Guardian UK: Europe, prepare for a riotous 2012


Richard Moore

Europe, prepare for a riotous 2012

If eurozone countries continue to pursue misguided policies, social movements will gain steam and the EU will unravel
Henning Meyer, Monday 19 December 2011 12.48 GMT

As 2011 draws to a close, it is fair to say that this year has been one of the most disastrous for the European Union in its history. The eurozone crisis has spread from the periphery to the core and all political and financial rescue packages were too little, too late. Towards the end of the year it felt like EU leaders took longer to agree the latest measures to restore confidence than it took for markets to lose it again.

It was also unfortunate that the little action taken was mostly misguided. This includes austerity policies implemented simultaneously across Europe and the creation of so-called debt brakes, which is basically the constitutionalisation of a failed stability framework. The last summit of the year also brought about the biggest political rift in the union’s history,with the UK blocking a treaty change leaving the EU deeply divided and caught up in a silly war of words.

In Germany there is an annual vote for the Unwort des Jahres (“most infamous phrase of the year”). From a European perspective, my absolute favourite this year is “national interest”. Like it or not, EU politics has become more British in recent years. The UK has always seen the union as an institution in which you try to secure your “national interest” rather than a place where you make political compromises with partner countries. The inability to move beyond the perceived short-term “national interest”, at the expense of what is better in the mid to long term, has been a key reason for the EU’s powerlessness to respond adequately to the challenges it faces. We are moving towards political deadlock in a severe and worsening crisis and the forecast for next year doesn’t look good either.

It now seems unavoidable that the world economy enters another recession, which is likely to reach depression levels in some countries. Last week Christine Lagarde of the IMF issued a warning not just against the looming downturn but against 1930s-style policy responses of protectionism and isolation in the name of the “national interest” (here it is again). She rightly exposed the pursuit of misguided, domestically driven policies as self-defeating in the mid to long term. Protectionist policy measures will trigger defensive responses, which will worsen the aggregate situation further so a depression becomes a self-fulfilling prophecy. The world has been in this situation before – and it did not end well.

Against this gloomy backdrop, what will 2012 have in store for Europe? A few years ago the Kaiser Chiefs famously sang I Predict A Riot. If we continue on current trends, I predict more than one riot for 2012. One of this year’s novelties, stemming from junctures such as the Arab spring, the ascendancy of the Occupy movement and the massive protests against economic policies in Spain and Greece, was the rise of new social movements and the widespread use of communication technologies to co-ordinate civil unrest. Once the genie is out of the bottle it is almost impossible to put it back in. So unless the protest causes are addressed effectively, which seems unlikely, civil unrest is set to continue and grow next year.

Is there any positive scenario for 2012? The eurozone crisis is at the heart of global economic uncertainties and their potentially devastating social consequences. Therefore, what the EU does next year to resolve the eurozone crisis will be of global significance. The individual measures needed to resolve the crisis have been widely discussed and are well known. But unless EU leaders completely change course and overcome political and legal obstacles to install the European Central Bank as a lender of last resort, draw up plans for a real fiscal union, introduce eurobonds, devise a strategy for new growth, pursue necessary structural reforms in surplus as well as deficit countries and finally reform the financial sector, there is little hope the current malaise can be overcome.

Unfortunately, the miserable scenario looks much more likely. If EU leaders continue to pursue their misguided policies, forcing crisis countries into depression-level GDP reductions and even higher unemployment, the whole situation will unravel sooner rather than later. Under these circumstances there is no chance to improve national debt levels so social costs will rise and defaults and forced exits from the eurozone become much more likely. The already weak European banking sector would not be able to withstand the shock of several countries leaving the euro – it is very unlikely that only one country leaves if the euro started to crumble – causing another financial meltdown and extended legal battles.

The EU itself would not survive such a shock intact either. The British relationship to the union has to be resolved by a referendum sooner or later. And a mixture of disappointment and outright anger could also tempt other countries to reassess their membership, sending the EU into a process of disintegration, which would spell further economic and political disaster. It is not too late to change course, but the window of opportunity is closing very fast. If we continue down the current path, theUnwort des Jahres 2012 will not be “national interest” but rather “return of nationalism”. We are on a slippery slope and EU leaders would do well to fathom the long-term consequences of their actions.