Earlier this month, when tensions were just flaring up in Egypt, I wrote on February 5 a piece here in Money and Markets titled, “How Egypt’s Civil Unrest Could Spread to Asia, and What It Means for Your Investments!”
The fact is every step of the way through this global economic crisis the shocks have been thought to be contained. But they’ve proven time after time to be just the opposite: Contagious!
Now we’ve seen successful overthrows in Tunisia and Egypt. Libya is on the verge of ridding itself of a dictator. Bahrain, Yemen, Morocco and Jordan have all flared up in public protests against their governments.
The desire for freedom, basic rights and a fair share of prosperity is universal.
And given this backdrop, plus the addition of high, persistent unemployment, sharply rising food costs and a tool to coordinate protests (the internet), a major global movement could just be getting underway.
The dominoes continue to line up. The more stories of success and change that are witnessed, the more likely we’ll see the citizens of more countries enter the mix.
So what’s next?
As I warned in my February 5 column, the biggest threat to global stability lies in Asia. And in the past week, protests have begun to kick off there, most importantly, in China and India.
These two countries have had sharp ascents to global economic prowess over the past decade, and the hottest growth in recent years despite a global economic downturn. Yet they still have the largest poor populations in the world where the distribution of wealth has become increasingly disparate.
That makes these two dominoes the most dangerous of all for the global economy.
But before we see social unrest in China and India choke off global growth, Europe may derail the world’s economic recovery first.
Will Europe Be
the Next Domino?
While the transformations taking place in the Middle East have increasingly fueled fights for freedom and democracy, the catalyst was less political and more economic in nature: Namely sharply rising fuel costs and persistent unemployment.
With that in mind, Europe has to be among the most vulnerable to the next wave of public uprisings. In the past year, we’ve seen deadly riots in Greece; and massive strikes and protests in Portugal, Spain, Italy, Ireland and France.
Last year the 10-year old European Monetary Union faced a wave of sovereign debt defaults that could have destroyed it. And that would have likely sent European banks and the global financial system back to the brink of total collapse. So the weak euro-zone countries were force-fed tough austerity measures by their neighbors and the IMF, in exchange for “rescue” funds.
As time passes and the weak euro-zone countries feel the reality of austerity — a bleak outlook for a return to normalcy and the power of people standing up to government — we may hear the people scream “no more!”
And the root of the turbulence might not just be pain, but irreversible change.
While many Middle Eastern citizens are seeking freedom and a just sovereign nation, what’s under threat in Europe is a loss of sovereignty.
You see, the only plausible solution to the crisis in Europe is fiscal unity.
That means the European countries that are defined by deep-rooted histories, heritage, ideologies, languages and national pride would consolidate into a true union, with one central governing power.
But I wouldn’t bet on that outcome.
Conversely, if the people stand up and reject the bailout from the rest of Europe and the IMF, and salvage their sovereignty, you can expect government debt defaults to spread around Europe like wildfire.
Given the massive exposure that European banks have to euro-zone sovereign debt, government defaults could easily send the global financial system back into a dangerous tailspin.
And be aware, there’s one thing that history shows us about sovereign debt crises: They tend to be contagious.
So as geopolitical threats spread throughout the global economy, you know it can’t be good for jobs, housing, stocks or risky assets. However, there is one sector where there is always at least one bull market: Currencies.
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