It’s the time of year for investment banks to send out their outlooks for the next 12 months.
They range across every market sub-sector and influence, from bonds to commodities to geopolitics.
And this year, there isn’t one quite as brutally, unremittingly grim about the political position Europe finds itself in as Deutsche Bank’s.
The geopolitics section was written by analyst Peter Garber, who focuses on the European Union’s massive political challenges.
The EU’s problems today are bigger than the euro crisis that risked tearing the currency union apart in 2010-2012, according to Garber, who says that “these accelerating external and internal threats will likely push the “petty” economic disputes of the euro crisis to the back burner and the geopolitical dimension to the forefront.”
Here are the main crises, according to the report:
- Eastern tension. Garber says that the EU was acting more like an “imperial union” in its attitude towards Ukraine before the crash. Now, it’s suffering for it, with an increased Russian military presence closer to its borders, and increasingly restive member states in eastern Europe that want their security guaranteed.
- Southern turmoil. The report adds that “Europe (and the US) has lost control of the south shore of the Mediterranean.” The number of people travelling to Europe via Greece and Italy has exploded upwards, and at the highest levels the EU is unable to agree any meaningfully co-ordinated policy to deal with it.
- War in the Middle East. To add to the local problems, the lack of a unified strategy on Syria means “the EU will become even more absorbed in the conflicting tactics and strategies in Syria that have so tied up the other major participants.”
- The disappearing United States. All of the EU’s recent crises have coincided with the dwindling of US influence in the region: “Evidently, the US is consciously reducing the dependability of its generalized security umbrella or at least creating that impression.”
It’s a brutal assessment. Economists often make the point that the European Union went into the 2008 financial crisis (and the subsequent euro crisis) with a series of half-baked economic institutions, which were good enough for a long period of economic growth, but completely incapable of dealing with a banking nightmare and a severe recession.
If anything, the situation with the EU’s foreign and security policies is even worse. The Schengen Agreement that effectively abolished internal borders inside much of the European Union been even nearly been met by similar power-sharing in military and diplomatic spheres.
Those powers have been clung to by national governments that show no sign at all of wanting to give them up. As a result, there are massive inconsistencies between countries — for example, France’s suggestion that Russia could be part of a grand alliance against ISIS is likely to provoke anger among eastern European governments.
The problems also spread into each other — complaints from eastern EU members make them less likely to accept any share of the asylum seekers arriving in Europe — even as Germany approaches the one million mark for refugee status applications this year.
Garber ends his section of the note by calling the EU’s geopolitical position a “can of worms” — he might be underplaying it.