It is easy to get lost in all the recent developments on the energy front. After a full month of formal, informal, and emergency meetings, EU leaders have adopted a set of measures that address some challenges, while remaining divided on other thorny issues.
Taxes and Caps
What has been agreed so far is the introduction of a ‘windfall tax’ on energy companies’ excessive profits and a collective push (albeit voluntary) from all countries to reduce their electricity consumption. The additional levy on the extra profits raked by energy companies will be implemented nationally by the end of the year with the expectation that the generated sums can be redistributed to consumers and businesses.
Even though such a tax finds support among mainstream EU politicians, it is uncertain whether it will provide the expected relief in the months to come. It will take some time for national capitals to implement these measures and for the projected €140bn to be collected, let alone distributed. The biggest risk here is that the agreed extra tax on fossil fuel companies and price cap on revenue by non-gas companies (wind, solar, nuclear) will further distort the market and reduce even more the EU domestic energy supply. It is also unclear how this extra tax will affect both fossil and non-fossil fuel companies’ plans for future investment in improving their services and further deployment of much-needed renewable capacities.
The jury is still out if (and when) the energy ‘windfall tax’ will provide its expected benefits. However, it is little wonder that national capitals want to get additional tax revenue in their coffers. In the last 12 months, EU governments have spent more than €300bn on national subsidies in order to rein in the skyrocketing price of gas and electricity. Expect this figure to continue to grow.
What EU leaders vehemently disagree on is whether the block should implement a cap on natural gas prices. The different geographies, economies and national interests of the EU-27 tie up a complex knot, which the European Commission is struggling to untangle. Some worry that such a price limit on gas prices might drive off future supply, complicate LNG deliveries or further stress domestic markets. Alternatives include capping the price for deliveries of a certain origin (like Russia) or limiting the scope of the measure so it doesn’t affect LNG supply.
All these concerns on taxes and caps are valid; EU leaders rightfully want to limit the pain for households and industry. However, even if all these market interventions and levies artificially stabilise prices, this won’t solve the energy crisis, which is far from its closing act. The elephant in the room is that the EU might simply not have enough power supply this winter. Energy rationing and frozen industrial production could become a grim reality in some EU countries.
Demand Reduction and Security of Supply
The current problem is that every country is essentially subsidising gas and electricity prices at a level which doesn’t propel neither households nor businesses to drastically reduce their power usage. Be it the infamous German 200 billion euro package, or France directly nationalising a private energy champion, governments across the board are subsidising a sector which is too big to fail. The risk of social unrest and economic meltdown (and loss of electoral support) has convinced every national leader that heavy market intervention is justified. Justified, but ultimately unsustainable and dangerously inflammatory during rampant inflation and a cost of living crisis. Lowering the price of energy is important, but so is ensuring that your citizens and industry use at least 10-15 % less energy overall. Many European governments are not clearly communicating the urgency of the situation to their citizens and the need to save as much energy as possible.
The huge gap of missing Russian gas is currently filled by a combination of urgent (and costly) shipments of LNG deliveries, together with traditional gas pipeline flows from Norway and Algeria. The problem with LNG shipments is that they are expensive, rely on building additional European regasification terminals, and lead to competition with international (mostly Asian) markets for the limited amount of LNG production. This emergency patchwork might work in the weeks ahead but is not a stable foundation for ensuring Europe’s energy supply in the long run.
True, the EU managed to ensure its gas storages were 90+% full in October, which is a feat on its own. However, most of this storage gas came in the spring and summer from Gazprom deliveries, which simply won’t be there in early 2023. Not to mention the fact that storage facilities are there for stabilising peak demands or emergency situations for certain days or weeks. No country can run its economy on gas storage alone.
A True European Energy Union
To reiterate, high gas prices are half of the problem. European member states need to act fast to ensure our collective energy security. In parallel to all current initiatives to stabilise energy prices, all European governments should increase their efforts on ambitious national campaigns for decisive demand reduction. More importantly, it is urgent that the EU-27 coordinates on a number of measures that ensure a collective energy response that is bigger than the sum of its parts.
First, the EU needs to pioneer joint gas purchases by groups of member states in order to lower negotiated prices with external providers and ensure security of supply. This measure will be extremely important next spring/summer, when the EU will need to refill gas storages again, but this time with potentially zero volumes coming from Russia. European member states should not be in competition with each other for securing the best price and the necessary volumes.
Second, certain national capitals should come to grips with the gravity of the situation and overcome internal domestic constraints. Germany and Belgium should wake up to the fact that their countries and the whole continent needs more power and should prolong the lifespans of their nuclear reactors beyond 2023 and as long as possible. Not to speak of France’s selfish decision to block a new Pyrenean gas pipeline, which could foster the transfer of energy from the Iberian Peninsula to the rest of the continent.
Additionally, the Netherlands should also reconsider their stance on producing just the minimal quantities of natural gas from their fields of Groningen, which is the largest natural gas field in the EU. Pumping additional domestic volumes in 2023 and 2024 could provide an important lifeline for the country and European partners in partially replacing Russian natural gas. After the energy storm has receded, the Netherlands could continue the planned phase-out.
The silver lining in this crisis is that the pledge to ‘improve interconnectivity between member states’ will hopefully finally come to fruition and graduate from the pages of defunct policy papers. Joint gas storage between European neighbours or better connecting infrastructure will bring the EU one step closer to a true common energy market.
Lastly, the current energy emergency needs to convince European governments that any future bilateral deal with Gazprom on gas is cursed. Putin has hinted that one pipeline of Nord Stream 2 remains operational and that some of the volumes to Europe can be also redirected through TurkStream. Russia’s thinking is to make national capitals resort back to Russian gas as an energy lifeline in the coming winter as a tool to break European unity and continue Moscow’s energy blackmail.
It is clear that Russia does not have sufficient gas infrastructure to Asia, so it cannot easily pivot its European deliveries elsewhere. Gazprom is forced to burn the gas in the air right now or liquefy it for LNG. The longer the EU abstains from Russian gas purchases, the bigger the squeeze on the Russian federal budget and the bigger the pressure on their energy sector to struggle due to lower investment. Gazprom is already crumbling in terms of share price and overall market standing.
The European Union is de facto in an energy war of attrition with the Russian Federation. An open hand shouldn’t be extended to the barbarians in the Kremlin once again. Europe must stand united with a determined, clenched fist.Dimitar Lilkov Crisis Energy EU-Russia
Fixing Gas Prices Won’t Solve the EU’s Energy Crisis
18 Oct 2022
Welcome to the Migration Update September 2022. This curated news selection brings together many of the most important developments in the migration policy area over the last month, including recent ones tied to the ongoing conflict in Ukraine.
The purpose of these news summaries is to provide a factual base for migration debates within the European centre-right. Vít Novotný is responsible for the selection of information items from the media, governments and social media. The value of these summaries is in the categorisation of information items and in listing those items that readers might have missed. Facts and opinions are conveyed as they are reported. Original comments are kept to a minimum. Davide Marcantoni provided material for the Judicial Observatory.
These news summaries are not subject to a formal editorial process. Should you have any questions or comments, please contact Vít Novotný at firstname.lastname@example.orgVít Novotný Crisis Migration Ukraine
Migration Update September 2022
30 Sep 2022
It used to be that politicians in power understood the economic constraints under which they operated. James Carville, an advisor to President Bill Clinton in the 1990s, summed up this unavoidable relationship when noting that “I would like to come back as the bond market. You can intimidate everybody”.
The context for Carville’s comments – 1994 financial market worries about US public spending and debt accumulation – spurred the Clinton administration’s embrace of fiscal rectitude. It also resulted in the last period of US federal budget surplus’, between 1998 and 2001.
The decades since have fundamentally altered how politicians (and increasingly whole societies) approach economic policy. This is a change driven primarily by a decade of monetary easing on a stupendous scale, negative interest rates, corporate debt bingeing, and ever-expanding mortgage credit.
The natural corollary to this dawn was the emergence of a supportive economic theory – Modern Monetary Theory (MMT). Under this model, deficits aren’t necessarily bad and only old-fashioned fiscal conservatism is preventing the birth of what MMT proponents call a true, deficit-backed “people’s economy”.
From a politician’s perspective, the emergence of free money (from their own central banks) and MMT complemented what many elected officials realised to be the biggest lesson of the 2008 economic crash.
Namely, that voters don’t tend to reward governments that preach fiscal rectitude and austerity. In fact, regardless of the scale of the crisis or the terrible alternatives (banking sector failure, mass unemployment, even sovereign default) it is those governments that make the hard decisions that are usually looking for new jobs after the following election.
In this context, cheap money was an easy way out.
So while the Great Recession starting in 2007 required a monetary stimulus to maintain and then restart economic activity, elected governments consistently failed in the subsequent years to live up to their side of the bargain.
They failed because monetary support was supposed to be the prelude to economic reform. Real structural reforms that would drive long-term growth.
Alas, Mario Draghi’s commitment to saving the Eurozone insulated member states (and the European Union itself) from market pressures. As a result, critical reforms were abandoned, ignored, or went unfinished.
From Italy’s unsustainable pensions to Ireland’s sky-high legal fees, from the failure to complete the last pillar of the EU’s banking union (a common deposit insurance scheme) to its still unfinished capital markets union – cheap liquidity overrode the political will required to attain difficult objectives.
It allowed politicians to keep riding the supposedly “free” monetary train.
But this engine was never built on sustainable tracks.
In reality, the pandemic has only worsened the dependence of the political class on central bank largesse. And while the need for fiscal support was obvious in March 2020, the de facto response – borrow cheap and worry about the consequences later – has now become embedded as a desired political response to every crisis or unforeseen shock.
What is probably most worrying is that this political reflex to spend, spend, spend has become embedded at both ends of the political spectrum. Where once these policies were centred primarily on the left, recent years have also seen them embraced by those on the right.
Rassemblement National in France, Fratelli d’Italia and Lega in Italy have all embraced huge increases in public spending as a means of increasing their potential pool of voters. By slamming the orthodoxy and constraints of the “financial markets” they position themselves as “outsiders” determined to “fix” the system.
On the right, Britain is the most extreme case of how basic economic principles have been laid waste. An entire growth strategy based on “trickle-down economics” requiring hundreds of billions of pounds of additional public borrowing is simply macroeconomics gone loco. Particularly in a state already reeling from almost a decade of political stability and a debt to GDP ratio approaching 100%.
It’s also completely incompatible with an independent Bank of England attempting to control runaway rising prices. Britain is showing, just as predicted by Mario Draghi in 2018, that “When inflation is rising, short-term political considerations still create a certain set of incentives to pressure central banks into prioritising economic growth”.
Ironically, the markets are already reminding Westminster what real financial constraints actually look like. The Bank of England will likely do the same. A falling sterling and rising bond yields point not to Britain’s national bankruptcy (as correctly noted by the economist Tyler Cowen), but to a serious loss of credibility in Britain’s ability to effectively manage the economic challenges ahead.
Even high inflation (to which MMT offers no real solution) is no impediment to those who prefer to keep shaking the magic money tree rather than face hard economic realities. Paul Johnson (from the Institute of Fiscal Studies) recently stated the obvious when tweeting that “economic and fiscal constraints are real. It’s not just “Treasury orthodoxy” or a failure of imagination”.
In this context, the forthcoming global recession should be viewed as only a starting point. The commencement of a likely bloody battle to reacquaint policymakers today with some basic economic realities.
Unfortunately for us, the past decade of easy money hasn’t (in general) been invested well, or accompanied by the required structural reforms. Instead, politicians choose the easy way out. Borrowing simply covered rising current costs. As a result, debt levels in major global economies – US, Britain, France, Italy and China have never been higher.
Easy money has changed how politicians view the economics of being in power. The exceedingly painful readjustment has only just begun.Eoin Drea Crisis Economy Macroeconomics
Easy Money has Warped the Economics of Power
28 Sep 2022
War is raging on the European continent. As a result, President Ursula von der Leyen’s State of the Union speech of 2022 did not follow the typical script of previous addresses. It was not a follow up to the points emphasised by the Commission at the beginning of von der Leyen’s term, and perhaps cleverly so.
The COVID-19 pandemic, but much more so the war in Ukraine, have changed the EU’s role both regionally and globally. The State of the Union speech was an opportunity to run through Europe’s war-related efforts and re-state the bloc’s support to Ukraine. In the presence of Olena Zelenska, First Lady of Ukraine, in Strasbourg and against the backdrop of recent Ukrainian military successes, President von der Leyen had the tools she needed to give a passionate opening to her speech.
The speech then continued with Ukraine-related topics. Though sustainability was underlined often and a proposal for a hydrogen bank was declared, contrary to previous speeches, the Commission Green Deal was not the speech’s red line. This was likely a good choice, given the ongoing sensitive debate on how to rebalance the Commission’s ambitious green transition goals with the current energy crisis, a crisis which no doubt is the priority for Europeans.
Although Ukraine was mentioned various times, Ukrainian EU membership status was not. President von der Leyen made specific remarks about aiming to bring Ukraine closer to the Single Market and her own negotiations in Kyiv on further cooperation. These reflect the opinion shared by many that while EU candidate status has been granted, in reality focusing on immediate, concrete steps for integration rather than on the membership process itself will yield better results.
The State of the Union speech often lists various proposals by the Commission, always with impressive titles but often left wanting in terms of content. Sometimes, those proposals move forward and become a core of the Commission’s policy proposals and EU agenda; other times little happens. Who can recall the “Global Gateway strategy” from last year’s State of the Union speech, for example? While the President referred to it again in her speech, the ambitious proposal from last year has remained limited within the EU toolbox.
The President proposed the Defence of Democracy Act. The plan, she said, would aim to uncover covert foreign influence and shady funding. This plan will no doubt receive support from EU member states, but can quickly become politically sensitive, depending on how it is implemented and by whom.
French President Macron’s proposal on a political community received President von der Leyen’s endorsement. Was this a polite gesture for the French or something more substantive? Despite some draft papers circulating EU corridors, the discussion on a political community has not truly taken off at a higher level. Since Ukraine obtained its candidate status with the support of many EU member states, it is highly unlikely that a substantive discussion on the community’s basic modalities will begin in earnest anytime soon.
But of course, should such a thing happen, most likely an EU Convention of some kind would be needed. The President’s request for the EU convention to begin was received by the European Parliament with enthusiasm. However, those EU member states bearing the brunt of the current extraordinary crisis, will most likely be less enthusiastic. Other touchy topics for the future are the proposals for new fiscal rules. Even if the current rules do not correspond to the current reality, the discussion will be heated between EU member states; and it seems even within the Commission, the vision is not united.
President Ursula von der Leyen finished by referring to the importance of standing strong with the US and on China, with a clear and welcome message. This ending closed the rhetorical circle, which began with the war in Ukraine and ended with the EU’s position globally.
Between last year’s State of the Union speech and this year’s, there is an obvious difference. While a year ago, the EU was aspiring to have a global role and weight, it has obtained some of that through the war in Ukraine. The EU has played an important, even unexpected role, and has been able to break some of the taboos which hindered it previously.
It is a promising start, and the President’s speech played on it. Building on the war in Ukraine and the EU’s role offered the President a possibility which was used. The speech had a more solid structure and was less of a patchwork of different topics and proposals, which it previously was on occasion. And of course, no State of the Union speech would be a true EU SOTU without a human story, which were plenty also this year, from First Lady Zelenska’s visit to the story of two Polish women helping Ukrainian refugees. The latter was also an interesting choice; perhaps a small gesture towards Poland in the sensitive rule of law debate?
Photo Credits: EPP Group FlickrTomi Huhtanen Crisis Democracy European Union Ukraine
From Claiming a Global Role for the EU to Defending it – State of the Union 2022
15 Sep 2022
Much has been written on the economic impacts of Russia’s invasion of Ukraine. For the European Union, the already visible impacts of rising energy and food prices presage more fundamental economic challenges in the longer term. Coupled with the lingering side effects of the COVID-19 pandemic the global economy is facing unprecedented turmoil.
Unfortunately, the ongoing humanitarian crisis in Ukraine is also being followed by economic consequences which are already impacting both European and global economies. The uncertainty of this war is eroding confidence and will pose a threat to economic stability should it continue in the long term. As European Commissioner for the Economy, Paolo Gentiloni noted, ‘the duration of the war will determine its cost, both humanitarian and economic’.
This In Brief provides a broad overview of the principal macroeconomic impacts of the Ukraine war on the EU. It also provides a set of recommendations designed to guide the EU’s policy actions in the future. Further publications in this series will deal with specific issues related to the impacts on agriculture, energy prices, European security/defence policy and the longer-term effects on the wider European integration process.Crisis Economy EU-Russia Macroeconomics Ukraine
The Long View: A Centre Right Response to the Economic Fallout of War in Ukraine
14 Sep 2022
As the European Central Bank (ECB) begins to tighten monetary policy, Ireland, as the famous band U2 once wrote, really is “stuck in a moment it can’t get out off”. With inflation at multi-decade highs (9.6% and rising), a worsening housing crisis, escalating public spending and full employment, the Irish economy is remarkably unbalanced.
However, unlike in the 2007 crisis, these characteristics are not unique to the Emerald Isle and the Mediterranean fringe. Rather, they are now shared by an increasing number of other EU member states. In Estonia, prices are rising at an annual rate of 22%. Eight other Eurozone states are now experiencing double-digit inflation. All the while, unemployment across the EU remains at historic lows.
A common narrative is that COVID, followed by war in Ukraine, has turbo-charged price levels. Spikes in energy and food prices are exacerbating the mix of excess savings and supply-side shortages deriving from pandemic shutdowns. The contribution of these events to current economic conditions is undoubtedly true. However, such an overwhelming focus on these risks ignores the longer-term underpinnings of Europe’s destabilising economies.
Namely, the Eurozone’s addiction to cheap money as the principal driver of its growth and investment.
Even before the February 24th invasion of Ukraine, inflation was becoming embedded across the Eurozone. In January 2022 – much to the increasing consternation of the “transitionary” inflationary brigade – price rises were already above 5% in the Eurozone. And these are inflation readings which continue to take no account of most households’ biggest cost of living expense – housing!
Even in that pre-Ukraine context, the politicisation of the ECB was clearly evident. President Lagarde’s view at the time that raising interest rates too soon risked “putting the brakes on growth” highlighted how political concerns have superseded the ECB’s core objective of maintaining price stability.
The scale of global monetary imbalances cannot be understated. The ECB and the Bank of England now account for nearly 40% of their own government bonds. In this world of puny yields “fund managers were effectively pushed into taking ever greater risks to deliver the returns that their end investors expected”. The ongoing shake-out in the broader crypto-assets markets highlights just how skewed the risk-return trade-off has become.
And this rebalancing dance has only just begun.
Worse still has been the invocation of central banks – most notably the ECB – as agents of social change. The development of Frankfurt as a key facilitator in the battle against climate change has further diluted its focus on controlling inflation and further increased uncertainties in the financial markets. The argument is not that central banks should be detached from helping to tackle climate change, but that they are not the most effective, or appropriate, mechanism for doing so.
The cumulative result of these trends – greater politicisation and a widening scope – is the erosion of the ECB’s credibility in controlling inflation. As noted by Jürgen Stark and others, the ECB has “jeopardised its political independence and compromised its primary objective. Actions that are clearly intended to anticipate political pressure leave no doubt that it has exceeded its mandate”.
For the Eurozone, the implications will be profound.
Because, just like Ireland, the ECB now finds itself facing an intractable policy bind. In allowing inflation far above its 2% mandate, Frankfurt is seeking to soothe the political implications by deliberately lagging on raising interest rates in the hope of maintaining economic growth. But, just as Ireland discovered in 2007, the belief in a “soft landing” for the economy is more wishful thinking than sound economics.
There simply is no easy way out.
The result is an ECB that is now a prisoner of fiscal policy. A captive of its own member states with high debt, low growth and a tradition of unfinished reform programmes. And while this reality is the implicit rationale for the ECB’s current strategy, it belies a much wider structural problem. Namely, that the Eurozone continues to be characterised by weak potential growth, a Germany over-reliant on exports to China (and energy imports from Russia) and an unresolved “doom loop” between indebted governments and banks holding that debt.
Ultimately, the most far-reaching results of the ECB’s policy failures will be political. As evidenced in recent French elections, a prolonged cost of living crisis will sap strength from centrist parties, feed the political extremes on both the left and right and destabilise wider society. National elections in Italy in 2023 may well mark the beginning of the political fragmentation amplified by over a decade of easy money and limited reforms.
Back in 2012 former ECB President Mario Draghi calmed markets when he proclaimed he would do “whatever it takes” to protect the Euro. Unfortunately, the ECB seems to have lost any such commitment to controlling inflation.Eoin Drea Banking Crisis Economy
After the Easy Money Comes the Hard Political Reality
12 Jul 2022
Welcome to the Migration Update June 2022. This curated news selection brings together many of the most important developments in the migration policy area over the last month, including recent ones tied to the ongoing conflict in Ukraine.
The purpose of these news summaries is to provide a factual base for migration debates within the European centre-right. Vít Novotný is responsible for the selection of information items from the media, governments and social media. The value of these summaries is in the categorisation of information items and in listing those items that readers might have missed. Facts and opinions are conveyed as they are reported. Original comments are kept to a minimum. Davide Marcantoni and Ailbhe McNamara prepared the Judicial Observatory.
These news summaries are not subject to a formal editorial process. Should you have any questions or comments, please contact Vít Novotný at email@example.com
Migration Update June 2022
30 Jun 2022
Welcome to the Migration Update April 2022. This curated news selection brings together many of the most important developments in the migration policy area over the last month, including recent ones tied to the ongoing conflict in Ukraine.
The purpose of these news summaries is to provide a factual base for migration debates within the European centre-right. Vít Novotný is responsible for the selection of information items from the media, governments and social media. The value of these summaries is in the categorisation of information items and in listing those items that readers might have missed. Facts and opinions are conveyed as they are reported. Original comments are kept to a minimum. Thanks go to Davide Marcantoni for writing up the ECtHR court case for the judicial observatory.
These news summaries are not subject to a formal editorial process. Should you have any questions or comments, please contact Vít Novotný at firstname.lastname@example.org
Migration Update April 2022
30 Apr 2022
The recent downgrades of the Russian economy have increased the prospect of the Kremlin defaulting on its foreign debts. Tied to international sanctions and the retreat of foreign investment from Russia, there is much speculation about the prospects of a reeling Russian economy.
