Turbulent Times

26 January 2012, 15:10

Europe, reeling from the crisis in the eurozone, faces economic stagnation and political wrangling. Much of the Arab world has seen the promise of spring turn to winter, and it is still unclear after last year's turmoil whether democracy can yet be established in Egypt, Libya or Yemen. In Russia, the recent widespread demonstrations against the fraudulent parliamentary elections are likely to continue in the run-up to Vladimir Putin's plan to recapture the presidency in March. And in America, the presidential election in November promises months of turbulence, as the Republicans search for a credible candidate and the country struggles to avoid economic recession.

It will be a year of weak leadership in the West and faltering government in rapidly developing markets such as India that have seen growth rates stall. The uncertainties in East Asia caused by the death of Kim Jong Il in North Korea and the accession of his podgy, inexperienced son will unsettle markets that are already nervous at the global loss of confidence. The confrontation between Iran and those countries determined to prevent it developing nuclear weapons, especially Israel and the United States, will sharpen. And in areas where conflict is still raging, such as Afghanistan and Somalia, there seems little prospect of peace or any easy option for Western forces looking for an exit strategy.

Much of Europe will be preoccupied with its own problems in 2012. Despite a dozen summit meetings in 2011, the leaders of the 17 eurozone countries failed to reach a convincing agreement that would end market speculation and political uncertainty. Those countries struggling with high debts and low growth, especially the so-called "Pigs" – Portugal, Italy and Ireland, Greece and Spain – will still face very high interest rates in their need for continuing large borrowing on international markets. Italy may have more trust in Mario Monti, its technocratic Prime Minister, than in the capricious and scandal-ridden Silvio Berlusconi, but new austerity budgets are likely to meet growing resistance from trade unions and millions of voters. The new centre-right government in Spain will enjoy a honeymoon for a while and may be able to enforce spending cuts, but it will struggle to bring down the high unemployment rate. Ireland, after a brief recovery, looks as though it will enter recession again. And Greece is facing an almost existential challenge in repaying its huge debts. Figures show that the burden on each Greek family of the wage cuts and price rises is the same as the burden placed on every German family in the 1920s by the reparations ordered by the Treaty of Versailles. Can Greece avoid similar huge social unrest? Can it remain in the euro, despite all the rescue efforts, or will it eventually be forced out? The coming year will tell.

The crisis will also severely disrupt the key relations between the European Union's big players – Germany, France and Britain. The Franco-German accord at the last summit concealed continuing bitter differences on the role of the European Central Bank and the future of the weaker southern members of the eurozone. France is resentful of German power, and President Sarkozy may feel the need to assert himself more as he struggles in an election year against domestic unpopularity, the the weakness of French banks and the growing challenge from his Socialist rivals. Angela Merkel, the Germany Chancellor, also faces voter anger, as many Germans accuse her of weak leadership and do not want Germany to pay any more to help the weaker eurozone countries. Both countries are angry that Britain vetoed a treaty change and opted out of any rescue package. And Britain may find itself increasingly excluded from decisions by its EU partners that will leave it politically isolated and economically vulnerable.

In the east, Europe may also see more turmoil. The big question is whether the Kremlin will crack down on the swelling protest movement. The challenges to Putin's growing are unlikely to derail his return as president, but leave his government weak and may well bring an authoritarian backlash. There will be no "Russian spring" along Arab lines, but Russia faces a huge problem in overcoming corruption and growing social discontent. It cannot afford to alienate Russia's younger internet-savvy generation, but the Kremlin is uncertain how to deal with the web-based leaders of the protest movement such as Alexei Navalny. Mr Putin will probably make a few tactical concessions, dismissing some corrupt ministers and attempting to blame the hapless Medvedev, but then later picking off the opposition leaders one by one and tightening controls on the internet.
Russia's neighbours also face challenges to their authoritarian governments. The Central Asian governments may be able to suppress the frustrations of a younger generation as long as their economies are buoyant, but any incident could spark ethnic and political clashes, especially in brittle Kyrgyzstan and Uzkekistan. In Belarus, Alexander Luskashenko may survive the campaign against him in Western Europe as long as he has the Kremlin's backing, but will swiftly resort to repression should the protest movement spread to the streets of Minsk. And Ukraine, continually see-sawing between different factions and regional interests, will find it hard to maintain an equidistance between Russia and Western Europe, especially if internal political confrontations sharpen once again. 

