ADVANTAGE DEUTSCHLAND IN 2012

AALEP reproduces here after the geopolitical analysis of STRATFOR Global Intelligence for Europe in 2012. STRATFOR uses a unique, intelligence-based approach to gathering information via rigorous open-source monitoring and a global network of human sources. Analysts then evaluate events looking through the objective lens of geopolitics. Their  goal is simple: to make the complexity of the world understandable without ideology, agenda or national bias. 

According to STRATFOR the driving behind the developments in Europe in 2012 will be political, not economic. GERMANY, seeing an opportunity in the ongoing financial crisis, is using its superior financial and economic position to attempt to alter the euroazone's structure to its advantage. The core of this "reform" effort is to hardwire tight financial controls into as many European states as possible, both in a new intergovernmental treaty and in each state's national constitution.

GERMANY has six key advantages in 2012.

1. There are very few scheduled electoral contests, so the general populace of most European states will not be consulted on the exercise. Of the eurozone states, only FRANCE, SLOVAKIA and SLOVENIA face scheduled national elections. Out of the three, FRANCE is by far the most critical. The Franco-German partnership is the core of the European system, and any serious breach between the two would herald the end of the European Union. If GERMANY is to compromise on its efforts for anyone, it will be for FRANCE, and if FRANCE needs another country in order to secure its own position in Europe, it needs GERMANY. Consequently, the two have chosen to collaborate rather than compete thus far, and this partnership will survive in 2012. Luckily for the German effort, French elections will be at the very beginning of the ratification process, so any possible modifications to the Germans will come early.

2. GERMANY only needs the approval of the 17 eurozone states- rather than the 27 members of the full European Union-- to forward its plan with credibility. That the United Kingdom has already opted out is inconvenient for those seeking a pan-European process, but it does not derail the German effort.

3. The process of approving a treaty such as this will take significant time, and some aspects of the reform process can be pushed back. European leaders are expected to sign the new treaty in March, and the rest of 2012 and some of 2013 will be used to seek ratification by individual countries. Amending national constitutions to satisfy GERMANY will be the bitterest part of the process, but much of that can be put off until 2013, and judgement by European institutions over how the revision process was handled comes still later. Such delays allow political leaders the option of pushing back the most politically risky portions of the process for months or years.

4. GERMANY is willing to apply significant pressure. Nearly all EU states count GERMANY as the largest desitination for their exports, and such exports are critical for local employment. In 2011, GERMANY used its uperior economic and financial position as leverage to help ease the elected leadership of GREECE and ITALY out of office, replacing them with unelected former EU bureaucrats who are now working to implement aspects of the German programme. Similar pressures could be brought to bear against additional states in 2012.  The most likely to clash with GERMANY are IRELAND, FINLAND, THE NETHERLANDS AND SPAIN.

• IRELAND wants the terms of its bailout programme to be softened and is threatening a national referendum that could derail the ratification process.
• FINLAND'S law require parliamentary approval bya two-thirds majority for some aspects of ratification.
• THE NETHERLAND's normally pro-European government is a weak coalition that can only rule with the support of other parties, one of which is euroskeptic.
• SPAIN must attempt the most painful austerity measures of any non-bailout states if the reform process is to have credibility.
• Also, if GREECE decides to hold new elections in 2012, European stakeholders will attempt to ensure that the new government in Athens does not end its collaboration with the European Central Bank (EC), European Commission and International Monetary Fund.

None of these issues will force an automatic confrontation, but all will have to be managed to ensure successful ratification, and GERMANY has demonstrated that it has many tools with which to compel other governments.

5. The Europeans are scared, which make them willing to do things they would not normally do--such as implementing austerity and ratifying treaties they dislike. Agreeing to sacrifice sovereignty in principle to maintain the European economic system in practice will seem a reasonable trade. The real political crisis will not come until the sacrifice of sovereignty moves from the realm of theory to application, but that will not occur in 2012. In amny ways,the political pliability of European governments now is all about staving off unbearable economic catastrophe for another day.

6. GERMANY's economic deferment of that pain is another advantage. Here, the primary player is the ECB. The financial crisis has two aspects: Over-indebted European governments are lurching toward default that would collapse the European system, and European banks (the largest purchasers of European government debt) are broadly insolvent-- their collapse would similarly break apart the European system. In December 2011, the ECB indicated that it was willing to put up 20 billion euros a week for sovereign bond purchases on secondary markets to support struggling eurozone governments, while extending low-interest, long-term liquidity loans to European banks in unlimited volumes. The bond programme is large enough to potentially purcahse three-fourths of all expected eurozone government debt issuances for 2012, while the first day of the loan programme extended 490 billion euros in fresh credit to ailing banks. Together, these two measures make a eurozone financial meltdown highly unlikely in 2012, but they will greatly degrade European competitiveness and efficiency. That will be a problem for another time, though. For now, ECB actions are buying economic and political breathing room: economic in that austerity efforts can be somewhat softer than they would otherwise need to be, and political in that there is a feeling that GERMANY is willing to compromise somewhat on the issues of budgetary discipline today in order to achieve its braoder goals of budgetary control tomorrow. Therefore, while the financial support is not exactly buying good will from other European states, it is certainly buying time.

As the ratification process proceeds, European hostility toward GERMANY and BRUSSELS will increase. Internationally, the key theme will be states attempting to protect themselves from they see as a growing-- and unwelcome--GERMAN intrusion into their internal affairs. A the national level, the deepening recession will translate into general anger toward the government's announced austerity measures. The relative dearth of elections will deny that anger its normal release valve of centrist opposition parties, emboldening nationlist and extremist movements and leading to social unrest.

Political and financial turbulence will persist within this framework as GERMANY negotiates the new treaty with other eurozone countries. Though the core of these negotiations is a highly contentious abdication of national fiscal sovereignty, Europe is likely to adopt the new treaty since a perceived failure would dramatically accelerate the collapse of EU political structures and implementation will not happen in 2012.