Failure to solve eurozone crisis has wider implications

While the European Union struggles with the eurozone debt crisis, the US and China both face mounting economic and social problems that threaten to destabilise the world economy even more.

“Kicking the can” is often played in the street. In most versions of the game, someone kicks the can and the person who is ‘it’ has to retrieve the can before he can chase the other players. Kicking the can as far down the road as possible gives the other players the maximum possible time to hide or scatter or whatever is required. The game is one of skill, strategy and stealth as well as fleetness.
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Time bomb: 1: a bomb so made as to explode at a predetermined time; 2: something with a potentially dangerous or detrimental delayed reaction. First known use of time bomb: 1893.
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If procrastination were an Olympic sport, the European Union would win the gold medal – even if it may have some competition.

Whatever the outcome of the Greek debt debacle, the eurozone cannot continue as it is. Even its most ardent supporters must realise changes are needed on a grand scale. Any hope fervent advocates of a stronger Europe had that member states would seize the opportunity to strengthen the zone has been dashed.

Politicians have shown that what unites Europe is its disunity. These are still individual nations. When push comes to shove, it is every nation for itself. This should come as no surprise, particularly to the British who are standing rather coolly and somewhat smugly on the sidelines.

The EU cannot act as one as it is not one. Its leaders are not European leaders; they are the heads of government and state of a collection of countries that thought it would be a great idea not to keep killing each other every 20 years or so. That initial ideal needs to be applauded and upheld, particularly as the EU (hopefully) expands to take in the even-more-prone to fighting countries of former ­Yugoslavia.

The eurozone crisis, no matter how it is resolved, has shone a spotlight on the failures of the EU, not its greatest triumph. Unfortunately, this is what people (aka voters) are more likely to remember in future. Likewise those on the outside looking in (especially the US and China) will either despair or jump with joy, depending on the moment. A united, strong Europe would be a formidable opponent in trade or other negotiations. There is little sign of that happening.

Beside the weaknesses already highlighted by bellicose talk rather than action (note the Libyan misadventure with gung-ho France and a less-enthusiastic UK running out of ammunition (literally) and having to go cap in hand to the US for more firepower).

The eurozone drama will just confirm the US and China view that Europe is a lightweight and unable to fix even the simplest of ­problems.

This is important. It means the greater union is likely to run into more problems in future, too. The eurozone members have forgotten some basic principles of democracy and government. People want representation. That is not given to individuals within the EU.

Decisions are taken out of their hands and people do not like it. Britain will well remember the ‘no taxation without representation’ chants that led to it losing the American colonies. Is it any wonder that Greek politicians are paying more attention to the voters on the street protesting than they are to Brussels and fellow eurozone members who seem unable to grasp fundamental political realities.

Meanwhile, markets have focused on reality rather than vision. No matter what happens next, the eurozone will not emerge whole. There will have to be some major changes. The European ideals will retreat and the EU will be lucky to keep its common trade let alone advance towards political unity.

Both the US and China should learn some harsh lessons from what is happening in Europe. Both nations are just as guilty of refusing to face up to some home truths, too.

The US debt position is untenable. Yet, Congress is doing its own version of the European can-kicking. By playing politics rather than uniting for the good of the nation and its economic future, politicians on both side of the political spectrum in the US are using the growing deficit and attempts to extend further credit as a way to score political points (and votes) rather than as an opportunity to use the mini-crisis as a way to reshape future budget debates and policies, building a stronger US economy rather than one that exposes its weaknesses.

China, too, is just as good at playing ostrich. Its prolific liquidity spree in answer to the financial crisis may have helped stabilise the country but it has created just as many headaches – and ones which the Chinese political establishment are not facing. China has some serious problems looming.

It is not just a question of how it drains excessive liquidity out of the system. It has population problems, exacerabated by a gender imbalance. Too many men will be unable to find wives, which could lead to major political unrest.

Growing economic prosperity means people are going to be less likely to be happy being told what to do and will want plurality in the political system. A one-party state will not like this and so far has shown it is incapable of planning for a peaceful transition. As the country becomes more affluent, people will not just eat more; they will eat more meat. Factories will need more resources, including water. China cannot feed its existing population nor satisfy its industry with internal resources.

Not least is a relative slowing of the Chinese economy. If growth slows to a yearly rate of 5% rather than the double digits recently experienced, that will impact not just the indigenous population but also other countries used to supplying China. Within China such a slower growth rate may feel more like a recession – a situation the population is not familiar with.

Chinese rulers have a lot to worry about and to continue to view every work disturbance and attempt at pushing democratic boundaries with dismay. They are going to be tested to the limit on their own skills to navigate turbulent economic and social waters over the next few years. Whether they are up to the task of a peaceful transitition to full democracy and a more liberal economy remains to be seen.