The US will also be preoccupied with its own elections, which will make it difficult for President Obama to make any headway in overseas challenges, especially in the Middle East peace process, Afghanistan and in dealing with Iran, North Korea the new assertiveness in China. The outcome of the protests in Syria will be crucial for all the Middle East. The bloodshed is likely to continue as the discredited Assad regime resorts to ever more desperate measures to suppress the opposition. Violence is likely to grow, however, as the the Free Syrian Army, comprising deserters from the government forces, starts using weapons and force to resist the repression. 

Two things will determine how long the Assad government can survive. First is the attitude of Turkey. If Damascus gives shelter to, or encourages, the PKK Kurdish fighters, Turkey will not hesitate to move its army across the border. It may, in any case, threaten military force if civil war in Syrian forces thousands of refugees across the border. Secondly, if Iran withdraws support from the Assad regime, it will swiftly collapse. 
Elsewhere in the Arab world, hopes for democracy will run into economic and political challenges. The clumsy military government in Egypt may crack down further on the Tahrir Square protesters, but will probably give way soon to a civilian government led by the Muslim Brotherhood, which will allow the presidential election to go ahead later in the year. A candidate with a strong Islamist background is likely to win – leading to nervousness in Washington. Libya will pass through further tensions and tribal differences before stability can be assured. And the situation in Iraq will worsen, as extremists try to foment a civil war with more bombings and suicide attacks by both Sunni and Shia militants. Saudi Arabia and other rich Gulf states may avoid violence, but will be nervous at the turmoil in neighbouring countries.

All the Arab world, as well as Israel and America, will be increasingly worried about Iran. The power struggle in Tehran between President Ahmadinejad and Ayatollah Khamanei will worsen, as the Republican Guard, aligned to the "Supreme Leader" Khamanei, fears any attempt to curb its power and the wealth it controls. Both sides may try to provoke a foreign crisis to divert attention and suppress the opposition. The clandestine Israeli sabotage against Iran's nuclear facilities will continue. What is uncertain is whether America can prevent an open Israeli military strike or whether President Obama may sanction such a move to win votes at home during his election campaign. If he does, the resulting backlash throughout the Muslim world could lead to an upsurge in anti-Western terrorism.

The continued global economic crisis will next year begin to affect countries previously impervious to the West's difficulties, especially India and China. Growth in China is likely to slow down sharply, as Beijing tries to stimulate domestic consumption to make up for the fall in exports. India will also see a slow-down, largely because of foreign fears that the weak Congress government will prove incapable of tackling corruption and also because of India's failure to follow through on economic reforms essential to keep up the dynamism of growth. Next year may be the year of missed opportunity for India. 

Uncertainty will continue also in Asia, partly because the new regime in North Korea may not be stable, and partly because there is no sign that Japan, once the motor of Asian development, will be able to emerge from its long political and economic paralysis. Pakistan will remain extremely unstable. President Zadari, unpopular and discredited, is likely to be overthrown either by an army coup or by a mass movement, spearheaded by Imran Khan, the former cricketer, to remove him from office. 

Africa may be one of the brighter hopes for 2012. With disputes and wars generally calming down across the continent, and hopes that the Government may prevail over the al-Shabbab Islamists in Somalia, the economic development in many countries will pick up sharply. Some, such as Ghana, and Mozambique, are already doing well, and several others will also see steady improvements in living standards. The political challenge to President Zuma in South Africa from radicals within the ruling African National Congress may deter some outside investors, but widespread unrest is unlikely. In Zimbabwe, the miserable situation will continue, with the increasingly frail president Mugabe being manipulated by cronies around him who will entrench themselves in power – and prevent any uprising against him. 

Several parts of the world will also enjoy steady growth and normal democratic politics. Across Latin America, there are no crises to disturb political stability. Brazil is set to continue its steady growth, and Argentina's President Kirchner seems assured of widespread support after her re-election. If President Chavez of Venezuela dies of cancer or Raul Castro dies in Cuba, both countries may see rapid liberalisation. The only black spot will continue to be Mexico, where vicious drug wars have caused a huge death toll, widespread violence and a dangerous disillusion with democratic politics. 

Apart from political and economic changes, much may depend this coming year on whether natural disasters cause widespread disruption, whether the world suffers droughts and starvation or a favourable global climate and how much progress nations make in liberalising trade, reducing global poverty, curbing population booms in fragile countries such as Pakistan and co-operating in the fight against drugs and international crime. There will be few new faces. Obama and Putin will be re-elected, Sarkozy may just prevail over his Socialist challenger, David Cameron is safe in office in Britain and even if Japan changes Prime Minister again, it will make little difference to the outside world. 

The year 2011 was one of momentous events; the coming year promised to be just as eventful.

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