Despite the fact that Europe is in the Northern Hemisphere, the downward swirl of the euro this month took a reverse direction and started going left — counterclockwise. Maybe it is the first part of the Mayan prediction that gravity will fail later this year and we will all go flying off into space. But certainly it indicates that the euro crisis is still very much with us — and deepening. Political developments further diminish chances for a settlement — if attainable at all — without a breakup, perhaps of the European Union itself and not just the countries using the euro.
The erosion of the Schengen Agreement, which permitted free movement within the EU, is an important indicator of how far the political situation has deteriorated. Opposition to free movement as a fundamental principle of European integration is fueled by rising unemployment, growing xenophobia, as well as legitimate concern that Western Europe will continue to be flooded with illegal immigrants from North Africa, sub-Saharan Africa and South Asia.
In France, the Netherlands, Spain, Italy and Portugal, public opinion long pampered by nanny regimes is forcing democratic governments to the wall as they try to curb spending and raise taxes. But just chopping back their deficits that have brought near bankruptcy is not enough; there will have to be a return to growth. It’s not a good omen that Britain — not a member of euroland but firmly tied to it — is slipping back into a double-dip recession.
Prime Minister David Cameron’s coalition — an unholy alliance of “drys” and “wets” — now faces everything from a deficit-ridden Scotland threatening secession, and taking the North Sea oil with it, to entanglements with press baron Rupert Murdoch’s telephone hacking scandal.
With a quarter of Spain’s workforce unemployed — approaching 50 percent among younger workers — providing a tough test for the conservative government’s belt-tightening, the rating agencies now call Madrid an increasingly bad risk, raising the cost of refinancing debt. (Much of that debt was created by regional governments to which the former ruling Socialists gave free rein.) With Spain representing almost 5 percent of the EU’s gross domestic product, a bailout is beyond the present capacity of the European Central Bank to finance.
In fact, an unprecedented $1.3 trillion stimulus package from the European Central Bank for European banks has not produced jobs or growth, mimicking the two rounds of the U.S. Fed’s “quantitative easing.” More “stimulus” is politically impossible, with Germany fearing it has become the teat on which the whole Continent sucks.
Hanging over Spain’s shoulder is Italy, too big to fail and too big to refinance at more than 12 percent of the EU GDP. With the world’s fourth-largest debt and chronic growth problems, Italy needs foreign buyers for its longer-term bonds as it struggles with recession and growing unemployment.
Ireland goes to an uncertain referendum on the proposed EU fiscal treaty, with austerity already having brought down one of those always shaky Dutch coalitions. With unanimity demanded under the EU “Constitution,” German Chancellor Angela Merkel faces on one hand growing hostility from bankrupt Greece and other EU partners, and on the other a revolt in her own Christian Democratic Union against further assistance to the Mediterranean debtors.
Socialist presidential candidate Francois Hollande — if he wins the French runoff election — poses yet another threat, unless he could forget his campaign promises to blow his nation’s budget with new entitlements. A France headed back into higher subsidies, more protectionism and more voter-purchasing welfare would be a crushing blow for the European unification that Paris had done so much to sponsor since World War II.
The U.S., always the essential midwife to postwar European reconstruction, stability and prosperity, is turning inward in one of its most bitterly fought presidential contests in generations. Spain’s role as the second-largest foreign investor in Latin America after the U.S. has implications for American exports — just one small example of the bad news for the American economy as Europe’s troubles deepen.
The Obama administration’s strategy of “leading from behind” is less than adequate to help the EU, the world’s largest economy, in its hour of crisis. But facing its own domestic economic problems in an acute stage, even a Romney administration would, at least early on, have to give European issues lower priority — no matter how much they would impinge on the U.S. economy and American security.
Sol W. Sanders, (firstname.lastname@example.org), writes the ‘Follow the Money’ column for The Washington Times on the convergence of international politics, business and economics. He is also a contributing editor for WorldTribune.com and East-Asia-Intel.com.