Predictions for 2010 (Revisited)

Around this time last year, I did something that commentators are frequently advised not to do: I made predictions of how events in Europe would unfold in 2010. As a year has now passed, it is time to take a look back and briefly take stock of how those fared.

• Prediction 1) For the first year since 2005, the EU will not face a legitimacy crisis. There will be no constitutions to discuss, and no referenda results to be picked over by the press. The day to day business of Brussels will turn to unedifying ‘guns and butter’ topics. Well, I don’t know about guns. But butter, certainly. And thanks to the Icelandics, maybe fish too.

Whoops. At this point, I think I will simply give up predicting crisis-free periods for the EU. 2010 will of course be remembered as another crisis year – the ‘eurozone crisis’ – which we can add to the 2009 Lisbon crisis, the 2008 ‘Irish referendum’ crisis, the 2005 French and Dutch referenda crisis and so on. Was it a ‘legitimacy crisis’?  That’s an academic point. EU crises occur with such a regularity these days we will probably have to start grading them on a Richter scale, so as to distinguish the earth-shattering from the merely wibbly-wobbly.

• There will not be a eurozone member debt default, but driven by sovereign debt concerns, the rising run of the euro, which has lasted from 2002 to date, will finally come to an end. During the coming year the single currency will break below 1.40 against the dollar, perhaps even plumbing towards its 1.20 purchasing-power-parity value.

But on the euro, at least, I can feel pretty vindicated. There wasn’t a default, but the euro did indeed plummet, and my target of 1.20 to the dollar (reached during the May crisis) almost exactly marked the bottom. What I did not forecast was that the euro would subsequently recover all the way back to 1.40, though I did highlight the long-term value of the euro in the midst of the panic, and acted accordingly. Whether the long-run positive trend against the dollar has really turned: now that is another question, to which I’ll have to return.

• As governments set about implementing austerity measures, eurozone economic governance will become more contentious. There are still no agreed upon rules to replace the defunct Stability and Growth Pact. I suspect this will lead to a smouldering conflict between the ECB (backed by Germany and the Netherlands), who wish to maintain a strong currency so as to keep building its long-term credibility as a global reserve currency, and a motley group of politicians (possibly a coalition of southern European states spearheaded by Nicolas Sarkozy) who wish to have a weaker currency and weaker fiscal rules so as to promote domestic demand and export-led growth.

Once again, I think I can say that I called this right. Conflict in the European Council over the eurozone’s economic governance has surely been the issue of 2010. What I did not perhaps entirely get right was an assessment of how the alliances would form, as instead of standing up for a more reflationary policy, France has begun to sidestep the debate, allowing Germany and the Netherlands to impose a more austere set of rules, and leave Spain and Italy without any voice to propose an alternative. Nonetheless, during the May crisis it was France which forced Germany to accept the creation of a Eurozone Financial Stability Facility, and the Financial Stability Mechanism that allow for the purchase of peripheral eurozone bonds, as Sarkozy famously slammed his fists and huffed about pulling France ‘out of the euro’ unless Merkel signed the Greek package.

• The economic tendency of the euro’s first decade, where ‘peripheral’ members (Ireland, Greece, Spain, Finland) grew rapidly and ‘core Europe’ (France, Italy, Germany) stagnated, will likewise come to an end. Consumer and corporate deleveraging, not to mention government austerity, will lead to painful year-on-year adjustment in the peripheral countries while core Europe surprises to the upside.

Again, I feel vindicated here, as it certainly wasn’t obvious in December of 2009 that Germany and France were on the verge of an economic mini-boom, with German GDP having rocketed upwards by 3.7 per cent this year. Perhaps it was more obvious that the eurozone periphery had a difficult period of adjustment ahead, though I’m not sure how many people foresaw that Greece and Ireland would still remain mired in recession. Though it isn’t much of a surprise prediction at this point, I still believe this is the beginning of a very long trend, possibly lasting a decade, in which the core eurozone continues to outperform the deflating periphery.

• When the first Council meetings are chaired by Van Rompuy next year and when Ashton starts shuttling off for mediations in Moscow or Tehran, their roles will actually be taken seriously. Currently they are written off as irrelevant. But they have not actually begun. So I suspect that by the end of 2010, journalists will at least have learnt how to pronounce ‘Van Rompuy’ correctly (and perhaps decided whether to call the new High Representative ‘Baroness’, ‘Lady’, or simply ‘Cathy’).

