David Herdson dusts off his crystal ball for the year ahead

For all that 2011 was a big year for politics domestically – the first nationwide referendum since the 1970s, in which AV was voted down, the formation of a majority SNP government at Holyrood, cracks appearing in both the coalition and Ed Miliband’s leadership – the biggest stories came from abroad.

At the start of the year, predicting mounting trouble for the Eurozone, where problems in Greece, Ireland and elsewhere were already well established, would have sounded entirely credible; far fewer would have taken the prospect of an Arab Spring seriously, never mind that Britain would get involved in a sort of war in Libya.

Yet both happened and neither are by any means resolved. In the Arab world, will Egypt revert back to a form of military government by one route or another (probably), will Assad hold on in Syria (I think not), how will the situation play out in Yemen (probably with no grouping gaining outright control)? Two potential Black Swan events to watch out for next year in the region are instability in Iran – whether triggered by a twitchy government or a restless population – and unrest in Saudi Arabia. The former is the more likely, and may lead to, or be sparked by, international conflict; the latter however is a outside bet but far from inconceivable in a country riven with contradictions and where the political leadership is aged and the succession uncertain.

The Eurozone crisis is both closer to home and of more direct interest. If it does come to a head, it’s likely to do so fairly quickly into the new year, which adds a huge amount of uncertainty to everything thereafter. My guess would be that Greece will see a managed default formalised but will not exit the Euro, and that although there will be serious market, social and political pressures on and in the other Mediterranean countries, they and the EU will do enough to keep the show on the road.

Angela Merkel will keep pushing for a Treaty but David Cameron’s veto on the last attempt will cast a long shadow. She appears now to appreciate the British domestic situation, unlike some Eurocrats. If there is to be a full EU-27 treaty then, she is likely to persuade the other members to grant sufficient concessions to the UK to avoid the treaty triggering a referendum, something Cameron will be equally keen to avoid. However, for that reason and because the process involved in agreeing and ratifying a treaty is far too long, cumbersome and uncertain, the most likely outcome is no treaty at all.

These two events could be so significant to overshadow even the elections in 2012, which are themselves a bumper crop, including all three ‘political’ presidencies in the G8: France, Russia and the USA (combined with parliamentary / congressional elections in France and the US), something not scheduled to happen again for another 60 years.

Until recently, we’d have said Russia should be the easiest to call, with Putin slotting back into the presidency in the Kremlin. Despite (and in fact because of) the shock he received in the Duma elections, he should still be re-elected. On the positive side, he will go out of his way to appear to be listening to ordinary Russians; on the negative, expect him and Medvedev to push the rules to and beyond their limits in giving themselves as big an institutional advantage as possible.

France ought to be a relatively easy call too. While ‘never underestimate the French Left’s ability to mess things up’ has always been a good rule of thumb for presidential elections, Hollande really should win the battle for the Elysée. With the right probably more split than the left following de Villepin’s entry into the race, it’s not inconceivable that Sarkozy might not make the run-off. More likely though is that it will be a Sarkozy-Hollande second round, with Hollande prevailing by 5-10%.

Across the Atlantic, eyes are of course on the US presidential, the biggest political betting event of the year. Having exhausted virtually the entire field of alternatives, I expect the GOP to plump without too much enthusiasm for Romney, the rest of the field being too divided and too inadequate to capitalise on his failings. He will then go on to win the White House in a very close election, as Obama’s coalition from last time does not fire to the same extent, as Romney proves to be a better candidate than McCain was, and as Romney (somewhat disingenuously) portrays himself as an outsider, playing up his executive and business experience.

Good luck with your betting and best wishes for 2012.

David Herdson