Jamaica Homes Global Conflict & Caribbean Impact Review | Published 3 July 2012 | Reporting Period: 3 April – 2 July 2012
Quarterly Briefing
- Europe’s sovereign debt crisis intensifies through the quarter; Greece holds two elections in May and June as austerity politics produces political paralysis; Spain’s banking sector requires emergency recapitalisation; the euro falls sharply as markets question whether the currency union can survive.
- Syrian forces massacre over 100 civilians, including 49 children, in the village of Houla on May 25; the killings trigger international outrage, a wave of diplomatic expulsions and renewed calls for action, but no change in the conflict’s trajectory.
- Mohamed Morsi of the Muslim Brotherhood wins Egypt’s presidential election on June 24, becoming the first freely elected president in Egyptian history; his election signals the Arab Spring’s first democratic consolidation in the region’s most populous country.
- South Sudan cuts off its oil pipeline through Sudan on January 20 following a dispute over transit fees; by April the two countries are exchanging cross-border fire; a UN-mediated ceasefire is fragile and the oil shutdown damages both economies.
- Francóis Hollande defeats Nicolas Sarkozy in France’s presidential election on May 6, promising to renegotiate Europe’s austerity compact; his election reshapes European Union politics and complicates German-led fiscal consolidation.
- Syria’s UN ceasefire plan, brokered by special envoy Kofi Annan in March and agreed by the government in April, has effectively collapsed by June; fighting intensifies across the country with no credible political process in view.
Prologue: The Year Europe Nearly Broke
The second quarter of 2012 will be remembered, above all else, as the quarter when the eurozone came closest to visible disintegration. Markets spent the months from April through June pricing the risk that Greece would leave the euro — a risk that, if realised, could trigger bank runs in Spain, Portugal and Italy and potentially unravel the currency union that underpins Europe’s single market. For the Caribbean, whose two most important tourist source markets are the United States and the United Kingdom, and whose European visitors are disproportionately German, Dutch and Scandinavian, a euro collapse would have been catastrophic: it would have destroyed household wealth in continental Europe, reduced consumer confidence and compressed discretionary spending on overseas travel. The quarter ended without that worst-case outcome, but the problems that generated the crisis remained entirely unresolved.
The Euro Crisis: Greece, Spain and Hollande
Greece’s first election on 6 May produced no governing majority; Syriza, the anti-austerity coalition, came second and refused to join a government that would implement the troika’s conditions. A second election on 17 June produced a narrow victory for New Democracy’s Antonis Samaras, who committed to staying in the euro and renegotiating the bail-out terms. Markets, which had feared a Syriza victory would lead Greece to repudiate its commitments and leave the eurozone, recovered somewhat. But Spain’s banking crisis — requiring a €100 billion European rescue for its banks in June — immediately replaced Greece as the focus of market anxiety. Yields on ten-year Spanish bonds approached 7 per cent, the level at which borrowing becomes fiscally unsustainable.
François Hollande’s election as French president on 6 May complicated the European austerity consensus. Hollande had campaigned on a platform of growth measures alongside fiscal consolidation, and his arrival in the Elysée put him on a collision course with German Chancellor Angela Merkel, who had staked her political credibility on the fiscal compact. A growth pact of €120 billion was agreed at the June EU summit alongside new banking union discussions, but the fundamental question — whether eurozone countries could sustain the austerity required to convince markets without triggering the very recession that makes austerity self-defeating — remained unanswered.
Syria’s Houla Massacre and the Annan Plan’s Failure
The Houla massacre of 25 May — in which over 100 people, including at least 49 children, were killed in a village in Homs governorate — was the starkest atrocity of Syria’s fifteen-month civil war to that point. Evidence pointed to Syrian army shelling followed by close-range killings by shabiha militia loyal to the government. The scale and method of the killing — children shot at close range — triggered an international response of denunciations and diplomatic expulsions: more than ten countries expelled Syrian ambassadors. UN observers were deployed to investigate. The Syrian government denied responsibility and blamed “terrorist groups.”
The Houla massacre effectively ended whatever remained of Kofi Annan’s six-point ceasefire plan, which the Assad government had nominally accepted in early April. By June, fighting had resumed at full intensity across the country; Annan himself would resign in August. The pattern of Syrian government atrocities, Russian and Chinese vetoes of Security Council action and Western reluctance to intervene militarily was now entrenched. The question for the Caribbean was not direct intervention but its knock-on effects: Syrian refugee flows into Jordan and Lebanon were beginning to destabilise those countries’ politics and economics, with implications for regional stability and oil markets.
Egypt’s Historic Election and Sudan’s Oil War
Mohamed Morsi’s narrow victory in Egypt’s presidential run-off on 24 June — with 51.7 per cent of the vote against former prime minister Ahmed Shafiq — made him the first civilian and first Islamist to hold Egypt’s presidency. The election’s legitimacy was contested; the Supreme Council of the Armed Forces had dissolved parliament weeks before the run-off and issued a constitutional declaration limiting the president’s powers. Egypt’s democratic transition was therefore incomplete and contested even as its first democratic presidential result was announced. For the Middle East broadly, Morsi’s election was a significant test: could an Islamist government govern a large, diverse, security-dependent state pragmatically?
Sudan and South Sudan’s dispute over oil transit fees, which led South Sudan to shut down its own oil production in January rather than pay what it considered extortionate rates, had by April escalated into cross-border military exchanges including South Sudanese forces briefly occupying the Heglig oil fields. A UN Security Council resolution in May demanded a ceasefire and resumption of negotiations. Both countries’ economies were being damaged by the oil shutdown — South Sudan depends on oil for nearly 98 per cent of government revenue — and the humanitarian consequences in both countries were growing.
Looking Ahead
Europe’s banking union discussions are at an early stage; whether the eurozone can stabilise its financial architecture before market pressure forces a political crisis in Spain or Italy is the central economic question of the third quarter. Syria’s war will intensify; the summer months typically see increased fighting. Egypt’s Morsi must now negotiate the terms of civilian-military coexistence. And the London Olympics, opening 27 July, will provide a welcome interlude — and a particularly important one for Jamaica, whose sprint team’s Olympic prospects are drawing global attention. The Caribbean enters the second half of 2012 dependent on its largest source markets recovering from financial strain that their governments have not yet resolved.
Jamaica Homes Global Conflict & Caribbean Impact Review is published quarterly, examining how wars, geopolitical tensions and major international crises have shaped Jamaica, the Caribbean and their economies.
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