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Unrest risks seen rising in 2010 as stimulus ends

Civil unrest and attacks on minorities did not rise sharply during the economic crisis in 2009 as many predicted, but with unemployment still high and stimulus packages being withdrawn the risk could rise next year.

The crisis arguably added fuel to existing instability and unrest from Thailand to Moldova, Madagascar and Ukraine -- but in Europe in particular the impact was less than many feared with social welfare spending helping cushion the impact.

While emerging European countries had to cut spending early on to qualify for International Monetary Fund and European Union financial support, several Western European countries allowed their budget deficits to balloon to levels that alarmed investors and ratings agencies.

Now Greece and Ireland -- regarded as two of the eurozone's weakest links -- are beginning to slashing their outgoings, likely to be a wider trend. At the same time, frustration may build among the unemployed the longer they go without work.

“On balance, the risk of social unrest looks higher in 2010 than 2009,” Oxford Analytica senior consultant Sam Wilkin said.

“In Western Europe, the main theme this year was stimulus spending but next year it will be cuts, and that will have an effect. It's something a lot of our clients have on their radar screens next year.”

But overall, he said he did not expect the unrest to be of such a level that it would significantly impact investors directly. More likely, the threat of unrest would have an impact government policy, potentially reducing the enthusiasm for cuts.

That dynamic already looks to be in play in Greece, where Prime Minister George Papandreou announced an emergency deficit-cutting plan this week that failed to reassure markets -- but did prompt protests and the threat of strikes.

The threat of industrial unrest also looms in Britain, where unions have expressed anger at proposed public spending cuts from the Labour government and are likely to be even more furious at heavier cuts proposed by opposition Conservatives, the likely victors of an election next year.

But Spain, for example, has so far avoided much in the way of an increase in unrest despite soaring unemployment -- primarily because of its relatively generous benefits system.

Ratings agencies have put Spain on notice for a potential downgrade, so the key question -- as in neighboring Portugal -- will be whether growth returns to the economy in time or whether market pressure becomes too great making it difficult for both countries to borrow money.

However, the experience of Europe's emerging economies -- who were unable to afford stimulus spending and had to begin cuts earlier to qualify for International Monetary Fund and European Union bailout deals -- suggests that protesters will simply stay at home because of apathy towards government plans.

Early 2009 did see a rash of riots across some of the region's most seriously affected economies, helping oust governments in Latvia and Iceland. But by and large the trend has not continued, despite worsening hardship and rising unemployment.

Even in Greece, violence this year has been less than last year despite the economic crisis being deeper.

“There's a lot of apathy and disillusionment,” said Eurasia Group head of research Preston Keat. “But by and large a lot of people are simply staying home.”

Perhaps one side-effect of that appears to be an unusually high proportion of electorates describing themselves as undecided right up until the moment of elections -- or simply not voting at all, making the outcome more unpredictable.

In Hungary, 40% of voters describe themselves as undecided or say they will not vote ahead of elections in April or May, most of them seen as frustrated sometime supporters of the ruling socialists -- expected to suffer a heavy defeat to center-right Fidesz.

Opinion polls show a third of Ukrainians still unsure how they will vote in a presidential election on January 17.

Half of Latvians have yet to decide who to vote for ahead of their parliamentary elections, and pollsters also believe the proportion of voters in Britain who will make their minds at the last minute is higher than usual.

One trend both media and analysts tended to point to in 2009 was a perceived heightening of tension against migrants, with attacks on hostels in Greece, Romanians in Northern Ireland and the Roma minority in Hungary all cited as examples.

But the European Union's Fundamental Rights Agency, which monitors such trends, says the data suggests otherwise.

“There have been incidents, certainly, but that is something you see every year,” said Ioannis Dimitrakapoulos, head of the department for equality and citizens' rights at the FRA. “So far, there are no signs we have seen an increase in racist or xenophobic attacks because of the crisis.”

Various factors might have contributed to that including a grassroots shift towards greater tolerance of migrants, antidiscrimination legislation and the use of social welfare net such as unemployment benefits to cushion the crisis impact had.

“But despite some positive signs, experts indicate that this will be a prolonged crisis and we will be watching closely,” Dimitrakapoulos said. “Definitely the crisis has increased the risk.”

He said the improved performance of some far right parties -- such as Hungary's Jobbik or the British National Party -- were worrying but also due to wider issues such as frustration with politicians rather than purely being immigration-based.

Nevertheless, their rise is seen shifting the policies of mainstream parties to take a tougher line on immigration. (Reuters)