Europe in 2013: A Year of Decision
January 3, 2013 | 1000 GMT
By George Friedman
The end of the year always prompts questions
about what the most important issue of the next year may be. It's a simplistic
question, since every year sees many things happen and for each of us a
different one might be important. But it is still worth considering what single
issue could cause the world to change course. In my view, the most important
place to watch in 2013 is Europe.
Taken as a single
geographic entity, Europe has the largest economy in the world. Should it
choose to do so, it could become a military rival to the United States. Europe is
one of the pillars of the global system, and what happens to Europe is going to
define how the world works. I would argue that in 2013 we will begin to get
clarity on the future of Europe.
The question is whether the
European Union will stabilize itself, stop its fragmentation and begin preparing
for more integration and expansion. Alternatively, the tensions could intensify
within the European Union, the institutions could further lose legitimacy and
its component states could increase the pace
with which they pursue their own policies, both domestic and foreign.
The Embattled European
Project
It has been more than four
years since the crisis of 2008 and about two years since the problems spawned
by 2008 generated a sovereign debt crisis and a banking crisis in Europe. Since
that time, the crisis has turned from a financial to an economic crisis,
with Europe moving into recession and unemployment across the Continent
rising above 10 percent. More important, it has been a period in which the
decision-making apparatus created at the founding of the European Union has
been unable to create policy solutions that were both widely acceptable and
able to be implemented. EU countries have faced each other less as members of a
single political entity than as individual nation-states pursuing their own
national interests in what has become something of a zero-sum game, where the
success of one has to come at the expense of another.
This can be seen in two ways. The first
dimension has centered on which countries should bear the financial burden of
stabilizing the eurozone. The financially healthier countries wanted the weaker
countries to bear the burden through austerity. The weaker countries wanted the
stronger countries to bear the burden through continued lending despite
the rising risk that the loans will not be fully repaid. The result has
been constant attempts to compromise that have never quite worked out. The second
dimension has been class. Should the burden be borne by the middle and lower
classes by reducing government expenditures that benefit them? Or by the elites
through increased taxation and regulation?
When you speak with Europeans who support the
idea that Europe is in the process of solving its problems, the question
becomes: What problem are they solving? Is it the problem of the banks? The
problem of unemployment? Or the problem of countries' inability to find common
solutions? More to the point, European officials have been working on this
problem for years now, and they are among the best and brightest in the world.
Their inability to craft a solution is not rooted in a lack of good ideas or
the need to think about the problem more. It is rooted in the fact that there
is no political agreement on who will pay the price geographically and
socially. The national tensions and the class tensions have prevented the
crafting of a solution that can be both agreed upon and honored.
If the Europeans do not generate that sort of
solution in 2013, it is time to seriously doubt whether a solution is possible
and therefore to think about the future of Europe without the European Union or
with a very weakened one. If, however, Europe does emerge with a plan that has
general support and momentum behind it, then we might say that Europe is
beginning to emerge from its crisis, and that, in turn, would be the single
most important thing that happens in 2013.
At this point, a reasonable
person will argue that I am ignoring the United States, which has different but
equally significant economic problems and is also unable to generate consensus
on how to solve them, as we have seen during the recent "fiscal
cliff" affair, which will have many more iterations. But as valid as the
comparison is on the financial level, it is not valid on the political
level. The United States does not face the dissolution of the
republic if it follows contradictory policies. The United
States is more than two centuries old and has weathered far worse problems,
including the Civil War and the Great Depression. The European Union is only
about 20 years old in its current form, and this is its first significant crisis.
The consequences of mismanaging the U.S. financial system are significant to
say the least. But unlike Europe, the consequences are not an immediate
existential threat.
The Other Costs of the
Crisis
It is the political dimension that has become
the most important, not the financial. It may well be that the European Union
is in the process of dealing with its banking problems and might avoid other
sovereign debt issues, but the price it has paid is both a recession and, much
more serious, unemployment at a higher rate than in the United States overall,
and enormously higher in some countries.
