Graffiti says "Down with the regime" on Spain's parliament building near a riot officer during a protest before elections this month.

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Arab upheaval and European euro crisis have similarities

In Arab protests, there's a "crisis of comparison"; in Europe, a "crisis of entitlement"

Similarities include high unemployment, slow growth, inexperienced leaders

CNN  — 

The victory of the opposition Popular Party in Spain’s general election means that seven leaders or governments around the Mediterranean have been thrown out within the last year, amid an explosion of popular protest. Several more are fighting for their survival. Places often perceived as the cradle of civilization have become bywords for political chaos. The causes are various, but there are common strands that suggest the fallout from 2011 will be with us for many years to come.

In the Arab world, a younger (urban) generation rebelled against authoritarian dynasties and a stifling lack of opportunity. Young Tunisians and Egyptians saw that their contemporaries elsewhere – in countries like India, Indonesia, Turkey and Brazil – had opportunity, the oxygen of free expression, growing income. Meantime, young Arabs were still trapped under the heel of unresponsive, corrupt regimes in stagnant economies.

In Europe, the consequence of bloated state spending within the straitjacket of the eurozone – the 17 countries that use the single European currency – was a contradiction bound to end in tears. Former British Prime Minister John Major wrote in the Financial Times this month, “The root of the present chaos can be traced back to bad politics taking precedence over sensible economics.” If the Arab protests were motivated by a “crisis of comparison,” Europe’s was a “crisis of entitlement” built on false expectations.

As different as their origins are, the upheavals either side of the Mediterranean have some similarities. The speed of events, the technology of globalization (money can be moved instantly around the world; immediate communication is enabled by social media) simply swamped the old order – whether an Arab potentate facing rebellious citizens or a European government facing rebellious markets.

The unrest also represents a growing distrust of and resistance from political leaders that has taken flight around the globe. In Europe, the rise of right-wing populist parties reflects disenchantment with the post-war political consensus. In the Middle East, where the polling booth has rarely offered a way to blow off steam, the upheavals have been measured by feet on the street.

Despite being very different societies, the countries of southern Europe and North Africa share other problems. Youth unemployment is sky-high – in Spain, more than 40% of those under 25 have no work; in Tunisia, 30%; in Egypt, at least 25%. Half a million young Egyptians join the workforce every year. And growth is anemic or nonexistent on both sides of the Mediterranean. The Greek economy is expected to contract 5% this year. Most economists expect an extended period of very low growth in Italy, where some 30% of sovereign debt is due to be rescheduled next year. Egypt will struggle to achieve 1.5% growth; Tunisia is flat-lining.

Kick-starting these economies would require massive stimulus spending. But there is no Marshall Plan for the new Arab world; and no political will in Europe to shower more money on the south. On Monday, Olli Rehn, the European economic and monetary affairs commissioner, said bluntly that austerity was the only path available. “One simply cannot build a growth strategy on accumulating more debt, when the capacity to service the current debt is questioned by the markets,” he said. If the Arab revolutions are to be sustained, the money will have to come from the Gulf, with a little help from a very busy International Monetary Fund.

The political earthquakes around the Mediterranean may have a common consequence too: Many of the new leaders have little or no experience of governing. Mario Monti and Lucas Papademos are experienced technocrats, but they inherit combustible crises where bare-knuckle politics will be just as important as economic expertise. In fractious parliaments, they may struggle to command consistent majorities. Mariano Rajoy, who will become Spain’s new prime minister next month, has plenty of ministerial experience but inherits a country seething with resentment toward its politicians where debt in the private sector is the biggest worry. Before the election, rolls of toilet paper bearing the faces of both Rajoy and his opponent were selling well.

In Tunisia, Libya and Egypt, political novices and academics are inheriting revolutionary situations where expectations are as unrealistic as the challenges of education, poverty and building a civil society are enormous. There are complex relationships to work out with the security forces (as has become brutally evident in Egypt), millions desperately needing work, and the main markets for their exports and tourism industries are stagnant.

The consequences of 2011 will take several years to shake out.

Best case

Analysts say the ideal scenario might go like this: The European Union, chastened by its near-death experience, adds fiscal and other economic disciplines to the luxury of monetary union. German politicians and the Bundesbank overcome their reluctance to beef up the European Central Bank as a lender of last resort for the sake of holding the eurozone together. After painful restructuring involving the slimming of government, the inner core of the EU begins to recover, providing, along the way, markets and jobs to the Arabs across the water.

Not everyone sees this as the panacea. John Major believes still closer integration “would drive voters and decision-makers dangerously far apart. More top-down Europe imposed by a remote elite could provoke a powerful antipathy.”

