The eurozone faces a lost decade with low growth and rising political friction over the course it should take
To listen to the sermons from top people in Brussels and in some European Union capitals, the euro is safe, the storm has been weathered, the existential questions about the viability of the single currency have been banished. Good job.
But four years after Greece went hypercritical, triggering a eurozone sovereign debt crisis and a reshaping of how the EU works, the social, economic and political costs of the upheaval are coming home to roost. There are no quick fixes.
Austerity, the main policy response, has been savage. It is taking its toll. The eurozone is mired in stagnation, on the brink of deflation, gross domestic product remains 3% below 2008 Lehman Brothers levels. Growth is so anaemic, low fractions of a decimal point, that at current levels it will take the eurozone until 2021 to return to 2008 GDP levels.
In the words of a recent study from the International Institute for Strategic Studies, the eurozone faces a lost decade. Youth unemployment rates are catastrophic, more than 50% in Greece, Spain and Croatia, commonly around 25% around large swaths of Europe. And if there is recovery to speak of, it looks like jobless recovery.
Berlin, running the eurozone show increasingly and certain to shape the policy responses of the next few years in what is chancellor Angela Merkel's third and probably final term, is ridden with angst about France, and the lack of reforms being undertaken by the lacklustre François Hollande, France's least popular president ever. More chaos and paralysis is foretold for Italy. The eurozone's second- and third-biggest economies are in trouble, and Germany, the unassailable number one, is worried about being dragged down with them.
But politically, the sharp edges of the crisis have blurred, allowing leaders to revert to their preferred mode of muddling through, criticised often as complacency. In 2014 Ireland will be the first of the bailed-out countries to move back into the bond markets to finance itself, also prompting trumpeting of assertions in Brussels and elsewhere that the medicine is working.
The year ended with a summit dominated by Germany – its reluctance to foot a large part of the bill for banking failure across the eurozone as part of a new regime of European banking supervision and Merkel's drive to entrench structural reform across the eurozone through a new system of Brussels-administered "binding contracts".
The new banking regime is the biggest policy response of all by national governments in four years. But Berlin has been waging a rearguard action against it for 18 months, leaving the likely outcome as a complicated fudge mainly concerning who pays for bank failure across the eurozone.
Both these issues – banking union and Merkel's contracts – will dominate the agenda in 2014, which will be a very big year in Europe. In the wake of years of crisis that have shaken Europe to the core and raised existential questions, 2014 will bring a major shakeup in the political forces ascendant across the EU, in the people running things, in how the EU's rival institutions cope with and against one another.
The political costs of the crisis are likely to be demonstrated in elections for the European parliament in May. They promise to be the most momentous ever held for the Strasbourg chamber. The worry of the elites across the continent is that the chamber will be captured by a motley crew of Europhobes dedicated to the destruction or subversion of the institution they have conquered.
As a result of years of austerity, soaring unemployment and the "renationalisation" of European politics, anti-EU populists will do well in the elections, from Britain to Greece. France could be the big one, with Marine Le Pen's Front National tipped to win the election nationally.
The mavericks and populists will not win the election. But they could secure symbolic victories, take around 30% of seats, shape the agenda, cause the mainstream parties to trim their policies towards the far-right, and benefit from the perceived leadership failings among the mainstream in Europe.
The fallout from the elections will also affect the next bout of horse-trading. October will see the appointment of a new European commission, a new president of the European council chairing EU summits and mediating between national leaders, and a new foreign policy chief.
There will be a battle between the new parliament and national leaders over who should make these key appointments and there will be the usual multidimensional scrapping over the plum jobs.
While these games preoccupy Brussels, Europe's real world is one of deepening social and economic impact from years of austerity and euro crisis, of the political costs of minimal growth, effective deflation and mass unemployment.
The British question will move up the agenda. Will the UK be the first country, and a big one, to quit the EU? This will concentrate continental minds. Merkel is now Europe's undisputed leader. The year should show if she really has an idea of what she wants her European legacy to be and whether she can get there.
France's President Hollande cuts an increasingly sorry figure on the European stage. He needs a new deal with Germany but there is little sign of that happening. French weakness and Italian messiness will reinforce the prevalent sense of worry about European decline.
EuropeEuroEuropean UnionEconomicsGermanyAngela MerkelFranceFrançois HollandeMarine Le PenItalyGreeceIan Traynortheguardian.com © 2013 Guardian News and Media Limited or its affiliated companies. All rights reserved. | Use of this content is subject to our Terms & Conditions | More Feeds |
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