The many heads of the European crisis

Like the mythological Hydra of the ancient Greeks, the European sovereign debt crisis is proving difficult to overcome as new “heads” appear after others are seemingly dispatched.

In recent times, there are mounting concerns that the financial crisis is close to becoming a major political crisis.

Polling that suggests French president Nicholas Sarkozy will be defeated by his Socialist rival Francois Hollande at elections on 6 May have raised the prospect of a schism in the fabric of European unity.

Mr Hollande startled economists and markets with his recent statement that “My true adversary does not have a name, a face or a party. He never puts forth his candidacy, but nevertheless he governs. My true adversary is the world of finance.”

He has also been a strong critic of the austerity measures that governments across the Eurozone have agreed to impose in response to the crisis.

The collapse of the Netherlands government last week over disputes on Budgetary management is further evidence of the mounting political pressures within Europe.

Ominously, controversial financier George Soros warned recently that "far from abating, the Euro crisis has recently taken a turn for a worse".

He said that "the deflationary debt trap threatens to destroy a still incomplete political union" and "the crisis has entered what may be a less volatile but more lethal phase".

A spokesman for European Commission president Jose Manual Barroso has urged “the region’s leaders not to give in to the temptation of populist speeches and to continue to move on with a Europe of peace and growth.”

European Council President Herman Van Rompuy is also reported to have warned that the "winds of populism" are threatening the open borders of Europe.

This can be interpreted as a warning against those calling for a re-introduction of border controls between European countries in violation of the Schengen agreement that guarantees free movement of people within Europe.

Those advocating border controls are appealing to concerns about illegal migration.

Another cause for concern is that the leader of the far-right political party National Front Marine Le Pen attracted almost 20% of the vote in the first round of the French presidential elections.

The National Front has a platform that is staunchly nationalistic and anti-immigration and is usually regarded as a party on the fringes of mainstream European politics.

To put the performance of Ms Le Pen in perspective, incumbent Sarkozy attracted just over 27% of the vote.

When the sovereign debt crisis first erupted, particularly in Greece, there was serious conjecture about whether the European Union and its common currency the Euro would survive.

During meetings with senior political leaders from across Europe, I have been told repeatedly there Is sufficient political determination within Europe to ensure there was no breakup of the union.

Germany and France in particular have been strong and vocal advocates for the measures taken to date designed to stabilise the situation.

There are now growing doubts about the ability of Europe's political establishment to ensure it manages the ongoing problems and avert an hour of reckoning.

President of the European parliament Martin Schulz reportedly said in recent days that he believes the collapse of the EU is now a distinct possibility.

There are also growing concerns about the sheer scale of the economic challenges and whether they represent a threat to social and political stability.

While the economic problems in Greece are well documented, unemployment in Spain is approaching levels of the Great Depression, with 25% unemployed and up to 50% of young people unemployed.

Against this backdrop, Britain has also slid back into double-dip recession with divisions expected to increase within the Coalition of Conservative and left-leaning Liberal Democrats.

Powerful forces are at work within Europe that will be hard to resist, and populist politicians will inevitably take advantage of the concerns of the voting public.

One of the dangers is there will be a rush to the mirage that government holds the solutions to the problems of Europe.

This will inevitably lead to the rise of policies such as trade protectionism, which is often paraded a solution to tough economic times.

History shows that it is isolation from other markets that leads to economic decline and that open trading nations tend to be the most resilient.

Europe responded to the siren's call of populist politicians in the past - politicians who promised to lead their nations out of those dark days, but who led them down the path to despair.

European leaders must be mindful of the lessons of history.