Europe's Six-Headed Crisis

Europe's Six-Headed Crisis
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Andy Langenkamp is a global policy analyst for ECR Research.

Crises are nothing new. However, in Europe six crises reinforce each other. The list includes migration, populism, Brexit, a lingering economic crisis, the policies of Russian President Vladimir Putin, and terrorism.
 
The deal on refugee exchange reached between the European Union and Turkey has at least one hopeful aspect: For the first time since the onset of the migrant crisis, the 28 EU members more or less acted in unison. The deal will cut numbers -- already, people smugglers say they have seen business dwindle. Yet history shows that when one route closes, another opens.
 
We are skeptical that the deal will put an end to the crisis. Its grounding in international law is in doubt, and Greece still faces significant shortages in the manpower needed to protect borders and carry out paperwork to return migrants to Turkey. I also doubt that the relocation of refugees already in Greece will go smoothly -- an old deal to resettle 160,000 asylum seekers across Europe has been a failure.
 
My view on the EU-Turkey deal is that seeing is believing. Speaking of optics, public opinion could sour on the deal when media show families being muscled onto boats and airplanes. And we must not forget that this deal can only be one part of the solution. So long as the violence in the Middle East continues, people will continue to flee. Lebanon, Jordan, and Turkey already house between 10 and 100 times as many refugees as the European Union, relative to their respective populations. These societies can't cope with continuing inflows much longer.
 
Populism on the rise
 
The refugee crisis is a boon to populist parties. Parties like the Party for Freedom, or PVV, in the Netherlands, Front National in France, and Alternative for Germany, or AfD, show no signs of losing momentum. If Dutch elections were held now, Geert Wilders' PVV would win 40 seats in the 150-seat Lower House of Parliament and would be the largest party by far. In Hungary and Poland, populists have already taken over, and democracy is under threat as politicians ignore the verdicts of the highest courts and media outlets are placed under government control. We will witness the real potential for populist parties next year when Germany, France, and the Netherlands are scheduled to hold elections.
 
To Brexit or not to Brexit
 
The risk of the United Kingdom leaving the European Union will keep pundits guessing at the repercussions of a Leave vote until June 23, and possibly thereafter as the United Kingdom and European Union enter years of negotiations to establish a new relationship. I don't have a clear answer to what the repercussions of a Brexit would be. The calculations from think tanks, banks, and other experts are confusing.
 
For example, credit agency Moody's recently concluded that the impact of Brexit would be small and unlikely to lead to big job losses. MSCI is less sanguine -- the provider of stock market indexes concludes that in the most benign of two scenarios for Brexit, growth in the British economy would slow by 2.2 percentage points over the year that follows the vote. In the second scenario, Brexit would shatter the eurozone and drag down growth across the world.
 
I could go on with other examples of Brexit research, but I have made my point: Nobody really knows what the effects of a Brexit would be, except that it will have at least a minor negative impact. As the vote comes closer, markets will probably get more nervous.
 
Eurocrisis
 
Markets may also lose patience with the eurozone. The European Central Bank has signaled implicitly that it is running out of ways to address the economic malaise. Politicians aren't making enough progress on reforms to streamline labour markets, pension systems, and the like. Economic data are a mixed bag, and it doesn't look like the eurozone will be treated to a big boost in productivity or income growth. The Economic and Monetary Union will also continue to be slowed by its missing parts: fiscal and political union.
 
The Russia threat
 
One reason the pace of reforms is disappointing could be a new preoccupation with geopolitics -- namely, with Russia's behavior. Putin has booked success in Syria. In addition, Moscow was able to draw attention away from Ukraine, while regular Russian troops remain in the Donbas region, and Moscow plays on EU divisions over sanctions on Russia.
 
In the long run, Russia may be weak, with a shrinking population and a lopsided economy on the brink of collapse, but for now Putin has managed to play his cards right. Europe still lacks the grit, skills, unity, and will needed to formulate a powerful answer to Putin.
 
Terrorism as the new normal?
 
The Paris and Brussels attacks have proven that terrorism does pose a risk to Europe. The political capital, time, and money that leaders need to battle terrorism are resources that cannot be used to enact structural economic reforms. And money invested in more security - essentially an investment in unproductive activities - is no great economic multiplier. Moreover, implementing far-reaching antiterrorism laws could pose just as big a threat to open societies as terrorists do - they can undermine the basis of open markets and democracy.
 
Terror attacks usually don't have a large negative impact on the economy. However, if terror attacks go from sporadic to endemic, the whole calculus changes. ISIS would like to instil a climate of terror in Europe. If it succeeds, all bets are off as to how much economic damage terror will cause.
 
Troubled Europe
 
What is most worrying about these six risks is that they are mutually reinforcing. The Brussels attacks will aid those arguing that Europe should close its borders and that refugees are nothing but a threat. Just minutes after the news of the Brussels attacks came out, UKIP issued a press release blaming Schengen for the bombings. Populist parties and pundits all across Europe will seize the opportunity to connect terrorism, borders, Islam, and refugees.
 
Recent developments could also have a huge impact on the Brexit referendum. Half of the respondents to a recent poll by The Observer said they would cast their Brexit vote based on immigration. If the terror threat lingers on, and the likes of Nigel Farage succeed in making the trinity of refugees, terrorism, and Schengen stick, chances of an Out-vote will increase.
 
I could go citing more self-explanatory connections between the six European threats, but they should be clear by now and regrettably they all point to one conclusion: More European instability looks to be guaranteed, and it will be hard for the eurozone to pick up economic steam in the coming quarters.  

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