Alas, I may have to retract my words here, as 2010 did not allow either of the new EU roles to clearly define their purpose or function: instead, post-Lisbon Europe has clearly emerged as a Europe of nation-states, and the key personalities remain the heads of state and government, not least of all Angela Merkel and Nicolas Sarkozy. The High Representative role has remained tied down with bureaucratic legwork, like getting the approval of the European Parliament, finding offices, and making appointments, while Van Rompuy has not been as prominent a figure in the eurozone’s economic governance agenda as the Heads of State and Government, or, for that matter, Jean-Claude Trichet.

• The looming prospect of budgetary cuts across all EU member states will lead countries to take defence cooperation more seriously — if only as a means of ‘doing more’ (or rather, the same) ‘with less’.

Defence cooperation, however, has indeed been a breakthrough trend of 2010. Its most prominent instance has been the decision of the British and French governments to share their nuclear capacity, aircraft carriers, and start a joint expeditionary force. The deal agreed between Mr. Cameron and M. Sarkozy last month surprised many: but not myself, driven as it was less by a commitment to the European ideal than a desire to cut public spending. A separate proposal, reached between Germany and Sweden a month later, may lead to a similar deal next year, and be the first of several such treaties between EU member countries. The only question now is whether such bilateral negotiations will be superseded by any EU-wide collaborative ventures, which seems unlikely as long as they remain blocked by the British.

• EU integration in the western Balkans may make a surprise breakthrough after years of stasis. Macedonia, Serbia and Croatia will all be on track for eventual EU entry, leading to hopes the whole region may eventually follow suit.

We didn’t see either a starting date for accession negotiations for Macedonia, or an entry treaty for Croatia, as I had expected – though on the plus side Montenegro was last week granted candidate status. Also, visa-free travel was finally granted to residents of the entire western Balkan region (with the exception of Kosovo) as from this month Albanians and Bosnians can travel freely throughout the Schengen zone – a development that may be of little note to existing EU citizens, but that will transform the lives of those stuck in Europe’s “forgotten” southeast.

• Europe will be ‘on track’ for a transcontinental high-speed rail network. With the completion of the Italian and the Spanish high-speed networks, only two remaining links (Turin-Lyon and Barcelona-Montpellier, both expected sometime in the next decade, though construction at least may begin 2010) stand in the way of a full north-south network running from Madrid to London, and back down again from Amsterdam to Naples.

This wasn’t much of a prediction for 2010, as much as a general outlook for the future, as none of the lines I mentioned were meant to be complete by now. Some new developments include the start of high speed trains direct from London to Germany, a faster connection to Amsterdam, and the completion of the first ‘arcs’ of the Eastern network, including  Helsinki-St-Petersburg, opened this month. Ground has also been broken on the Lisbon-Madrid line, which will eventually connect through to Paris, London and Brussels.

• Finally, Brussels had better enjoy the ‘business-as-usual’ atmosphere while it lasts. The most likely origin of the next institutional crisis, which I predict not for 2010 but shortly thereafter: the UK, where an incoming Conservative government this May will be torn between moderates who wish to remain members of the EU and sceptics who are firmly set on the exit door. These divisions will remain hidden as long as the new government’s honeymoon lasts, but break out not long afterwards – in particular when it becomes clear that à la carte membership is not on the menu. Those who doubt this need only recall the cantankerous atmosphere of the mid-1990s — and this time British public opinion is far more hostile than then.

Well, here I think I was utterly wrong. The surprise of a coalition government in the UK, with the ‘Tory Wet’ (sorry, Liberal Democrat) Mr. Clegg joining the rather dry Mr Cameron in government has taken the edge away from traditional British euroscepticism, and instead produced a government that prefers to kick the Europe issue as far as possible down the line. Still, my original prediction was ‘not for 2010 but shortly thereafter’, and I suspect that it may still be right, as some of the coalition fissures continue to fizzle under the surface.

I am currently considering whether to revisit this foolish enterprise again for the coming year. In the meantime, what predictions would you have for 2011? Feel free to post your ideas below.

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