Ukip leader Nigel Farage with a campaign poster during the Heywood and Middleton by-election. Photograph: Getty Images.
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Ukip's surge in Heywood should terrify Labour - but even now some remain complacent

It is remarkable that some in the party are drawing comfort from a rise of just 0.8 per cent in their vote. 

For years, many in Labour have regarded Ukip's spectacular rise with equanimity. The party takes most of its votes from Conservative supporters and makes it easier for us to win the general election, they cry. "My enemy's enemy is my friend" one can almost hear them thinking.    

Last night's Heywood and Middleton by-election, in which Ukip finished just 617 votes behind Labour, should shatter this complacency for good. Having polled only 2.6 per cent in 2010, the Farageists won a swing of 18 per cent and forced a dramatic recount (two polls had suggested a far more comfortable 19-point victory for Labour, but our elections site May 2015 smartly forecast just how close the race would be). 

That Ukip came within 2 per cent of winning the seat (only the 148th most Ukip-friendly) should terrify Labour. The Lib Dems' support collapsed to 5 per cent (from 23 per cent in 2010), owing to their involvement in the coalition; the Tories suffered from the austerity they have imposed (their vote fell from 27 per cent to 12 per cent), and yet the opposition was only able to increase its vote by 0.8 per cent. Faced with an unpopular two-party government, Labour should be thriving. Instead it has barely advanced from the days of Gordon Brown and the financial crisis. Had Ukip's resources not been divided between Heywood and the simultaneous by-election in Clacton (where Tory defector Douglas Carswell won a thumping majority of 12,404) they would almost certainly have claimed the seat.

For that, Ed Miliband should be gasping with relief. Had Labour suffered the indignity of losing a seat to Ukip, some of those MPs privately calling for his resignation would have gone public. Despite this brush with disaster, there are shadow cabinet ministers drawing comfort from the fact the party's vote crept up from its 2010 level. "Labour vote share up in Heywood & Middleton. We always knew it wld be close with UKIP making gains esp from ex Tory + Lib Dem voters," tweeted Gloria De Piero. She appears entirely unconcerned that those who wanted to oppose the government chose not to support the opposition. As Marcus Roberts, the deputy general secretary of the Fabian Society, and the author of the essential pamphlet Revolt on the Left: Labour’s Ukip problem and how it can be overcome​, laconically observed: "It is good we have grown our share of the vote on 2010. But I think we need to grow it by more than 1% to win next year."

If Ukip can run Labour this close when Miliband's party in opposition, just think how much damage it could inflict on it if it enters Downing Street. In the form of "the people's army", which has now finished second in five Labour-held seats in this parliament, the party faces a populist force freed of the toxic associations of the Tory brand. An unpopular Labour government, forced to impose the kind of cuts it has spent most of the last four years opposing, would struggle to stop the rebels toppling its fortresses.

By-elections are historically a poor indicator of general election performance, and Ukip will still likely fail to win a seat off Labour next May. But it is not just defeat that the party now needs to fear, but victory too. With Ukip insurgent, the SNP on the march on Scotland, the Greens rising on the left, and the potential for the Lib Dems to recover under Tim Farron, the danger for Miliband is that May 2015 could yet prove to be a win from which he never recovers. 

George Eaton is political editor of the New Statesman.

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Leader: The unresolved Eurozone crisis

The continent that once aspired to be a rival superpower to the US is now a byword for decline, and ethnic nationalism and right-wing populism are thriving.

The eurozone crisis was never resolved. It was merely conveniently forgotten. The vote for Brexit, the terrible war in Syria and Donald Trump’s election as US president all distracted from the single currency’s woes. Yet its contradictions endure, a permanent threat to continental European stability and the future cohesion of the European Union.

The resignation of the Italian prime minister Matteo Renzi, following defeat in a constitutional referendum on 4 December, was the moment at which some believed that Europe would be overwhelmed. Among the champions of the No campaign were the anti-euro Five Star Movement (which has led in some recent opinion polls) and the separatist Lega Nord. Opponents of the EU, such as Nigel Farage, hailed the result as a rejection of the single currency.

An Italian exit, if not unthinkable, is far from inevitable, however. The No campaign comprised not only Eurosceptics but pro-Europeans such as the former prime minister Mario Monti and members of Mr Renzi’s liberal-centrist Democratic Party. Few voters treated the referendum as a judgement on the monetary union.

To achieve withdrawal from the euro, the populist Five Star Movement would need first to form a government (no easy task under Italy’s complex multiparty system), then amend the constitution to allow a public vote on Italy’s membership of the currency. Opinion polls continue to show a majority opposed to the return of the lira.

But Europe faces far more immediate dangers. Italy’s fragile banking system has been imperilled by the referendum result and the accompanying fall in investor confidence. In the absence of state aid, the Banca Monte dei Paschi di Siena, the world’s oldest bank, could soon face ruin. Italy’s national debt stands at 132 per cent of GDP, severely limiting its firepower, and its financial sector has amassed $360bn of bad loans. The risk is of a new financial crisis that spreads across the eurozone.

EU leaders’ record to date does not encourage optimism. Seven years after the Greek crisis began, the German government is continuing to advocate the failed path of austerity. On 4 December, Germany’s finance minister, Wolfgang Schäuble, declared that Greece must choose between unpopular “structural reforms” (a euphemism for austerity) or withdrawal from the euro. He insisted that debt relief “would not help” the immiserated country.

Yet the argument that austerity is unsustainable is now heard far beyond the Syriza government. The International Monetary Fund is among those that have demanded “unconditional” debt relief. Under the current bailout terms, Greece’s interest payments on its debt (roughly €330bn) will continually rise, consuming 60 per cent of its budget by 2060. The IMF has rightly proposed an extended repayment period and a fixed interest rate of 1.5 per cent. Faced with German intransigence, it is refusing to provide further funding.

Ever since the European Central Bank president, Mario Draghi, declared in 2012 that he was prepared to do “whatever it takes” to preserve the single currency, EU member states have relied on monetary policy to contain the crisis. This complacent approach could unravel. From the euro’s inception, economists have warned of the dangers of a monetary union that is unmatched by fiscal and political union. The UK, partly for these reasons, wisely rejected membership, but other states have been condemned to stagnation. As Felix Martin writes on page 15, “Italy today is worse off than it was not just in 2007, but in 1997. National output per head has stagnated for 20 years – an astonishing . . . statistic.”

Germany’s refusal to support demand (having benefited from a fixed exchange rate) undermined the principles of European solidarity and shared prosperity. German unemployment has fallen to 4.1 per cent, the lowest level since 1981, but joblessness is at 23.4 per cent in Greece, 19 per cent in Spain and 11.6 per cent in Italy. The youngest have suffered most. Youth unemployment is 46.5 per cent in Greece, 42.6 per cent in Spain and 36.4 per cent in Italy. No social model should tolerate such waste.

“If the euro fails, then Europe fails,” the German chancellor, Angela Merkel, has often asserted. Yet it does not follow that Europe will succeed if the euro survives. The continent that once aspired to be a rival superpower to the US is now a byword for decline, and ethnic nationalism and right-wing populism are thriving. In these circumstances, the surprise has been not voters’ intemperance, but their patience.

This article first appeared in the 08 December 2016 issue of the New Statesman, Brexit to Trump