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Europe, Instability and Unemployment

status, the pain is compounded and a politically potent power arises.

The idea that the Germany-mandated austerity regime will be able to survive politically is difficult to imagine. In Italy, with “only” 11.7 percent unemployment, the success of the Five Star Movement represents an inevitable response to the crisis. Until recently, default was the primary fear of Europeans, at least of the financial, political and journalistic elite. They have come a long way toward solving the banking problem. But they have done it by generating a massive social crisis. That social crisis generates a political backlash that will prevent the German strategy from being carried out. For Southern Europe, where the social crisis is settling in for the long term, as well as for Eastern Europe, it is not clear how paying off their debt benefits them. They may be frozen out of the capital markets, but the cost of remaining in it is shared so unequally that the political base in favor of austerity is dissolving.

This is compounded by deepening hostility to Germany. Germany sees itself as virtuous for its frugality. Others see it as rapacious in its aggressive exporting, with the most important export now being unemployment. Which one is right is immaterial. The fact that we are seeing growing differentiation between the German bloc and the rest of Europe is one of the most significant developments since the crisis began.

The growing tension between France and Germany is particularly important. Franco-German relations were not only one of the founding principles of the European Union but one of the reasons the union exists. After the two world wars, it was understood that the peace of Europe depended on unity between France and Germany. The relationship is far from shattered, but it is strained. Germany wants to see the European Central Bank continue its policy of focusing on controlling inflation. This is in Germany’s interest. France, with close to 11 percent unemployment, needs the European Central Bank to stimulate the European economy in order to reduce unemployment. This is not an arcane debate. It is a debate over who controls the European Central Bank, what the priorities of Europe are and, ultimately, how Europe can exist with such vast differences in unemployment.

One answer may be that Germany’s unemployment rate will surge. That might mitigate anti-German feeling, but it won’t solve the problem. Unemployment at the levels many countries are reaching and appear to be remaining at undermines the political power of the governments to pursue policies needed to manage the financial system. The Five Star Movement’s argument in favor of default is not coming from a marginal party. The elite may hold the movement in contempt, but it won 25 percent of the vote. And recall that the hero of the Europhiles, Mario Monti, barely won 10 percent of the vote just a year after Europe celebrated him.

Fascism had its roots in Europe in massive economic failures in which the financial elites failed to recognize the political consequences of unemployment. They laughed at parties led by men who had been vagabonds selling post cards on the street and promising economic miracles if only those responsible for the misery of the country were purged. Men and women, plunged from the comfortable life of the petite bourgeoisie, did not laugh, but responded eagerly to that hope. The result was governments who enclosed their economies from the world and managed their performance through directive and manipulation.

This is what happened after World War I. It did not happen after World War II because Europe was occupied. But when we look at the unemployment rates today, the differentials between regions, the fact that there is no promise of improvement and that the middle class is being hurled into the ranks of the dispossessed, we can see the patterns forming.

History does not repeat itself so neatly. Fascism in the 1920s and 1930s sense is dead. But the emergence of new political parties speaking for the unemployed and the newly poor is something that is hard to imagine not occurring. Whether it is the Golden Dawn party in Greece or the Catalan independence movements, the growth of parties wanting to redefine the system that has tilted so far against the middle class is inevitable. Italy was simply, once again, the first to try it out.

It is difficult to see not only how this is contained within countries, but also how another financial crisis can be avoided, since the political will to endure austerity is broken. It is even difficult to see how the free trade zone will survive in the face of the urgent German need to export as much as it can to sustain itself. The divergence between German interests and those of Southern and Eastern Europe has been profound and has increased the more it appeared that a compromise was possible to save the banks. That is because the compromise had the unintended consequence of triggering the very force that would undermine it: unemployment.

It is difficult to imagine a common European policy at this point. There still is one, in a sense, but how a country with 5.2 percent unemployment creates a common economic policy with one that has 11 or 14 or 27 percent unemployment is hard to see. In addition, with unemployment comes lowered demand for goods and less appetite for German exports. How Germany deals with that is also a mystery.

The crisis of unemployment is a political crisis, and that political crisis will undermine all of the institutions Europe has worked so hard to craft. For 17 years Europe thrived, but that was during one of the most prosperous times in history. It has not encountered one of the nightmares of all countries and an old and deep European nightmare: unemployment on a massive scale. The test of Europe is not sovereign debt. It is whether it can avoid old and bad habits rooted in unemployment.

Europe, Unemployment and Instability is republished with permission of Stratfor.”