A paradox that will paralyse world politics

By Gideon Rachman

Efforts to rescue the world economy in 2012 will be afflicted by a perilous political paradox. The more that international co-operation is needed, the harder it will be to achieve.

The year begins with the world still overshadowed by the threat of the biggest economic crisis since 1945. But as the economic position deteriorates, the actions demanded of national leaders become ever more drastic and harder to sell at home: take part in big bail-outs of indigent nations, subsidise wildly unpopular bankers, work patiently with countries that large parts of your own population believe are bankrupt or dishonest. In 2012, the world’s most important leaders are likely to be asked to do all of the above – and will find it ever harder to deliver. The conditions of recession, instability and panic that demand international co-operation also make voters angrier and less generous.

The political pressures produced by an international economic crisis have prevented the European Union – or a larger world community – from dealing effectively with Europe’s debt problems. Over the year, the problem is likely to worsen because so many of the most important countries face elections or changes in leadership that will make it very hard for them to devote much energy to diplomacy. There are presidential elections in the US, France and Russia – and China’s top leadership will also be reshuffled towards the end of the year.

The biggest demands, however, will be made of a country that is not scheduled to undergo elections. This year, as in 2011, the world will look to Germany to provide the money and intellectual leadership to pull the eurozone back from the brink.

Germany, however, is extremely reluctant to open its cheque book once again. Instead it is pouring its energy into securing a new European treaty that will place draconian limits on deficits – a policy that is irrelevant to the debt crisis in the short term and liable to be counterproductive in the long term. Germany’s behaviour is explicable only when understood in the context of domestic politics. The policies of chancellor Angela Merkel are dictated by a popular desire that Germany should fund no further bail-outs in Europe and instead export its own “stability culture”.

Ms Merkel is sometimes lambasted by foreign leaders for allowing domestic political constraints to dictate her approach to the crisis. But look around the world, and everybody else is doing the same. Germany’s main partner in Europe over the next few months will be France – a country that will be preoccupied by its presidential election. Nicolas Sarkozy will be trying to push any further twist in the crisis beyond the final polling date of May 6, while guarding his flank against accusations from the left and the far right that he has gone too far in ceding sovereignty to an impatient Germany. Read more…

As published in www.ft.com on January 2, 2012.


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