The Blog

How Long Before the European Pressure Cooker Explodes?

Turbulent December

Only a few more weeks to go in 2015 but there are still various risks and challenges remaining for Europe. There will be elections in Spain, where a centre-right victory could pave the way for a showdown between Madrid and the province of Catalonia, which wants independence. In France, the anti-immigrant Front National seems to be headed for big wins in the upcoming regional elections. This could provide Marine Le Pen with a solid basis for the presidential elections in May 2017. Europe needs to collaborate with the rest of the world on a strategy to prevent disastrous climate change at the Paris summit which started this week. The EU government leaders are due to meet at the end of December. Subjects up for discussion are the refugee crisis and an extension of the sanctions against Russia, among others. We will have to wait and see if the 13 November Paris attacks have really bolstered solidarity as some predicted.

Tempestuous 2016

2016 is not going to be a quiet year for Europe. The regional elections in several German states can further undermine Chancellor Merkel's position (she has lately been under fire within her coalition while the German population is starting to grumble). Europe has to come to an agreement with the UK about EU reforms. The latter are meant to ensure that the British people vote in favour of a continuing EU membership; the referendum could take place in late 2016 or 2017. For the first time, polls indicate that a majority of the British think leaving the EU would be a good idea. This is probably due to the Paris atrocities and the refugee crisis. In other words, Europe has its work cut out.

Greece could also foment more trouble in 2016 although the financial markets (and many analysts) seem to have shifted their attention elsewhere. The assumption is that everything will sort itself out. However, PM Tsipras's left-wing government has a majority of just three seats in parliament, in November it faced a national strike for the first time since taking power, and the influx of refugees is threatening Greece's stability.

Populism on the rise?

And this is not all. The Netherlands will hold a referendum about the Association Treaty between Ukraine and the EU in the spring of 2016. This is very inconvenient as the EU is still at geopolitical loggerheads with Russia, the situation in Ukraine continues to be very instable (Russia decided to close the gas pipelines to Ukraine in the past weeks and Crimea was cut off from electricity supplies) while the Netherlands will be chairing the EU from January 1st.

Elections are due in Slovakia, Romania, and Ireland. Plus, it remains to be seen how the new governments in Poland and Portugal are going to behave. The Polish combination of right-wing populism and left-wing economic policy could stir up trouble in Europe and the Portuguese have yet to prove that they can pursue a pragmatic policy with communists as part of the ruling coalition.

Lost axis & widening abyss

Amidst all these risks, there are various developments that will make it harder to strengthen Europe. The traditional balance of power in Europe - around the Berlin-Paris axis - has become skewed in recent years as economic problems increased. Germany started to dominate - sometimes against its will - while France became the weaker link. Now that security and 'traditional' politics are coming to the fore again, France will seize its chance. However, before a new equilibrium can be created we could see various clashes and mounting tensions. As the British have moved further away from Europe's epicentre, they can do little to adjust the balance.

Another important issue, which is destabilizing Europe, is the widening abyss between the EU and the 'people'. Turnout at the European elections is low, confidence in the EU is far from buoyant, and the financial crisis has undermined the interest in further integration at grassroots level. If Europe fails to solve the problems created by the influx of migrants and the threat of terrorism, the man (and woman) in the street will turn their backs on Brussels even more. If so, the foundations under Schengen and the euro will continue to crumble. The likelihood of such a scenario increases if the crescent of chaos, conflicts, instability, and wars around Europe's outer edges intensifies. Everything suggests that this will be the case.

Pressure cooker

The European economy can withstand the political forces that could rip it apart for the time being. This is mainly due to the (delayed) positive impact of low oil prices, euro weakness, and the end of austerity in many countries. The ECB's ultra loose monetary policy serves to keep the lid on the pressure cooker. However, there is a fairly high chance that these four factors will disappear to some extent in the coming 12 or 18 months. This would give free rein to the aforementioned (negative) trends and developments.

Europe already seems to have reverted to muddling on instead of muddling through. Sinking in the mud could be the next step.