The most important outcome of the past 12 months is that the eurozone survived. The world was poised on the edge of a financial precipice at the beginning of last year; it did not fall in during its course. But it is still on the edge of that precipice.
Actions by governments and EU institutions have not solved the problems of the eurozone, but have given the markets more confidence that they will do so. The ECB has been lending money to governments that need it, indirectly in keeping with the treaties, and enough funds have reached Greece to keep it just about afloat.
This website has argued previously that it would be very hard for Greece to leave the euro because it would be leaving not only a currency but a payments area – as soon as there was any hint of leaving, all the moveable assets would leave the country to evade the inevitable devaluation that would follow. One consequence of the lingering agony in Greece is that those moveable assets may well already have gone. The passage of time has not necessarily made Greece any more secure. The worst has not happened, but it might still happen.
And, worse, other countries are now implicated. The circular problem that consumed Ireland – the Irish government simultaneously borrowed from and guaranteed Irish banks – is true in other member states, too, such as Spain, and who knows the true depths of the trouble that Spanish banks find themselves in? There have been stress tests and audits, but it would be a mistake to be too confident. What the scandal of the rigging of the Libor rate in London tells us is that any bank, frankly, could have misreported virtually anything about its own finances in a desperate attempt to stay alive. Eventually, of course, the truth emerges, and there could be any number of timebombs in the Spanish banking system ready to explode and destroy the Spanish finances.
The strategy of repeated summits among the heads of government to agree incremental steps in the direction of a solution to the crisis has bought time, but I am not sure that time is on the side of the euro. They might be lucky, but luck is what they are depending on right now.
Is it bad luck or bad judgement that afflicts the coalition government in the UK? Its constitutional reform agenda ran into the sands during 2012, with the abandonment of its plans to reform the House of Lords and the rejection almost everywhere of the idea of directly elected mayors in English cities. Even the change that did go through, the creation of directly Police and Crime Commissioners, was accompanied by a shrug of apathy from the voters. The turnout was no more than 15 per cent, the lowest ever in a peacetime election. (Note that the turnout for the European Parliament, so low that its critics claim it brings into question its legitimacy, was more than double this at 34 per cent.)
The one area where the British constitution has seen real progress is in Scotland, with agreement on the terms of the referendum to be held in 2014. This is something the coalition government did not support but reluctantly had to go along with.
And on the broader question of British relations with the rest of the EU, the coalition remains in office but not in power. The UK has boycotted the Fiscal Compact Treaty but was unable to veto it. Government ministers propose to withdraw from the EU’s cooperation on justice and internal affairs, and have commissioned a review of the effect of the EU’s competences in the UK: all this pushes the UK further to the margins of the EU rather than leading it. The prime minister has said repeatedly that he does not want the UK to leave the EU, but his anti-European backbenchers are persistently tugging at his sleeve like a small child. Sooner or later, something is going to have to change. These relatively small measures are insufficient to satisfy the wilder Tory fringes, but they are already harming Britain’s wider interests in Europe.
Only in America was there anything like good news, and even that good news was that things will not get notably worse. The re-election of Barack Obama as president promises, as in the eurozone, as in the coalition government, more of the same. Victory for his rival Mitt Romney would have meant much change, and change for the worse, but that was not in the end a serious risk. Obama can carry on managing America’s relative decline (which is not meant as a criticism, by the way). China and other parts of the world see their economic and, consequently, political power continuing to grow: adapting to that challenge is the biggest task facing the United States and would also be the biggest task facing Europe were it not tied up in the financial and political mess of its own making.
For time is not on Europe’s side. Climate change proceeds apace, the economic balance of power in the world is shifting, the Arab world continues in ferment, and on all of these issues the EU is effectively silent. Until its banks are brought under control and its citizens are confident that the burden of reconstruction is fairly shared, the EU will remain silent. Getting itself in order becomes ever more pressing, but it does not look as though 2013 will deliver anything more than a continuation of the experience of 2012. Maybe, in a year’s time, that is something we will be grateful for.