But although President Putin is a self-proclaimed scholar of economics, the economic implications of invading Ukraine for the Kremlin will have little in common with the chaos of the 1990s (or Russia’s last default in 1998). In fact, prolonged conflict in Ukraine resulting in a continuation of sanctions against Russia by key global economies makes 1918 a more relevant comparator.
Then, as now, Russia was experiencing soaring interest rates, a collapsing currency, foreign exchange controls, roaring inflation, military conflict and increasing international isolation. The overall economic consequences for the Russian population at large was uniformly devastating, a factor exacerbated dramatically by the domestic policies undertaken by the newly established Communist authorities (who had seized power in November 1917).
It is sometimes incorrectly assumed that Russia’s participation in the First World War (fighting alongside Britain and France) directly contributed to its economic collapse beginning in 1918. But this is only partially true. In fact, up to 1917, Russia had financed its enormous war efforts without radically compromising the living standards of its population. The decline of average incomes in Russia between 1914 and 1917 (about 20%) was less than that evident in the German and Habsburg Empires.
The decades up to 1918 also witnessed Russia becoming a viable investment location for capital from Western Europe, particularly France. By the time Russia exited the war (through the Treaty of Brest-Litovsk in March 1918) the Kremlin’s debt to its war allies totalled over $3.5 billion, or well in excess of 125% of its GDP. By 1917, Russia was very much part of the global trading economy.
Yet, it wasn’t even the Communist seizure of power in November 1917 that ultimately ensured Russia’s isolation from the international financial community. Rather, it was the Communist decision in February 1918 to repudiate all international debts contracted by both the previous Tsarist regime (up to March 1917) and the Provisional Government of March-October 1917. Not only were debts defaulted on, but all assets of foreign investors in Russia were also seized by the state.
For Russian leaders like Lenin and Trotsky, the 1918 repudiation was the long held realisation of their 1905 Financial Manifesto which declared that:
“Foreign capital is going back home. ‘Purely Russian’ capital is also seeping away into foreign banks. The rich are selling their property and going abroad in search of safety. The birds of prey are fleeing the country and taking the people’s property with them”.
The economic impact arising from the debt default of 1918 cannot be underestimated. It convinced western economies of the unreliability of Communism as an economic model (notwithstanding French disbelief at the loss of their investments), encouraged Western support for anti-Kremlin “White” forces in the Russian Civil War, led to a blockage of the Russian economy, and resulted in the isolation of Russia from the world’s markets for much of the following decade.
For the Russian population, the debt default contributed to a downward economic spiral of almost unimaginable proportions. From 1917 to 1919, output per head in Russia halved. The Kremlin’s attempts to centralise industrial and agricultural assets resulted in famine-like conditions appearing in some regions in 1920, and again during the early 1930s. All the while, the Russian government was still engaged in expensive, large-scale military campaigns against its many foes, including in Ukraine.
The events of over a century ago provide important lessons for the prospects of the Russian economy in 2022.
Firstly, Russia defaulting on its foreign debt will only serve to increase its international isolation. It will presage a wider move towards nationalising all foreign-held assets in Russia, as the Kremlin will seek to centralise many more key sectors of the Russian economy to sustain the war effort.
Second, living standards in Russia will decline as long as Russia remains internationally isolated. Although not approaching the levels of decline evident in 1919–20, it is likely that 2022 will bring a double digit contraction of the Russian economy. However, it must be noted that even with only limited support from states like China, the Kremlin will likely be able to continue to operate on a more enclosed, war-like footing for the medium term. A footing which prioritises the “war effort” over the production and availability of many consumer goods.
Third, a Russian debt default in 2022, as in 1918, will not have any direct systemic impact upon the global financial system, due to the relatively limited size of Russia’s foreign debt. With a debt to GDP level of less than 30% in 2021, and a limited exposure to foreign currencies (a policy implemented by Russia after its invasion of Crimea in 2014), the Russian economy can continue to operate in greater autarkic conditions for a considerable period; albeit with a continuous decline in its population’s living standards.
The danger is not in the direct impact of a Russian default, but rather in its potential contagion to exposed sectors, like banking and aviation. The exposure of French and Italian banks to Russian default is estimated at $50 billion. Irish aviation companies’ exposure to Russian airlines exceeds $4 billion alone. Like in 1918, international investors in Russia face a very uncertain future, allied to huge disconnection from existing business models.
In 1905, the Communist Financial Manifesto began with the words “the government is on the brink of bankruptcy. It has reduced the country to ruins and scattered it with corpses”. More than a century later, President Putin seems intent on bringing those terrible words to life.Eoin Drea Crisis Economy EU-Russia
The Future of the Russian Economy – Echoes of 1918?
15 Mar 2022
While Ukrainians fight for the defence of Kyiv, for the country and for their independence, it is clear that the year 2022 will define Europe’s history in a way comparable only to 1989. Europe’s history after the Second World War, the development of the European community and later the European Union was largely about rectifying the Second World War’s legacy, and culminated in the fall of communism in 1989 and hopes of a better future. Conversely, the war in Ukraine will permanently challenge the optimism of Europeans and change the way they view the future of the continent.
Many hope that after the Ukraine war is resolved, Europe can return to normality, albeit with a new balance with Putin’s Russia. The initial rejection of excluding Russia from the international payment system SWIFT and targeted sanctions tacitly express a thinking among Western nations that the Ukraine war’s negative impact can be conventionally mitigated. But the Ukraine war has implications that go well beyond its national borders – and that includes the war’s costs.
Europe has now entered into a conflict that will last as long as Putin is in power. He has now crossed several red lines that very few in Russia or in Ukraine thought he would. For him, there is no turning back.
Putin’s rule has become progressively less dependent on legitimacy and authority; but now it is clear it is based on power and violence. His speeches in recent days clearly state that the war in Ukraine is not about Ukraine, but about him challenging the West, Europe’s post-war order, and the continent’s security architecture. Putin has made an indirect reference to the use of nuclear power and has repeated that should Finland and Sweden join NATO, there would be grave political and military consequences. The war in Ukraine has already expanded beyond the country’s borders.
The full impact of the war on the EU’s internal dynamics remains to be seen. Central and Eastern Europe, the Baltics, and Northern Europe now have urgent security concerns. The way in which the rest of the EU can relate to this may become a uniting or a dividing factor within the EU. Dynamics between EU member states are changing, while the situation in Ukraine has shown that Germany’s leading position in the EU has substantially weakened since Angela Merkel is no longer Chancellor.
The end-game of the war in Ukraine has wider implications, as US President Biden has stated. Pandora’s box has been opened, total war is no longer taboo and this will reduce the threshold for the use of military force. Depending on the West’s resolve, China will re-assess the potential Western reaction in case it attempts to seize Taiwan through military means. In Europe, Russia is involved in the Balkans and conflict-seeking actors may become emboldened. Shadowed by the Ukrainian situation, the much-neglected but very worrying domestic developments in Turkey have recently been paired with statements challenging Greek territorial sovereignty; these could take a sudden and ugly turn.
Ukrainians today are examples of courage and commitment, an inspiration to the rest of Europe. President Zelensky is showing devotion and sacrifice all European leaders can admire. European citizens are spontaneously rising for Ukrainians; everyday Polish citizens at the Ukrainian border, for instance. But the war in Ukraine is far from over.
In the streets of Ukraine, it is not just the future of Ukraine being fought over, but Europe’s as a whole. Europe is most likely in a conflict which will be long and costly. Putin has started a war against the West and will not stop. Should he successfully take over Ukraine and manage to negotiate a new security arrangement, the West will be permanently weakened. Ukrainians need all the possible support. The EU has to isolate the Kremlin and Putin’s Russia, knowing that this effort will be long and costly. Europe’s history is being decided, and the Europe of the free needs to ensure that they are the makers of that history.Tomi Huhtanen Crisis EU-Russia Foreign Policy Ukraine
The Fight for Europe’s Future is Being Fought in the Streets of Ukraine
Blog - Ukraine
27 Feb 2022
A touching speech by a teenage activist. An ambitious pledge to reduce greenhouse gas emissions. A breakthrough agreement by world leaders to rein in rising global temperatures. These are not the key takeaways from the recent COP26 in Glasgow, but a mishmash of the last 30 years of global summits and pledges on climate change. Perhaps this is beginning to sound familiar: the global community is on the brink of catastrophe and this year’s UN Climate Change Conference is the last chance to stop it.
It is easy to become cynical of these international conferences, even though climate change remains one of the biggest collective problems for the international community. Was the recent COP26 summit in Glasgow any different?
For the first time in the history of UN climate agreements, the Glasgow Climate Pact referenced ‘coal’ and confirmed the commitment of nearly 200 countries to ‘phase down’ its use. Young urbanites from Brussels or San Francisco might raise their eyebrows and shrug off this accomplishment as old news. After all, didn’t we all agree that coal is finished?
Far from it. For all its damaging effects on the environment, coal accounts for close to 30% of global energy consumption. All fossil fuels combined make up to 80% of the global energy mix annually by providing relatively affordable and stable energy supply. Even in the EU, coal and lignite are still in everyday use; this will be a fact until at least the mid-2030s.
Completely phasing out the likes of coal is necessary but extremely costly due to pre-existing infrastructure and energy grids. The recent Glasgow Pact commitment to limiting coal on a global scale is important, as the developing world relies mostly on fossil fuels for their energy security and economic growth. Disappointment came from China and India, who led a coalition that watered down the language and replaced ‘phase-out’ with ‘phase down’ in order to reflect their entrenched national interests.
Divisions between Global North and Global South
This brings us to the ongoing friction between developing and developed countries on the climate front. Warning shots came just before the Glasgow summit when the group of Like-Minded Developing Countries issued a statement criticising rich countries for pushing the universal goal of net-zero emissions by 2050. The group posits that the developed Global North should raise their own ambition, fully decarbonise by the end of this decade and ‘leave the remaining atmospheric space for the developmental rights of the developing world’. It`s true thatone of the established principles of the UNFCCC is that international actors have different capabilities and responsibilities due to their respective social and economic conditions. However, shifting the onus primarily to developed countries with the expectation that they should completely restructure their economies in less than a decade is not only impossible to achieve, but also deepens dividing lines.
A case in point is the contested ‘loss and damage facility’ proposed by the G77+China group of developing nations, which would require rich nations to directly compensate poorer nations after severe climate events. Essentially, developed countries would be deemed as responsible for future natural disasters and stand ready to provide relief funding. This would turn into a downward spiral of endless claims and controversies between nations, with developing countries likely disincentivised to invest in adaptation measures as long as someone else is footing the final bill. Fortunately, this proposal was successfully blocked by the EU and US.
A point should be made on the political narrative and the debate on ‘climate justice’. The transatlantic political elite should be wary not to fall into a trap of its own making, where actual progress on climate change mitigation is replaced by claims for compensation or correction of historical injustices. A good example is the Foreign Minister of the island nation of Tuvalu, who received global attention when delivering his COP26 speech knee-deep in water. This narrative feeds well into our media-generated perception of the approaching climate cataclysm, but the facts tell a different story. Scientific research shows that in the past four decades, Tuvalu registered a net increase in land area of almost 3%, despite rising sea levels. We shouldn’t undermine the fact that many countries are, indeed, suffering disproportionately from environmental degradation or rising temperatures. However, cool-headed policymakers should be equidistant from both over-exaggerated victimisation and useless online virtue signalling when addressing climate change.
What developed countries should do is finally own up to an overdue promise to create a dedicated $100 billion fund to support less wealthy nations as they develop long-term measures for climate adaptation and sustainability. Although some Western countries committed to at least double their financial support by 2025, embarrassingly, there was once again no clear breakthrough at COP26 in finalising the full climate finance pledge.
The Glasgow summit might have left many disappointed due to the lack of ground-breaking headlines, but there were several overlooked positive spill-overs. More than a hundred nations supported the US-EU initiative on slashing methane emissions by 2030. A number of governments and automobile manufacturers joined a pledge on accelerating the transition to zero emissions from cars and vans by 2040 or earlier. We also saw a surprising joint declaration by the US and China on boosting climate cooperation over the next decade. Beijing remains an important piece in this complex puzzle, as China is the largest polluter globally (more than the US, EU, and India combined in terms of CO2 emissions). These small wins should not be underestimated and are a useful reminder of the true purpose of the COP summits.
Perhaps our perception of these much-anticipated UN Climate Conferences should be about expectations management. The British hosts sang the usual tune by raising expectations through the roof, despite the fact that they produced only a half-baked summit. Modern media cycles and activist rallies convince us that fundamental change should happen immediately, without mentioning astronomical costs related to this change or the fact that developing countries would be denied opportunities for raising their standard of living. Citizens should not be misled. These international fora remain a lowest-common denominator affair that promise big but enable many to free-ride during a slow and painful coordination process. The important thing is that they ensure the fleet of international ships sails in the same direction and holds a steady course.
For better or worse, this is the harsh reality of the international system.Dimitar Lilkov Climate Change Crisis Leadership
COP26 in Glasgow: A Climate Cup Half Full for the International Community
25 Nov 2021
It took the recent energy crisis for the European Union’s dependency on imported fossil fuels to make the headlines. Naturally, as long as the share of fossil fuels remains high in the energy mix of member states, the EU will continue to depend on external providers.
The shock reactions within European markets and the European political scene is, however, rather unjustified. This is the second time in a decade that Putin has weaponised the gas supply to the EU, actions which now pose an overarching dilemma: Will we obtain long-term, binding contracts with Russian companies supplying gas and thereby ensuring stability, or will chaos ensue?
In 2015, after the first shock of the use of natural gas as a weapon against Ukraine and later against countries of the Union, the EU proceeded with the ambitious legislation of the Energy Union. However, despite the legislative planning, forecasts for natural gas supply over the last six years have been insufficient. This is particularly problematic given natural gas’ role as a transitional fuel. Furthermore, the appropriate storage infrastructure specifically for green energy was not built.
In addition to the provision of the Treaty, which enshrines the energy mix as a national competence, a number of countries took their own initiative, focusing on their interests. First of all, Germany secured bilateral low-tariff agreements with the main Russian provider Gazprom, combined with the development of relevant infrastructure, namely Nord Stream 2. Other member states, such as Poland, insist on a form of political guerrilla warfare.
Last week, the European Commission announced measures including:
- Joint voluntary procurement from the member states, maximising the benefit of the bargaining power of the world’s largest single market.
- Increased strategic stocks to avoid large price fluctuations.
- Use of the resources of the Emissions Trading System by the member states for the relief of the most vulnerable, something that the Greek government is already doing.
Such “tools” may work only as emergency response measures but do not address the fundamental problem of dependence on fossil fuels and their suppliers.
It is important to tackle the problem of security of energy supplies for Europe at its root cause. This is also a necessary aspect of delivering on the Green Deal’s ambitious goal of making Europe the first continent with a carbon-free economy by 2050.
The EU’s main weapon in the face of the energy crisis is the sum of the unprecedented financial resources currently at its disposal: the Recovery and Resilience Facility, the Multiannual Financial Framework 2021-2027, and other financial tools, with InvestEU being the most important one. Renewable energy, combined with renewable energy storage facilities, is the answer to the dilemma of whether we are headed for Putin’s embrace or for chaos.
Existing technology, and as it happens technology that is principally developed in Europe with European taxpayer money, enables large-scale sustainable investments in onshore and offshore wind farms, photovoltaics for every household and industrial consumers, hydroelectric power from oceanic currents, and also power generation from waste.
The EU’s answer to the dilemma now shamelessly posed by the Russian president is to accelerate investment in renewable energy, through synergies between the private sector and the member states, and through transnational projects, by all available means. This is the only way the EU energy market will be able to provide affordable energy to its households and businesses. In addition, the EU will be taking a first, momentous step towards real strategic autonomy.Maria Spyraki Crisis Energy EU-Russia Ukraine
In Putin’s Embrace or in Chaos?
Blog - Ukraine
19 Oct 2021
On 27 January 2021 the member governments of the European Stability Mechanism (ESM) signed the Agreement Amending the ESM Treaty, instituting long-awaited reforms to the EU’s crisis management and financial-aid mechanism. The ESM was never perfect. Set up outside the EU treaty framework, it suffered from acute accountability and legitimacy issues and, being directly controlled by eurozone governments, its procedures were subject to cumbersome voting arrangements and conflicts of interest. Finally, with its inception in the throes of the eurozone crisis, it was committed to a single rigid approach based on conditionality.
The European Commission’s attempt to address these shortcomings in December 2017 was categorically rejected by the member states, who instead embarked on a separate reform initiative resulting in the current ESM Reform Treaty. This turn of events has been in part motivated by troubling levels of distrust between EU institutions and member states, and—as a result—between EU institutions and the ESM. The other driving force has been the political refusal to let go of the Maastricht promise of national fiscal sovereignty without shared liabilities. Thus, the ESM Reform Treaty is the culmination of a political campaign to redeem the economic compromise at the core of the Economic and Monetary Union and create an alternative arrangement for member states to avoid surrendering further competences to the EU.
This paper finds that the ESM Reform Treaty not only fails to address the outstanding issues in the original ESM framework, but exacerbates the status quo by further empowering the Mechanism outside the legal framework of the EU treaties. The ESM’s ‘peacetime powers’ represent a consequential novelty in this regard. These ‘powers’ are in fact the ESM’s own analytical capabilities, which have been extended beyond its financial-aid function and are now applicable within the bounds of the European Semester for economic governance. Perhaps worst of all, the ESM remains an extremely limited instrument, legally designed to imagine the single scenario of a sovereign debt crisis which requires disciplinary conditionality in exchange for financial aid. It would be careless to insist on this approach for resolving the multitude of difficulties which might befall the eurozone in the future.
Future reforms are not just advisable, they are a functional necessity. It will become increasingly difficult for the ESM to exercise its new powers or provide suitable crisis management without the efficiency and legitimacy which these adjustments could confer.
A compromise solution could see the ESM become its own independent technocratic institution, equally removed from the political influence of governments and the reach of the Commission. Introducing flexibility in its strict conditionality could be a matter of reinterpreting the meaning of ‘sound budgetary policy’ from the Court of Justice of the European Union’s ruling in Pringle. Lastly, in matters of justiciability and the protection of fundamental rights, nothing prevents ESM governments from committing the activities of the Mechanism to the European Charter on Fundamental Rights or the authority of the European courts, should they wish to do so.
Whatever decisions may be taken on the future of the ESM, they cannot ignore the unfolding of the EU’s fiscal response to the pandemic with Next Generation EU. Should the facility remain an exception, there would be even more pressure on the ESM to undergo another round of far-reaching reforms. However, should Next Generation EU prove a positive exercise, the EU should look to capitalise on the newfound trust by consolidating its economic and crisis governance capacities under a single flag—a certain blue one with 12 gold stars.Crisis Economy Eurozone
Reforming the European Stability Mechanism: Too Much but Never Enough
19 Jul 2021
The publication examines the various aspects of these turbulent times and their impact on the Czech and European societies, with a special emphasis on the middle class. It was the (often) painful experience of the ‘quarantined’ middle class that exposed what it needs to flourish and not perish in the future. The authors uncover the threats and the opportunities related to the current situation, and provide recommendations for centre-right parties, who have most often represented the interests of the middle class, currently most endangered class by the effects of the pandemic. The centre-right parties (together with the centre-left) will be in danger, too, if they do not present straightforward programmatic goals for the future of the middle class and honest leadership skills capable of cooperation and solidarity. Otherwise, we face the danger of further destabilisation of the political scene and the dismantling of liberal democracy.Crisis Economy Middle Class Society
The (Post)Covid Era: The Middle Class in Focus
29 Sep 2020
The coronavirus has taken the West by surprise. It has called into question basic assumptions about globalisation, how our society is organised, how safe we actually are and to what extent we control the world around us. The virus arrived when we were without the proper conceptual framework to deal with a new type of virus, and we could not have imagined how much of a social challenge it would represent. The novelty of the situation has made most of us feel strangely confused, numb and calm, and in many cases has left us not knowing what to do with ourselves. This satirical review seeks to put some distance and detachment between us and the situation and give us an outside perspective of what the corona crisis can teach us, both at the individual and social levels. Before the situation becomes the ‘new normal’, we should take the time to extract some lessons from this mess.
Read the full article of the June 2020 issue of the European View, the Martens Centre policy journal.Jan Czarnocki Theo Larue Crisis European Union Society
Comfortably Numb in the Midst of the Corona Crisis
14 Sep 2020
The travel industry is one of the economic sectors most harshly affected by the Coronavirus epidemic. Airline companies are facing the worst challenge in decades by cutting costs and laying off employees, fighting to survive another day.
National airline companies have now become a significant challenge for EU member states. Airline companies do not only employ large amounts of people; they are part of the core transport system of each EU member state, and often potent national symbols. Should national airline companies collapse, national governments would have to foot the bill.
Therefore, the European Commission’s announcement on 2 July, launching an infringement procedure against ten EU member states in breach of the bloc’s passenger rights rule was met with discontent in some EU capitals.
In many EU member states, the view is that passenger rights should be temporarily suspended. Lobbied by airline companies, twelve EU countries have demanded the suspension of passenger rights. In practice, this would mean if a flight is cancelled, instead of immediate reimbursement (for which the delay is currently one week), passengers would be offered a voucher instead. The member states’ letter proposes ‘a clear right of reimbursement immediately at the end of validity’. The short-term implications of this are unclear, but if the voucher’s validity is 2 years, the consumer could wait for their money a long time.
The problem is that as the airlines are fighting for survival, and enjoy the moral backing of the member states, questionable tactics are already being used. After the EU has already helped airline companies by waiving the obligation to use 80% of their take-off and landing slots, airline companies across the board have begun cancelling flights last minute. This has obviously caused a big headache or two for airline customers.
For airlines, the logic seems to be to ensure that flights are full and profitable. Unfortunately, some airlines are currently selling tickets for routes which they know full well the flight will probably be cancelled.
The business logic is that through these unfair tactics, companies can improve their immediate cash situation by reimbursing customers with several months’ delay. Additionally, certain clients will end up returning the money to airline companies through vouchers, because airlines do not inform travellers about reimbursement options, or often make the reimbursement process so complicated that customers give up and accept the voucher right away.
Fool me once, fool me twice…
Of course, one can argue that it is in the customers’ interest for airline companies to survive, and the current climate is very tough for airlines. But misled customers should not be the ones paying the industry’s bill.
