Can New Caledonia hold together?

New Caledonia started 2012 as a stalwart of the Pacific, its economy strong, and its auto-determination process easing towards a consensual solution. But, as the conversation between parties loyal to France and those campaigning for independence turned acrimonious, New Caledonia ended the year in a political climate reminiscent of the troubled 1980s. And yet, the downslide of a major player in Australia's sphere of influence has gone largely unreported in the Australian media.

Resource-rich, democratic, and broadly well-governed, New Caledonia is one of Australia's natural allies in the Pacific. Just like its bigger neighbour, New Caledonia is a well-educated, high-cost territory relying on its natural resources to keep it out of the global downturn. With two of the world's biggest nickel mining projects, and with an estimated 25 to 30% of world nickel resources, business opportunities between the two economies have just about bridged the language gap over the last decade. And while some unease remains over Australia's support of the independence movement in the 1980s, there are enough shared values between the two entities to bring them together.

This bond matters for the South Pacific. South Pacific Island nations look up to Australia like South American nations look up to the United States. And through New Caledonia, French Polynesia, and the Pitcairn Islands, South Pacific Islands get access to the EU's aid coffers. Working together, Australia and New Caledonia can exert more influence in the region than they could alone.

The troubles of the 1980s ended with the 1988 Matignon-Oudinot agreement, which promised a referendum on independence from France by 1998, and the 1998 Nouméa agreement, which not only extended the auto-determination process to a window starting in 2014 and ending in 2019, but also made it anti-constitutional not to have that debate by the end of that window.

While outlined, the details of this process were never clearly laid out. They matter greatly to New Caledonia's stability. The question of independence divides the population along ethnic lines: the minority indigenous population, Kanaks, is broadly pro-independence, while the minority European population unites with the smaller Polynesian population to form a majority against independence.

A straight out referendum on independence is then a sure way to open old wounds. Kanak leaders, who rally their base with cries of Kanaky, land of the Kanaks, would lose face. Inevitably, some would return to an armed struggle.

Likewise, the loyalist camp has its hardliners. If its leaders go much further down the autonomy path, they will take to the streets. With gun laws inexplicably loosened in March 2011, and sales of rifles trebling since, the next few years are fraught with danger.

It will be up to the congress elected in 2014 to decide exactly how to handle the auto-determination process. Ideally, they will agree on a solution institutionally close to what exists today, and find symbols which, like South Africa's rainbow flag, reflect New Caledonia's multiple identities. Reforms addressing the inequality in outcomes between Kanaks and Europeans would help guarantee the long-term success of this process.

Up until May 2012, this is where New Caledonia seemed to be headed. Senator Pierre Frogier, leader of the main loyalist party, had installed a noted independence leader, Roch Wamytan, as President of the Congress, and a veteran loyalist, Harold Martin, as President of the Government. Thus split, New Caledonia's leaders governed by consensus, and started to build the sort of trust the territory will need come 2014.

The 2012 election for New Caledonia's two MPs in the French Assemblée Nationale changed everything. Philippe Gomès, a loyalist leader who had been ostracised following some very personal spats with Martin and Frogier, campaigned on a fear-mongering platform, maintaining that Frogier was plotting behind Caledonians' backs for a status akin to independence. One of Gomès' main arguments was that Frogier had used the expression independence-association in discussing New Caledonia's long-term future, a status which Gomès himself had advocated for when he was President of the Government. Gomès also pointed at the Kanak flag, which the older loyalists associated with the terror of the troubles, and which Frogier had agreed to raise alongside the French flag across the whole of New Caledonia.

Gomès' party won both seats. Three months later, Gomès' party played chicken with the other loyalist parties. He didn't flinch, thereby securing the presidency of Congress.

Gomès' strategy has had two unfortunate consequences. First, the pro-independence parties no longer control a major institution, and are therefore marginalised out of the debate that they first started. Second, the other loyalist parties, afraid of political repercussions, are taking harder stances against independence: as a result, the debate is becoming increasingly polarised, and New Caledonia is edging away from a consensual solution.

With the conclusion of its auto-determination process scheduled to begin with the 2014 provincial elections, the last twelve months in New Caledonian politics could well be the prelude to a troubled decade. Australia, big brother to the region, will undoubtedly play a role.