2016: Europe’s Year of Living On the Edge

This new year of 2016 has begun badly. ISIS attacks in Istanbul and Jakarta. Stock market jitters. Violence, including rape, upon women in Germany, Sweden and Zurich – apparently by asylum-seekers in some cases. Deflation. Breaches of the separation of powers/rule of law in Poland. The unexpected death of David Bowie, who incorporated the changing Zeitgeist of a generation.

Europe has entered January in the grip of SAD syndrome and risks leaving it in suicidal depression. Even Angela Merkel, so often hailed as the Old Continent’s saviour, is seen as under threat both at home and in Europe as a whole. The four great dragons of 2015 – terror, refugees, euro economy and EU break-up – remain untamed, let alone killed off.

And, now, the talk is of a renewed financial crisis but worse even than 2007-09. “Developments in the global economy will push the US back into recession,” Albert Edwards, a City ‘super bear’ from SG bank, told an investment conference in London. “The financial crisis will reawaken. It will be every bit as bad as in 2008-09 and it will turn very ugly indeed.” He added: “If the global economy goes back into recession, it is curtains for the Eurozone.” Analysts at RBS said: Sell, sell, sell; it’s a ‘cataclysmic’ year ahead.

The luridly, rabidly anti-EU British Press can scarcely stop slavering over the looming disaster. “Europe on the brink of financial meltdown as Germany faces financial ruin,” gloated the UK’s Daily Express. There’s even worse to come: it’s only a matter of time before ISIS supposedly destroys the global financial system with weaponised algorithms.

We’ve been here or somewhere similar before. There’s nothing like a multiple crisis, especially in the EU, to force political leaders finally to act – even if it just involves “kicking the can down the road.” Now that the European Council or summits of heads of state and/or government has acquired primacy among EU institutions, as we saw in the Greek crisis of 2015, this is truer than before.

So, looking ahead to February we know that the UK’s so-called renegotiations of its terms of membership is due to come to a head/conclude at the special summit on the 18th and 19th. Frankly, none of us has a clue if a deal will be done though Jonathan Faull, the ‘veteran’ Eurocrat in charge of the Commission side, says it might well be achieved. And one has even less of a clue what the outcome of David Cameron’s referendum – maybe in June, maybe in September – will be. Polls suggest an even split between the Ins and the Outs, with Scotland, at two-thirds for In, still threatening to break up the UK if England votes to leave.

What is clearer now is that, whereas Cameron has failed to make his reform demands stick across the EU as a whole and take on an acceptably pan-European hue, there is a greater willingness to accommodate them. The growing disillusionment with the EU in eastern Europe and the rise of the Far Right there but, more pertinently, in western countries imperils the Union. Some even argue that #Brexit is a greater threat to the EU than, say, the refugee crisis by paving the way for others to quit.

Next month’s summit will rely, as ever, on the brokerage skills of Merkel. The German Chancellor is enduring a pretty icy winter, with her popularity at home sinking, deputies in her CDU demanding the right to vote over closing border crossings and the Far Right exploiting her troubles over the Cologne attacks on women. But, even though the anti-EU, right-wing AfD is up to 9% in current polling, there is no evidence so far that she faces a challenge to her party leadership or that she would lose the elections scheduled for September 2017. (Five state elections this year could change this.)

But, #Brexit apart, could the EU disintegrate if the Schengen passport-free zone collapses? That’s the fear of Dimitris Avramopoulos, migration commissioner, as expressed to MEPs: “If Schengen collapses, it will be the beginning of the end of the European project”. Despite the razor wire on some external borders and an unprecedented level of checking at internal crossings many commentators believe Schengen has delivered such obvious economic benefits it will remain intact. Prof Anand Menon of King’s College London points to one Big Unknown that might upset all expectations: “Buried on page 48 of the European Commission’s November economic report was an estimate (hedged, it must be said, with numerous caveats) that a further 3 million (itals added) migrants would arrive during 2016,” he recently wrote.

The fate of Schengen, like that of #Brexit and the risk of renewed terrorist attacks, hangs already over the European economy – even before the current slew of apocalyptic forecasts. Indeed, these are all intertwined. Will Greece, struggling against the troika-imposed bailout conditions, exit the euro after all? Will the ECB finally act to cut rates even deeper and boost QE? Are the latest warnings about looming financial collapse a self-fulfilling prophecy?

As 2016 unfolds we will comment on all the answers, if any, to all these questions. Hold tight: it’s going to be another roller-coaster ride.

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