As things stand today, the situation for us, as airline customers, is radically different. When buying a flight ticket, one has to take into account that the risk of flight’s cancellation has increased substantially. Secondly, one is better off buying a ticket from a company which you plan to fly with in the near future so the voucher is of some use, in case the flight is cancelled. Finally, remember that obtaining reimbursement for your ticket might be a lot of work, and you would be waiting a long time for compensation.
By using deceptive tactics with customers, airlines are adding rapidly declining consumer trust to their long list of problems, the most obvious of which is a drop in demand for flights as a result of the Coronavirus epidemic.
Once this trust is damaged, it will take a long time to regain it. The EU’s infringement procedure is not only protecting European customers, it is also protecting the flight industry by maintaining consumer trust. After all, the airline industry can only thrive with happy and confident travellers.
Travelling in times of Corona: how the EU is preventing a long-term aviation’s crisis and saving our summer holidays
10 Jul 2020
Will populism turn out to be one of the ‘victims’ of the COVID-19 pandemic, as many commentators have claimed?
Angelos Chryssogelos, Assistant Professor in Politics and International Relations, London Metropolitan University:
“I don’t think the question of populism should be treated in binary terms, i.e. will it go up or down after the crisis. The pandemic will be bad for certain populists while providing opportunities for others. We need only think back ten years to the Great Recession: the economic crisis boosted left-wing populism – up until then a marginal force – in countries like Spain and Greece, while established populist parties like the FN in France failed to capitalise on it. It now appears that the pandemic will be bad for some populists like Trump while others, like Erdoğan in Turkey and PiS in Poland, may overcome it. I think that Europe dodged a major bullet with the Five Star Movement in Italy. The pandemic crisis would be an ideal event for a non-ideological populist party dominated by conspiracy theorists, anti-vaxxers, and generally unstable characters. Luckily, the 5SM is in government during this crisis, so it no longer has the credibility to express these feelings. Nevertheless, I think this provides a blueprint for anti-establishment politics in an era when vaccines and tracing apps will be major policy issues, and I expect this will be replicated elsewhere. Unfortunately, this brand of populism is much more dangerous and corrosive than the typical populist radical right, who at least has a core of identifiable ideological beliefs that make it more predictable and conventional.”
Dalibor Roháč, Resident Scholar, American Enterprise Institute:
“So far, I have seen little evidence of that. In fact, there are reasons to believe that the crisis might end up strengthening populist, anti-establishment forces. The mechanisms for this are manifold. Firstly, given the inherent uncertainty about the virus, especially at the early stages of the pandemic, public health officials and experts were inevitably making mistakes. The seasonal flu is more dangerous than COVID-19, we were told. In America, President Trump’s ban on travel from China (which included a variety of loopholes) was decried as fomenting Sinophobia. Experts initially advised against wearing facemasks. Worse yet, while many of these judgement errors were made in good faith, some seem correlated with political ideology, such as the muted reaction of experts to the wave of Black Lives Matter protests, which swept across the Western world. Secondly, we have yet to assess the magnitude of the economic fallout from the lockdowns –past experience suggests that support for populism rises in periods of financial distress. Moreover, the costs of lockdown might very well affect people unevenly. Individuals in ‘elite’, high-education occupations might be in a better position to work from home for extended periods of time than those in blue-collar professions. The combination of perceptions of the inadequate, self-serving expert class, and the uneven material impact of the pandemic, makes for a potentially toxic political mix.”
What are the stakes of the extraordinary European Council called on 17-18 July from the point of view of the EU’s political legitimacy? In what ways will its results (or lack thereof) matter?
Angelos Chryssogelos: “How many ‘make-or-break’ European Councils have there been in the last decade? I’m sure they number in the dozens at this point. I’ve long been sceptical that any singular EU decision truly affects the long-term legitimacy or sustainability of the European project. As the economic and refugee crisis demonstrated, national political elites (because this is what we ultimately mean when we say ‘the EU’) are very much interlocked together as they navigate major policy crises on the one hand, and restive public opinions on the other. The setting of EU institutions provides them with opportunities to blow steam through the theatricality of ‘tough negotiations’, while finding ways to tame the effects of crises that no country on its own could cope with. If no solution is found in one Council, then you quite simply move on to the next one. In this sense, preoccupation with high-minded ideas, like the ‘legitimacy of the European project’ is both unnecessary and counterproductive. Should polls be accurate, and the majority of European citizens are indeed unconcerned about the EU either way, why elevate it to a major stake of European politics? Succeeding in taming the pandemic crisis’ economic effects will not vindicate an abstract ‘Europe’, any more than failure to come to an agreement in the July Council will prove that European integration has been a failure. If a deal is found in July for the recovery fund, great. If not, move on to the next meeting. The show will go on either way.”
Dalibor Roháč: “The EU’s political legitimacy does not stand and fall with one summit. However, the gravity of this moment cannot be underestimated, as the pandemic has hit European economies at a time when many were already carrying a large debt overhang. Unless mitigated through action at the EU level, the solvency of some member states would be threatened. Fundamentally, the principles underpinning the single market themselves would be in danger. With the relaxation of state aid rules, some countries are in a much better position to help domestic businesses that find themselves in distress. The crisis could thus leave Europe with a dramatically uneven playing field. The longer the implementation of the recovery package takes, the greater the risks. At a basic level, the summit is therefore a test of whether European leaders are genuinely committed to the European project. To be sure, bargaining and seeking the best deal for voters in their respective countries is expected. The final product will necessarily be a compromise, ridden with imperfections. But the question is whether European leaders will be able to rise above the more parochial questions of who gets how much and with what strings attached, and to approach the exercise as one that will set a precedent for years to come.”Crisis EU Institutions EU Member States Euroscepticism
How is the COVID-19 crisis affecting EU legitimacy?
08 Jul 2020
Unless you live in Malta, you might not have noticed an unprecedented search and rescue crisis that has revolved around this island nation since April of this year. What in normal circumstances would have occupied headlines across Europe, has nearly been driven into the background by the dramatic events surrounding the COVID-19 pandemic both in Europe and globally.
This crisis has been spurred by a progressive increase in illegal border crossings from Libya towards Malta and Italy. In turn, this increase is a result of at least two factors. The first is mass joblessness among Libya’s large migrant population, caused by an economic decline due to the COVID-19 pandemic and the ongoing conflict inside the country. The second is a resumption of the activities of migrant smugglers, tolerated by the officially recognised Government of National Accord (GNA). The health crisis has confirmed Libya as the main North African country serving as a departure point for Europebound irregular migrants.
The pandemic and its consequences for irregular migration are highlighting the challenge that Libya, as a relatively wealthy but dangerous and conflict-ridden country, continues to pose to European politiciansCrisis EU Member States European Union Migration
COVID-19 and the Old-New Politics of Irregular Migration from Libya
02 Jul 2020
EU leaders seem to have agreed, at least in principle, that an ambitious recovery plan financed by EU bonds should be introduced and that the EU should have more competencies in the area of health care. Do you think the COVID-19 crisis is rekindling some federalist ambitions in the EU?
Lawrence Gonzi, Former Prime Minister of Malta:
“Rather than European federalism, I prefer to look at this as a question of European solidarity in practice. It is the realisation that we are all in this together, and we can only get out of it together. The recovery plan is welcomed – it is the response to calls for Europe to do whatever it takes. There are issues being negotiated that still need to be defined, so while this is welcome in principle, we have to ensure that all Member States’ red lines on taxation and competitiveness, for example, are respected. But even with these outstanding issues, Europe is in a strong position, and there is a clear path for this recovery package to move forward. This is a unique opportunity to revitalise Europe’s economy, making it fairer, greener, and more sustainable for all of us. We should not waste it.”
Andrius Kubilius, Former Prime Minister of Lithuania:
“If by federalist ambition, we understand that some new European-wide instruments were created to fight the crisis, then we need to agree that since the Treaty of Rome, each crisis was pushing the European Community towards federalist ambition. Yet this is exactly what Jean Monet predicted: ‘Europe will be forged in crises, and will be the sum of the solutions adopted for those crises’.”
Herman Van Rompuy, President Emeritus of the European Council, Former Prime Minister of Belgium:
“I myself was not a big fan of the original plans for a Conference on the Future of Europe. I am in favour of it now, because this crisis has shown to citizens that ‘more Europe’ is needed. They found it strange that there were different kinds of politics in the Union regarding the virus, and they found it strange that borders were being closed and opened in a selective and dispersed manner. Many wondered where Europe was. They were unaware that the EU simply did not have competence for health. Europe is not a super-state! It also becomes clear that the EU is very dependent on medical supplies from abroad, especially China. We are already dependent on non-Europeans for digital platforms, energy, defence, and poorly protected external borders. Will we also be externally dependent for food tomorrow? The theme of European sovereignty has been raised; the conference could focus on this, instead of yet another institutional discussion that actually plays into the hands of anti-European forces. If one starts from the needs of the people, one can come up with pro-European decisions. The conference should not only question citizens, but there should also be leadership by formulating proposals and testing them with the public – a combination of top-down and bottom-up.”
Wolfgang Schüssel, Former Chancellor of Austria:
“The EU budget for the next seven years needs sufficient resources. The United Kingdom, an important contributor, has left. New challenges, like the prevention of pandemics, President von der Leyen’s ‘Green Deal’, the necessary protection of external borders, and funding an emerging common defence policy, underline the necessity for novel own resources for the Union. Let us add the intended recovery plan after the Corona crisis – and in this context, an open discussion without taboos about the size, use, control, and a repayment plan of such a huge programme is necessary. This may not be a federalist ambition but a better equilibrium of European and national competences.”
Foreign policy and defence are essential areas for the EU’s future. Would you agree that the European Council should take decisions on the common EU foreign and security policy by majority vote and not by consensus? And do you see PESCO as the main instrument to move forward and strengthen the EU’s weight in the field of defence?
Lawrence Gonzi: “On the issue of common defence, I think our strength comes from our collective action and common purpose. On the one hand, having consensus on these sensitive issues lends legitimacy to the process and ensures that no Member State feels railroaded into a decision that it is not comfortable with on a sensitive issue. On the other hand, consensus means that their discussions take longer, and we are less flexible in how the Union reacts. On balance, my preference is to retain consensus in defence matters. That means more work for our negotiators and more need for States to compromise – but that is the only way all our citizens will feel involved in the process.”
Andrius Kubilius: “I agree that Foreign Policy and Defence in the EU are critically important policies. In my view, Foreign and Defence Policies in the EU should not be the only ones decided by majority voting. Other policies should be included, because that is the only way to make the EU truly democratic and effective. PESCO is an important instrument, but more importantly, the EU needs to have a clear strategy on security and defence issues – determining where the EU is going to rely on its ‘strategic autonomy’, and where it will rely on NATO (or US) capabilities.”
Herman Van Rompuy: “Of course, I am in favour of more possibilities for qualified majority voting. It should also be discussed in the Conference on the Future of Europe. To make the idea more acceptable, one could imagine a softer formula in which the opposition of a minimal number of countries cannot block a decision. This could have avoided the recent problems in the Council. With regard to PESCO: we must make a success of this first in order to envisage the next step. The final objective must be a genuine military dimension of the Union.”
Wolfgang Schüssel: “The European Union should extend Qualified Majority Voting (QMV) procedures to foreign policy areas. In the future, sensitive decisions regarding China’s policy and ambitions, but also Israel’s prospective annexation plans of the West Bank, will require clear EU statements. Defence policy is probably too underdeveloped for QMV voting and needs, for the foreseeable future, consensual decisions.”
Despite initial success in 2014, the Spitzenkandidaten procedure to elect the Commission President failed in 2019. How can it be reformed? And what other measures could help bring the EU closer to citizens?
Lawrence Gonzi: “I am a fan of the Spitzenkandidaten process, and I think it is a pity that it was not fully respected in 2019 – but I do not think that it is dead in the water. I would move to codify the process and therefore give increased legitimacy and certainty to the European Commission President and the entire image of our European Union.”
Andrius Kubilius: “In an effort to bring the EU closer to its citizens, the role of the European Parliament should be strengthened with the power to initiate legislation, the power of parliamentary oversight of the executive branch, and the power of non-confidence towards individual Commissioners. This would make the entire EU architecture more democratic. The Spitzenkandidaten system was designed to make the whole process less dependent on a consensus in the Council. There are also other ways to overcome this problem: for example, deciding by majority vote in the Council when making a decision on the candidate for Commission President.”
Herman Van Rompuy: “I’ve never been a supporter of the Spitzenkandidaten procedure. It hasn’t brought the Union any closer to its citizens, and instead organised a pointless power struggle between the EU institutions. I would invest much more energy into the idea of a European constituency. Unfortunately, that concept quickly found its way into the inter-party political battle. It deserves a second chance.”
Wolfgang Schüssel: “The text of the treaty is quite clear: the European Council makes a proposal, taking into account the results of the EP Election, followed by an affirmative EP vote, which is necessary. Politicising and personalising the election, and as a result the European Commission, is, in my opinion, a disputable option. It is better to put the substance of European policy at the core of the election and the alternative party programs.”Crisis Defence EU Institutions EU Member States Future of Europe
How will the Corona crisis shape the future of Europe?
25 Jun 2020
Few symbols of upheaval are as powerful as the toppling of a statue. The last couple of weeks have been a good demonstration of this, across all Western societies – and Belgium is no exception. The cities of Antwerp and Ghent in Belgium removed statues of King Leopold II from their streets. This political compromise may appease radical demands, but it constitutes a missed opportunity to engage in a broad civic debate on identity and history.
There was a time when these statues honoured the Belgian sovereign for what was seen as his national and colonial heroism. Today these monuments inconveniently remind us of an embarrassing past, and of political and ethical norms that have long lost their validity. Still, Belgians are divided whether or not the statues should go because many interpret history differently.
The controversy around Leopold II doesn’t stand alone. In the Belgian town of Zottegem, a statue of Julius Caesar was vandalised. In London, protesters aimed their anger at a memorial for Winston Churchill, and in Johannesburg, paint was thrown at a statue of Mahatma Gandhi. Radical polarisation around identity has intensified emotions; it condemns those who assumed the role of ‘privileged’ leadership, and it hinders an objective debate on history. We deserve better than that in our democracies.
It is not the first time that statues fall prey to public anger. During the 4th century reign of Roman Emperor Constantine, monuments of as many as 25 former emperors were removed from public view. Europe’s Great Iconoclasm of the 16th century saw Catholic art and church decorations destroyed in Protestant mob actions across the continent. Statues and monuments are also a prime target after wars or violent regime change. ISIS materialised political change by destroying the artefacts in the ancient Semitic city of Palmyra. The Taliban blew up Buddha statues. And who does not remember the gripping images of Iraqis, or Libyans, celebrating their freedom by dancing on the fallen monuments of Saddam Hussein or Moammar al-Qadhafi?
But against the backdrop of this history – and a recent racial incident in the United States – should we therefore conclude that a statue of Leopold II symbolises the structural racism of the Belgian people or their government? Is a monument to Winston Churchill the embodiment of white British exceptionalism? Should we tear down a statue of Julius Caesar for the same reasons Americans are now removing Confederate symbols across their nation? Will this damnatio memoriae – the condemnation of memory – contribute to social progress? Most likely not.
Perhaps a fairer debate is first to understand why some democracies struggle to talk about their history openly? Why is it sensitive in the Netherlands to touch on the role of the Dutch East India Company in 17th century Indonesia, or to talk in France about the atrocities committed during the Algerian War in the 1950s? The answer lies in part in our values, and in the fact that our societies still have a very complicated relationship with our principles of equality – principles enshrined in every democracy’s constitution, but that are, or at least were, difficult to implement correctly.
Pioneers advocated women’s suffrage as early as the 19th century, but only in the 20th century did a critical mass support such a political innovation. Today, even if the public has grown accustomed to narratives of pluralism, multiculturalism, and wealth redistribution, the reality is too often one of isolation, gentrification, and inequality. The fact that government leaders or public influencers rarely raise this topic is not a sign of racism. Rather, it demonstrates a more significant inability to conduct a proper reflection that includes all groups of society. In an environment dominated by peaceful debate and within the framework of the rule of law, public attitudes are slow to evolve, and even the most progressive minds are often hesitant to embrace disruptive change.
That is why change coming from the grassroots needs to focus on creating a broad consensus and avoid polarisation. Only this way can powerful ideas transcend and transform into concrete evolutions. Today’s protesters will need to work with the political leaders that they oppose. And more importantly, they will need to win the hearts and minds of the silent majority, so that everyone embraces the proposed change. Clearly, destroying statues divides the public and achieves no progress on either front. Exceptions to this rule are rare. The removal of Nazi symbols in post-World War II Germany or the toppling of Lenin statues after 1989 in Central and Eastern Europe are different cases: That was about visualising fundamental change in, or at the end of, a systemic upheaval within the lifetimes of the citizens.
Today’s bilderstürmer are right to condemn the mistakes of the past. But censorship rarely works. History cannot be a subject one likes or dislikes, and exists for us to learn from. We need more conversations about history, not less. Looking at statues and monuments can actually serve as a helpful reminder of the undesirable. Today in our democracies, there is a broad consensus against racism. Civic and political leaders would be wise to promote more debate on that positive foundation. Blaming old statues may please the strongest emotions, but it will take more than that to make for a better society.
Statues have been destroyed throughout history, it rarely spurred social progress
22 Jun 2020
The recent deployment of Russian fighter jets to Libya is a dangerous escalation of an already complicated and bloody conflict, with a surge in civilian casualties. The civil war raging in Libya has, in effect, created a situation where outside powers (mainly Russia and Turkey) are vying for control of Libya’s future and trying to expand their footholds in the Eastern Mediterranean. This escalation not only affects Libya, but it is also impeding on the effort of solving other regional issues such as illegal trafficking of both people and drugs, terrorism, and border disputes in the Maghreb and Sahel regions.Crisis European Union Foreign Policy Mediterranean
State of play in the Libyan Civil War
19 Jun 2020
For as long as the EU has had a China policy to speak of, it has been ambiguous. The EU’s most recent China strategy calls the country “a partner, a competitor, and a systemic rival.” Europeans understand the challenge posed by Chinese mercantilism and its ambitions for continental hegemony. Even before the pandemic, most Europeans held an unfavourable view of China, with 70 percent of Swedes and 57 percent of Czechs seeing the country in a negative light. However, devising a coherent approach has proven difficult.
One reason is that even among the more ‘hawkish’ countries, there is not necessarily an understanding of what an effective European response should resemble. For France, Chinese mercantilism is best confronted by mercantilism of a European variety: building European champions and tossing aside competition and state rules. But that is a no-go for governments of smaller countries wary of China – say, Sweden – who nevertheless understand that European monopolies showered with public funds are a costly and ineffective response to the challenge at hand.
Another reason is a persistent distrust of US President Donald Trump. Joining forces with the United States is a losing political proposition as long as America is seen as erratic, mercurial, and primarily concerned with its own bilateral trade deficit, instead of the broader economic and geopolitical challenges that China’s rise involves.
Yet, the current triangulation between Beijing and Washington often requires a denial of reality. At his recent press conference, the High Representative Josep Borrell claimed that Chinese leadership “do not have military ambitions and they do not want to use force and participate in military conflicts”, notwithstanding China’s recent grab of Indian territory and the militarisation of the South China Sea. Whom does one believe: Mr Borrell or one’s lying eyes?
The EU’s ambiguity has also provided a permission structure for member states to strike deals with China, which will harm the continent’s interests over the long term. Examples include Italy’s embrace of the Belt and Road initiative – or, more recently, the rushed and secretive decision by the Hungarian government to proceed with the construction of a Chinese-financed rail connection with Belgrade.
Finally, the lack of a principled China policy erodes the EU’s status as a champion of human rights and democracy around the world – a mantle which Europeans have been keen to carry in the era of ‘America First’. After years of pussyfooting around the status of Taiwan, Tibet, or the regime’s appalling treatment of the Uighur minority, the milquetoast criticism of China over its crackdown on Hong Kong is a case in point. An unambiguous violation of a commitment that was thought to carry the full force of international law requires more than “grave concern” and to “raise the issue in our continuing dialogue with China”, as Mr Borrell’s office put it.
With its heavy-handed ‘public diplomacy’ response to the COVID-19 pandemic, Beijing has squandered a lot of goodwill in Europe. “We should not shy away from naming and shaming” said Věra Jourová, the European Commission’s vice-president, regarding China’s disinformation efforts in the wake of the pandemic. Ms Jourová’s home country, Czechia, saw the Chinese regime seek to co-opt political and business elites for years, inviting a broad-based backlash after it overplayed its hand.
The current situation is Europe’s opportunity to rethink and step up. The simultaneous invocation of ‘partnership’, ‘competition’, and ‘systemic rivalry’ in the EU’s relationship with China is not sustainable. Partnership presupposes trust and the existence of common goals. Competitors have different interests but adhere to shared rules of the game. Conversely, a ‘systemic rival’, as the Greens’ MEP Reinhard Bütikofer correctly put it, “just wants to win.”
Nobody expects the EU to embark on a Trump-led China crusade or to ‘decouple’ itself from Chinese trade and investment flows. Yet, clear guidance for member states on Chinese investment in critical sectors, whether they be infrastructure, finance, or tech, would be helpful. Similarly, a commitment to exclude Huawei from 5G networks across the bloc and joining the UK’s bourgeoning initiative to get the world’s leading democracies to cooperate on technological alternatives to Huawei are worthwhile endeavours.
The EU ought to be ready to walk away from the mirage of an investment treaty with China, currently in its 30th negotiating round. The EU wants China to scrap quantitative restrictions, equity caps, and joint venture requirements currently imposed on European companies. Also, EU businesses ought to be able to “compete on an equal footing when operating in China” by achieving “non-discriminatory treatment, prohibition of performance requirements – in other words, measures requiring investors to behave in a certain way or to achieve certain outcomes (including those leading to forced technology transfer) – and equal participation in standard-setting work.”
Unfortunately, those practices are central to China’s state capitalism. The absence of noticeable progress since the decision was taken to start negotiations in 2012 shows that no matter how hard the EU presses for “full reciprocity”, a non-discriminatory business environment in China is not on the table. Meanwhile, Beijing is eager to turn Western economies into its playground. After all, only 15 per cent of Chinese corporations listed on the Fortune Global 500 are in private hands.
