A paradox that will punish Europe

FT.com

Efforts to rescue the world economy in 2012 will be afflicted by a perilous political paradox. The more that international cooperation is needed, the harder it will be to achieve.

The year begins with the world still overshadowed by the threat of the biggest economic crisis since 1945. But as the economic position deteriorates, the actions demanded of national leaders become ever more drastic and harder to sell at home: take part in big bailouts of indigent nations, subsidise wildly unpopular bankers, work patiently with countries that large parts of your own population believe are bankrupt or dishonest. In 2012, the world's most important leaders are likely to be asked to do all of the above–- and will find it ever harder to deliver. The conditions of recession, instability and panic that demand international cooperation also make voters angrier and less generous.

The political pressures produced by an international economic crisis have prevented the European Union – or a larger world community – from dealing effectively with Europe's debt problems. Over the year, the problem is likely to worsen because so many of the most important countries face elections or changes in leadership that will make it very hard for them to devote much energy to diplomacy. There are presidential elections in the US, France and Russia – and China's top leadership will also be reshuffled towards the end of the year.

The biggest demands, however, will be made of a country that is not scheduled to undergo elections. This year, as in 2011, the world will look to Germany to provide the money and intellectual leadership to pull the eurozone back from the brink.

Germany, however, is extremely reluctant to open its cheque book once again. Instead it is pouring its energy into securing a new European treaty that will place draconian limits on deficits – a policy that is irrelevant to the debt crisis in the short term and liable to be counterproductive in the long term. Germany's behaviour is explicable only when understood in the context of domestic politics. The policies of chancellor Angela Merkel are dictated by a popular desire that Germany should fund no further bailouts in Europe and instead export its own 'stability culture'.

Merkel is sometimes lambasted by foreign leaders for allowing domestic political constraints to dictate her approach to the crisis. But look around the world, and everybody else is doing the same. Germany's main partner in Europe over the next few months will be France – a country that will be preoccupied by its presidential election. Nicolas Sarkozy will be trying to push any further twist in the crisis beyond the final polling date of May 6, while guarding his flank against accusations from the left and the far right that he has gone too far in ceding sovereignty to an impatient Germany.

And what of the US? Bill Clinton once boasted that America was the "indispensable nation”. But when it comes to the eurozone's agonies, the US would be more than happy to be dispensed with. There is no money for a modern Marshall plan for Europe. All talk of foreign aid will be anathema during an election year. President Barack Obama's dearest wish for 2012 is that the Europeans get their act together and avoid plunging the world into a recession before Americans vote in November.

With America gazing inward, some will look to China for money and leadership. This began visibly to happen in 2011, when European officials ended an EU summit by jetting straight off to Beijing, in a humiliatingly unsuccessful effort to drum up Chinese interest in buying more European debt.

But the leadership of China's Communist party will also spend much of the year jostling for position. While the identities of the new president and prime minister are widely assumed to be known – with Xi Jinping and Li Keqiang slated respectively for those positions – the slots just below the top two are up for grabs. China's urge to concentrate on domestic affairs will be accentuated by a growing nervousness about political and economic instability at home.

The leadership was clearly alarmed by the Arab spring. The recent demonstrations in Moscow against a stage-managed election will also have caused discomfort in Beijing. There are, meanwhile, fears of inflation, a house price crash and growing social unrest in China's manufacturing heartlands. That might mean that Beijing's leadership transition is more lively and contested than many expect. But it will also ensure China has little energy to devote to elaborate international cooperation.

In 2012, we can look to world politics for the entertainment value that elections provide – but not for solutions to global problems.

Copyright The Financial Times Limited 2012.