While history may not repeat itself so neatly,
the emergence of new political parties speaking for the unemployed and the
newly poor could lead to governments who enclose their economies from the
world and manage their performance through directive and manipulation.
This unemployment crisis will, fairly quickly, give way to a political crisis. The crisis involves all three of the major pillars of the global system - Europe, China and the United States. The level of intensity differs, the political response differs and the relationship to the financial crisis differs.
But there is a common element, which is that unemployment is increasingly replacing finance as the central problem of the financial system. Europe is the focal point of this crisis.
Last week Italy held elections, and the party that won the most votes - with about a quarter of the total - was a brand-new group called the Five Star Movement that is led by a professional comedian.
Two things are of interest about this movement:
Nevertheless, Italy is breeding radical parties
deeply opposed to the austerity policies currently in place.
The argument that won the day, particularly
among Europe's elites, was that what Europe needed was austerity, that
government spending had to be dramatically restrained so that sovereign debt
- however restructured it might be - would not default.
The economies of many European countries,
especially those in the Eurozone, are now contracting, since austerity
obviously means that less money will be available to purchase goods and
services. If the primary goal is to stabilize the financial system, it makes
sense. But whether financial stability can remain the primary goal depends
on a consensus involving broad sectors of society.
From my point of view, the Italian election was
the first, but expected, tremor.
Only four countries in Europe are at or below 6 percent unemployment; the geographically contiguous countries of:
The immediate periphery has much higher unemployment;
In the far periphery,
Germany, the world's fourth-largest economy, is at the center of gravity of Europe.
Exports of goods and services are the equivalent of 51 percent of Germany's gross domestic product, and more than half of Germany's exports go to other European countries. Germany sees the European Union's free trade zone as essential for its survival. Without free access to these markets, its exports would contract dramatically and unemployment would soar.
The Euro is a tool that Germany, with its outsized influence, uses to manage its trade relations - and this management puts other members of the Eurozone at a disadvantage.
Countries with relatively low wages ought to
have a competitive advantage over German exports. However, many have
negative balances of trade. Thus, when the financial crisis hit, their
ability to manage was insufficient and led to sovereign debt crises, which
in turn further undermined their position via austerity, especially as their
membership in the Eurozone doesn't allow them to apply their own monetary
Ultimately it was rooted in the rare case of a free trade zone being built around a massive economy that depended on exports. (Germany is the third-largest exporter in the world, ranking after China and the United States.)
The North American Free Trade Agreement (NAFTA) is built around a net importer.
Britain was a net importer from the Empire.
German power unbalances the entire system. Comparing the unemployment rate
of the German bloc with that of Southern Europe, it is difficult to imagine
these countries are members of the same trade group.
Thus, if you look at the map, the southern tier
of Europe has been hit extraordinarily hard with unemployment, and Eastern
Europe not quite as badly, but Germany, Austria, the Netherlands and
Luxembourg have been left relatively unscathed. How long this will last,
given the recession in Germany, is another matter, but the contrast tells us
a great deal about the emerging geopolitics of the region.
At 11 percent unemployment about 44 percent are
These countries have reached a tipping point from which it is difficult to imagine recovering. In the rest of Europe's periphery, the unemployment crisis is intensifying.
The precise numbers matter far less than the
visible impact of societies that are tottering.
The Political Consequences of
There is the long-term unemployment of the underclass. This wave of unemployment has hit middle and upper-middle class workers. Consider an architect I know in Spain who lost his job. Married with children, he has been unemployed for so long that he has plunged into a totally different and unexpected lifestyle.
Poverty is hard enough to manage, but when it is
also linked to loss of status, the pain is compounded and a politically
potent power arises.
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.
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.
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
The Five Star Movement's argument in favor of default is not coming from a marginal party.
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.
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.
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.
Whether it is the
Golden Dawn party in Greece or the
Catalan independence movement, 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
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.
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.
It has now encountered one of the nightmares of all countries and an old and deep European nightmare:
The test of Europe is not sovereign debt. It is whether it can avoid old and bad habits rooted in unemployment.