European discussions over China would be much easier if the United States today were a trusted and reliable partner, providing strategic guidance, instead of the current administration’s petty displays of hostility towards the EU. The nature of China’s challenge to Europe, however, remains unchanged, regardless of who the current occupant of the White House is. Thus, it is imperative that Europeans use the window of opportunity provided by the pandemic and Beijing’s overreach to step up, hopefully to be joined in their efforts by the United States.
In the wake of COVID-19, the EU must do better to address China’s rise
18 Jun 2020
This paper discusses an idea to create a European Legion that has been put forward by Radoslaw Sikorski, MEP. This would be a new kind of EU military unit, made up of volunteers rather than national contingents contributed by the member states. The idea stems from Sikorski’s desire to reform the EU’s existing battlegroups, which have been operational for 15 years but have never been used, despite numerous opportunities. The paper argues that although the EU’s 2007 Lisbon Treaty imposes heavy restrictions on the Union’s ability to deploy military force, it does not rule out conducting operations with a volunteer force. At the same time, a volunteer-based European Legion force would have to be created initially by a group of member states outside the EU framework. These states could then make it available to the EU’s Common Security and Defence Policy as, for example, a permanent battlegroup. An existing model would be the multinational Eurocorps.Crisis Defence EU Institutions EU Member States
Rethinking EU Crisis Management – From Battlegroups to a European Legion?
16 Jun 2020
What should be the European Union’s reaction to the Hong Kong national security law adopted by China? More generally, what should be the EU stance towards China’s oppression of various minorities?
José María Aznar, Former Prime Minister of Spain:
“We should align our efforts with those of our allies, creating a diplomatic coalition to put pressure on Beijing and to warn against China’s failure to preserve Hong Kong’s autonomy and freedom under “one country, two systems”. We have to prepare possible economic sanctions as our response to China’s decision to impose new security legislation. Our response must be convincing to discourage possible Chinese coercion of minorities and especially of Taiwan.”
Carl Bildt, Former Prime Minister of Sweden:
“On the issue of Hong Kong, it’s important to coordinate our stance closely with international partners, especially with the UK, since it is very much the Sino-British Joint Declaration of 1984 that we must insist on being implemented to the letter and the spirit. Only by acting together, with a broader group of countries – including Canada and Australia – can we have any possible impact.”
Antonis Samaras, Former Prime Minister of Greece:
“When Hong Kong was integrated back to China in 1997, the general agreement was that nothing should challenge the overall sovereignty of China, and nothing should undermine the basic democratic principles already enjoyed by the people of Hong Kong, including the right of self-governance, their separate western-based judicial system, or the rights of various minorities. The Basic Law of Hong Kong – its formal term – was acceptable by all sides, and formalised the “one country, two systems” principle. This was a balanced approach that has worked so far and I do not believe it should change. I am gravely concerned about the repercussions of any attempt to undermine this agreement.”
Can the EU adopt a common strategy in response to China’s bid for global hegemony, and what should this be? Can Europe “decouple” from China?
José María Aznar: “For most of the last decade, the EU has looked at China through the prism of economic opportunity. Beijing’s transgressions, whether they are phasing out human rights in the country, dislodging South China Sea neighbours, stealing intellectual property from the West, or running propaganda and disinformation campaigns, have been ignored. Now, democratic nations need to make themselves less vulnerable to potential Chinese economic pressure and focus on security issues related to 5G networks. The EU’s common strategy must be based on three principles: 1) recognising that Europe’s values and interests are indivisible, 2) asking China’s government for reciprocity of market access, 3) cooperating with China on cross-cutting issues.”
Carl Bildt: “I don’t think China aspires to “global hegemony”, but they clearly seek to gain increased influence in different ways, particularly in their widely defined periphery. The EU’s policy must rest on two pillars. To engage with China on issues like climate, global trade, and global health, but also to stand firm on issues of human rights, democracy, and non-interference. However, “decoupling” is a strange concept – we are not “coupled” with China. And no one will be able to ignore what will eventually become the largest economy in the world.”
Antonis Samaras: “I believe we should have a common policy vis-à-vis China. But it should be an inclusive approach, not an exclusive one. Extensive dependence on international supply lines from China is not good for Europe or China. On the other hand, alienating China is also wrong. There is room for an “intermediate” solution, balancing the legitimate concerns from all sides.”
The US is pursuing an increasingly unilateral approach on China, which might put the EU in an uncomfortable position. How do you expect this to affect the transatlantic relationship, and what is the best policy for Europe?
José María Aznar: “The EU is in an uncomfortable position, but even with the current deep crisis in the transatlantic relationship, there can be no contest for the EU between its alliance with the world’s most powerful democracy, and a communist state that parades its contempt for European values. There is a strategic imperative to work together with the US, because the challenge posed by China will grow in the years to come, and only together can we safeguard the liberal international order.”
Carl Bildt: “We must develop our own approach, and the paper from March of last year is a good start. What is profoundly embarrassing is that the EU is often blocked by some member states from being critical towards certain Chinese policies, notably when it comes to human rights. We must also hope that there will be someone in the White House open to constructive dialogue with the EU on these issues, so that a common position can evolve.”
Antonis Samaras: “Europe is a long-standing trading partner and security ally of the United States. Europe is also a valuable trading partner of China. We will probably have to redefine both of these partnerships. However, most importantly, we must make them “compatible”. Europe can act as a valuable mediator between the US and China.”Crisis Democracy European Union Foreign Policy
How should the EU handle relations with China?
15 Jun 2020
People across Europe are suffering. They are scared of becoming ill, uncertain about their economic future and still worried about the well-being of their parents and grandparents.
But men and women are feeling this crisis differently. For example, while more men than women are tragically dying from COVID-19, more women are on the frontlines providing care, with women accounting for almost 80% of healthcare workers, 76% of the 49 million care workers, and 82% of cashiers within the EU. The impact of this virus is different for men and women, and to build a recovery that works for all people, we must acknowledge this core difference and tailor our response to it.Crisis Economy European Union Society
Putting Women at the Heart of Europe’s Recovery
10 Jun 2020
The Portuguese and Italian governments have decided to grant large-scale regularisation to undocumented non-EU migrants. This includes work permits and access to health care for temporary periods. An expert panel has recommended similar measures for Germany. In principle, are temporary regularisations of undocumented workers a good idea or not?
Wido Geis-Thöne, Senior Economist Qualifications, Migration and Innovation, Cologne Institute for Economic Research:
“Regularisations for undocumented non-EU migrants are a good idea if they have been living in the country for a long time and two other conditions are met. First, the host country should not be able or willing to enforce their removal, and, second, they should not have access to regular residence with the corresponding rights and obligations by other means. The latter is not the case in Germany. Thus, the legal status of Duldung (toleration) exists here for third-country nationals who cannot be deported or who are not to be deported for various reasons, such as illness or completion of training. Although this is not a residence title and does not release them from the obligation to leave the country, it does give them access to the health, education and social system: Geduldete (tolerated persons) receive largely the same benefits as asylum seekers–and are allowed to take up gainful employment. If the Geduldete integrate successfully into the labour market and society, after a certain period of time, they can also obtain a regular residence permit, which secures their long-term stay in Germany. If it should turn out that a larger group of non-EU migrants who would actually be eligible for regularisation do not have access to toleration – which in my opinion is not the case – the access criteria for Duldung should be adjusted. Germany’s Duldung approach is clearly better than regularisation programmes, as it works continuously and not just at infrequent points in time. A combination of the two makes no sense, as it would in all probability only lead to confusion and uncertainty on the part of the competent authorities and would hardly help those affected. Both the Duldung and regularisation programmes always run the risk of motivating other people to set off for Europe without valid papers, which can plunge them into misery. Policymakers should therefore be very careful in applying them, although they are often necessary for humanitarian reasons and with a view towards integration.”
Olivia Sundberg-Diez, Policy Analyst European Migration and Diversity, European Policy Centre, Brussels:
“These measures are, in principle, very useful to address labour shortages, exploitative working conditions, and social marginalisation during the COVID-19 pandemic. In Italy, they can undo some of the damage caused by the country’s recent Security Decree, which substantially increased the number of people living irregularly and without basic services in the country. Now that returns from Europe have essentially (not completely) halted and will be difficult to implement for the months to come, other policy responses for these migrant groups need to be seriously considered, such as regularisation. The details of these proposals merit attention, however. If states do not provide paths for longer-term regularisation, they may simply be kicking the can down the road and sending people back to precarity in some months’ time. Incentives need to be in place to ensure employers, and migrants themselves, do in fact come forward and apply to regularise their status. Finally, the policies proposed so far by Italy and Portugal (and to a smaller degree by other countries) apply only to a small portion of undocumented migrants in these countries. Italy’s measures exclude migrants working in certain key sectors, such as tourism, construction, or transport, or people who are unable to work and may be especially vulnerable. Portugal excludes those who have been employed without formal contracts or for less than a year at a time. From a public health perspective, excluding these groups from access to basic services during the pandemic is bound to be counterproductive.”
Monica Andriescu, Senior Policy Analyst, Migration Policy Institute Europe, Brussels:
“Governments in Europe and beyond have repeatedly used regularisations to address pressing labour shortages, manage migration, and slow down the growth of informal economies. However, this policy tool has the potential to be more than a quick fix, if it is well designed, effectively implemented, and accompanied by other relevant measures. Two questions are critical in this context. 1) Who is eligible? Regularisation measures often select specific groups of migrants, depending on their occupational profile or length of residence. This selection inevitably excludes other categories of migrants. And 2) What is the impact? Temporary regularisation programmes might reinforce irregularity in the long-term, if the outcome for migrants is the return to the undocumented status once provisional work or residence permits expire. Well-conceived programmes can positively impact migrants’ livelihoods and upward mobility prospects if they balance labour market needs with rights protection requirements, provide a path to permanent residency, and are accompanied by other policies that support migrants to remain in regular employment.”
Rainer Münz, migration and demography expert, formerly working at the in-house think tank of the European Commission (2015-2020):
“Europe has, so far, experienced two types of mass regularisations: (a) During the 1990s and early 2000s, several European countries – including Belgium, France, Greece, Italy, Luxemburg, Portugal, Spain, Switzerland, and the UK – offered large-scale regularisation on one or more occasions. Depending on the country, tens or even hundreds of thousands of irregular migrants profited from such opportunities. However, some regularised migrants quickly lost their jobs, if employers were no longer willing to keep them under minimum wage, tax, and social security regulations that applied under regular work contracts. (b) EU enlargements of the years 2004, 2007, and 2013 implicitly regularised hundreds of thousands of people who had already moved in earlier years from Central and South-Eastern Europe to Western and Southern Europe. EU accession of their home countries immediately gave them a legal status. After a transitional period, they also obtained legal access to formal labour markets. In 2004, only Ireland, Sweden, and the UK did not apply a waiting period.
In response to the COVID-19 epidemic, Portugal and Italy have now offered irregular migrants residing on their territory temporary regularisation of their status. From an epidemiological point of view, such an offer makes perfect sense. Many recent and future measures, including testing, isolating, or tracing people and identifying their social contacts in case of infection, can hardly be applied to irregular migrants avoiding any contact with authorities and using pre-paid cell phones. Pull effects are not to be expected as long as borders are closed, and irregular arrivals are at an all-time low.”Crisis Economy Migration
Should EU countries regularise undocumented migrants due to the COVID-19 pandemic?
04 Jun 2020
The COVID-19 pandemic has exposed some exploitative employer practices for both EU and non-EU seasonal workers, especially in agriculture in some EU member states. Can the conditions for these labourers be improved without damaging the viability and competitiveness of national agriculture sectors?
Wido Geis-Thöne, Senior Economist Qualifications, Migration and Innovation, Cologne Institute for Economic Research:
“If the exploitative employer practices violate existing legislation, better controls are needed. The problem is then that there can be such a strong distortion of competition that is detrimental to law-abiding companies that, if they do not also resort to these illegal practices, they can be forced out of the market. If companies are forced to violate the law, the regulatory framework must be adapted as a matter of urgency. Otherwise, the economic order itself will be called into question. In this case, either law enforcement has to be improved, or the legal framework must be adapted. If practices move within the range of what is legally permissible, the situation is different. In this case, it should be noted that there can be very different perceptions of when individual work processes are exploitative and when they arise from operational necessities, e.g. with regard to optimal harvesting times. In this case, policymakers are called upon to listen to all sides and to assess the arguments carefully. If the regulations are carried out within a reasonable framework, there is no reason to fear that the vitality and competitiveness of the European agricultural sector will be impaired, since imports from third countries play a rather subordinate role in this area and the Common Agricultural Policy (CAP) provides very strong support and protection mechanisms for domestic farms. Within the EU, agriculture, and hence seasonal workers should, in any case, be subject to largely the same rules in order to ensure that the CAP functions properly. At the same time, however, local conditions, for example with regard to wage levels, must also be considered in shaping employment relationships.”
Monica Andriescu, Senior Policy Analyst, Migration Policy Institute Europe, Brussels:
“Guaranteeing fair working conditions can never be at odds with growth and competitiveness. The pandemic has exposed the fault lines of our economies and its pervasive inequalities. In these times more than ever, safeguarding workplace safety, health, and decent working conditions are critical to increasing productivity and building economic resilience. Policies cannot afford to go amiss in harnessing and protecting the human capital needed to weather the storm ahead. Exploitative working practices are regrettably still part of European labour markets, with migrants particularly vulnerable to unfair employers and temporary work agency practices. While there is political commitment at EU level to improve employment conditions for all workers, there is a need for decisive action to be channelled towards alleviating inequalities at times when they are likely to be exacerbated if left unchecked (e.g. increasing workplace inspections and encouraging the reporting of abusive practices). This is particularly relevant for sectors where workers’ vulnerabilities are heightened by the physically draining nature of their work, e.g. in agriculture. Despite the gloomy prospects this crisis brings at macro and micro levels, it does harbour opportunities to rethink connections between economic growth and good work, and how to go beyond artificial perceptions that there is an inverse relationship between them.”
Rainer Münz, migration and demography expert, formerly working at the in-house think tank of the European Commission (2015-2020):
“Following initial travel restrictions and border controls, many Western European farmers and slaughterhouse operators resumed recruiting labour in Central and Eastern Europe. Austria, Germany, and the Netherlands organised airlifts from Poland, Romania, and Ukraine. Employers mainly argued that domestic job seekers lacked the required experience and endurance. Another reason was that foreign seasonal and contractual workers are less expensive. They are exempt from certain social security contributions. Minimal wage arrangements do not apply if workers are hired via subcontractors or categorised as self-employed.
The background to this wage dumping is competition within the EU. The Common Agricultural Policy does not shield Western and Southern European producers and processers from having to compete with their Central and South-Eastern European counterparts, operating in a distinctively lower wage environment. The flip side of this is retailers being able to offer lower food prices, for example, tomatoes at €1.29 per kg, apples at € 1.50 per kg or chicken nuggets at € 2.99 per kg.
The COVID-19 crisis has exposed not only the extent to which certain businesses are dependent on readily available short-term migrant workers, but also their wages and their living and working conditions. In Austria, two dozen foreign temporary agricultural workers were confined in quarantine as some of them tested positive for the virus. In Germany and the Netherlands, hundreds of slaughterhouse workers were infected at their workplaces or at boarding houses. After the death of a few Romanian workers, the Romanian Minister of Labour, Violeta Alexandru (PNL), travelled to Germany to conduct on-sight inspection. Later in May, the German Minister of Labour, Hubertus Heil (SPD) announced that from 2021, it would become illegal for slaughterhouse operators to hire non-employed foreign contractual workers. It remains to be seen if this will lead to more automation, higher retail prices for meat or in a shift of production towards EU countries with lower wage levels or less regulated labour markets.”
Several EU countries, including Germany, have been recruiting migrant and refugee health and social care workers although many of these people lack the professional certificates that they would require under normal conditions. Do you foresee a relaxation of national qualification standards as a result of the Corona crisis?
Wido Geis-Thöne: “I consider it very unlikely that the Corona crisis will lead to a relaxation of national qualification requirements for health and social care professions. As far as I can see, the Corona pandemic is not expected to lead to a sharp increase in the number of people in need of care and assistance in the longer term. If this is not the case, there will be no sharp increase in the number of staff needed in the health and social services sector. The peak of the (first) pandemic wave represents an exceptional situation in this respect. However, in the context of demographic change, we will observer a gradual increase in the need for care and assistance, and this will pose major challenges for the health and social services in the medium term. It will also raise the question of whether it is possible to achieve a different mix of qualifications in these areas with a higher proportion of assisted personnel without the relevant specialist training.”
Monica Andriescu: “National education and training systems are not prone to swift changes, such as the sudden relaxation of qualification standards. The key question is rather how to enable quicker procedures of recognition of foreign qualifications, which under normal conditions are often lengthy and complex. As evidenced by the stringent need for health and care workers to support the frontline fight against the Coronavirus throughout Europe, fast and effective procedures of recognising foreign qualifications are more relevant now than at any time in the past, to ensure a steady stream of relevant workforce. These will ensure that professional certificates are recognised in a timely manner and that occupational standards are maintained in destination countries. The pandemic provides an opportunity for relevant authorities and employers to join forces in identifying innovative routes to reform or expedite the recognition of skills, and to pilot these. The key challenge will be to balance speed and quality of processes and outcomes, without lowering standards.”
Rainer Münz: “The relaxation of standards in order to hire migrants with professional health and care background during the COVID-19 epidemic is of temporary nature, caused by exceptional circumstances. It will not remain in place after the crisis ends. It can, however, be expected that many of those who have now found a job, will remain in the health and care sector. And we can assume that labour market authorities financing retraining and job integration of unemployed migrants will encourage more people to specialise as care givers or to have their medical degrees recognised.”Crisis Economy European Union Migration
How does the Corona crisis affect the conditions for migrant workers in the EU?
29 May 2020
Rules-based trade is under attack, and the World Trade Organisation (WTO) is at risk of marginalisation. The COVID-19 pandemic and its detrimental effects on public health, value chains, and industrial production have brought back national export restrictions and stopped the free flow of goods and people. Buzz words such as ‘decoupling’, ‘sovereignty’ and ‘autarky’ have quickly returned to the global stage. However, COVID-19 is not the first shock to global trade. The WTO is already facing an existential crisis due to a deadlock in negotiations, blockage of institutional reforms, and paralysis of the dispute settlement mechanism (DSM). Nevertheless, there is hope that countries experiencing the effects of disrupted trade means the EU can take the lead in global reform efforts.COVID-19 Crisis Economy Globalisation Trade
EU Trade Policy as an Economic Recovery Tool
27 May 2020
Amid -at times- stringent lockdown measures taken all over Europe, it seemed almost providential that one of our main platforms for home entertainment proposed a very bizarre show.
As we all guiltily binge-watched Netflix’s hit ‘documentary’, “Tiger King: Mayhem, Murder and Madness”, and revelled in its larger-than-life characters, we must be serious for a moment: the trade of exotic animals is a highly lucrative and unregulated business. In Europe, we have our own Tiger Kings.
Where does regulation stand at the EU level? The EU mostly settles for the current CITES regulation. The Convention on International Trade in Endangered Species of Wild Fauna and Flora (CITES) is an international norms system that began in the 1970s, that regulates international trade in over 35,000 species of plants and animals, including their products and derivatives. It ensures their survival in the wild with benefits for the livelihoods of local people and the global environment.
Illegal wildlife trade is a flourishing business, comparable to the traffic of drugs and weapons, and amounts to 7 to 23 billion dollars annually, according to a UNEP-Interpol report. Therefore, it was a welcome announcement when the European Commission pledged in its EU Biodiversity Strategy for 2030, published on the 20th of May, that it “will take a number of steps to crack down on illegal wildlife trade”. The Commission said that, among other things, it will revise its EU Action Plan against Wildlife Trafficking in 2021.
This communication was initially scheduled to be released two months ago, but due to the current pandemic that has been shaking the continent and the world, it could only come out now. COVID-19 can, in fact, be directly linked to the necessity of strengthening the future Action Plan against Wildlife Trafficking.
The COVID-19 outbreak has dramatically shone a light on how wildlife markets, as well as the use of wildlife for traditional medicine, represents severe risks for zoonotic disease transmission. The proximity with humans provides a path for the transmission of dangerous pathogens. Wildlife markets, like the one in Wuhan from where COVID-19 is supposed to have originated, exist all around the world, and the European continent is a central hub of transport and trade for the lucrative business of wildlife trade. Besides wet markets, it is not uncommon to come across monkey meat in Brussels, or European baby eels in Asia.
Zoonoses do not have to stem from direct contact between wild animals and humans, it can also spread from wildlife to parasites (ticks, mosquitoes, fleas) or to domestic animals, before eventually spreading to humans. COVID-19 had a zoonotic origin, but is now mostly contracted from other human beings. 61% of new and re-emerging diseases are of zoonotic origins, and although they can originate from the world over, some parts of the world are more prone to develop them due to larger biodiversity, a high density of humans and animals, and the international mobility of these humans and animals. The EU is both a vital marketplace and storage space for exotic animals that could represent a risk for zoonoses.
It comes as no surprise that, with the emergence of the pandemic, members of the European Parliament have demanded a stronger clampdown on both the legal and illegal trade of exotic animals in the EU, where favourable conditions for the outbreak of diseases like COVID-19 are also rife. The difficulty lies in the effective differentiation between the legal and illegal trade of wildlife, since they are very closely intertwined, as this 2016 report by the European Parliament’s trade committee states.
This is where a positive list can step in. French MEP Agnès Evren, from the EPP Group, is hopeful the EU will include a more restrictive positive list in tradeable species in its European Green Deal plan for the environment. A positive list sets into legislation what can be brought into the EU, and everything not on the list cannot come in. This method would considerably reduce regulatory bureaucracy at the government level, and facilitate custom officers’ work when distinguishing what is legal versus what is not. Currently, the limited, legal and regulated trade often acts as a cover for illegal trade of the same species.
Criticism has been levelled against positive lists, invoking subsidiarity, and putting into question whether the EU even has competence on wildlife trade. In fact, some member states have adopted their own methods for tackling wildlife trafficking through positive lists. Others resort to negative lists which, contrary to positive lists, state which species are forbidden from trade, but where permits can be granted following a strict set of rules. Some member states barely have any regulation at all. Once an animal is inside the EU, it becomes harder to track its progression, and transportation is an even bigger headache when following every member states’ individual regulatory mechanisms. Here, EU regulation can create a level playing field for all actors, and reduce cumbersome bureaucratic efforts for national governments.
