In the last article I outlined the four big challenges for
Europe – economics, demography, energy and leadership. Now we will look at the
future. What is likely to happen?
Two strategies were outlined at the end of the last article
– closer political integration or a return to nationalism within a market based
union, the place where the Common Market began in the 1950’s. But before either of these things happens,
there will be distractions.
The first will be the failure of austerity, the exit of
Greece from the Eurozone and the subsequent Eurogedden which will follow. The exit of Greece is now inevitable. It is
not possible to imagine Greece meeting its austerity obligations for additional
funds from the European Stability Fund and the IMF. It will default. The
question is when. When it does, it will leave the Euro, despite the pleas of
the G8 leaders to stay in. It will be better for Greece is the medium and long
term to be out than in. But the short term will be very painful. The Drachma
2.0 will be almost worthless at inception and Greeks will find their economy
very troubled – much more so than now. But the great “reset” provides an
opportunity for the rethinking of Greece as a nation and the rebirth of
national pride and strategy. If they follow the roadmap available from Iceland
and Argentina, both of which recovered from similar positions, they will have a
modest chance of recovery.
The second will be the ripple effects of the Greek exit from
the Euro, especially for Portugal, Spain, Italy, France and Ireland. All of
these countries will find themselves under fresh pressure to pursue austerity
and fiscal discipline while at the same time seeking to protect their vulnerable
banks and financial institutions. Some will not make it. Hollande’s decisions
concerning French strategy, especially with respect to publicly supported
financial institutions (e.g. Caise
Centrale du Credit Immobiliser – the French equivalent of Freddie Mae and
Freddie Mac). Hollande is likely to pursue what is becoming known as “inclusive
capitalism” – seeking to use wealth creation as a means of producing greater
equity in society – a kind of Nordic capitalism.
The third will be the need to balance fiscal responsibility
with the push for growth. Britain in particular will find this challenging.
Having pursued fiscal discipline for the last three years without the results
showing the economic benefits intended, the UK Government will find it difficult
to reinvest in public spending and innovation aimed at growth – its more than a
change of rhetoric, it’s a U-Turn of significance. It will likely lead to the
Conservatives losing the next election.
What is required throughout Europe to stimulate growth is a
rise in inflation – letting costs and spending rise beyond the 2-3% level
“permitted” under the policies being pursued by the central banks. This is in
fact how Germany secured its own growth position and its trade imbalances (the
real engine of the German economy).
Speaking of losing elections, this is the fourth
distraction. Eleven Governments have fallen in the last three years, starting
with the fall of Gordon Brown. Chancellor Merkel, on current performance, could
lose the next election in Germany. Her party performed poorly this month on
regional elections and rising energy costs and the rising costs of “bailing
out” Europe are causing real disquiet in Germany. Even if she wins, the new
coalition she would have to form to govern is likely to have a different
character from the current coalition.
The major distraction will be a straight “in or out” of the
European Union referendum in Britain. This is now an inevitable election
promise from both the Conservatives and the Labour Party, with Boris Johnson,
Mayor of London, leading the call for “out”, thus cementing his bid for the
leadership of the Conservative Party in 2016 or beyond. On current polling, the
“No’s” would win, the case for “Yes” being made more and more difficult by the
daily shifts in the economic performance of the EU and its leaders. Britain is
not in the Eurozone and has a high degree of intolerance of the decisions
imposed on it from Brussels and the European Court. The sense of nationalism is
rising in Britain and the next election will see a rise in votes for the
candidates with a Eurosceptic position.
While these and other distractions are occurring, the
officials of the EU will be working to secure closer financial and political
integration – their only strategy.
They will pursue this along the lines of strengthening the control of non-elected
officials over the operation of elected Governments, of which they are
increasingly skeptical. In this they will be supported by other non-elected
organizations, like the IMF, the World Bank and the UN. This is part of a
international push for global governments
which can act independently of democratic processes – the new technocracy.
Europe has been rehearsing this for some time through the work of the
Commission and the European Court. We can expect to see a great many of their
proposals being endorsed by meetings of about to be unelected leaders who can
see their own future in the making.
We can also expect a variety of moves to impose new controls
over the social and economic policies of member Governments, specifically with
respect to the harmonization of taxes and conditions of employment, energy and
innovation investments. As the non-elected seeks to impose more central control
over the operations of separate nation states, we can also expect tensions to
rise within the EU over strategic direction.
This in turn will give strength to emerging nationalist
sentiment across the EU, so we can expect to see real gains in votes for
nationalist parties – something we have already seen in Finland, Sweden,
Britain, Greece, Germany and France. It will be rough and tumble politics –
rougher and more tumbles than we have seen for some time. At the heart of this
will be questions of democracy, nationalism and the nature of capitalism.
For historians, they will see in these developments the
return of many of the conditions that were precursors to the conflicts in
Europe in the latter half of the nineteenth century and the first half of the twentieth –
inflation, economic uncertainty, nationalism, unelected officials dictating the
fate of nations, treaties which impose austerity and produce unemployment and
fear. It is explosive.
What we can hope for, but have no sign of, is visionary
leadership – a group of leaders who can rally Europeans around a vision for the
future which goes beyond the technocracy of public finances and speaks to a
future which is aspirational, desirable and achievable, even if it involves
pain. This vision has to be more than an economic vision – it has to speak to
the idea of community, the person, compassion, equity, mindful employment,
learning and innovation. It has to speak to a new renaissance.
In Europe – this series is being written from London, Paris,
the Loire Valley and Budapest – people are anxious about their own future, the
future of their families and community and the meaning of their lives. They are
looking for someone who can give them hope and the images of a future beyond
the “despair” of the present. No one right now is doing this with any
conviction. A lot of what passes for visionary leadership is “mush” or
“befuddled tosh”, as my London taxi driver told me. He also said of British
Prime Minister David Cameron, who is a multi-millionaire married the daughter
of a peer of the realm, “his connection to ordinary people is about the same as
my cell phone’s connection in a dark tunnel ten miles long and six miles
underground – non existent!”.
So, watch Europe carefully. It is in the in-between time
between an old version of Europe as an effective market and leading group of
nations who were expected to be a model for the twenty first century world to
the new Europe. We don’t know what the new Europe will look like, but it will
be an interesting period of finding out.
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