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Europe Societal Risk Reports: Drivers, Trends and Insight

In response to Europe’s continuing political, economic and social flux, Maplecroft is releasing a series of five regional reports which analyse and forecast societal risk in Europe over the coming years.

Four of the reports focus on key societal risks across the European regions, and the trajectory of these themes to 2020. The fifth report, meanwhile, provides an assessment of crosscutting issues that affect the whole of Europe. The reports have been developed to provide organisations with foresight into potential scenarios that could affect business continuity, contingency planning and investment strategy.

In a bid to counter the sovereign debt crisis, European countries are forecast to continue implementing structural and financial reforms. However, the countries that were most affected by the initial economic crisis of 2008-2009 – including Spain, Italy and Greece – are having difficulties translating structural reforms into short-term growth and competitiveness. Meanwhile, countries with an account surplus – namely Germany – are forecast to experience less socio-economic turmoil. At the EU and domestic level, this divergence will continue to confront policy-makers with a crucial dilemma – move towards tighter political integration or risk a serious aggravation of current divergent trends.

The financial crisis has already made its mark on European society. In the first quarter of 2013, unemployment hit a new high with over 26m people across the European Union now out of work. Those under the age of 25 have been particularly affected, and the long-term negative consequences of youth unemployment across Europe pose serious societal, economic and political risks over the next decade. In this difficult economic climate, the lack of employment opportunities in a divided labour market - compounded with cuts to welfare budgets - has resulted in a political and social polarisation which is likely to continue for the foreseeable future: 

  • Politically, populations will continue to distrust the ability of established political parties in the centre to overcome the financial crisis. Populist movements, with a goal to redefine systems that have lost sight of the middle-class, are forecast to carry on shaving the margins of support for traditional parties on the centre-right and centre-left.
  • Socially, the ongoing economic malaise and long-term unemployment issues will not just affect the working class, but increasingly the middle classes as taxes increase, retirement savings are put at risk, job security continues to decline, household debt climbs and unemployment programs are reduced.

The reports further forecast that political and societal polarisation is likely to increase until 2020, a matter that could lead to political instability and/or a rebalancing of traditional alliances across the European Union. Indeed, although political institutions and civil societies in some regions –such as Northern Europe – are sufficiently resilient to maintain stable government, in others – including Southern Europe – the future is less clear.

Furthermore, some of the regulatory and policy developments introduced could risk Europe’s future competitiveness and prolong the financial crisis. Migration, which is likely needed to improve long-term economic performance in light of the demographics of an ageing population, will become increasingly curtailed and equated with both economic and national security concerns.  In an attempt to increase competitiveness and economic growth labour regulations are expected to become more flexible, however, such measures increase the risk of precarious work for both higher and lower income groups. 

Unless structural changes stimulate economic growth, there is a risk that the ongoing Eurozone crisis will stall prosperity and deepen social, political and economic polarisation. High rates of unemployment, particularly among young people, could entail a widespread structural failure as societies fail to gain the innovation and skills needed to increase competitiveness and foster sustainable growth.

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press@maplecroft.com

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