Another benefit of further regulating what comes into the EU is the possibility of checking each animal for known pathogens, such as the one which has stemmed from SARS-CoV-2. Checks would allow for closer inspection of animals that are meant for food consumption, but also those that are intended to be kept as pets, as they too can contract the virus.
The discussion on zoonotic diseases has indicated that poor regulation of wildlife trade can have serious consequences, the likes of which should not be ignored. COVID-19 is not the first and will not be the last pandemic to occur on our continent. EU regulation on this trade should, therefore, be adopted with the view of protecting the health of EU citizens.
The EU Biodiversity Strategy, which will be an integral part of the European Green Deal, offers the perfect opportunity to take immediate action in preventing the rapid spread of diseases. We should not lose sight of the bigger picture either, which is to avoid future pandemics from happening in the first place. An EU positive list for species and pets is one way to bring much-needed regulation into a trade that has proven dangerous for the safety and health of European citizens.
So no, don’t hit play on that follow-up meta-documentary about the hit documentary series. Instead, “Think Positive”.Anna van Oeveren COVID-19 Crisis European Union Trade Values
Anna van Oeveren
Animals in the time of Coronavirus: Why it’s time to think positive
27 May 2020
EU countries have begun to ease national restrictions aimed at countering the COVID-19 pandemic. When it comes to the Visegrád Group, how do you evaluate the emergency powers granted to the executive branch?
Pavlína Janebová, Deputy Research Director at the Association for International Affairs (Prague):
“Strengthening the powers of the executive branch is certainly a logical and legitimate step in times of crisis. Regarding the Visegrád states’ governments (i.e. the Hungarian, Polish and Czech governments, as the Slovak one took office only recently), handling the COVID-19 pandemic has largely confirmed the tendencies that we had seen before. Fidesz-KDNP is taking Hungary yet another step further from democracy and the rule of law (with the EU still unable to react adequately). PiS in Poland is pushing for controversial legislation including a change to the electoral code despite the pandemic. Finally, the coalition of ANO and the Social Democrats in the Czech Republic is struggling to produce clear and comprehensible policies for their citizens, and although this is not surprising, it is far from encouraging.”
Péter Krekó, Executive Director of Political Capital, independent policy research, analysis and consulting institute (Budapest):
“The V4 varies in this respect, and I think we can observe somewhat uneven tendencies within the V4. We can find more problematic tendencies of executive (mis)use of power under the pretext of fighting the pandemic in Poland and Hungary, and less in Czechia and Slovakia. In Poland, for example, the government is using the pandemic to put further restrictions on abortion, while it is not obvious at first sight how this might help to stop the epidemic. A law, similar to one in Russia, Hungary and Israel, which aims to discredit NGOs critical of the government by revealing their “foreign funding”, is underway.
In Hungary, the government also took steps to silence critical voices. Under the veil of the COVID-19 crisis, the Parliament amended the criminal code to make spreading hoaxes or ‘distorted facts’ about the coronavirus punishable by up to five years in prison. Government-organised think tanks and media then listed opposition journalists as sources of hoaxes to make the message even more evident. Authoritarian practices are also more widespread. For example, police fined citizens who were peacefully protesting against certain government measures without physically gathering, by making noise with their car horns and bicycle bells.
What instead seems to be a common trend in Central and Eastern Europe is a narrative that China is providing help amid the coronavirus crisis, and the EU is not. Ironically, China might end up extending its sharp power influence in the region as a result of its ‘mask diplomacy’.”
Milan Nič, Head of the program for Central-Eastern Europe and Russia at the German Council of Foreign Relations-DGAP (Berlin):
“None of the other Visegrád group countries went as far as granting special powers with no time limit to its head of government, as in Viktor Orbán’s Hungary. His rule by decree, adopted on March 30, did not make Hungary’s response to the spread of COVID-19 more effective than elsewhere in the region. In the regional context, Budapest was rather late in its response, less transparent and also had the lowest testing capacity. The Czech Republic and Slovakia, in contrast, closed schools in early March and enforced early lockdowns without the need to widen constitutional frameworks in place. Both countries also made wearing masks mandatory ahead of other European countries. Granted, they also made a number of confusing moves along the way, but these were corrected in response to public criticism and free media coverage.
If we want to take lessons for the future, the overall response showed that none of the V4 governments had developed civilian crisis management systems for emergency situations, and had to rely on their armed forces or improvised decisions at the verge of legality, e.g. the very strict supervised treatment of their own citizens returning from abroad.”
Do you think there was an East-West divide in the way governments addressed the COVID-19 pandemic?
Pavlína Janebová: “While I do not like the connotations of an ‘East-West divide’, it is clear that imposing strict containment measures early on helped prevent a much more serious spread of the disease in some Central and Eastern European countries. While that certainly is great news, the relative ease with which the borders were closed and the fact that the restrictions were largely undisputed might be a dangerous precedent for the future of Schengen and EU integration in general.”
Péter Krekó: “I do not really see this. We can see across the world, and in the region as well, that even politicians who were initially hesitant to recognise the pandemic as a significant threat were later just following international trends and the recommendations from doctors and scientists. The region is lucky in that it seems to have been hit by the virus much less than Western Europe. The reasons for this are still to be analysed, and the region’s smaller global role matters. But even that only gave an advantage of 2 to 3 weeks for the countries in the region, and lockdowns, following Western formulas, began earlier here. The region also regards Western Europe as a model now, in the incremental opening process.”
Milan Nič: “Yes, by now it is clear that the EU’s East moved faster to enforce lockdown measures than most Western European governments, despite a much lower level of confirmed COVID-19 cases. This was partly motivated by fear and awareness that their relatively weak and underfunded health care systems might not be able to contain a major outbreak.
For the moment, I am concerned that an East-West divide could also be repeated with lifting the lockdowns, just in reverse mode. So far, V4 governments have been too careful and risk-averse when it comes to restarting their economies, which will have a severe impact on the economic recovery and social burden in the whole region.”
In addressing the impact of the COVID-19 crisis at the EU level, how can the V4 contribute to economic burden-sharing?
Pavlína Janebová: “In tackling the consequences of the COVID-19 pandemic, solidarity and mutual cohesion in the EU will be crucial. While the Visegrád countries tend to consider themselves to be among the ‘poorer’ EU member states, and they will certainly experience economic downturn, it will be important for them to realise that other states will be taking the hardest hit. The Visegrád states should be ready to show solidarity in financing economic recovery.”
Milan Nič: “That remains to be seen, as so far the V4 countries have neither been part of the problem nor the solution – most of them being outside of the Eurozone. But the main part is still ahead of us: political bargaining over EU recovery instruments and the next MFF (budget). For the entirety of Central and Eastern Europe, this is a crisis without precedent in the post-transition period as well as in their period of EU membership. Regarding the Visegrád countries, their government’s response is not going to be the same. It will likely shape individual countries’ political position in Europe, along with prevailing perceptions of the entire region by Western European public opinion – with a tendency to see them as one unit – for years to come.Crisis Democracy Eastern Europe European Union
How have V4 countries responded to the Corona crisis?
25 May 2020
Amid the lockdown, we’re left awestruck by the arrival of spring: blue skies, brisk air, and the general abundance of nature. However, our senses have not been suddenly heightened as we mark the second month in self-isolation. Rather, the recent statistics from the European Environment Agency and the European Space Agency show that air pollution fell dramatically, in many European cities by up to 50%, as the world came to a standstill amid the Coronavirus pandemic.
The unprecedented public health crisis exposed the many vulnerabilities of humanity, with air pollution among the risk factors. The link between COVID-19 and poor air quality appears to be threefold: death rates are higher in patients with chronic illnesses linked with exposure to air pollution. Secondly, pollutants inflame the lungs, which become more susceptible to catching the virus. And lastly, particles of pollution might even serve as a vehicle to carry the virus further. However, smog has been deadly long before the COVID-19 outbreak and it causes 430,000 premature deaths in the EU each year. The World Health Organization identified air pollution as the biggest environmental risk to health in the EU.
Air quality in tandem with climate action
The political commitment to reduce emissions has been embodied by the fight against climate change, with the primary target being carbon dioxide emissions, whose greenhouse effect warms up the atmosphere with devastating consequences for the planet. This noble cause rightly spurred global climate action, keeping world leaders awake until dawn during lengthy international negotiations, and attracted celebrity champions from Hollywood actors to youth activists.
Yet improving air quality is just as acute, with direct benefits to human health, biodiversity, and the climate as a whole. Air pollutants are different from CO2, and, rather than piling up in the atmosphere, they negatively and directly affect the air we breathe. The substances most harmful to human health are the dust-like particulate matter (PM), nitrogen dioxide (NO2), sulphur dioxide (SO2), and ground-level ozone (O3). They are primarily caused by road traffic, shipping, agriculture, domestic heating, and power generation. One might wonder, if air pollution is so dangerous, shouldn’t the EU do something about it? Thankfully, it already does, as air quality has been one of Europe’s main political concerns since the late 1970s.
Air pollution is currently regulated both at the international level, by the UN Gothenburg Protocol that sets binding emission reduction targets, and on the European level, by the Ambient Air Quality Directives that sets standards for the quality of the air we breathe. The EU also oversees the National Emission Ceilings Directive, that obliges member states to reduce total emissions of certain air pollutants, alongside other sectoral legislation.
Despite these comprehensive rules, in November 2018, the European Court of Auditors published a revealing report on air pollution, which concluded that citizens’ health remains insufficiently protected. While air quality has been improving, most member states still do not comply with the EU’s air quality standards. The European Commission faces limitations in monitoring and enforcing the rules. As of January 2018, it had 32 ongoing infringement cases regarding air pollution, and these cases can take up to eight years to resolve. So how can we advance from the status quo?
Never let a good crisis go to waste
EU standards have played a pivotal role in reducing air pollution in Europe, with simple measures such as the mandatory use of catalytic converters for petrol cars since 1993, and tighter norms for all vehicles ever since. On the other hand, the fact that many member states still fail to reach some of the air quality targets demonstrates that there are limits to the effectiveness of regulation, and that over-regulation is hardly the way to go. However, we can hardly deny the ecological and health urgency.
What is needed is a paradigm that will shift the attitudes – of policymakers, businesses, and citizens – towards a new ‘normal’. And the Corona crisis might serve as the right trigger for the much-needed synergy between public support and political action. Behavioural scientists argue that people were able to comply with the stringent lockdown measures because they understood the logic behind them. The same public awareness can now be used to advance from compliance to commitment and secure some of the new habits we have adopted as a society.
The EU should continue to highlight the political priority of the European Green Deal as the centrepiece to Europe’s resilient post-Corona economic recovery with concrete, incremental initiatives towards achieving the long-term goal of climate neutrality and zero pollution. The future common agricultural policy is designed to contribute to climate action, as is the whole EU budget for the upcoming period 2021-2027. Sustainability should be mainstreamed in all EU policies, including finance and investment, promoting research, innovation, education, and improving public information. On the global level, as has been the case with climate diplomacy, the EU should promote clean air policies in all international fora.
Member states have a pivotal role to play. As governments outline plans for massive public investment and fiscal measures to aid industries struggling due to the Corona crisis, they should not miss the ecological opportunities to attain sustainable growth and resilient jobs. Strategies to achieve cleaner air for all citizens should be supplemented by the efficient and transparent use of available EU funds. People in rural areas should have access to affordable cleaner fuels to heat their homes. In cities, local governments ought to promote more sustainable forms of transportation. Many mayors already began adding cycling infrastructure and enlarging public spaces, as a step towards deconfinement while maintaining social distancing. Where feasible, employers should enhance the possibilities to work from home, which will reduce traffic peaks. And citizens should be empowered to make informed individual choices to opt for less polluting alternatives.
Let’s do it right so that we can all take a breath of fresh air!Eva Palacková COVID-19 Crisis Environment EU Institutions
Clean air is this crisis’ silver lining: let’s work towards keeping it
20 May 2020
The view of the chair of the Federal Reserve in the United States – Jay Powell – that “for the economy to fully recover, people will have to be fully confident. And that may have to await the arrival of a vaccine” belies the stark economic realities facing the US economy over the next 12 to 18 months.
For the United States – an economy where consumer spending accounts for over 70% of its activity – the risks of a long, slow, grinding economic recovery are immense. Multi-trillion dollar Federal support programmes for workers and businesses will never fully replace the absence of comprehensive social supports at state level, nor full-time employment income.
With unemployment at rates not seen since the Great Depression, an uncoordinated public health response at federal level and increasing political polarisation it is clear that American companies and workers will require more trillion dollar support packages in the future. The immediate economic consequence is obvious. By the end of 2021, the US will have a federal debt to GDP ratio much closer to Greece than to Germany.
The enthusiasm of many US Governors to reopen their states as quickly as possible (regardless of public health advice) will not supply the economic adrenaline shot so desperately desired by many policymakers in Washington. Even the most minimal of social distancing requirements will reduce consumption across almost all sectors of the US economy. In many sectors, such as hospitality, it will continue to have a disastrous impact for the foreseeable future.
Two further factors will further undermine the ability of the US to recover in the short term, regardless of states restarting economic activity. First, is the impact of the pandemic in reducing consumer confidence, particularly for those who are retired and most at risk from the Coronavirus.
These “baby boomers” are an important driver of consumption in the US. They are also heavily dependent on US federal payments (such as Medicare) and are hugely overexposed to US equities (37% of the US stock market is owned by retirement funds). This combination of health risk, federal transfers and stock market uncertainty will likely exacerbate, not alleviate, declining consumer confidence in the months and (possibly) years ahead.
Second, is the false hope that restarting the export economy will help restore jobs and confidence to huge swathes of the US economy. As we are already seeing across the US (and indeed globally) the restarting of production in industries such as automotive and aeronautical will be largely dependent on international demand. Boeing – a key US industrial champion – has already cut its employee numbers by 10% as it seeks to deal with the dramatic fall in demand for air travel. These cutbacks will be repeated across most other economic sectors. There will be no quick return to a 2019 “normal”.
But perhaps the biggest danger to prospects of a robust US economic recovery has been the dramatic politicisation of the federal support system.
In an unprecedented health crisis such as the Coronavirus, Europeans have long assumed that the US federal model of government would act as a stabilising force for the states hit worst by the pandemic. It was this “transfer union” which European economists believed signalled the superiority of the US model of currency union when compared to the disjointed and overly complicated Eurozone model.
And indeed the US federal government has provided trillions of dollars of relief to businesses and workers. But the political cost has been significant. And the long term economic damage may be incalculable.
Mitch McConnell’s stated aversion to “blue state bailouts” highlights just how politically tinged the U.S. federal system has become. “Well run states should not bail out poorly run states” has become the new mantra of President Trump. Solidarity is fast becoming another American rarity, just like balanced budgets and social mobility
But the very real danger for the US is that a politicised federal support system further deepens mistrust of central government and reduces the effectiveness of federal spending in limiting the damage to, and then restarting, the US economy.
During the Great Depression, the Detroit riots of unemployed Ford workers in 1932 so startled policymakers that it resulted in the swift development of a property-owning working class (facilitated by cheap federal mortgages). It is the societal model which still dominates in the US and in much of the world today. The point is that economic upheaval of the scale we are now experiencing will have far-reaching, and often unintended, economic and societal consequences.
Perils abound for the US in a slow, faltering and overly politicised economy recovery. Europe should take note.Eoin Drea Crisis Economy EU-US Society
Perils for the US in a slow and faltering economic recovery
19 May 2020
The month of May is the perfect time for political contemplation. There are many reasons to think deeper about Europe and our European future these days, particularly as we commemorate the 75th anniversary of the end of World War II and 16 years since the reunification of Europe. Additionally, Europe is facing an unparalleled challenge in the post-war era – the COVID-19 pandemic.
If someone asked me these days how Europe is doing, I would have to say that it is divided once again. We somehow overcame the global financial and economic crisis. But the cracks have since only continued to deepen. We were unable to provide a uniform response to the migration crisis. We seem to have lost the ability to distinguish our allies from our opponents, or other potential threats. We are divided when assessing whether government actions are still democratic, or if they already belong to the apparatus of autocrats. We are divided when deciding if the EU enlargement process should continue or be halted. We are divided on the issue of whether the Istanbul Convention is an opportunity or a threat. We are divided on whether our economies, being bled dry by the pandemic, should be rescued by loans or grants, and whether the future European budget should give priority to cohesion and convergence over security and innovation. It has never been easy to reach a consensus within the EU, but the current level of dissonance makes me very concerned.
Whenever there was a problem, I asked myself if anything could be done about it. I asked a similar question recently when reading the interview with Irene Tinagli, Chairwoman of the EP’s Committee on Economic and Monetary Affairs. I learned from the interview that when in her native Italy you mention the European Stability Mechanism (ESM) as a tool to support economic recovery after the coronavirus crisis, “there is a lot of sensitivity”. The ESM is “seen as a traditional instrument, as a way to control economic and fiscal policies.”
In other words, I learned that indebted Italy does not want to take additional loans under the ESM and that the current Italian government instead wants grants. I can understand why a heavily indebted Italy does not want additional loans. But I do not understand why Italian leaders are hiding behind the sentiments of voters while enflaming such views. I do not understand how the leader of a European country can plead for grants, without presenting in advance, or simultaneously, a set of reforms that would change the country for the better.
Having said this, is there anything that can be done to deal with this serious internal European division? In my opinion, we must start playing fair with voters. Either political leaders opt to play fair, or the post-pandemic wave will sweep us away. Political leaders must have the courage to explain to people that cohesion does not mean everyone will enjoy the same income. That solidarity does not mean that people of responsibility will tolerate or promote moral hazard. That someone will have to foot the bill for the irresponsible decisions of politicians. Political leaders must tell EU citizens that the key to Europe’s future consists, first and foremost, of deep reforms implemented at the national level. Only then can the most indebted countries invoke greater solidarity and support from the others. The leaders of EU institutions, for their part, should not raise unrealistic expectations, but rather patiently explain that they can only exercise the competences entrusted to their administration by the member states.
I cannot keep myself from saying this: when we, the post-communist countries, were struggling to get back on our feet after the period of morass, there was no Marshall plan, and we had never heard a term such as ‘bail-out’. It had never even occurred to me, as the then-Prime Minister, to ask other countries for grants to make up for Communist mismanagement. We carried out painful reforms, privatised entire sectors in order to repay old debts and rescue the banks. To this day, ex-Communists reproach me for selling “Slovakia’s family silver”. But I can live with this kind of reproach. Yes, we recognised the value of financial instruments, such as the International Monetary Fund’s stand-by loans, or development investment loans from the World Bank or the European Investment Bank. However, what we always valued most was moral and political support from the West, and its vision of a reunited Europe.
There is no magic wand and the only way forward is together. There is no technical finesse that would us rid of old debts. Individual cunning or political threats are not a solution, either. There is only one thing that will determine our success, or failure – sound leadership by politicians, or their resignation in front of voters disoriented by their actions. Schuman, Adenauer, De Gasperi, their travel companions and their successors achieved a unique feat: uniting Europe and making it stand on its feet. Now is the time for its protection and further development.Mikuláš Dzurinda COVID-19 Crisis EU Institutions European Union Values
Beyond divisions, the only way forward is together
09 May 2020
One of the most pertinent questions posed during the ongoing COVID-19 outbreak is whether technology can be successfully utilised to mitigate the spread of the virus or otherwise limit its impact on everyday life. This In Brief takes stock of the technological measures taken in several Asian countries as a reaction to the outbreak and examines the recent response of European Union member states. The text also maps out workable solutions and important future considerations on the digital front for the EU.COVID-19 Crisis European Union Innovation Technology
COVID-19 and Technology in the EU: Think Bigger than Apps
07 May 2020
The pandemic has created an unprecedented level of uncertainty, mainly because we do not know how long it will last. This affects the economic implications. Two facts are clear: there will be a recession and budget deficits will have to soar. This note draws some implications beyond the immediate health concerns. In many ways, they challenge the architecture of the Eurozone. Either the architecture will change or the Eurozone as we know it will cease to exist. During the sovereign debt crisis from 2010 to 2015, the architecture was changed just as the Eurozone was on the verge of losing one or more members, with unmeasurable consequences. Will history repeat itself?COVID-19 Crisis Economy EU Institutions Eurozone
Looking Beyond Coronabonds: What COVID-19 Means for the Future of the Eurozone
30 Apr 2020
During the last decade or so, the European Union has been spared little in the way of dramatic crises: the biggest financial meltdown since the Great Depression, the largest refugees’ inflow since the massive population transfers that concluded WWII, and now the deadliest epidemic in over a century. In conjunction with each of them, a reasonable case could be made, and has been made, that the best solution was a ‘federal’ EU state responsible for, respectively, fiscal and economic policy, migration policy, and now health policy.COVID-19 Crisis EU Institutions EU Member States Resources
Does the EU have sufficient healthcare competences to cope with COVID-19?
28 Apr 2020
The current COVID-19 pandemic will change the world, like the fall of the Berlin Wall and the 9/11 terror attacks. For the foreseeable future, EU governments will be preoccupied with dealing with the pandemic’s immediate socio-economic consequences. However, other policy areas will be affected as well. With regard to the EU’s security and defence policy, COVID-19 is likely to extinguish the unprecedented dynamism that has characterised its development since 2016. Its most immediate impact is likely to be decreased funding for several new initiatives such as the European Defence Fund. The pandemic is also likely to reduce the EU’s readiness to address crises in its neighbourhood and may hasten the Union’s relative decline as a global power if its recovery is slow and wrought by prolonged disputes between the member states over the appropriate economic response to the crisis. Yet, the EU should not completely abandon its pre-COVID-19 security and defence agenda. Both during and after the pandemic, the Union will continue to face familiar challenges such as cyberattacks, disinformation campaigns and instability in its neighbourhood.COVID-19 Crisis Defence Security
The EU’s Security and Defence Policy: The Impact of the Coronavirus
20 Apr 2020
Governments across Europe are implementing border closures, travel restrictions, and heightened screening at their borders. How useful are these measures in countering the spread of the Coronavirus?
Rainer Münz, Migration and Demography expert, formerly working at the In-House Think Tank of the European Commission (2015-2020):
“All these measures are definitely useful in reducing the risk of COVID-19 contagion, as is the case with any other epidemics. It is clear that infected business and leisure travellers have brought the virus from China to Europe and North America. The same is true inside Europe. Many people got infected after coming back from trips to Italy, western Austria, and a few other ‘hotspots’. Such closures even make sense within countries.”
