As 2014 draws to a close, more and more people are looking at the bright side of life. Good news abounds. So much so that it has made its way on to this blog.
And yet, danger still lurks. It would be foolhardy to ignore it.
So, we turn to George Friedman, of Statfor and read his list of the five most significant events of 2014. I will emphasize the first one, because those of us who live on this side of the Atlantic have ignored it.
For decades now the Western world has seen a competition—or culture war-- between what Friedman calls the “Anglo-Saxon” economic model, with its emphasis on free enterprise, and the European model which tends to be socialist-statist.
Among economists the debate this year centered around French economist Thomas Piketty’s book on inequality.
As I remarked at the time, whatever you think of Piketty, his policy prescriptions were tried, in one form or another by French president Francois Hollande.
They failed miserably. The French populace has turned against Hollande’s socialist party. And Hollande’s new government has turned toward a more Anglo Saxon model.
Friedman does not mention Piketty or France, but his judgment might well have arisen from that experience:
The forecast that Europe would demonstrate that the "Anglo-Saxon" economic model is inferior to Europe's more statist and socially sensitive approach has been disproven.
As for the larger picture, Friedman provides an excellent, but not very encouraging analysis of the current state of Europe.
We take special note because he calls it the most important event of 2014:
The single most important event in 2014 was one that did not occur: Europe did not solve its longstanding economic, political and social problems. I place this as number one because regardless of its decline, Europe remains a central figure in the global system. The European Union's economy is the largest in the world, taken collectively, and the Continent remains a center of global commerce, science and culture. Europe's inability to solve its problems, or really to make any significant progress, may not involve armies and explosions, but it can disrupt the global system more than any other factor present in 2014.
The vast divergence of the European experience is as troubling as the general economic malaise. Experience is affected by many things, but certainly the inability to find gainful employment is a central feature of it. The huge unemployment rates in Spain, Greece and southern Europe in general profoundly affect large numbers of people. The relative prosperity of Germany and Austria diverges vastly from that of southern Europe, so much so that it calls into question the European Union's viability.
Indeed, we have seen a rise of anti-EU parties not only in southern Europe but also in the rest of Europe as well. None have crossed the threshold to power, but many are strengthening along with the idea that the benefits of membership in a united Europe, constituted as it is, are outweighed by the costs. Greece will have an election in the coming months, and it is possible that a party favoring withdrawal from the eurozone will become a leading power. The United Kingdom's UKIP favors withdrawal from the European Union altogether.
There is significant and growing risk that either the European Union will have to be revised dramatically to survive or it will simply fragment. The fragmentation of the European Union would shift authority formally back to myriad nation states. Europe's experience with nationalism has been troubling, to say the least — certainly in the first part of the 20th century. And when a region as important as Europe redefines itself, the entire world will be affected.
With each year that passes, we must be open to the possibility that this is no longer a crisis that will pass, but a new, permanent European reality. This is something we have been pointing to for years, and we see the situation as increasingly ominous because it shows no signs of improving.
We are all happy that the world is becoming a nicer place, but we should keep Friedman’ analysis in mind.