We can divide the European Union into three
categories by measuring it against the U.S. unemployment rate, which stands at
about 7.7 percent. There are five EU countries significantly below that
rate (Austria, Luxembourg, Germany, Netherlands and Malta). There are seven
countries with unemployment around the U.S. rate (Romania, Czech Republic,
Belgium, Denmark, Finland, the United Kingdom and Sweden). The remaining 15
countries are above U.S. unemployment levels; 11 have unemployment
rates between 10 and 17 percent, including France at 10.7 percent, Italy
at 11.1 percent, Ireland at 14.7 percent and Portugal at 16.3 percent. Two
others are staggeringly higher -- Greece at 25.4 percent and Spain at 26.2
percent. These levels are close to the unemployment rate in the United States
at the height of the Great Depression.
For advanced industrialized
countries -- some of the most powerful in Europe, for that matter -- these
are stunning numbers. It is important to consider what these numbers mean
socially. Bear in mind that the unemployment rate goes up for younger
workers. In Italy, Portugal, Spain and Greece, more than a third of the
workforce under 25 is reportedly unemployed. It will take a generation to
bring the rate down to an acceptable level in Spain and Greece. Even for
countries that remain at about 10 percent for an extended period of time, the
length of time will be substantial, and Europe is still in a recession.
Consider someone unemployed in his 20s, perhaps
with a university degree. The numbers mean that there is an excellent chance
that he will never have the opportunity to pursue his chosen career and quite
possibly will never get a job at the social level he anticipated. In Spain and
Greece, the young -- and the old as well -- are facing personal catastrophe. In
the others, the percentage facing personal catastrophe is lower, but still very
real. Also remember that unemployment does not affect just one person. It
affects the immediate family, parents and possibly other relatives. The effect
is not only financial but also psychological. It creates a pall, a sense of failure
and dread.
It also creates unrooted young people full of
energy and anger. Unemployment is a root of anti-state movements on the left
and the right. The extended and hopelessly unemployed have little to lose and
think they have something to gain by destabilizing the state. It is hard to
quantify what level of unemployment breeds that sort of unrest, but there is no
doubt that Spain and Greece are in that zone and that others might be.
It is interesting that
while Greece has already developed a radical right movement of some size,
Spain's political system, while experiencing stress between the center and its
autonomous regions, remains relatively stable. I would argue that
that stability is based on a belief that there will be some solution to the
unemployment situation. Its full enormity has not yet sunk in, nor the fact
that this kind of unemployment problem is not fixed quickly. It is deeply
structural. The U.S. unemployment rate during the Great Depression was
mitigated to a limited degree by the New Deal but required the restructuring of
World War II to really address.
This is why 2013 is a critical year for Europe.
It has gone far to solve the banking crisis and put off a sovereign debt
crisis. In order to do so, it has caused a serious weakening of the economy and
created massive unemployment in some countries. The unequal distribution of the
cost, both nationally and socially, is the threat facing the European Union. It
isn't merely a question of nations pulling in different directions, but of
political movements emerging, particularly from the most economically affected
sectors of society, that will be both nationalist and distrustful of its own
elites. What else can happen in those countries that are undergoing social
catastrophes? Even if the disaster is mitigated to some degree by the
shadow economy and emigration reducing unemployment, the numbers
range from the painful to the miserable in 14 of Europe's
economies.
Europe's Crossroads
The European Union has been so focused on the
financial crisis that it is not clear to me that the unemployment reality has
reached Europe's officials and bureaucrats, partly because of a growing split
in the worldview of the European elites and those whose experience of Europe
has turned bitter. Partly, it has been caused by the fact of geography. The
countries with low unemployment tend to be in Northern Europe, which is the
heart of the European Union, while those with catastrophically high
unemployment are on the periphery. It is easy to ignore things far away.
But 2013 is the year in which the definition of
the European problem must move beyond the financial crisis to the social
consequences of that crisis. Progress, if not a solution, must become visible.
It is difficult to see how continued stagnation and unemployment at these
levels can last another year without starting to generate significant political
opposition that will create governments, or force existing governments, to tear
at the fabric of Europe.
That fabric is not old enough, worn enough or
tough enough to face the challenges. People are not being asked to die on a battlefield
for the European Union but to live lives of misery and disappointment. In many
ways that is harder than being brave. And since the core promise of the
European Union was prosperity, the failure to deliver that prosperity -- and
the delivery of poverty instead, unevenly distributed -- is not sustainable. If
Europe is in crisis, the world's largest economy is in crisis, political as
well as financial. And that matters to the world perhaps more than anything
else.
Read more: Europe in 2013: A
Year of Decision | Stratfor
"Europe in 2013: A Year of Decision is republished with permission of Stratfor."