Jean-Louis De Brouwer, Director of Justice and Home Affairs, Social Policies and Sustainable Development, Egmont (Royal Institute for International Affairs):
“Some have expressed the view that a mere closure which is not complemented by a strong programme of testing and tracking would be useless. Others have stressed that it was all the more senseless, as these decisions were often taken at a time when the virus was already inside the country. Not being an epidemiologist, I will refrain from engaging in this debate. But I would support the views expressed by Migration Policy Institute experts in a recent policy brief: while stressing that COVID-19 was not a migration problem, they acknowledged that “closing borders to non-essential travel might be a logical extension of asking people to stay home.”
Carlos Coelho, Founder of the Schengen Observatory, former MEP:
“A general or targeted ban on travelling would help contain the spread of the virus. In contrast, the reintroduction of internal border controls is not necessarily useful in containing the spread of COVID-19. Why? Their implementation – particularly along land borders – is hardly possible: 1. The member states do not have enough human resources to conduct effective controls. 2. Controlling the green parts of the borders (outside the official border crossing points) is impossible. 3. A traveller might not show the symptoms and already carry the virus. Thus, the imposition of quarantines to travellers would be an effective measure. In addition, there are side effects to these controls, clearly affecting the free movement of goods overland. This is particularly worrisome for medical equipment and supplies, pharmaceutical products but also perishable goods such as vegetables and fruit.”
It seems that only some member governments of the Schengen Area notified the European Commission of the impending reintroductions of border checks. Is this a problem?
Münz: “Governments are working in an emergency mode. It might be that not all procedures foreseen by the Schengen regulations have been followed, but the Commission does not seem to have major objections (for now) as long as the flow of goods is ensured. We also should not forget that earlier border controls imposed by countries such as Austria, Denmark, Sweden, Germany, and France as a reaction to the inflow of refugees and irregular migrants in 2016 had still been in place when current measures were taken.”
De Brouwer: “Yes, absolutely. Controlling access to its territory might be deemed as a fundamental prerogative of a Westphalian sovereign state. However, adherence to the Schengen Area of free circulation means accepting new rules and adopting new behaviours building upon transparency and mutual trust and translating these into permanent coordination. That is why the Commission rightly reacted by presenting its generally welcome ‘Guidelines for border management measures to protect health and ensure the availability of goods and essential services’ on 16 March 2020. As the reintroduction of border controls and travel restrictions are indeed compatible with the Schengen ‘acquis’ under certain conditions, it was essential to implement them in a coordinated way while preserving the internal market.”
Coelho: “Not necessarily. Border check notifications are lodged for three main reasons: 1. Guaranteeing publicity and transparency. 2. Allowing ex-post verification on proportionality and the necessity of national border controls by the European Commission (complemented by a report of the member states once the controls end). 3. Ensuring and encouraging coordination between the member state imposing the controls and those member states that are affected. Whereas the present controls are widely publicised, and the current situation falls within the circumstances foreseen by the Schengen Borders Code, it is not so clear that coordination has occurred. Not notifying the Commission might thus indicate a bigger problem: a lack of coordination between member states. Polish controls and their effect on the citizens of the Baltic countries serve as an important example. On the other hand, it will be essential to see whether or not the national controls produced the results desired and if they were effectively implemented. Notifications would provide relevant information to the Commission for this assessment.”
On 16 March, all Schengen Area member states approved the European Commission’s proposal to impose a 30-day restriction on non-essential travel to the EU, thus creating a Schengen Area ‘security perimeter’. What are the chances that this measure will lead to the easing of border checks inside the Schengen Area?
Münz: “The issue is not so much ‘checks’, but the denial of access. This is an additional measure attempting to reduce contagion, and it will not affect travel restrictions. Both measures will – sooner or later – be lifted hand-in-hand.”
De Brouwer: “This is the bet of the Commission, which, in its communication of 16 March states that ‘such a measure would also enable the lifting of internal control measures.’ However, the joint statement adopted by the members of the European Council on 26 March reflects a somewhat different understanding: heads of state and governments commit to ensuring smooth border management where temporary internal controls have been introduced, without actually questioning them. On a related subject, one should also bear in mind the negative consequences such restrictions could have on the respect of international protection obligations. Although the Commission explicitly stresses that such a measure should not apply to persons in need of international protection, or for other humanitarian reasons, the situations at the borders between Greece and Turkey or between Croatia and Bosnia deserve our utmost attention. By the way, this issue is not unique to Europe; it also arises between the US and Mexico.”
Coelho: “None. Recent experience shows – notably with the so-called refugee crisis – that reinforcement of the protection of our external borders has not resulted in the lifting of the internal controls. Nor has it led to a change in the political debate. Moreover, even though this pandemic is provoking symmetrical effects across the union, the spread of the virus varies across the EU.”COVID-19 Crisis EU Member States European Union
What are the effects of the national border closures on containing the COVID-19 infection?
08 Apr 2020
What does the Coronavirus mean for the EU as an international actor?
Jamie Shea, Senior Research Associate, Martens Centre:
“The crisis is still far from over, and this gives the EU time and opportunity to re-assert its relevance. Its institutions and their leaders should focus on clear objectives and persuade EU national leaders and their bureaucracies, currently beleaguered by COVID-19 pandemic management and lockdowns, to join this effort now.
The first objective concerns recovery. The severe economic contraction in the industrialised countries could tip the global economy into a prolonged depression. So, the primary role for the EU is to lead the G7 and G20 together with the international financial institutions to come up with a coordinated global strategy to restart the global economy as soon as the virus subsides. The EU can best engage China in this effort in a way that the US finds increasingly difficult. China is where the virus originated, and it is the first major economic powerhouse to recover and restart production. So, it has a particular responsibility to help the rest of the world. The EU will need to persuade China to re-capitalise the International Monetary Fund (IMF) and World Bank and fully open the Chinese market to foreign goods and services.
A second priority is to help Africa. African countries mostly lack the sanitary conditions, health infrastructure, and the possibility to self-isolate that richer countries enjoy. Yet if the pandemic is not contained in Africa with its rapidly rising population and exposure to climate change, migration flows, and jihadist extremism, the EU will have an even bigger security headache to deal with. COVID-19 would mutate and quickly spread back to Europe. So now is the time for the EU to develop a true health Marshall Plan for Africa and work with the World Health Organization (WHO), the African Union and the financial institutions and development agencies to elaborate an effective strategy before the pandemic runs into the millions and, like AIDS 20 years ago, brings entire African societies to the brink of collapse.
Finally, this pandemic will not be the last. The crisis has revealed multiple weaknesses in the global health management system from delays in sharing vital information, contradictory messaging and the spreading of fake news and disinformation, to uncoordinated responses and a lack of testing kits, respirators, and protective clothing. If the early stages of managing COVID-19 have been primarily national, emerging from it smoothly will need credible, authoritative guidance coming from international institutions. The EU should, therefore, lead an international ‘lessons learned’ exercise and push its conclusions robustly in the G7, G20, and UN bodies as well as regional organisations to ensure that the global community is better equipped to act early next time around. We need to mobilise more resources to lock down the pathogens before they spread beyond the point of origin. The EU can lead the way, first and foremost, by coordinating the crisis exit activities of its own 27 member states. It will then be in a stronger position to mobilise the rest of the world behind a better strategy for prevention.”
Giselle Bosse, Research Associate, Martens Centre:
“The picture of the EU as a failing, dysfunctional international actor in the COVID-19 crisis is misleading, at least up until now. The EU has minimal powers in the area of health, it can make recommendations, but member states are free to ignore them. And where it could, in areas of its legal competence, the Commission has already taken actions, for example, measures with regards to the lifting of export restrictions on medical equipment imposed by individual member states, or guidelines on borders to ensure the free movement of goods. The real challenge for the EU, the economic response to the crisis, is only just unfolding. This is an area in which the EU has significant competencies and instruments. Finding an agreement on financial rescue measures is not only crucial for the EU’s ability to offset the devastating economic consequences of COVID-19 and safeguard its standing as a major world trading power. Agreement on a joint economic response is also vital for trust and solidarity among the EU’s member states, which in turn is a precondition for a common EU foreign policy, including ongoing and future attempts to strengthen the EU’s autonomous security and defence capabilities.
Moreover, while much focus is (rightly) placed on containing COVID-19, saving lives and economic rescue, Human Rights Watch, among others, reminded the EU that ‘governments should avoid sweeping and overly broad restrictions on movement and personal liberty’ and cautioned against governments requesting movement data from mobile providers, which violates the EU’s General Data Protection Regulation (GDPR). To make things worse, on 30 March, Hungary passed a law that gives sweeping new powers to Prime Minister Viktor Orban to rule by decree, for an unlimited period of time. The manner in which the EU and its member states will handle human rights and democratic principles in the current crisis will send important signals internationally, and will very likely have implications for its credibility and legitimacy as a normative power.
In conclusion, much of the current criticism and depiction of the EU as a dysfunctional international actor in the COVID-19 crisis has been exaggerated, and often exploited for (geo-)political purposes. The current crisis will neither lead to the decline of the EU ‘as we know it’, nor will it fundamentally change global order or the EU’s geopolitical problems. However, the EU’s response to the crisis will send important signals beyond Europe, which can have significant implications for the credibility of the EU as an international actor. Such signals range from the EU’s commitment to multilateral trade (versus the EU’s ‘protectionist turn’) to its commitment to human rights and democracy (versus the toleration of illiberal governments and policies within the EU), its commitment to fighting climate change (versus calls to delay the Green Deal in times of economic crisis) and, above all, the member states’ commitment to social solidarity (versus national economic self-interest). How COVID-19 impacts the EU’s credibility as an international actor is (still) pretty much in its own hands.”
Jolyon Howorth, Senior Research Associate, Martens Centre:
“The pandemic is global; the response has been national/regional. The EU’s reputation for normative or soft power has been battered. The Union abandoned multilateral solidarity, even in the area (the welfare state) where it claimed superiority over other regimes. The EU, as an ‘actor’, has evaporated; member states closed borders and hoarded vital medical resources.
The crisis over finances replicated the Eurozone crisis, featuring a bitter internal struggle over the mutualisation of debt. Christine Lagarde initially declared it was ‘not the ECB’s responsibility’ to worry about German-Italian bond spreads. The refusal of the North to respond to Southern pleas for ‘Coronabonds’ poses an existential threat to the Union itself.
The crisis has demonstrated Asian efficiency and Western fumbling, highlighted by Trumpian denial. Transatlantic relations are in limbo. Logically, this should prompt a clear shift of EU strategy towards collective sovereignty and autonomy – faced with Beijing as a potential hegemon and Washington as a false friend. Yet, as a result of the crisis, the Union is uniquely ill-placed to pursue that path.
COVID-19 suggests the need for a total re-think of the balance of spending on defence and health. The ‘invisible enemy’ has demonstrated an exponentially greater need for protection against nature than against neighbours. The climate crisis awaits its turn on the stage.
The kaleidoscope has been shaken, and the pieces will take years to settle. Muddling through is henceforth akin to a death wish.”
Constantine Arvanitopoulos, Senior Research Associate, Martens Centre:
Europe is overwhelmed by a pandemic crisis of almost biblical proportions.
As countries are scrambling to deal with the immediate requirements of a colossal health emergency, an even greater threat looms on the horizon. Economists are warning us of the threat of an economic depression more significant than that of 1929.
Our response to the health crisis was not the best moment of European solidarity. We will always be haunted by the images of the military lorries carrying the dead of the city of Bergamo and European member states looking to China for health aid and equipment.
This pandemic now threatens to infect the European «body politic». In political philosophy’s great tradition, the analogy between disease and civil disorder was proposed to encourage rulers to show foresight (Machiavelli) and reason (Hobbes), to prevent fatal disorder.
In this tradition, the tragic loss of life should mobilise European leadership to prevent the recession from turning into a prolonged depression. As Mario Draghi wrote, unforeseen circumstances require a change of mindset, or as Keynes had put it, ‘when the facts change, I change my mind’. This is a war, and wars are financed by public debt. Otherwise, the cost of inaction will be devastating. Those in Europe that do not succumb to reason and adapt to change will have no one to blame but themselves.”
Niklas Nováky, Research Officer, Martens Centre:
“The COVID-19 pandemic has hit Europe hard. Its immediate consequences will be economic and social in character. National governments across Europe will have to adopt unprecedented stimulus packages, adjust their existing budgets, and increase their national debt to protect their populations and economies from the pandemic and its eventual fallout. Yet, the pandemic will impact other policy areas as well.
With regard to the EU’s security and defence policy, COVID-19 is likely to make the Union increasingly inward-looking for the foreseeable future. As during the global economic and the eurozone debt crises, political willingness in the EU to address various crises in the Union’s neighbourhood is likely to decrease, for example. European crisis management activities won’t cease entirely, of course, as demonstrated by the EU’s recent decision to launch Operation IRINI to monitor the UN arms embargo in Libya. Still, it will become harder to convince EU governments to contribute to various existing and potential new operations, especially if those operations don’t serve their direct national interests.
The level of ambition of some of the new defence initiatives that the EU has launched since 2016 is also likely to be downscaled. The initiatives in the most immediate danger are the European Defence Fund, the European Peace Facility, and military mobility as their funding levels haven’t yet been agreed upon for the 2021-2027 financial period. Even before COVID-19, several member states expressed unwillingness to finance these initiatives at the levels proposed by the European Commission. COVID-19 will increase the number of such countries, and it is conceivable that some of the initiatives might not receive any funding at all. After all, in one technical compromise proposal made during the February European Council, the budget for military mobility was slashed completely. If this happens, it will be a severe setback to the European Commission’s ambition to be geopolitical.”COVID-19 Crisis European Union Foreign Policy
What does the Coronavirus mean for the EU as an international actor?
08 Apr 2020
The COVID-19 outbreak, and its deep financial aftermath, will put the European Union under unprecedented stress over the next five years or more. Brexit will add to these tensions for some members, notably Ireland. It is a matter of vital national interest for Ireland, that the EU gets its response to the crisis right, and does not allow it to create dangerous social distancing between the states of the EU.
The existing structure of the EU is unfitted to a crisis like this. The public expects the EU to act, but has not been given the EU the powers it needs to do so. Unlike the states of the EU, the EU itself has no capacity to borrow money, and no capacity to raise taxation. So it often lacks the financial clout to take decisive action. The amount it is allowed to spend is a mere 1% of GDP, whereas EU member states can and do spend around 40% of their GDP.
The countries and regions that gain most from the EU Single Market, are either unaware of the gains, or mistakenly think it is all due to their own efforts. A recent study by the Bertelsmann Foundation showed that the big objectors to Eurobonds (Germany, Austria and the Netherlands) gain almost three times as much per capita from the EU Single Market as do the assumed beneficiaries of the Eurobonds, Spain and Italy!
If the Single Market were to fail, the objectors would lose the most. But their national politicians fail to tell them this. Incidentally, the study showed Ireland to be a big gainer from the Single Market.
Meanwhile, the countries and regions that gain comparatively less from the Single Market resent this, and fail to acknowledge that they too are gaining from being in the EU Single Market, albeit a bit less than the others are gaining. Envy blinds some to reality.
Of course, these contradictory feelings are rarely expressed publicly, but they are there under the surface, ready to emerge when a crisis happens and decisions have to be made quickly.
COVID-19 has been such a crisis.
The restrictions on economic activity, as well as the direct health and income support costs, arising from COVID-19 will dramatically increase the debts of all states in the EU. At the same time, the initial reactions in some member states – from Germany blocking sales of vital equipment to Austria closing its border – have left bitter feelings in Southern member states, especially Italy.
Assuming a 20% drop in GDP as a result of COVID-19, an economist in the Bruegel Institute in Brussels has estimated that the Debt/GDP ratio of Italy could rise from 136% of GDP to 189%, that of France from 99% to 147%, that of Spain from 97% to 139%, and that of Germany from 59% to 94%.
As all these countries can expect their workforces to decrease in the next 20 years, because of past low birth rates, this is a very troubling prospect. A way needs to be found to spread the debt as widely as possible and as far as possible into the future.
The EU faces an unprecedented situation which justifies unprecedented actions.
One of the proposals made to do this is Eurobonds/Coronabonds which would enable countries to borrow with a guarantee from all eurozone states. The interest rate might be lower but it is still just another form of borrowing. If Italy issued a Eurobond, it would still be increasing its overall debt, and might face a higher interest rate on its ordinary bond issues. Another objection is that it might take 18 months or more to get these Eurobonds up and running, and the markets need something quicker.
Another proposal, favoured by some Northern member states, is that distressed countries borrow from the European Stability Mechanism (ESM). Some believe that the ESM is too small for all that needs to be done. Others worry about the conditions that might be imposed.
Meanwhile, the European Central Bank (ECB) continues to buy the bonds of member states. For example, it owns 26% of all German government bonds and 22% of all Spain’s bonds. This bond buying by the ECB enables governments to continue borrowing, but its support is confined to members who are in the euro. It is using monetary policy to achieve the goals of fiscal policy, which is controversial.
I suggest that a better solution would be to allow the European Union itself to borrow, up to a limit of (say) 0.5% of the EU GDP, to spend exclusively on COVID-19 related expenditures.
Article 122 of the Treaty already makes provision for the EU to give aid to help states suffering from “natural disasters and exceptional occurrences” beyond the control of a member state or states. COVID-19 meets this criterion.
But the EU is not using this power, because its budget is fully committed to other things. It has no room to respond to sudden emergencies. It would have such room if it was allowed to borrow. This power could then be activated to allow direct transfers of funds to a state in acute distress because of COVID-19 or the like, without adding to the recipient state’s debt.
Doing this would require an amendment to Article 310 (1) of the Treaty. This article presently requires the EU always to run a balanced budget. This could be amended to allow borrowing that was confined to spending on matters, like COVID-19, that had arisen suddenly and were beyond the control of the state looking for help. Such a limited borrowing authority would command a lot of support from the electorate.
It would also be borrowing under the democratic control by the Council of Ministers and European Parliament, something that does not apply to bond buying by the ECB.
The EU faces an unprecedented situation which justifies unprecedented actions.John Bruton Brexit COVID-19 Crisis Economy EU Institutions EU Member States
Increasing our firepower: Where can the EU find the ammunition to fight a Coronavirus induced economic slump?
07 Apr 2020
The Coronavirus epidemic is spreading quickly through the planet. Its full impact on societies, on our economies, and simply on people’s lives is still unknown. Nevertheless, chances are that the economic impact of the epidemic alone will be greater than any crisis since the end of the Second World War.
But contrary to an earthquake or a massive tropical storm, the current crisis was not a surprise, nor was it unpredictable. In fact, the risks associated with wild animal markets and their link to potential virus outbreaks were widely studied and debated, including in China, after SARS – the severe acute respiratory syndrome in 2002-3, caused by a very similar coronavirus to the one which recently appeared in China.
As early as 2007, a study by the University of Hong Kong stated that: “The presence of a large reservoir of SARS-CoV-like viruses in horseshoe bats, together with the culture of eating exotic mammals in southern China, is a time bomb.”[i] After SARS, wild animal markets were temporarily banned. Various Chinese scientists wrote about the risks related to the trade and the risks of eating wild meat.
As a result, the Chinese Communist Party and the Chinese government did take measures to control the wild animal markets and limit the risk. However, prohibiting wild animal markets is challenging, due to the fact that many of these markets, and their use of wild animal ingredients, were not only economically important, but also a part of the local culture. Thus, for political reasons, the Chinese Communist Party decided to ignore the risk and the bans were eventually gradually lifted.
But the Chinese Communist Party did not take risks solely on behalf of the Chinese people. The risk was shared by the entire global community. As a result, today, more than 4 billion people are living in some type of quarantine, afraid for their own health, their loved ones’ health, and the future of their livelihood.
Now China has made eating wild animals illegal after the current Coronavirus outbreak. But the fear is that the exceptions will keep the markets functioning and, after some time, the wildlife markets will be fully opened again – just like after the 2003 SARS epidemic.
China has been trying to avoid the question of responsibility related to the Coronavirus epidemic by supporting conspiracy theories that the US army has brought the virus to China and spreading fake news in Europe related to the epidemic.
If, as the Chinese government argues, wildlife markets were not the real source of the current crisis, then there is less reason for China to ban the markets. Therefore, it is the responsibility of the international community to make sure that wildlife markets will be banned, not only in China, but also in Vietnam and other parts of south-east Asia. We were not able to avoid the current Corona crisis, but we need to be able to stop the next global epidemic.
[i] Cheng, Lau, Woo, and Yuen, ‘Severe Acute Respiratory Syndrome Coronavirus as an Agent of Emerging and Reemerging Infection’, 2007, Research Centre of Infection and Immunology, The University of Hong Kong, Hong Kong https://cmr.asm.org/content/cmr/20/4/660.full.pdf, Vol. 20, p 683.Tomi Huhtanen COVID-19 Crisis Globalisation Trade
Could China have avoided the Coronavirus outbreak?
06 Apr 2020
The pandemic that has now affected billions, forcing nearly half the world’s population into some form of lockdown, is far from over. In fact, infectious disease experts warn that the majority of countries grappling with the virus have not yet reached their respective apex. For the European Union, this means that thousands more will fall ill; supplies of ventilators, masks and other personal protective equipment, as well as hospital beds, will increasingly become scarce; businesses will continue to suffer or face bankruptcy and economic output will stagnate, with a Eurozone (and global) recession all but guaranteed.
As such, this is not only the problem of any one, or a few, EU member states. It is a uniquely European problem, that only a European solution can effectively solve.
In the EU, knee-jerk reactions like the closure of internal borders, and the initial freezes on national exports of protective medical equipment and testing kits — later rectified by the Commission — run contrary to our European way of life, making them appear particularly abrasive and extraordinary.
There have also been numerous examples of member states donating medical supplies to other members who need them more urgently, with some even welcoming cross-border corona patients to their hospitals. But, as noble and heart-warming as these instances of EU solidarity are, alone, they are not enough.
The EU has been far too divided in its response, to its own detriment. A remedy to a crisis of this magnitude (455,901 cases in the EU/EEA and UK at the time of writing) must be proportional, uniquely European, centralised at EU-level, and better communicated to the general public. It must present “EU solidarity” not merely as a platitude, but as a resounding, undeniable fact.
