The Panama Papers are yet another blow to the political establishment. They amplify popular resentment toward governments that already are perceived by a significant segment of the population as turning a blind eye to tax-dodging. That anger is stoked by disclosures that some high-ranking officials also availed themselves of the shelters. And though no laws were broken in most cases, the documents will feed the perception that the privileged are allowed to play by different rules.
Indeed, for many, the Panama Papers are reminiscent of a broader phenomenon that played out in the run-up and the aftermath of the 2008 global financial crisis: The perception of a system run and managed by a political establishment that serves the rich and connected and fails to hold these elites accountable for the damage they cause to the rest of society. There is still notable residual resentment that very few bankers were brought to justice for their role in a financial debacle that caused significant misery and almost tipped the world into a devastating multiyear depression.
By stoking residual anger and fueling anti-establishment movements, the Panama Papers will make it even harder for the established parties to come together and implement policies aimed at overcoming years of sluggish economic growth, worsening inequality and artificial financial stability.
In addition, two other developments last week also eroded the credibility of the political establishment: the failure of the Dutch government to convince citizens to back European Union membership for Ukraine, and the turnaround of a growing number of members of the Republican establishment (including Lindsey Graham, Mitt Romney and Scott Walker) who lined up behind Ted Cruz as their preferred candidate.
There will be even less appetite to govern from the bipartisan political center, thus making it more difficult to secure sufficient buy-in for pro-growth structural reforms, better demand management and more timely solutions for excessively high levels of over-indebtedness.
There's no doubt that the Panama Papers will produce greater efforts to reduce tax minimization (whether through legal avoidance or illegal evasion). That is good news for liberal democratic systems that rely on a rule of law that is viewed as fair and credible. But in the short-term this will be accompanied by even stronger resistance to the kind of political unity that is needed in several countries to deliver high growth and genuine financial stability.
Mohamed El-Erian is the chief economic adviser at Allianz SE. To read more of his blogs, CLICK HERE NOW.