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SA & Europe on the Ropes?

SA & Europe on the Ropes?

Only two months ago, speculation was rife about a Chinese implosion, there had been repeated seasonal doubts about the staying power of the US economy, and Japan has so far not succeeded in gaining cruising altitude. Especially Chinese market disturbances were unsettling, deeply upsetting global markets during August & early September. Key commodity producers & EMs were in recession, with especially Brazil hurting.

Yet in October attention shifted elsewhere, with a forward look. Europe was being subjected to new, non-financial centrifugal forces tearing at its innards, while South Africa was being pummeled by yet another series of major political hits. How far could this still go?

Europe has shown over the years great resilience in the presence of severe tests to its ideals. As much Anglo-Saxon banking & debt crises drawing it in, own governance crises pitting many of its poorer peripherals against its richer members and challenges on its eastern flank from a newly resurgent, belligerent, regionally assertive Russia.

The latest challenge focuses on a relatively insignificant country in the Middle East (Syria) for some years now raked by civil war. Beyond it, however, are yet more countries in a post-war mode or still raked by strife (Iraq, Afghanistan). Or their governments simply unable to achieve a viable development model. Be it Pakistan & Bangladesh in the east, Eritrea & many West African countries in the south, or an arc much closer to Western Europe, from Ukraine through the eastern Balkan to the many smaller regions previously part of Yugoslavia (and before it the Austrian-Hungarian Empire).

Their unsettled conditions have disturbed large populations, pushing them as displaced migrants into refugee camps across immediate borders, or setting in motion long treks to the European north & west, where much richer lives can be achieved, also strongly pulled by an (especially German) open door policy for (preferably middle class) Syrian war refugees.

Until 2013, this human infiltration was relatively limited by historic standards. But from last year numbers jumped higher, and from 2015 a virtual flood has been set in motion, last week alone 50 000 reaching the Balkan EU borderlands.

Where initially there was mostly concern for the plight of such refugees, there were also undercurrents rejecting this development. As the human influx grew, the social resistance steadily mounted.

This has now reached a point where European governments are increasingly at loggerheads with each other, often (but not always) reflecting popular views within their respective countries, with as yet no clear action plan about what should be done to achieve what many are talking about (closing the external borders to more unwanted inflows, processing those who have arrived, and sending back the very large number that have not been successful in gaining residence status).

While these EU member governments argue, and are becoming increasingly agitated with each other, the incoming refugee stream is still growing even as winter is approaching.

There can be little doubt that walking across the Balkans in the midst of winter, being held up at borders and accommodated in inadequate transition camps, will greatly increase discomfort. This is probably a huge understatement. Where there was previously great anxiety about Mediterranean Sea crossings and drownings of large numbers of refugees, the winter toll on migrants could conceivably become more akin to Napoleon’s flight from Moscow.

This past weekend, European governments agreed to create some 100 000 new camp accommodation places for refugees, half in Greece and the remainder along the main route towards Austria, assisting the smaller Balkan countries with managing the influx and attempting to relieve refugee hardship. Also, there is talk of directly flying qualifying refugees to their end destinations (mainly Germany, but not only her). These actions won't necessarily stop the incoming stream, and these may continue to be overwhelmed by sheer numbers.

Many Balkan countries & Turkey have used present tribulations to up their demands about future EU status in return for better managing refugee streams, but this attempt at leverage has so far apparently been mostly sidestepped by the richer EU countries.

As Europe struggles with challenging fundamentals (to accept or reject?) and sheer logistics, and its member states become ever more implacable about what they are not prepared to do, whether policing outer EU borders more effectively, granting earlier EU status to (still too corrupt) Balkan aspirant members or absorbing more migrants (qualifying as refugees or otherwise), these complex issues could well eventually force a EU rupture that a threatening Grexit so far couldn't achieve (and a Brexit remaining speculative).

This isn't idle speculation. Though Europe is famous for requiring crises to force resolutions to intricate problems, this particular one isn't about mere money. It is about tolerance, the willingness to absorb great numbers of people from other cultures, for which appetite is apparently steadily dwindling to the point of outright rejection.

As the refugee numbers keep mounting, and as winter starts to exert its full force in coming months, there are likely breaking points ahead. It is entirely plausible that winter will discourage new refugees of taking the Balkan route, but this isn't a given. They are at present still bicycling in through the Arctic north, are coming through the Russian steppe, are crossing the Mediterranean at multiple points, but the great push north is through Greece & the Balkans.

This is not something that will reach crisis point a year from now or later. The critical hurdles have already been reached, pushed by a deepening Syrian conflict in which Russia is now also participating, and the siren call of a better life within reach in north-western Europe. Cruel winter could well become the ultimate arbiter of shaping this stream and its consequences, either at the outer EU borders, or otherwise singly within member states, a process well underway.

This population migration is in a very fluid state. European actions may succeed in streamlining the exodus, but these could also become overwhelmed by sheer numbers, far exceeding all earlier expectations, as seen todate.

Breakpoint could be only a few months away. The financial implications thereof are difficult to predict. This is far more than a Grexit challenge, instead affecting all states east & south of Germany, Austria & Italy. The old western EU rump against the newest additions east & south east.

South Africa today does not face such dramatic triggers (in comparison handling its African migrant influx of the past two decades, allegedly running in the millions, remarkable well, despite sporadic outbursts of xenophobia).

Nor is SA's inner turmoil anything like on a Brazilian scale (yet), its economic problems seemingly still being more manageable. Brazil’s fiscal deficit is 10% of GDP while ours is less than 4%, Brazil’s inflation of 10% compares to ours half that, deepening recession compared with us still advancing, huge job losses compared to our minor declines so far, a credit rating downgrade to junk compared to us hanging on.

But growing political turmoil & resistance to an unpopular government may be something else.

SA is arguably experiencing still only the barest outline of the Brazilian troubles, yet the turmoil unleashed so far increasingly upping the stakes as to what may come next.

One SA government policy after another is currently coming under scrutiny, failing to maintain public acceptance and igniting protest on a widening scale.

Sitting politicians are unlikely to be moved enough by such eruptions to resign their office, on the firm principle that elected officials can only be ejected at election time. And perhaps not even then. This may energise political opposition yet further, going by some of the behaviour seen last week.

The SA economy is performing weakly, businesses are increasingly focusing their energies elsewhere, the SA middle class is steadily being squeezed while the very poor are not progressing beyond only modest handouts.

There are steadily more outbursts of anger, more political parties are being formed, and the more populist additions of these are gaining a greater foothold as the old dominant player loses ground.

This process does not look like being arrested soon. Instead it seems to be gaining momentum, with new displeasures added to old gripes daily.

The economy is unlikely to start improving any time soon. SARB projects at least two or more difficult years still ahead. Certain political analysts foretell worse political unrest to come. That wouldn’t do business or middle class confidence any good and would probably see further deterioration in the economy.

Like in Europe (and Brazil?) we may be heading for some kind of breakpoint. Not obvious when & how this will be reached, but events appear to be “accelerating”. This won't necessarily go the prescribed distance. Could we encounter a technical knockout?

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