Geopolitical Watch

European crisis a symptom of fundamental global transition

Can the EMU survive?
Fragile EUM.jpg

Seven years after the global financial crisis was triggered by events in the US, in Europe it is morphing into something much broader with serious geopolitical implications.

The present standoff between the Euro Monetary Union (EMU), generally referred to as the Euro Zone and Greece over the latter’s bailout debt might just be the tip of the iceberg as the European Union (EU) battles to come to grips with the first radically left government in Western Europe since World War II.

Besides strains within Europe between especially Germany and other member states and EU structures, it also is impacting on wider NATO relations. Only last week President Barack Obama on the eve of meeting with Chancellor Angela Merkel of Germany, directed a message to the EMU warning them on the matter of Greece: “You cannot keep on squeezing countries that are in the midst of depression. At some point there has to be a growth strategy in order for them to pay off their debts   to eliminate some of their deficits.”

And for the Americans there are more at stake than just the economy, financial stability or the mere survival of the EMU. In escalating tension with Russia and chilling relations with China, geopolitical factors come into play.

Ambrose Evans-Pritchard of The Telegraph in the United Kingdom (UK) wrote last week: “Nobody in Washington wishes to see Greece spun out of the Western NATO ambit, a failed state spreading chaos across the Balkans and drifting into the arms of Russia.

“The dispute is escalating to higher authorities, and changing its character. Europe’s leaders can no longer delegate this to technical officials. The political stakes are too high. The integrity of monetary union and the security system of the Eastern Mediterranean are both hanging from a thin Greek thread.”

It is doubtful that, in the face of falling oil and gas prices, Russia has the foreign currency reserves left to bail Greece out of its debt crisis. Neither is it China’s style to get openly involved in international disputes that do not directly affect it.

Nevertheless the newly elected leftist Syriza-government of Prime Minister Alexis Tsipras threatened to tilt towards Russia and China unless the EU yields on the debt issue. Minister of defence, Panos Kammenos, said: “We have other ways of finding money. It could be the United States, it could be Russia, it could be China." 

In London Prime Minister David Cameron regarded the danger as serious enough to discuss contingency plans with top officials of the Bank of England and UK treasury in preparation for a possible Greek exit from the EMU.

Former chairman of the US Federal Reserve, Alan Greenspan, went on record to state that he believes it is “just a matter of time” before Greece drops out of the EMU and that it could trigger a series of events that could bring about the eventual collapse of the euro as a single currency.

An article by the economics correspondent of The Telegraph argues that there are 19 regions within existing European states which might be better off to go it alone. According to a Deutsche Bank report separatist movements across Europe have been given a boost by non-binding polls in Spain’s Catalonia and Italy’s Veneto last year and aspirations of splinter groups across the continent have gained traction.

At the same time some analysts believe that the threat of the EMU breaking up is at an all-time high on the back of rising political populism sweeping Europe and deflationary economic conditions. It is an environment in which nationalism thrives.

A recent analysis published by the authoritative Stratfor Global Intelligence relates how Europe is “rediscovering nationalism” as a “growing number of Europeans believe that people from other cultures are threatening their national identities and livelihoods”. This combines with other factors, many rooted in the financial/economic crisis, to create growing resistance to globalisation.

It concludes that the fact that “the European Union was built on many of the principles of globalization” explains why the bloc is becoming increasingly fragmented and why the promise of a ‘United States of Europe’ will probably never be achieve”. 

Germany                                                        

The developing new reality in Europe is also pushing Germany into a new position of prominence with which it is not always comfortable.

In an article under the title “Germany Emerges” the founder and chairman of Stratfor, George Friedman writes: “The confluence of a financial crisis in Europe that has led to dramatic increases in nationalism — both in the way nations act and in the way citizens think — with the threat of war in Ukraine has transformed Germany's world.

“Germany's goal has been to avoid taking a leading political or military role in Europe. The current situation has made this impossible. The European financial crisis, now seven years old, has long ceased being primarily an economic problem and is now a political one. The Ukrainian crisis places Germany in the extraordinarily uncomfortable position of playing a leading role in keeping a political problem from turning into a military one.”

In the meantime the ongoing debate in the EU of how to deal with the financial problems of Greece and other so-called peripheral countries has put European Commission President Jean-Claude Juncker in a tug of war with Angela Merkel for the position of being the most powerful leader in Europe.

Global developments

To all of this can be added the massive ground shifts taking place in the global socio-economic environment, aptly described in a keynote address last week by internationally renowned economist Dambisa Moyo at the Mining Indaba in Cape Town.

She believes the global economy is experiencing changes never seen before and will remain volatile and on a low growth trajectory for the next three to four decades. The four key factors of concern, hampering growth are:

·       Technology and the unemployment developing in its wake;

·       Income inequality, although it manifests differently in for instance the US, where it increased and China, where it decreased;

·       Demographic and economic growth being out of synch; and

·       The dislocation between an increasing population and finite resources.

“I do believe we are heading into a world where it is more every nation for itself and less about globalisation,” she said.

Conclusion

The world, regions and individual countries seem to have entered a prolonged period of transition to a new geopolitical and socio-economic dispensation. It is likely to be a period of great volatility, fraught with risks and challenges.

Simplistic answers and kneejerk leadership are likely to lead to disastrous results for those affected by it, which include emerging nations like South Africa presently heavily dependent on well-functioning international markets.

by Piet Coetzer

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