Euro’s failure could change global future

ANY eurozone failure would send shock waves around the globe, shifting the balance of geopolitical power and perhaps prompting a fundamental reassessment of what the world’s future might look like.

According to EU sources, officials of France and Germany have held discussions on a two-speed Europe with a smaller, more tightly integrated eurozone and a looser outer circle.

With European leaders still struggling to find a credible response to the crisis, the prospect of one or more countries leaving — and effectively defaulting on their sovereign debt as they do so — is seen to be rising by the day.

Suddenly, pundits and policymakers find themselves questioning a fundamental assumption — that an increasingly united Europe would be a key player in a newly multipolar world.

“You already have one of the great pillars of globalisation, the United States, entering a period of difficulty and looking inward,” said Thomas Barnett, US-based chief strategist of political risk consultancy Wikistrat. “Now one of the other pillars, Europe, looks about to implode.”

That, he said, could leave the continent’s powers increasingly sidelined as China, India, Brazil and others rose. At the very least, analysts say, the world may have to get used to a Europe that has lost much of its confidence and has less appetite for international engagement.

It would also leave the reputation of existing global governance systems and a generation of political and economic elites in tatters. Some of the damage may already be largely irreversible.

“Even if by some magic the crisis were to be over tomorrow, the other strategic actors in the world are already beginning to revise their views of Europe,” said Thomas Kleine-Brokhoff, a strategy expert at the George Marshall Foundation of the US think-tank. “Any consensus that Europe was simply and certainly on the path to integrate further and become a unitary actor is gone.”

That raises questions for other areas, where many expected regional blocs would in time form EU-like entities.

For some, any unravelling of the eurozone — whether or not it brings with it a collapse of the wider EU — would be seen as yet another sign of faster than expected western decline.

“For India, China and many of the other new powers, they don’t see simply a crisis of the eurozone,” said Kleine-Brokhoff. “They see a crisis of the rich world and it makes them even more confident that their time has come.”

But that interpretation could prove an illusion. “No one would be laughing — I don’t think there would be any winners at all,” said Michael Denison, research director for consultancy Control Risks. “You’d have a banking and sovereign debt crisis that would hurt everyone.”

Most analysts say emerging markets could suffer disproportionately.

US-based private intelligence consultancy Stratfor — which puts the prospect of a partial eurozone breakup within the year as high as 90% — feels China could be the greatest loser.

“You’re going to see a collapse in capital flows to countries like Vietnam, Brazil, parts of Africa,” said Peter Zeihan, vice-president for strategy. “It’s also going to be the end of the Chinese economic miracle. The largest single market for China is Europe. That’s going to have a huge knock-on effect in China which could include social revolution.”

Wikistrat’s Barnett says much depends on what emerges if the euro falls. If, as many suspect, a eurozone around Germany remains while Mediterranean states go their own way, the whole geopolitical focus of the continent could shift.

The northern element, he suggests, could focus its attention more to the east, giving priority to what could become a corporatist or confrontational relationship with Moscow. The southern states, in contrast, might integrate more closely with North Africa and the rest of the Mediterranean — a region perhaps dominated by a newly assertive Turkey.

The euro itself should still be salvageable, he says, but it may just be that the political will is simply not there.

“It’s essentially a common-law marriage that never quite made it to the church and now seems to be moving towards a split,” said Barnett. “It shouldn’t be necessary, you would have hoped that it could be avoided, but we are living through an age of political immaturity.”