The EU is a coalition of 27 member states that agree to work intimately with one another for benefits they could not otherwise obtain alone. If the EU wants to pass the post-stress test that will inevitably follow this pandemic, and the inescapably intertwined questions of legitimacy, it must start acting like its future depends on it. After all, that is exactly what is at stake.
There have been numerous attempts, and there will be many more temptations, to close off our open societies and revert back to mere nation states. Some measures are indeed vital to contain the spread of the virus, such as internal border closures, but the EU must take coordinated action to counter potential consequences, like threats to food security.
Although the Commission has already taken necessary action to address some of these concerns, like the implementation of “green lanes” throughout the EU, more oversight will be needed to ensure the flow of goods goes unhindered. For instance, it should also lead a coordinated effort to oversee and expedite the distribution of medical equipment from members where production is concentrated, namely the Czech Republic, France, Germany, and Poland, to members in dire need.
This is not only the problem of any one, or a few, EU member states. It is a uniquely European problem, that only a European solution can effectively solve.
The EU must also continue to pass swift, sweeping emergency measures to support the hardest-hit member states. The Commission-proposed EU Solidarity Fund is a good start, but it is only a temporary lifeline.
The next major hurdle for the EU is the negotiation of a more long-term, far-reaching, joint fiscal package to address the wider economic repercussions caused by the virus. Herein lies the most significant bottleneck for the EU’s COVID-19 response to date, one for which the von der Leyen Commission, as well as the Council, must find a way to overcome. If the already-tainted idea of ‘corona bonds’ does not receive the traction necessary to make it a viable option, then emergency crisis meetings must be held with more frequency in order to expedite alternatives, like the pan-European unemployment reinsurance scheme.
There is one more area, however, where the EU, and the Commission in particular, needs to improve: communication. Rather than highlighting instances of EU solidarity via the actions of individual member states, the EU’s communication strategy should be centralised as well, involving joint press conferences between the heads of the Commission, Council and Parliament, at least once per week. In addition to presenting the latest trends and figures, the EU should use such an occasion to better communicate the co-ordinated efforts that it is spearheading, which to date are largely flying under the radar.
Furthermore, information on the Commission’s webpage documenting the assistance provided by the EU to the member states (and among member states) should be more easily accessible, streamlined, and categorised by country.
This pandemic is a defining moment for the European Union. It has the opportunity to prove its potential and demonstrate that it can overcome a threat of such magnitude, together, by navigating the crisis as a union. Failure to respond in a unified manner could de-rail the progression of the European project for decades to come, or deliver a blow to its legitimacy from which it may never recover.
On the other hand, if the EU effectively demonstrates the benefits of a more coordinated, federal-like response, it could leave the doorway open to further integration and centralised autonomy – from finance to security – to better prepare and respond to crises of similar proportion in the future.
Before we rid ourselves of this virus in Europe, and on a global scale, things will get worse before they get better, but we are all in this together. Instances of EU solidarity, alone, will not be enough to overcome this crisis. However, if the Commission and the other Institutions step up their role as the central nerve system of the EU, facilitating a more centralised, unified, and better-communicated response to Europeans, we may even emerge as a stronger Union.
After all, the coronavirus knows no boundaries, why should our response?Gavin Synnott COVID-19 Crisis EU Institutions EU Member States Leadership
COVID-19 in Europe demands a centralised European response
03 Apr 2020
The outcome of the Slovak parliamentary election held one month ago resonated with the mood of Slovak society, which clamoured for a change. Election winner Igor Matovič and his party OĽANO, (Ordinary People and Independent Personalities) was the only opposition party to have tapped into that emotion. With a pledge to rid the state of the mafia, it sent into opposition corrupt socialists after they had spent almost twelve years in power. The election also brought other surprises, such as the failure of the ambitious conservative-liberal alliance Progressive Slovakia and SPOLU (Together) to obtain seats in parliament or yet another failed parliamentary attempt by the Christian Democrats. Still, there was no space for their political analyses. Winners and losers alike lacked time to process emotions brought up by the election results.
This lack of time was due to the COVID-19 pandemic, which also resulted in the appointment of the government in the record time of three weeks. The new government took over the reins with a collapsing healthcare system and with no reserves of medical supplies. With its slightly more than 400 infected patients to date, Slovakia belongs to the less affected countries. This may be due to insufficient testing capabilities as well as the timely introduction of strict measures and a disciplined population. What played its part in this regard was not only a health concern, but also a particular legacy of communist times. Back then, civil defence drills to prepare for enemy attacks and donning oxygen masks were a normal part of life.
The fragility of the new coalition
Igor Matovič, a seasoned political marketer with a propensity for populism and an admirer of Orbán’s national referendums, undoubtedly had a different idea about taking over the reins of power. Even under standard circumstances, his coalition consisting of parties with diverging views about relations with the EU, and also regarding fundamental ethical issues, would draw bets on how long it would survive. OL’ANO is hardly a normal political party and is run by Matovič like a company. His theatrical manner of appearance, egocentrism and tendency to shoot from the hip has earned him the reputation of a dangerous manipulator, not only in the media.
A security risk exists with the second strongest party, Sme Rodina (We Are Family). Its chairman, who has a history of mafia contacts and money laundering, is currently the speaker of parliament. The party is a member of the same political group in the European Parliament as Marine Le Pen and Matteo Salvini.
The third member of the coalition is the SaS (Freedom and Solidarity), with its chairman Richard Sulík advocating the return of EU governance to the state level. In 2012, his party did not approve the European Stability Mechanism in a vote serving as a proxy for expressing confidence in the government. This resulted in the demise of the pro-reform government and the comeback of the socialists. Ironically, this time, Sulík as the newly appointed minister for the economy, will call on the help of the ESM to bail out entrepreneurs who are in danger of going bankrupt.
The Za ľudí party (For the People), was also made part of the coalition mainly to obtain the constitutional majority. Its chairman ex-president Andrej Kiska gave up his mandate on the grounds of health making its further crystallization or European profiling remain unclear.
The campaign is over, leadership is needed
Faced with the pressure of the predicted broad spread of the virus, the extraordinary government sessions take place on a daily basis. The biggest car manufacturers shut their factories two weeks ago. Every day brings new self-employed entrepreneurs unable not only to pay their bills, but even to provide for the basic living necessities of their families.
However, the adoption of relevant measures will have to be intensified even further. The media note that Prime Minister Matovič has not yet been able to switch from a campaigning mode to assuming an executive position, as he spends much of his time speaking to the cameras rather than sitting at the negotiating table. Considerable criticism has also been raised by the newly adopted “lex corona” legislation, which allows monitoring people infected with the virus via mobile operators. Let’s hope that such information will not be misused and that Slovakia will not follow the path of Hungary, which restricted democratic freedoms, allegedly in the name of the fight against the virus.
Despite the internal ideological discrepancies, the new Slovak government enjoys considerable support from Slovak society. This is also a consequence of the fact that the opposition is being represented by corrupt socialists and neo-Nazis, who are just waiting for the first faulty step of the current government.
The opportunity is there for Igor Matovič himself to prove, through extensive engagement, cooperation and supporting solidarity within the EU, that his election was the right choice for Slovakia. He has a tremendous opportunity to not become another Beppe Grillo, but a statesman who will lead the country out of this crisis.Viktória Jančošeková COVID-19 Crisis Democracy EU Member States
Slovakia and the Pandemic: Never let a crisis go to waste
02 Apr 2020
At its core, the Coronavirus (COVID19) pandemic is a human tragedy. However, it has also become clear that the negative economic and social impacts are deeper and broader than were first anticipated. The continuing spread of this virus and the required measures to contain it have resulted in a concurrent slowdown in all major global economies. This represents an unprecedented challenge to the economic integrity of the EU, its constituent member states, and the global trading framework.COVID-19 Crisis Economy EU Institutions Eurozone
Whatever it takes, for as long as is needed: Mapping a new European Recovery Programme
01 Apr 2020
Coronavirus disease 2019 (Covid-19) is spreading quickly in European countries, with the situation being most advanced – and worrying – in Italy. Many aspects of the disease are still unknown. How many people in Europe are currently infected and how many will be in the future? What percentage of the infected will need hospital care? How many of the infected will die from the disease?
As answers to these questions are still unknown, there are strikingly different scenarios presented by the main health institutes of the different EU member states. These different scenarios present end results where the final estimation of the infected and deceased can be different by a factor of ten or more.
As a result, there seem to be two different strategic approaches: one is to say that our main aim is to ‘flatten the curve’, aiming to reduce the speed of the spread of the virus by social distancing so it will not overwhelm the healthcare system and, in the most extreme cases, hospital care can be offered. This strategic thinking is most clearly currently expressed in the Netherlands, the United Kingdom and in countries where the disease has not yet spread severely.
The argument is that stopping society altogether for months is not feasible, and when society would become active again, the disease would start to spread anyway – thus again a new lock-down would be needed.
The other approach is to try to contain the spread of the virus as soon as possible. This is what China and other Asian countries have chosen as a strategy, this is what the World Health Organization (WHO) is recommending and clearly what Italy is opting for now.
During the epidemic, there has been a question over how much European health care systems can handle. Before we had some data from China, but as the situation in Italy is evolving, we are having a more detailed and reliable picture. The following conclusion is emerging: If we just try to decrease the speed of the virus’ spread, our health care systems will be overwhelmed. Many more people will require hospital care (read: potential lives saved) than what health care systems can offer. The bottleneck is found at the number of hospital beds, respiratory aids, oxygen pumps, and trained health care professionals. Italy is a concrete example of that reality.
Italy’s case has been painted as an exception, because the virus most probably spread there unnoticed for weeks. But what is often forgotten is that even if the (speculative) real amount of infected in Italy is around 300,000 people, a number way higher than any Italian official has estimated, it would still be only 0,5% of the whole population.
If the disease is allowed to impact the whole society, the mainstream speculative estimations of the percentage of the population infected vary from 30% to Angela Merkel’s maximum 70% in Germany. In Italy, the current estimate of 0,5% of the population to 30% is a long way to go, with the current volume of patients multiplied by 60 even within a longer period of time. Additionally, solely considering average national numbers is misleading, as there are regions where the disease is and will be more intense.
If Covid-19 is allowed to affect the whole society, even at a slower pace, the European health care systems will not be able to take care of all the patients needing care and thousands of people will die. The numbers will be just too big, just flattening the curve will not work out.
If European states want to save lives, they need to embrace now the measures taken by the Italian government in those countries where it has not yet been done: to implement confinement. This approach will have a strong negative impact on society, but so does the death of thousands of people just because of a lack of hospital care. In the upcoming weeks, the focus needs to be total in combating the virus. Passively by staying home as much as possible, and actively by urgently increasing the number of hospital beds, respiratory aids, and training of the temporary health care professionals.
Northern Italy’s health care system is one of the best in Europe. Hard-hit Bergamo’s main hospital let a camera crew in for the rest of Europe to know what an overwhelmed healthcare system looks like. For Italy today, the strategy is very clear: to stop the virus whatever the cost. Other European countries still have one to a few weeks before the situation will reach the same stage as in Italy. They should use them wisely.
Italy’s lesson for Europe: Flattening the curve isn’t enough, we must actively tame the Covid-19 epidemic
23 Mar 2020
Empty supermarkets, sold out face masks, and the prices of hand sanitiser reaching absurd heights; this is the picture that has been portrayed of Italy in the past weeks. As of 10th March, 9,175 people in Italy have contracted COVID-19 (a.k.a. the Coronavirus) with the majority of cases concentrated in the North of the country.
After closing schools, universities, museums and cancelling public events (even sacred Serie A football games), the government took even stricter measures by issuing a decree during the night of the 7th of March. This measure ordered the isolation of the region of Lombardy and 14 provinces in Emilia-Romagna, Veneto and Piedmont. The decree prohibited all circulation in and out of the “red zones” with only partial exemptions granted for emergencies or work. It also involved closing all schools and universities. These measures are in place until 3rd April. During a press conference on the evening of 9th March, the Italian government extended the restrictive measures to all regions. In effect, placing Italy on total lockdown.
The reason behind such a drastic decision of the government, besides obviously containing the spread of the virus, is to prevent contagion to the southern regions of Italy. The Italian healthcare system, based on universal access, has been put under immense pressure with more and more patients contracting the disease. The mortality rate among infected people is not extremely high and the average age of the deceased is 81, however, a continuously increasing number of people require intensive care. Having a huge wave of contagion in regions like Apulia, Campania or Sicily, may actually lead to the collapse of already weak southern healthcare facilities should the virus continue to spread.
But the impact on the population’s health, or on normal social interactions, are not the only impacts of COVID-19 on Italy. The repercussions on the already fragile economy of the country will be massive. The shutdown of Lombardy, accounting alone for 46% of foreign investments into Italy, will have significant economic repercussions for the Italian economy. Repercussions that are now impacting on every region in Italy.
Although the Italian government has already announced stimulus measure totalling approximately 4 billion euros these measures will not be enough to counter the longer-term economic impacts.
Even before the arrival of COVID-19, the Italian economy experienced a significant slowdown in late 2019. In February 2020, the European Commission lowered its forecasts for Italian growth to just 0.3% for the coming year and a budget deficit of approximately 2.2% of GDP. Events since then – now escalated to an unlimited shutdown of the vast majority of the Italian economy – will result in Italy entering recession in the coming months. It will also result in a significant deterioration in public finances (both in terms of lower tax incomes and higher health and social security expenditures).
Although the Italian government has already announced stimulus measure totalling approximately 4 billion euros (or a 0.2% increase in the government deficit) these measures will not be enough to counter the longer-term economic impacts. This is due to three main factors.
First, the Italian economy – particularly Northern Italy – is embedded in both European and global supply chains. Thus it is doubly exposed both to the ongoing containment situation in China and the coming restriction of Europe’s economy due to the spread of the virus. Second, tourism in Italy accounts for approximately 15% of total employment. As we enter the start of the tourist season it is likely that there will be a dramatic reduction in tourist visits to Italy, at the very least for the next 3-6 months, but possibly longer. The Italian body representing tourism provides estimates that 22 million fewer visitors to Italy will result in an economic cost of 2.7 billion euros. Third, the Italian economy was already stagnating before COVID-19 arrived. Thus, the depth of the recession will be deeper (and possibly longer) than many now predict.
COVID-19 should be the starting point for Eurozone 2.0.
In this context, it is likely that Italy will require additional spending of at least 1 to 1.5% of GDP to effectively counter the recession currently underway. This will not be a situation unique to Italy. For example, the recent mitigation measures announced in Ireland will likely account for at least 0.7% of Irish GDP in the short term.
Unfortunately, a severe economic slowdown – with severe societal implications – is now underway across Europe. This also implies a significant level of risk for the future stability of the Eurozone. What is clear is that a European approach which prioritises adherence to existing budgetary rules over mitigating the worst impacts of the coming recession will lead to a further deterioration of economic and social conditions.
What is required now – for Italy, and shortly for the rest of the Eurozone – is an understanding of the exceptional nature of the current circumstances. This should be reflected in the application of highly flexible Eurozone budgetary rules for as long as the crisis lasts. It should also stimulate a renewed push for much more fundamental changes in how the Eurozone is constructed and managed. No more tinkering around the edges, real reform can no longer be subject to political inaction. Completing Banking Union and severing the “doom loop” between governments and banks should now be the top priority. Work should also begin immediately on placing the national capitals back at the centre of the Eurozone family. And that must include greater fiscal flexibility.
It would be easy now – in a state of societal unease – to resort to classical Brussels based thinking about how the economic impacts of the Coronavirus should lead to more centralisation, more common functions in the Eurozone. That would be a mistake. Italy’s largely unreformed and unbalanced economy is an example of all the imbalances the Eurozone was designed to protect against. COVID-19 should be the starting point for Eurozone 2.0. The only alternative is fragmentation and ultimate collapse.Anna Nalyvayko Eoin Drea COVID-19 Crisis Economy EU Member States Society
Could Coronavirus save Italy and the Eurozone?
20 Mar 2020
The European Union is not disintegrating. Some might be tempted to think so given the chaotic European response to COVID-19, the initial lack of coordination and the rapid introduction of border controls between member states. But in cases of national emergency national leaders rightfully tend to the needs of their citizens. This was to be expected as it mirrors our own individual reactions confronted with a sudden shock – irrational behaviour, potential panic and hoarding of supplies. All in all, the situation reflects the true nature of the European Union – a unique international organisation with federalist features but ultimately driven by national capitals and national interest. Many people expect decisive unilateral federal action but they won’t get one, especially in the short term. We will instead see a retreat to national lines, the adoption of drastic measures and then a decisive ‘make or break’ moment for a collective European response. This may be painful to say, but we will have a textbook EU crisis response.
The European Union does not have exclusive competences to deal with healthcare matters and its role is mostly to coordinate health policies among its members. Additionally, it relies on national capitals for a coherent response in times of emergencies or natural disasters. The EU Civil Protection Mechanism might be pan-European in name but any type of assistance needs to be provided by the individual countries after a national decision. Regrettably, this is why Italy didn’t receive support in the immediate days after the situation got out of hand – the rest of the countries were chaotically wondering how to organise their own limited resources and equipment.
What the European institutions can do in the short-term is to quickly mobilise available resources at their direct disposal and also facilitate the smooth functioning of the single market. In the last several days the European Commission took a number of important steps to achieve these goals by proposing a reshuffle of billions of euros from the European structural funds in order to provide relief to public budgets. Coherent measures were also announced on relaxing state aid rules and also providing liquidity to small businesses across the continent.
No man is an island, and no European member state can cope with such a crisis on its own.
Most importantly, the Commission started untangling the protectionist knots which several countries started (somewhat understandably) tying due to the emergency in their countries. After the European Commission successfully intervened, medical equipment will not be limited nationally but will be exported throughout the Union. In times of border checks and travel restrictions, the Commission must be on its guard to ensure the free flow of goods and especially the smooth functioning of supply chains which will be vital for citizens, business and industry. Parliament and Council must be on standby to quickly authorise certain acts by the Commission or update relevant legislation where needed. The European Parliament, especially, has a key role in providing due democratic oversight and ensuring the proper communication of the adopted measures with European citizens.
So far, so good. The Commission will try to be the honest broker between member states which on their side will slowly exhaust their budgets on national measures to contain the virus and also in the attempt to soften the blow for employers, workers and industry. In parallel, emergency or redirected European funding will also prove inefficient if the crisis lasts throughout Spring. The Martens Centre already outlined the major political economy implications of the coronavirus for Europe and the need for flexibility without limits when it comes to ensuring liquidity and adequate fiscal response.
What comes next? The member states will rightfully focus on preventing contagion and saving lives. However, which European country can individually handle such a shock? China, where the virus started and spread worldwide, registered thousands of deaths, an unprecedented decline of industrial production and a dramatic collapse in car sales, domestic flights, retail and many other economic sectors. The Asian hegemon pumped and redirected a huge chunk of its national resources in order to tackle the crisis. If this terrible outbreak continues throughout the next several months, Europe will be confronted with an economic earthquake which could eventually threaten the Eurozone and the future of the common currency. Some member states will be reluctant to talk about bailouts and mobilising emergency funds but this might prove inevitable.
No man is an island, and no European member state can cope with such a crisis on its own. We have seen it all and will see it again. European summits will grow long; patience will wear thin. Vows will be broken and new ones will be spoken until the EU muddles through. Successfully.
The whole European industry will need to readjust and member states will be forced to collectively rethink the functioning of major parts of their economies. Ultimately, this continent will need to find a way to redistribute vast resources quickly and efficiently.
The European Union will not come out of this crisis as a federation. But this crisis will receive a federal response.Dimitar Lilkov COVID-19 Crisis EU Member States European Union
Muddling through: Towards an EU federal response to the crisis
20 Mar 2020
The coronavirus has affected all of us and, equally, scared all of us. We are forced to change our daily lives and habits, along with the way we work and interact with others. It has reminded us how fragile and vulnerable we are, but also how we take many things for granted. It would be wise to use this time for self-reflection ahead of new challenges.
Our European community has stagnated for years, if not decades. We established the Single Market, introduced the Schengen area, and got stuck with adopting more red tape, which is constantly growing. However, we are afraid to move forward with European Common Defense. We argue that neither a German nor a Slovak soldier will deploy his life for a European interest. We have created a separate institution for European Foreign Policy, yet foreign policy continues to be decided at the national level. Every seven years, we fight the same endless battles: whether the Multiannual Financial Framework (MFF) should subsidise farmers, infrastructure, or support Research and Development (R&D). This time, we are also discussing the future of the Spitzenkandidaten process and the introduction of transnational lists.
COVID-19 represents a great threat, but also a unique opportunity. Let’s use the lockdown and teleworking period to reassess our priorities.
We cannot expect the European Commission to find solutions to all of our problems. The European Financial Stabilisation Mechanism was the response to the global financial crisis, a solution that can withstand other similar challenges. Our answer to the migration crisis is to strengthen the control of our external borders. Many propose to declare war on globalisation and multilateralism. But where do we set the bar to tackle the coronavirus?
We need to review our priorities, but also the methods and tools of our policy. We must move forward towards a real, functional, determined federation of European nations. Our Union should be based on the principle of subsidiarity where the EU institutions and Member States are respected. This model would lead to more effective decision-making procedures and will put the common European interest above national egoism. It will also require respect for the values we share, as well as our traditions and our “way of life”. This formation will represent our European Common House.
I am glad that the Wilfried Martens Centre for European Studies is ready to contribute towards building this house. Since 2016, we have been developing the vision ‘For a New Europeanism’. This project is our recommendation in finding a response to the global challenges we face: from the aggressiveness of China, protectionism of the US, Brexit, to migration and the current pandemic. When the time comes, and our lives are back to normal, we would like to present this project within the framework of the conference on the Future of Europe. In the meantime, we will continue to work tirelessly to come up with solutions to mitigate the impact of this pandemic. We struggle, we overcome.
President of the Wilfried Martens Centre for European StudiesBrexit Crisis Economy European Union Society
Thinking Europe, Our Common House
19 Mar 2020
The Coronavirus (COVID-19) is continuing to spread quickly around the world. It is a highly transmissible virus which impacts disproportionally on older age cohorts. Large gaps in our understanding remain, particularly with regard to the possible extent of undiagnosed cases and whether the virus will naturally reduce in Europe as the spring develops. However, as of March 16 th, over 170,000 global cases have been confirmed with over 6,500 deaths. All European countries are now preparing for large increases in the number of affected people requiring treatment and hospital care. On March 11th , COVID-19 was declared a global pandemic by the World Health Organisaton.
