German Chancellor Merkel wants to keep a lid on the euro crisis because of the German elections on 22 September. Yet economic crises have morphed into political crises all around Europe and a flare up can be expected.
War genie back into the bottle
Richard Ned Lebow's war theory sheds light on this subject. In 62 out of 94 wars between (emerging) powers since 1648, "standing" was one of the main motives. Revenge was implicated in 11 conflicts. Security interests, material aggrandizement, and domestic politics were less important. Lebow refers to the "spirit of war"; emotions play a larger part than often assumed.
Nations less often go to war because of three developments:
• Adam Smith contributed to the insight that economic development is not necessarily a zero sum game.
• A collective instead of unilateral pursuit of security.
• In the past, international standing and clout were almost exclusively linked to military might. This has changed; now there are other ways of achieving status.
Up the European escalation ladder
Tanks are not about to roll onto European streets, but aforementioned shifts are under pressure.
Protectionism, nationalism, and isolationism have gained ground. Advantages of open markets and globalization are no longer a given. Meanwhile, populist anti-immigration parties make headway; a worrying trend for the world faces many urgent problems that can only be addressed collectively: climate change, (cyber) terrorism, overly close ties between banks and governments, and global economic imbalances.
The third shift seems valid but the trend is moving in a new direction. Whereas economic and cultural prowess has become increasingly important for states, numerous non-state actors have also become big players on the global chessboard: terrorist organizations, hacker collectives, and multinationals. They undermine the monopoly of nation states. Insecurity spreads and countries need to reposition themselves. This process would benefit from trans-border collaboration. However, it is often stymied by fear reflexes.
War on two fronts
European fear reflexes are not a surprise. The Eurozone periphery is a political-economic minefield full of powder kegs. Not in the last place Greece. For a while, it seemed as if analysts gave the Greeks the benefit of the doubt. The pain continued but Greece appeared to be getting used to the crisis. Dismal data, protests, and strikes were par for the course. Until a few weeks ago when the government pulled the plug on public broadcaster ERT. This led to renewed political instability and financial markets were rattled. In recent weeks, the situation has stabilized somewhat but downside risks remain.
So far Portuguese people seemed fairly resigned to their fate. However, now that political uncertainty is growing - five no-confidence motions have been tabled against the government since it took office - and growth projections for 2014 have been revised downwards, the Portuguese will become less obliging. In September, local elections are due to be held and a new budget has to be passed. Around that time, more turmoil would not surprise. Ominously, the yield on short-dated bonds issued recently rose by a third. High bond yields will make it much harder for Portugal to wean itself off the European drip-feed in mid-2014, as planned.
In neighboring Spain political uproar has broken out afresh. For years, several prominent members of the governing PP - including PM Rajoy - are alleged to have received cash bonuses under the counter, which were funded through illegal donations by the construction sector. Nevertheless, the PP will likely stay in power, but it has lost credibility. As a result, Rajoy will find it harder to implement reforms and cutbacks.
Further east too, in Italy, the political atmosphere is not exactly wholesome. The government is increasingly unstable whereas large-scale reforms that are needed will require a lot of political capital.
In central and eastern Europe political and economic distress is on the increase. Growth expectations are adjusted downwards in Poland, Hungary, the Czech Republic, Romania and Bulgaria where corruption, authoritarian tendencies, and outright political crises are rife. It could be said that this does not directly affect the Eurozone. At the same time, it is a source of worry for Brussels for unrest in the EU undermines overall confidence in Europe.
Stormy weather ahead?
The three shifts that have reduced the chance of conflicts are reversing. People have less faith in globalization and in free markets. Protectionism, populism, and isolationism are on the rise. In addition, many nation states find it difficult to reposition themselves in a world defined by multinationals, the threat of (cyber) terrorism, and global capital flows. In combination with a raft of political and economic crises in individual EU member states, this will aggravate the euro crisis in the medium term.
We could see marked changes from September. Especially if Portugal sinks deeper into the political-economic mire, if Spanish and Italian scandals drag on, if Greek bond yields continue to rise and if the outcome of the German elections does not engender a different attitude, as many hope.
In the US, antagonism surrounding the debt ceiling, budget, and sequester could again trigger political unrest. Meanwhile, there is no guarantee that Japanese PM Abe will use his newly won political majority to implement structural reforms instead of steering a jingoist course.
Everything considered, the fall could be stormy and the winter bitter cold.