Europe’s New Year’s Irresolution

BERLIN – Will the eurozone crisis end in 2013, or will it drag on throughout the year, and perhaps even deteriorate anew? This is likely to be not only the crucial question for the European Union’s further development, but also a key issue affecting the performance of the global economy.

While the EU clearly needs internal reforms, two external political factors are central to its prospects this year. The first is America’s self-imposed fiscal cliff, which, if not avoided, could throw the United States into recession, with massive repercussions for the world economy, and thus for Europe. Second, a hot war in the Persian Gulf, in which Israel and/or the US confronts Iran over its nuclear program, would result in a sharp rise in global energy prices.

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Either scenario would greatly aggravate Europe’s crisis: soaring oil costs or another US recession would harm even the strong northern European economies, to say nothing of the already-depressed countries in Europe’s south. But, even then, the humanitarian consequences – especially in the case of another Middle East war – would most likely overshadow these scenarios’ impact on the European crisis.

Indeed, Europe’s crisis only seems to be economic or financial in nature; in reality, it is political to the core, for it has revealed that Europe lacks two things: a political framework – that is, more statehood – for its monetary union, and the vision and leadership to create it.

Since the eruption of the European crisis in 2009, the EU and the eurozone have experienced massive, unprecedented changes. Today, the eurozone is on its way toward implementing a banking union, probably followed by a fiscal union, which in turn will lead to a genuine political union that centralizes sovereignty over essential economic policymaking.

But these developments have not come about as part of a strategy. Had there been no crisis, German Chancellor Angela Merkel and other national leaders in the EU would never have been prepared to take these steps. And this is not likely to change in 2013.

Even today, with the eurozone’s essential players apparently convinced that they are out of the woods, national narrow-mindedness is experiencing a revival in the EU, and the desire for change seems to be slackening. In particular, Merkel wants to be re-elected in 2013, and appears content to leave Europe for later. Unfortunately, with the election set for September, that means that three-quarters of the year will be wasted. And, because another Merkel-led coalition seems to be more likely (at least from today’s vantage point) than a real change in government, post-election Germany, absent renewed pressure from the crisis, will remain wedded to the politics of small or tiny steps, leaving Europe treading water.

As a result, developments in southern European will remain a key factor determining Europe’s course in 2013. The depression will continue, dimming prospects for economic growth throughout the EU and the eurozone. The gap between the rich north and the crisis-ridden south will widen, highlighting their contradictory interests and thus exacerbating Europe’s tendency toward separation, primarily between the north and the south, but also between the eurozone and the rest of the EU.

The European Central Bank will serve as the eurozone’s center of power even more than it does today, because it is the monetary union’s only institution that can actually act. Though the ECB has absolutely nothing in common with the old Deutsche Bundesbank, the German public has not recognized this. But the fact that the ECB’s power is only a technocratic substitute for the eurozone’s missing democratic political institutions will remain a growing problem in 2013.

This is also true, more generally, of German dominance of the EU. Should it continue without new institutional regulations that mutualize its role within the eurozone, 2013 will be a year of further disintegration.

It will also be a year of destiny for France, whose government is keenly aware that, without painful reforms, the country might be doomed; the only question that remains is whether it can implement them. The answer will determine not only President François Hollande’s political future, but also the future of the EU, because, without a strong German-French tandem, Europe’s crisis cannot be overcome.

Meanwhile, Europe’s negative political trends are reinforced by uncertainty in Britain about whether to remain in the EU, Italy’s upcoming general election, and aggressive nationalism in many member states. Given this, Europe’s condition is quite obviously far from being stabilized, despite some leading Europeans’ recent statements suggesting otherwise.

Europe in 2013 will continue to need the pressure from the crisis in order to find a way to overcome it once and for all. Regardless of electoral outcomes in important EU member states, Europeans will remain unable to expect much from their political leaders, because opposition forces generally have little more to offer than the incumbents do. We should wish Europe a successful year, but it would be foolish to bet on it.

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