The Striker Report

Euro skeptics have long predicted the demise of the European Union. Rich and poor member states would not get along. Public finances would be in disarray. Clashing attitudes towards government and the economy would tear the union apart, even as it tried to assimilate former Soviet nations.

Then a funny thing happened in the 1990s: Poland and other newcomers outperformed.

The Polish economy seemed to represent the ultimate potential for capitalism unleashed. The scrappy former Soviet republic scored impressive growth as European trade with Asia and America expanded. Even Ireland got in on the act, benefiting from growth in technology markets and a pro-business tax structure.

To be sure, there were setbacks over treaty ratifications, public sector reform and other issues. But it was hard to argue with success, even if growth was beginning to slow. Thanks to EU wealth generation, globalization's defenders looked vindicated as it all appeared to be working out.

That is, until a collapsing real estate bubble turned deadly by Wall Street financial alchemy paralyzed the global credit markets.

Europe's vanguard nations suddenly looked vulnerable; real estate collapsed, banks and even nations defaulted, unemployment spiked and the euro skeptics grew louder.

But if the credit crisis revealed the EU's economic weakness, it also showed the union's political strength. Iceland, Turkey, Serbia, and Croatia have all lined up for membership. The Lisbon Treaty has been ratified by all member states.

Now we wonder: how will the region fare in 2010?

While European equity markets recovered nicely in 2009, Greek and Spanish debt downgrades are still hanging over the region, as is a threat that Britain’s sovereign rating may follow. There is also the prospect of further bank insolvencies.

Equally worrisome for Europe's politicians: a recent European Commission report predicting that unemployment will rise to over 10% by the end of the year. It currently stands at around 9.8%.

Compounding the problem, Europe's 20-some million jobless are not evenly spread throughout the union; for example, over 40% of Spain's young people are out of work. Spain's leaders no doubt recall the specter of angry immigrants rioting in the streets of France and would like to avoid similar unrest.

Meanwhile, like Ebenezer Scrooge on Christmas day, the IMF seems to have been scared in to crafting a kinder, gentler approach to economic reform, at least in Europe. A recent IMF report recommended that euro zone policies "should include steps to support credit, for example through preemptive recapitalization of viable banks".

In the case of EU candidate Latvia, an uncharacteristically generous IMF has given its blessing for fiscal deficits to 13 percent of GDP. The Baltic nation will also be allowed to retain its euro currency peg.

But even with IMF assistance, Europe's rising unemployment is probably bearish for the euro and bullish for the US dollar. High quality European stocks could benefit. The euro zone may continue to struggle in 2010, but could see some relief from a weaker currency, an American recovery, and strong Asian growth.

As for Poland, youth unemployment is 21.2 percent, down from over 35 percent a few years ago according to the New York Times.