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Wednesday, 6 February 2013

Economic uncertainties and political risks

Max Watson

In South East Europe, the impact of the global and euro area crises has been particularly severe, with political as well as economic implications. The crisis arrested the incomplete progress made over the previous decade in overcoming a number of historic vulnerabilities. If the decline in employment and living standards is not soon reversed, there are risks that serious political-economic tensions in the region could re-surface. These were among the key messages from the fourth seminar in this term's core SEESOX series, which asked whether the impact of the crisis on the region will prove reversible.

In this region, it was pointed out, the crisis had affected particularly seriously the most vulnerable groups in society. The response of governing elites had been piecemeal and not very effective, and this had further undermined the population's trust in public administrations. Moreover, the apparent failure of the previous decade's growth model had raised questions about the EU as a catalyst of economic convergence. So far, the impact of the crisis had been cushioned to some degree by work in the informal sector, and by family-based support mechanisms; but if today's recessionary conditions were not soon reversed, the limits of such cushions might be reached.

As in the Greek elections of June 2012, much of the population might still conclude that There Is No Alternative, given fears of a backsliding into the economic and security hazards of the region's Balkan past. But the credibility of the 'EU card' seemed to be much weaker with the young: they had no direct memories of past disorder, but faced the systematically high levels of youth unemployment prevailing across the region. Thus demographics could be weakening the EU's command over voter psychology.

The weakening of EU credibility was a worrying backdrop, given the re-emergence of nationalist and populist pressures. Protest had taken many forms across the region, and had been aimed at different targets; but a notable feature politically was how the stress of the crisis was leading mainstream parties to assimilate some viewpoints of smaller, more nationalist or populist groups in their own agenda.

Reversing the economic effects of the crisis was seen as a key element in restarting a favourable political dynamic in the region. The outlook for such a reversal varied across countries, as did the policy challenges for authorities in trying to restart growth and job creation. A common feature, however, was a dependency on economic recovery getting underway in the region's EU partners. There was also usually a need to re-energize structural reforms, even though the specific priorities for action differed from country to country. In most cases the priorities for action were clear, but the leadership of political elites was much more in doubt.

Answers were not yet clear on the reversibility of the crisis. But the serious political question posed by the present troubled setting could already be defined. This was whether nationalist and populist arguments would find a growingly receptive audience, and thus threaten the integrationist pattern that the EU had been successfully fostering in the region. The risks were evident, but so far their effects had been contained. For the period ahead, restoring growth was seen as a critical element in this equation.