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Images define a year. A captured moment. A snapshot. Some we share together - like Charles and Camilla caught open-mouthed as the mob circles. Other images are our own. Three, in particular, stay with me.

It is early morning in Madrid. A pre-school hour. The street is narrow and dark, where the sun rarely reaches. There is already a line of people - perhaps 250 - hunched together against the morning chill. They are waiting to collect their unemployment benefit. What catches my eye is how many of them are reading. These are mainly young, intelligent people. A young woman turns her back to the camera. She is a part-time actress and doesn't want to be seen on the line. Beyond her the queue snakes around the corner and in that moment I glimpse a lost generation.

On another day I am in Dublin, at a technical college on the outskirts of the city. I am in a room with engineering students. They are bright, alive with ambition. I ask how many are considering emigrating in search of work. Every hand bar one goes up. That's the image. There is no hesitation or reluctance, only certainty. For Ireland once again the best and the brightest are heading out - a generation lost to the still new worlds of Canada and Australia.

Then in Italy, in the late year's sun. A vast crowd is walking from the Colosseum towards Piazza Venezia. They are mainly students. Many have linked arms. At their sides hang motorcycle helmets which they will wear when they confront the police. In their shoulder bags they have thunder-flashes, flares - even rocks. Some are here to fight. Many don't want to be breakers, but they will get drawn in anyway because their frustration runs deep. This is a tinder-dry generation - with youth unemployment running at over 20%. As we neared the river they chanted "if you block us we'll bring down the city!" Let Rome in Tiber fall. And later the image - the numbers, helmets firmly on, fighting the police.

Three snapshots that for me go to the heart of Europe in 2010. A story that cannot be understood through the procession of largely sterile summits. It had to be felt on the streets. A new generation is angry and resentful. In Spain unemployment remains at over 40% for those aged between 16 and 24. The stats are shocking. Hundreds of thousands of young people across Europe are not in work or in education. Many cannot afford to leave home. Most doubt they will be able to match the way of life lived by their parents.

They live in the new age of austerity - Europe's recently-acquired religion. After Greece was revealed as having faked its accounts the markets cast a critical eye on the country's deficit and forced up its borrowing costs. Greece stood on the verge of bankruptcy and had to be bailed out. Europe took fright and austerity package after austerity package was unveiled. They were deemed necessary to appease the markets but, in truth, Europe had been living beyond its means, cheered on by an indulgent political class careless of future generations.

So across the continent budgets have been slashed. Public sector wages have been frozen or cut. Benefits reduced. Even unemployment benefit has been tightened in places. The retirement age has been raised and student fees increased. Over the next few years hundreds of billions will be squeezed out of the European economy. And we are only at the beginning. In Portugal, for instance, austerity arrives with the New Year.

Youth unemployment and austerity are a dangerous cocktail that will play out on the streets of 2011. Austerity challenges a deeply-held idea of a European way of life where the state offers layers of protection. Old certainties are being swept away. Social contracts snapped. An ever-expanding public sector is being pruned. Europe, in the long term, may benefit from a smaller state sector, but no one should underestimate the shock of the new.

The main motivation behind these changes is to defend the euro - at least for those countries that use the single currency. Greece and Ireland have been put on austerity rations in exchange for a bail-out. Other countries are casting social programmes overboard in the hope of taming the bond markets. But here is the strange thing. Few people believe the medicine will work. Where will these countries find the growth from to repay the loans let alone their debts? Will countries like Spain be able to raise the money they need next year just to service their debt?

In 2011 the orthodoxy of austerity, I suspect, will be challenged. The Greeks are tiring of the lean years that seem to stretch out before them. A new government in Ireland may try and renegotiate the terms of the EU/IMF loan. Increasingly voices question the fairness of it all. In Ireland the banks' debts were taken onto the government's books and the country headed for insolvency. A proud country has sacrificed its independence - that's how many in Ireland see it.

It is a fair bet that in 2011 one or more country will restructure its debt.

Increasingly, when one returns from the streets of Greece or France or Italy, Brussels seems a side-show. While the unemployment lines lengthen for young people Europe's elite is preoccupied with institutions, with their place in the world. They have strategies for growth - but in the distant future. The discussions too often appear inward-looking. Occasionally there is a flicker of reality. The European Parliament, for instance, led the way in challenging bankers' bonuses.

As the European Council President Herman Van Rompuy said, 2010 has been about survival for Brussels. In truth they have been buffeted by events. The year's prize for influence goes to the bond traders. They, more than any institution or leader, have driven the agenda. As James Carville, one of Washington's legendary spin-meisters, once said, in a future life he wanted to come back as a bond trader because that way he would scare everybody.

The most powerful person in Europe, without doubt, has been Angela Merkel. Europe is changing because Germany is discovering its self-interest and confidence. It has probably the best economy in the world, with unbeatable brands. It has taken a ferocious amount of criticism for resisting becoming the paymaster of Europe. The fact is that since reunification Germany has made huge sacrifices and it is politically difficult to ask Germany to jeopardise its hard-earned success to rescue other European countries.

That internal debate in Germany - which surfaced in 2010 - as to whether it should look after Germany first or buttress European solidarity will be a defining feature of 2011 too. German voters will largely determine the future direction of Europe.

I would bet on the euro surviving, but there will be more crises on the way. It would be a mistake to underestimate the determination of a European elite to defend their project.

But 2011 is shaping up to be a year of upheaval in Europe.

Europe's leaders need to find the language to address this crisis. When I was in Dublin, Bill Clinton was in town. He made the point that you can't sell austerity without hope. That seems to me the challenge for Europe's leaders - what do they offer a young generation? Which is my final thought of 2010.

Thank you to all those who read my blog and contributed to the debate. And whether you've enjoyed, disagreed, or been infuriated by my take on events I wish you all an excellent Christmas.

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