Recession in Europe: Number One Economic Issue for 2012

I believe that the number one economic issue for 2012 will be a recession in Europe. I don’t see how this will be avoidable.

The sovereign debt crisis in Europe has not ended and a lot of the debt is turning over this year and must be financed in the face of greater scrutiny by the rating agencies.

The solvency problems in the European banking system has not been resolved and with more severe capital requirements and a rising level of troubled loans on their balance sheets, commercial banks are not going to be in the mood to increase lending levels.

And the governmental austerity programs of Greece, Italy, and Spain are just beginning to hurt. The pain will only rise over the next year or two.

Furthermore, the lack of leadership on the European continent (and elsewhere) is astounding! How do you resolve a difficult situation when there are no leaders around to realistically deal with the problems embedded within the situation?

A European recession has a high probability of occurring, but the depth of the recession is still to be determined. On the surface, one might think that the recession would be relatively shallow, but there are other factors one must filter into the picture that adds to the uncertainty of how deep the recession might be.

Given this picture as the most likely leading scenario for 2012, I believe that we must further focus our sights on two other factors.

The first of these is how the recession might spread to other nations. Contagion is obviously the biggest concern here. If a recession hits an area as large as the eurozone, even if it is a modest one, the effects of that recession will spread to others. The exports of non-European nations will drop. And there will be financial markets consequences.

It is highly unlikely that a European recession will be contained just to the continent. And, since many of Europe’s trading partners are already facing economic expansion that is modest, at best, the repercussions could spread to a relatively large part of the world.

The second factor is even more disturbing. If we have a European recession in 2012, given the austerity programs that are being embedded in the economic policies of eurozone states, the likelihood that social unrest in these nations will accelerate both in the current year and beyond.

We have already seen outbursts of social unease in 2011 and with the increasing information on greater income inequalities, higher levels of unemployment, lower pensions, and so forth, that will be in the news, social unrest can only increase.

But, these protests will have the examples of the Arab spring to build upon. As was seen in 2011, the use of modern information technology can only strengthen the capability of protesters to organize and to disrupt. What happened in 2011 has not been lost on the discontented of the developed world.

And, what happens if a European recession spreads to other areas of the world. The seeds of protest have already been planted in many areas, including the United States. Just mention the word “occupy” and you will get your response.

Which leads me to one final point. I believe that modern society is now going through a period of substantial transition, and, like most periods of substantial transition there will be a lot of suffering as the “new world” emerges and there will be a substantial period of uncertainty as we grapple with the issues and move into this “new world.”

Of course, this will be one of the major problems we have to face…the problem of identifying what needs major changes and what needs only minor adjustments.

With certainty, however, I will argue that the evolving information technology is going to play a huge role in whatever results. People are going to be dealing with more and more information and they will have this information is “real time.” There will be much greater connectivity between people. Due to this there is going to have to be greater openness and transparency in life and this is going to force major changes on the way we do things and the speed at which people react. Governments are going to have to respond to this. Corporations are going to have to respond to this. And, whole societies and their social structures are going to have to respond to this.

Changes in the availability of information have resulted in major upheavals in the world from the use of mobile type in printing which occurred around 1450 CE and resulted in societal changes like the Renaissance and the Reformation…and the Enlightenment…to the creation of the typewriter, the telephone, the telegraph, the radio, and television.

In a very real sense, I believe that a worldview is passing. A recession in Europe during 2012 would accelerate changes that are already in motion. If I am correct, this conclusion does not present a real comfortable picture for the next five to ten years but in terms of the human suffering that will result and in terms of the needs involved in adapting to the changes.

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