According to this optimistic model, authoritarian leaders and sectarian rifts in the Arab world are superseded by the “Turkish model” personified by Recep Tayyip Erdogan, a devout Muslim who has presided over record growth in eight years as Turkey’s prime minister. Islam and democracy live side by side; the state remains secular (if at times overbearing); the people’s abilities are liberated; an educated middle class grows and becomes a force for stability; and the economy prospers. Syria eventually joins Egypt, Tunisia and Libya as a democracy of sorts, and Iran loses influence as a result.

There are some favorable straws in the wind. Both the Ennahda party in Tunisia (already successful at the polls with 41% of the votes for the Constituent Assembly) and a newly formed Islamist party in Libya under the leadership of Ali al-Sallabi vow to follow Turkish-style moderation, separating the state from religious affairs while accepting Sharia as the inspiration for legislation. Morocco’s Justice and Development Party (the same name as Turkey’s ruling party) expects to do well in this week’s legislative elections.

The irony of this is that Turkey turned its focus toward the Arab world and Central Asia only after its application to join the EU was pushed into the slow lane. Now, some European politicians are urging a fresh strategic dialogue with Turkey as it becomes a key player throughout the Mediterranean.

Worst case

A less-than-ideal scenario sees a new generation of authoritarian leaders emerge in the Arab world, some of them bent on a stricter application of Sharia law. The fundamental challenges of opportunity, education and women’s rights are not addressed; military forces intervene in the democratic process (as they used to in Turkey). In some places, a lack of effective government gives militant Islam room to grow; in others, sectarian rifts between Shia and Sunni fester. In Syria, the fissure is between the minority Alawites and majority Sunni. Vali Nasr, author of “The Shia Revival: How Conflicts Within Islam Will Shape The Future”, says that struggle could quickly draw in major players in the region.

In Europe, the worst-case scenario sees Germany turning its back on the “olive belt.” Last week, German Chancellor Angela Merkel said of the ECB’s role: “We interpret the [EU] treaties such that the ECB doesn’t have the authority to solve the problems.” The popular mood darkens as unemployment remains stubbornly high. Far-right parties become crucial components in governing coalitions (in Finland and the Netherlands, they already are); hostility toward immigration continues to grow; and the post-war social democratic model collapses as an aging population bankrupts state services.

Add to this grim prognosis a possible split between EU members inside and outside the eurozone – the countries that have adopted the single currency. Those inside (17 at present) mesh their economies closer; those outside (10, including Britain) become marginal to the European project. British Prime Minister David Cameron has already begun arguing that Europe’s problems are the result of over-stretch.

The very worst possibility is that the eurozone collapses in disorderly fashion, taking the European single market with it and leading to a deep recession across the continent. That is a scenario now being openly discussed by the likes of Dutch Finance Minister Jan Kees de Jager.

Somewhere in between?

The course of events may end up to be a messy combination of the above. In the short term, there will be no escape from volatility and anxiety. Should new Italian Prime Minister Mario Monti fail to deliver the reforms that the markets expect, there will probably be an outsize reaction among investors. Plenty of analysts foresee a “disorderly default” by Greece and the sovereign debt of France, Belgium, Spain and Italy coming under further pressure.

As Ian Bremmer, president of the Eurasia Group, wrote Monday: “There are 17 parliaments [in the eurozone] with different political systems, party structures, entrenched special interests, and electoral calendars that make concerns of American gridlock seem quaint.”

In the Arab world, an exceptionally strong showing by the Muslim Brotherhood in Egypt’s parliamentary elections, continued unrest in Cairo or uncertainty about the Saudi succession might send shudders through Western allies. Syria’s descent into civil war would bring on much more than shudders.

One probable outcome of the drama of 2011 will be a shift in the center of gravity in both Europe and the Middle East. Long the economic engine of Europe, Germany is now asserting its political clout. As a condition for underwriting any rescue of the eurozone, it is likely to demand much closer integration of eurozone economies.

In the Middle East, as Egypt is preoccupied with the fallout of revolution, Saudi Arabia is beginning to assert itself. It has been unusually vocal in its criticism of Bashar al-Assad’s regime in Syria, is developing a closer relationship with Turkey and mobilizing Arab opinion against Iran, while forcefully backing the monarchies of Jordan and Morocco. It also has the funds to reinforce its influence. Qatar’s activism in Libya and Syria is more evidence of a tilt in the regional balance toward the Gulf.

Last week, European Commission President Jose Manuel Barroso said Europe faced “a truly systemic crisis” – words that might well have come from the other side of a stormy Mediterranean.