The European Union and eurozone will survive 2012, and Europe's financial crisis will stabilize, at least temporarily. However, Stratfor expects Europe to continue its long, painful slide into deepening recession.
We expect accelerating capital flight out of peripheral European countries as investors in Europe and farther afield lose confidence in the European system. We expect financial support measures to be withdrawn on occasion to maintain pressure on governments to implement austerity, which will lead to financial scares and extreme volatility.
Europeans are worried, which makes 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 many ways, the political pliability of European governments now is all about staving off unbearable economic catastrophe for another day.
The ECB indicated that it was willing to put up €20 billion ($28 billion) 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 program is large enough to potentially purchase three-fourths of all expected eurozone government debt issuances for 2012, while the first day of the loan program extended 490 billion euros in fresh credit to ailing banks.
Together these measures make a eurozone financial meltdown highly unlikely in 2012.
For more: Six reasons the EU won't fail in 2012 | Stratfor | Commentary | Business Spectator
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