Will the next president face a full-blown eurozone crisis?

Especially in light of German Chancellor Angela Merkel’s recent setback in local German elections, U.S. policymakers would be ignoring at their peril the ill winds of political change now gathering pace in Europe. Those winds are all too likely to continue to be fanned by Europe’s continued poor economic performance and by its refugee crisis, which could further weaken its political will to hold the euro together. Were the euro indeed to unravel, it would have highly damaging consequences for both the European and global economies.

{mosads}In the wake of the European periphery’s very poor economic performance since 2010, a striking feature of Europe’s political development has been the progressive fragmentation of its politics and the rising tensions between the eurozone’s southern and northern-member countries. Fueling those tensions has been a growing degree of austerity fatigue in Europe’s economically battered periphery and a rising degree of bailout fatigue in Europe’s core countries.

Whereas prior to 2010, two traditional centrist parties dominated the political scene in most European countries, today that is generally no longer the case. Rather, political power is now spread among multiple political parties leading to the formation of weak coalition governments incapable of reforming their countries’ sclerotic economies. Equally disturbing has been the rise of extremist parties on both the right and the left of the political spectrum as well as the growing tide of anti-Europe sentiment across the continent.

Greece’s political developments since 2009 offer a clear illustration of these trends. Prior to 2009, Greek politics was dominated by two centrist parties, PASOK and New Democracy, which between them normally garnered around 70 percent of the votes. Today, following the collapse of the Greek economy, those two parties between them poll barely 30 percent. Instead, Greece now has a weak coalition government led by the far-left Syriza Party, which before assuming office in 2015 was openly hostile to Greece’s continued euro membership.

More disturbing yet for the euro’s longer run survival is the fact that political fragmentation has now taken root in Italy and Spain, the eurozone’s third and fourth largest economies. In Italy, ahead of a referendum on constitutional reform to take place toward the end of November, the populist and anti-Euro Five Star Movement has now drawn level in the polls with the governing Democratic Party. This heightens the chances of a “no” vote in that referendum, which would all too likely topple Prime Minister Matteo Renzi’s government and usher in a prolonged period of Italian economic uncertainty.

Meanwhile in Spain, since the December 2015 general election, the greatest of difficulties has been experienced in forming a new government as votes have been split fairly evenly between four competing political parties. It now appears ever likely that Spain will be forced to go to the polls again for the third time in less than a year.

The European periphery’s ongoing political and economic problems have to be of particular concern, coming as they do at a time that Merkel’s political strength is being steadily eroded by both bailout fatigue at home and by a backlash against her open Syrian immigration policy. Ahead of scheduled German parliamentary elections in September 2017, Merkel’s leadership is being challenged both from within her ruling coalition government as well as by the populist far-right Alternative for Germany Party (AFD).

Indeed, in last weekend’s local elections in Mecklenburg-Vorpommern state, the AFD garnered more votes than did Merkel’s Christian Democratic Union party. This has to raise serious questions as to whether Merkel will to be able to muster domestic support for future eurozone bailout programs as needed, as she managed to do so successfully in the past.

It also has to be a matter of considerable concern that the European economic recovery has failed to pick up momentum at a time that it has been supported by extraordinarily low interest rates, a very cheap currency and rock-bottom international oil prices. It is all too likely that the European economy will again stutter when its external environment becomes less favorable than it is today. If the past is prologue to the future, this will only further fragment Europe’s politics and further heighten Europe’s north-south divide.

Looking at the European economic and political landscape, one cannot discount the possibility that a new American president will be confronted with a full-blown eurozone crisis soon after assuming office in January next year. One also cannot discount the likelihood that such a full-blown Eurozone crisis would roil global financial markets, in much the same way as did the Lehman Brothers banking crisis in 2008.

Lachman is a resident fellow at the American Enterprise Institute. He was formerly a deputy director in the International Monetary Fund’s Policy Development and Review Department and the chief emerging market economic strategist at Salomon Smith Barney.

The views expressed by contributors are their own and not the views of The Hill.