The new Great Game: Europe looks within for roots of renewal

Exactly what was predicted here long ago as a potential outcome is now stated in this article: The EU will eventually break up into a two tier hiearchy. Also mentioned was the Mediterranean nations being a source of gas and oil to fuel and rebuild Europe’s economy, which is why Greece and Cyprus have been subjugated into EU vassal states and likely will remain on board any future EU integration — they’re too strategically important to lose. The United States of Europe is indeed coming.

The term “the Great Game” referred to the strategic rivalry between the British and Russian empires in Central Asia. Today’s Great Game is the battle for economic survival in a world of low economic growth. In such a world economic nationalism reasserts itself, reducing free trade in goods and services and free movement of capital. Escalating sovereign debt and banking sector problems will favour European introspection.

Individual European economies are modest in size relative to the US. But as a single entity the European Union, including the 17-member eurozone, accounts for more than 25 per cent of global GDP, making it the world’s largest economic unit.
The EU is a more open economy, being the world’s largest exporter and importer of good and services. But around 75 per cent of its trade is within member nations, aided by removal of trade barriers and the common currency. For example, Germany, the EU’s largest economy and one of the world’s largest exporters, sells more than 60 per cent of its products within the EU, much of it to other eurozone members.

The union is largely self-sufficient in food, thanks in part – as in the US – to subsidies, minimum price schemes and trade restrictions which favour farmers. The EU is a net energy importer, although mutually beneficial strategic agreements with Russia and other neighbouring countries rich in energy can provide security of supply. Significant potential natural gas finds in the eastern Mediterranean may emerge as a source of energy for Europe.

However, it would necessitate a net wealth transfer from richer to weaker members. Stronger, more creditworthy members would also have to underwrite the borrowings of weaker nations – something that net lenders such as Germany, Finland and Netherlands are opposed to.

But even without agreement on eurozone bonds, de facto mutualisation of debt will take place. As more financing for weaker nations moves to official institutions such as the European Central Bank and bailout funds, the commitment of stronger countries, especially Germany and France, increases. They implicitly assume the liabilities of weaker members of the eurozone.

If the eurozone fragments, it will morph into a smaller version of itself, probably consisting of stronger core nations and some smaller entities. Nursing large losses and a significant diminution of wealth, survivors are likely to favour autarchical policies to restore economic health.

Economic difficulties are driving secessionist movements within Europe. While ethnic and political identity is the primary driver, an emerging factor is financial. Catalan nationalists argue that the region is financially burdened by being part of Spain – which they say absorbs 8 per cent of Catalonia’s GDP, or about   €16bn (£14bn) – and would be better off as an independent entity. As Spain implements a harsh austerity program, Catalans, facing sharp cutbacks in public services such as health and education, are convinced that independence would restore their economic fortunes.

Separatist movements are also active in many other European nations. The pressures for secession complicate international economic relationships and the reshaping of the global trading system, forcing a narrow domestic focus.

Irrespective of its policy choices, Europe faces a prolonged period of economic stagnation as it works off its debt burden and undertakes major structural changes to correct imbalances. During this transition, Europe will be forced to focus internally, husbanding savings and wealth needed to absorb the large debt write-offs required. Explicit or implicit capital controls and trade restrictions are natural policy measures to assist in this adjustment, marking a shift to a more closed economy.

Full article: The new Great Game: Europe looks within for roots of renewal (The Independent)

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