Summary: Five years of crisis in Europe, yet its streets remain mostly calm. What accounts for this? How long will it continue?
“At the heart of the crisis, there is the challenge of redefining the social contract to safeguard the sustainability of Europe’s social model.”
— Speech by Benoit Coeure (Executive Board of the ECB), 2 March 2013
“Spot on, Benoit. The trouble is European leaders and institutions seem to want to redefine the contract in ways that at least half of European citizens don’t approve, or trust them to carry out. So underneath the three-headed crisis of austerity, banking and sovereign debt, we have one of legitimacy and trust, which is feeding social unrest.”
— George Magnus, Economic Advisor, UBS, 20 March 2013
- Why is Europe still stable?
- What comes next?
- Compare with China
- Leave a comment
- For More Information
(1) Why is Europe still stable?
The stability in Europe since the second downturn began in March 2010 has surprised many observers (eg, me). Three years of depressionary conditions in the periphery have produced no large, severe outbreaks of social unrest. Elections have produced majorities in favor of the European Union and the austerity it mandates (we’ll soon see if February’s election in Italy broke this record).
What produces this stability? The usual supports for incumbent systems are human inertia and people’s dislike of radical change. Hence the failure of the frequently made forecasts of regime change in developed nations. But those explanations seem in adequate, as does embrace of the EU from fear of war.
History provides a possible answer: the lack of an alternative. Thomas Kuhn in his The Structure of Scientific Revolutions (1962) says that scientific paradigms die not when they are disproven, but when they are replaced by a superior alternative. In much the same way revolutions (peaceful or otherwise) require a new political or economic ideology that can substitute for the old.
Without an alternative, accumulated stress breaks out in futile forms, such as protests and riots. These are a commonplace of history, such as the peasants’ protests (Wikipedia) and race riots (Wikipedia). These can produce incremental reforms (although they usually didn’t), but participants seldom had a vision of a realistic better system. Although recognized as defective, other systems were considered less attractive or unworkable (eg, plutocracy in Holland, city-states in Switzerland). For centuries this provided a buttress for European monarchies.
(2) What comes next in Europe?
Europe’s people have remained quiet for five years since the great recession began in 2008. Will they do so for another five years, with the prospect of at best no growth? Under the pressure of events, will the people of Spain Italy, Greece, and Portugal create new political or economic systems?
The usual comparison is with the 1930’s. But by then Communism and Fascism were well-developed ideologies with strong organizational expressions. Today’s intellectual landscape looks quite barren of alternatives.
Europe’s leaders have nailed the tiller down. They will continue to impose austerity on the periphery until either their economies reform or social unrest breaks out. With no other choices, Europe’s people can only stay together and suffer — or retreat, breaking again into smaller nations. Stasis or protests, a bleak prospect.
(3) Compare with China
Like Europe (and perhaps the United States), China has outgrown its economic and political structures. This can be seen in the list of social tensions Magnus describes: land rights (confiscation), environment destruction and pollution, corrupt officials, poor workers’ conditions, and growing income inequality.
China’s new leadership takes office this month. Reports show that they see these things and plan to act. We can only guess as to the pace they will set for reforms, and their nature. These reforms will open a new chapter for China, and create new challenges. De Tocqueville’s The Old Regime and the Revolution (1856) describes at length the destabilizing results of even necessary and well-meant reforms — and the difficulty of implementing them. China’s leaders are reading this; it would be interesting to hear their thoughts about this. The Czars provided another demonstration of poorly managed reforms, and the consequences.
All paths — no, slow, or fast reform — lead to some degree of turmoil in China.
(4) Leave a comment
Post your comments on the FM Facebook page!
(5) For More Information
(a) Studies and reports about social unrest (from Magnus’ report):
- “Demographics: the Ratio of Revolution“, David Munro and Claudia Zeisberger, INSEAD, March 2011
- “The Austerity Trap: A Century of Unrest and Budget Cuts“, Hans-Joachim Voth, Institute for New Economic Thinking, 12-15 April 2012
- “Social Unrest“, Aleksandar S. Jovanovic, Ortwin Renn, and Regina Schröter, OECD, 10 August 2012
(b) Posts about Europe:
- The periphery of Europe – a flashpoint to the global economy, 8 February 2010
- Delusions about easy fixes for Europe, dreaming during the calm before the storm, 30 September 2011
- Is Europe primed for chaos, as it was in July 1914?, 7 October 2011
- Status report on Europe’s slow re-birth (first, the current system must die), 10 November 2011
- Looking ahead to see the new shape of Europe, 22 November 2011
- Europe passes the last exit. A great crisis lies ahead., 21 February 2012
- The Fate of Europe has become visible. Only how and when the break comes remains uncertain., 6 June 2012
- Europe has a political crisis. The economics are just symptoms., 11 July 2012
- The hidden goal of Europe’s leaders. See it and then their actions make sense., 27 July 2012
- Spain’s’ only three options for recovery, 17 November 2012