over the economy leaves President Chirac battling against the odds to win the May 29 referendum on the EU constitution. As Goldman Sachs notes, since mid-March, 25 successive opinion polls have shown a majority of the French against ratification of the constitution, although as much as a third of the population remains undecided.

The consequences of a non vote, despite the entire French political establishment campaigning for ratification, would amount to a repudiation of the entire direction of the European “project”, as well as a severe slap in the face for M Chirac.

With the President intent on seeking re-election in 2007, the risk is then of a worrying tilt to a more populist economic platform, thrusting the EU’s reform agenda to the backburner and further pandering towards protectionist sentiment.

In symptoms of this tendency, M Chirac has already acted as the prime mover in the EU’s withdrawal of a directive designed to liberalise and deregulate Europe’s market in services and has delivered outspoken condemnation of cheap Chinese imports.

All this would be bad enough but similar pressures are building in Germany, where the Government of Gerhard Schröder is on the defensive ahead of key regional elections in North Rhine-Westphalia on May 22 and a general election in September next year.

In Germany, economic discord has surfaced in a dramatic fashion with a hyperbolic attack on financial investors in Europe’s biggest economy by Franz Müntefering, the head of Chancellor Schröder’s SPD party. Herr Müntefering attacked these groups as a threat to democracy and as “swarms of locusts that fall on companies, stripping them bare before moving on”.

This sort of anti-capitalist rabble-rousing is alarming stuff from a mainstream political figure, especially when it appears to strike a popular chord. It would be too easy to dismiss Herr Müntefering’s outburst simply as gratuitious, and costless, electioneering. With more than half of German voters appearing to believe that he has a point, not only do the comments risk inflaming resistance to continued pro-market reforms, the reaction highlights the danger that German politicians could be tempted further down this road.

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