Understandably, much of the current commentary on the virus still focusses on the fluid situation regarding the number of infections, the mortality rate and the differing containment measures enacted by varying states. The level of societal unease at the implications of the virus – restricted activities span all aspects of daily life from cinemas to cafes, from schools to universities and businesses – is currently dominating the media discourse. Such a focus reflects the overwhelming priority of all societies to protect human health where possible.COVID-19 Crisis Economy European Union Society
“Flexibility without Limits”. The Political Economy Implications of the Coronavirus
16 Mar 2020
Despite partially delivering on his threat, to ‘open the floodgates’ of migrants to Europe, Turkish President Erdoğan remains a rational, albeit undemocratic, politician. The EU should strike a new migration bargain with Turkey, one that involves the creation of a safe zone and the protection of civilians in Idlib. All this should be part of the EU’s selective political support to the Turkish government.
Turkey surprised Europe again when, according to Reuters, an anonymous Turkish official uttered the following sentence on 27 February: “All refugees, including Syrians, are now welcome to cross into the European Union.”
Unlike previous rabble-rousing Turkish statements, this one was immediately followed by action. The Turkish intelligence service began organising transportation of migrants from centres inside Turkey to the Greek border. Refugees from Afghanistan, Iran, and Iraq were told that Greece would accept them on its territory. People boarded buses in the middle of the night and were taken to the border areas. At the same time, the news channel A-Haber, which belongs to President Erdoğan’s family, began advertising the news that the Greek border was open. Turkish police, coastguard and border security officials were ordered to no longer prevent migrant crossings towards Greece and Bulgaria.
The rest has already become history. February 2020 will be known as the month in which another massive migrant crisis started on the EU borders, although no-one can tell how long this one will last.
According to the Neue Zürcher Zeitung, preparations for the bus transfers of migrants from cities like Istanbul had been going on for days. It is not clear if the Greeks and Bulgarians knew that something was afoot. Nevertheless, they have responded well, and continue to do so, as they refuse any migrant crossings under the current conditions of extreme pressure.
We cannot exclude the idea that Turkey has deliberately targeted Greece at this moment. Just before the Turkish green light to refugees, clashes between local residents and riot police on the Greek islands of Lesbos and Chios were growing increasingly violent.
As is now clear, the main impetus for Turkey to engage in this ‘humanitarian aggression’ is desperation over the situation in the north-west Syrian province of Idlib where Syrian government forces, backed by Russia, have been engaged in indiscriminate killings, not distinguishing between jihadists and civilians. Turkey has a justified fear over a new wave of Syrian refugees crossing into Turkey.
Since the beginning of the Syrian conflict in 2011, Europe (and the West) have stood on the side-lines, without doing much to defeat Assad or to, at least, try to create peace in the country. The EU’s humanitarian efforts in the war-torn country and the painful lessons of the 2003 Iraq invasion cannot justify the bloc’s scandalous absence from any meaningful involvement in Syria. Europe has been paying the price ever since by having to face a neighbourhood that increasingly seems out of control. So far, the refugee wave of 2015-16 has been the most perceptible reminder. A new reminder is now being issued.
It is perhaps time to recognise that although we choose our friends, we do not choose our neighbours. Turkish aggression in the Mediterranean, and namely its incursions in the Greek airspace and illegal drilling in Cypriot waters, cannot be condoned. The same applies to the customary jailing and ostracism of journalists, academics and opposition politicians at home.
On the other hand, Turkey has already experienced regimes that were much worse than that of Recep Tayyip Erdoğan. The country is hosting the highest number of refugees in the world. If there were a no man’s land where Turkey is, there would be at least 4 million, and probably many more, refugees and migrants in the EU today. It is difficult to imagine in what state European politics would be under that scenario. Those who criticise the 2016 EU-Turkey migration deal invariably fail to answer that question.
And unlike some European NATO members, Turkey is on the right side in Libya, supporting the internationally recognised government in Tripoli. (Despite this, its maritime deal with Libya is very likely illegal.)
All this is to say that not working with the Turks is not an option. Europe, while criticising the Turkish regime on some policies, needs to lend a helping hand to others.
Despite all the recent geopolitical losses to Russia and Iran, there is still scope for meaningful European engagement in the region.
First, continuing with the business as usual is important. EU member states need to start preparing budgets for a new migration deal with Turkey after funds under the current agreement run out.
Second, as the current Turkish migration pressure is tied to the dismal humanitarian situation in the province of Idlib, the EU should strike an additional Idlib-focused bargain with Erdoğan. Persuading Russia to agree at the UN level to the creation of a safe zone with European boots on the ground, would have to be part of this agreement. A less ambitious but still effective means of protecting the local population would be the establishment of a no-fly zone, now promoted by the Netherlands.
Of course, all this should happen under the condition that Turkey has restored control on the Greek border and again, held up its end of the 2016 agreement.
When this condition has been fulfilled, European money and humanitarian assistance should be directed to the civilians in Idlib. Such European support should be tied to taming the unfortunate Turkish tendency to enlist local jihadist units in its service.
European governments need to hold up their end of the 2016 agreement as well. For example, they must resettle substantial numbers of refugees from Turkey, as foreseen by the agreement. Those EU governments that refuse resettlement may soon have to accommodate irregular migrants breaching their national borders en masse and, unlike resettled individuals, bringing along genuine security risks.
The ongoing negotiations on the EU’s long-term budget as well as the branding of the von der Leyen Commission as the geopolitical commission offer an excellent opportunity for Europe to step up its game in Syria.
Recognising that Turkey may not be a friend, but remains an ally would be the first useful step in this process.Vít Novotný Crisis EU Institutions Immigration Neighbourhood Policy
Time for a new migration bargain with Erdoğan
05 Mar 2020
It is not the first time that Turkey is using civilians as human shields and tools of its foreign policy. During the Great War, the Ottoman Empire deported and exterminated a large part of its Christian population. In 1938, the Kemalist Republic followed a similar policy in Alexandretta. In September 1955, the Turkish state was behind the brutal “pogrom” against the Greek-Orthodox population of Istanbul. Two decades later, Turkey invaded the Republic of Cyprus and forced thousands of Cypriots into exile.
The same strategy is being used today on the Greek-Turkish border. Greece is facing an ongoing hybrid attack on land, sea and air by a so-called NATO ally. Recently, reports of cyber-attacks towards the Greek government and other sensitive sectors of the Greek state by Turkish hackers were published in the international press. In the first months of 2020, the violation and infringement of Greek airspace – with armed planes flying even over inhabited Greek islands in the Aegean – has reached new records.
The recent decision by Erdogan and his authoritarian regime to encourage and push thousands of desperate people towards the north-east Greek sea and land borders comes as a natural continuation to a series of aggressive actions taken against Greece and Cyprus in the Eastern Mediterranean. These actions include illegal exploration activities in the Economic Exclusive Zone (EEZ) of Cyprus and the illegal Turkish-Libyan Memorandum of Understanding (MoU) that openly violates Greek territorial sovereignty. In addition, reports and footage show that the movement of immigrants -including criminals detained in Turkish prisons- is being implemented with the active participation of the Turkish armed forces, police and the Turkish intelligence services (MIT).
Turkey has become a state “trafficker” that does not recoil from politicising human pain and misery, in order to make political gains. The Greek government’s rightful decision to increase the level of deterrence at its borders and temporarily suspend the asylum applications is the only possible reaction for any state intent on protecting its territory from a well organised hybrid attack.
In the last 3 days, there have been over twenty-four thousand instances of people illegally attempting to cross into Greek territory. In Evros, less than 200 were successful, in which case the intruders were immediately arrested. On Monday alone, over 1.000 arrivals were recorded on the Greek islands of the Northern Aegean. The situation is tense and a fatal accident could turn the whole situation into something that risks becoming uncontrollable.
Turkey has become a state “trafficker” that does not recoil from politicising human pain and misery, in order to make political gains.
It is more than certain that Erdogan’s regime will use fake-news and propaganda in order to attract public sympathy and portray Greece and Europe as the offenders. Turkey de facto cancelled the EU-Turkey Statement and Action Plan. Those who speak about asylum and international humanitarian law from the comfort of their office thousands of miles away from the Greek border tend to forget the geopolitical realities in the region. We are no longer talking about individuals who are escaping conflict zones. What we see is uncontrollable masses trying to reach Europe in huge numbers under the direct encouragement, guidance and facilitation of an official state actor and its services.
Greece and Europe should not succumb to Erdogan’s “Kapalıçarşı” style of bargaining. If you lie down with the devil, you will most probably find yourself in hell. Turkey tried to act as a regional superpower and now reaps what it sowed in Syria. Erdogan, in his vanity, initially supported the ISIS jihadists, then turned against the Kurds and the West. Now, after his military disaster in Syria, he is trying to exercise pressure on Europe and the West in order to save himself from the chaos he created.
Those in Europe who suggest appeasing Erdogan by sacrificing Greece’s national security should take into consideration that this is a great chance for the EU. It can show that it is a real Union with borders and common values, and that it stands ready to defend them. Today Greece is the frontline and the bastion of Europe. Beyond Greece’s borders, democracy and logic stops.
In the midst of all of this, the loud silence of many prominent politicians in European capitals is extremely worrying. Politicians once vocal about the values of European civilisation are today finding it hard to say anything to strengthen the morale of a country that, at this very moment, is defending the European way of life in practice. Apart from the three EU institutions, only Austria, the Netherlands, France, and North Macedonia have openly expressed their will to actively support the Greek forces.
For more than five years, amid a tremendous financial crisis, the Greek population has shown strong solidarity and compassion to the tragedy of all displaced people reaching Greek shores. It seems that this has changed. Local societies can no longer bear an additional influx of immigrants as in 2015. The Greek state is determined not to allow additional “Morias” (this refers to the name of a town in the island of Lesbos that hosts a by now notorious squalid camp) to be formed around the country. Instead, it is only fair that Greece’s European partners step up to the plate.
Usually polarised and divided along partisan lines, all Greeks are currently appearing united against Turkey’s plans. Greeks are determined to defend their country, and thus Europe, at any cost. There is no room for compromise in Turkey’s efforts to destabilise Greece and move forward with claims that put in question the territorial integrity and sovereignty of Greece. Europe should act in this crisis as one if it wants to be taken seriously as a ‘sovereign’, ‘strategic’ and ‘geopolitical’ actor, to use some of the slogans repeated by its leaders in recent years. There is no time for simple statements of support. Tools and manpower must be deployed in the heated zone of Greece’s borders.
 Kapalıçarşı / Grand Bazaar of Istanbul is one of the oldest, covered markets in the world.Panos Tasiopoulos Crisis European Union Human Rights Immigration
Turkish Bazaar: An asymmetrical threat to the EU
03 Mar 2020
A closely watched trial was opened last Monday against suspects in the murder of journalist Ján Kuciak and his fiancée Martina Kušnírová. The police have yet to identify who commissioned the murder and on what motive, but the investigation is gradually unravelling the kleptocratic functioning of the state apparatus, which uses mafia-style practices for its enrichment. The still incomplete facts that the investigation has revealed show a gruesome picture of linkages between mafia-type oligarchs and the justice system, police and the ruling social democrats’ party. This is the picture of contemporary Slovakia, which was considered until recently to be one of the better democracies of the Visegrad Group. However, its reality today is rather reminiscent of the Balkans in the darker period of the 1990s.
The brutal murder of two innocent people two years ago triggered an unprecedented wave of citizens’ protests whose pressure resulted in a partial government and police reshuffle and replacements at the top of the police force. People’s fervent desire for change and the struggle for a decent Slovakia found their positive reflection in last year’s presidential and European elections. However, it cannot be said today that the same positive wave has survived in the run-up to the parliamentary elections at the end of February. Just the opposite, it risks being transformed into a devastating tsunami, as Slovakia could become another EU member state with a far-right government.
In only a few weeks, Slovaks have the chance to halt the alarming trend of injustice, arrogance, intimidation and attacks on minorities becoming the new normal.
This risk can be explained by the fact that the street protests grew silent over time and the hope for change has been replaced by skepticism in the wake of political developments. The main reason is the fragmentation, lack of readiness to cooperate and strong egos, as well as the lack of political experience among the leaders of the democratic opposition.
The opposition consists of Christian democrats, liberals, the party of independent personalities, and three new parties which all compete for leadership of the opposition camp, more so than for voters. The latter group of parties includes that of former President Kiska – Za ľudí (For the People), which has no clear-cut party profile, and over which hangs a shadow of unclear financing of its founder’s presidential campaign. Then there is a conservative-liberal party SPOLU (Together), which will run together with another new party, Progresívne Slovensko (Progressive Slovakia), the party on whose ticket President Zuzana Čaputová initially ran. Their programmes are almost identical, calling for a fair and functioning judiciary, better education and health care. All of them declare support for the EU and NATO. However, looking at the demands for strengthening the nation-state at the expense of EU institutions which have been trending in Central Europe and elsewhere, concrete initiatives are missing.
Three scenarios are possible:
1. A government composed of socialists and neo-Nazis
In this scenario, the Social Democrats (SMER) remain the strongest party. Their chairman, former prime minister Robert Fico, plays the gamble and toughens the tone of the campaign by raising fears of immigration and smearing political opponents. His negative rhetoric is close to that of the increasingly stronger neo-Nazi party of Marian Kotleba. They use the motto of restoring order in the country, which implies spreading fear and hostility towards minorities. A possible coalition partner is also the nationalist Slovak National Party whose chairman is a great admirer of the Kremlin and who, as the speaker of the National Council of the Slovak Republic, has long represented a security threat to Slovakia’s interests. To secure a majority, they could be helped by the populist party Sme Rodina (We Are Family), a member of the Identity and Democracy Party. It seems that this party could be tipping the scales in the formation of the coalition. Needless to say, such a government would be a disaster for both Slovakia and the EU.
2. A government of change
In this scenario, the democratic opposition somehow manages to achieve a majority and overcome its differences. That would mean a chance for real change in Slovakia. But the problem is that this opposition is fragmented and focuses more on its internal matters than on the real problems of the country. It lacks a leader capable of unifying six prospective coalition parties. It is former president Kiska who styles himself into that role, reminiscent of the anti-corruption President of Romania, Johannis. However, Kiska’s problem is his inability to convince voters that he is serious about making a transition from the office of the President to that of a Prime Minister. And there is also the question of whether the rest of the opposition would accept him as their leader.
There is a real danger of a standoff if neither side achieves a majority. This is also because of the possibility that, for the first time since the 1989 revolution, no ethnic Hungarian party would cross the parliamentary threshold. This is due to the fragmentation of the Hungarian community, but also to the punishment of the MOST-Hid party for participating in the current coalition alongside nationalists and socialists. This would mean a period of increased turbulence and uncertainty for Slovakia, as well as further fragmentation of the political spectrum. It would also mean a costly waste of time for the country which has been plunged into a deep political and moral crisis. The country needs to rebuild its democratic institutions and return to the reform path of the first decade of this millennium.
But what Slovakia needs most at this moment, is a return to morality and decency on all levels of public life. In only a few weeks, Slovaks have the chance to halt the alarming trend of injustice, arrogance, intimidation and attacks on minorities becoming the new normal. This is a unique chance. It is also an obligation for all democrats towards Ján and Martina. Their tragic deaths should not have been in vain. They should, at last, help bring about a wind of change.Viktória Jančošeková Crisis Democracy Elections Political Parties
Elections in Slovakia: More of the same kleptocracy or wind of change?
24 Jan 2020
In international affairs, the year 2020 has begun dramatically. On 3 January, the US killed Iran’s most powerful military commander, General Qasem Soleimani, in a targeted airstrike in Iraq. The strike came only days after protesters had assaulted the US embassy in Baghdad in an attack for which the Pentagon blamed Iran and Soleimani in particular.
Iran retaliated on 8 January by hitting American air bases in Iraq with missiles. No American troops were killed and Washington has seemed to accept them as a tit-for-tat response for the earlier strike on Soleimani. Yet, the standoff has also produced casualties: hours after the missile strikes, Iran accidentally shot down Ukrainian International Airlines flight PS752, killing all 176 people on board.
As tensions between the US and Iran have peaked, the EU has found it challenging to play a meaningful diplomatic role in the Middle East, despite the fact the region is located on its own doorstep. The Union’s response has been—as it often is when the EU is confronted with a crisis—haphazard and devoid of strategy.
The EU has made little effort to speak in one voice. Following the American strike on Soleimani, EU leaders issued different and poorly coordinated statements. The first one to do so was European Council President Charles Michel, who emphasised that further escalation needs to be avoided ‘at all cost’. His statement was followed by additional reactions from High Representative Josep Borrell and the President of the new ‘geopolitical’ European Commission, Ursula von der Leyen.
Confusion over who is really speaking for “Europe” was increased further by the separate diplomatic initiatives of France, Germany and the UK—the “E3” European signatories of the Joint Comprehensive Plan of Action (JCPoA) on Iran’s nuclear programme. At the height of the standoff, France spoke to Iraq, Germany engaged Iran and the UK put the Royal Navy on standby in the Gulf. The E3 also released a separate joint statement to add to the pile of European reactions.
As tensions between the US and Iran have peaked, the EU has found it challenging to play a meaningful diplomatic role in the Middle East, despite the fact the region is located on its own doorstep.
The various European statements have two things in common. First, they emphasise the need to de-escalate tensions in the Middle East in order to avoid a spiral of violence. Second, they emphasise the need to preserve the JCPoA, which has been on life support ever since the US decision to withdraw from it in 2018. Yet, Europe doesn’t seem to be in a strong position to impact the former and the latter seems little more than a dead letter, especially after Iran announced that it would no longer abide by the JCPOA’s uranium enrichment limits.
EU foreign ministers did discuss the situation in the Middle East in an extraordinary Foreign Affairs Council (FAC) meeting on 10 January and they mandated the High Representative to carry out diplomatic efforts with all parties to the standoff to contribute to the de-escalation of tensions. Beyond this, the outcomes of the FAC were meagre (i.e. call for de-escalation and restraint, rhetorical support for Iraq’s stability and the preservation of the JCPoA).
The most significant European move took place on 14 January when the E3 triggered the JCPOA’s dispute resolution mechanism in order to bring Iran back into full compliance with the agreement. High Representative Borrell will oversee the dispute resolution process but the EU doesn’t seem to have an Iran strategy beyond the preservation of the JCPOA, which may well collapse entirely if the process fails and UN sanctions are re-imposed on Tehran.
The causes of Europe’s strategy deficiency are multiple and would take an entire book to address sufficiently. However, it suffices to say here that the EU suffers from multiple problems. These include, inter alia, a leadership vacuum in foreign policy, difficulties in taking decisions that do not create positive win-win outcomes, an unwillingness to make political sacrifices in international affairs, and a lack of appetite for strategic thinking.
None of these problems can be fixed with a single silver bullet such as expanding the use of Qualified Majority Voting (QMV) in EU foreign policy. This is because the Union’s problems are either structural in character or rooted in strategic culture, which means that they cannot be overcome by simply moving away from unanimity decision making in the Council.
Yet, there are things the EU could do. The current practice in which the presidents of different EU institutions issue separate statements on major foreign policy events should stop. This is confusing to audiences both within and outside the EU who seek to understand the Union’s position on a given issue. Ideally, there should be a single joint statement by the President of the European Commission, the President of the European Council and the High Representative if a statement by the latter alone is considered insufficient.
There should also be a permanent operational contact group consisting of the major European powers, which inevitably are expected to take charge in a crisis. It could take the form of a European Security Council, under the umbrella of which major European countries could coordinate their diplomatic activities. Such a structure could be based outside the EU to make it politically feasible to include post-Brexit UK as well.
The current practice in which the presidents of different EU institutions issue separate statements on major foreign policy events should stop.
Finally, there should be a permanent EU level strategy development process, which should lead to the adoption of a new European Security Strategy (ESS) every five years. At the moment, documents such as the 2016 EU Global Strategy (EUGS) are developed on ad hoc basis whenever the member states have an interest in them. This is why there was a 13-year gap between the 2003 ESS and the 2016 EUGS. A more formalised process would push the EU to think about what it wants to achieve on the world stage in regular intervals.
These are small steps, but smalls steps are preferable to doing nothing. The risk is that Europe will continue to sink into further strategic irrelevance and that EU foreign policy will be reduced to empty slogans, hollow statements and photo opportunities.
At a time when tensions in the Middle East remain high, when Russia continues to be assertive, when China’s rise is challenging the established international order, muddling through—Europe’s default foreign policy strategy—should be rejected as an option. Continuing to follow it would be detrimental to Europe’s ability to defend its interests as well as those of its partners.Niklas Nováky Brexit Crisis EU Institutions European Union Foreign Policy Middle East
Iran-US standoff: A missed chance for the EU to speak with one voice
15 Jan 2020
The leading Twitter hashtags on 3 January – the day Qasem Soleimani was killed by an American drone strike in broad daylight in front of Baghdad Airport – were #WorldWarIII and #FranzFerdinand – the latter not referring to the Scottish indie band, but to the murder of Austria’s heir presumptive that triggered World War I. Alas, 2020 is not 1914, Baghdad isn’t Sarajevo, and the one thing we can safely predict is that World War III is not about to break out. Which doesn’t mean everything is ok and we can safely go back to de-hibernation in rainy Brussels. And the disaster of the downed Ukrainian passenger plane demonstrates that there is no such thing as a conflict without tragic losses. But it means that Europe’s hyperventilation, even if shared by many US liberals in the solidly partisan biotope of Washington, should give way to a healthy dose of sobriety. I propose to take it in five steps.
1. The big Middle Eastern War is not imminent
If the price of crude oil, as a reaction to Soleimani’s killing – jumps up a mere 3 %, as it did last Friday, you know that Armageddon will have to wait, no matter what the Twittersphere says. That doesn’t mean the crisis is over. But the very measured missile strike without casualties against US bases in Iraq on 8 January, the tweets by Iranian leaders that they don’t want further escalation and also Trump’s non-escalatory statement after the missile strikes all speak for lowering tensions for the moment. In fact, while both sides of the conflict have no interest in letting this grow into a full-blown war, it’s the Iranian regime whose very existence is at stake in case the US and/or Israel take out the Islamic Revolutionary Guards Corps’ (IRGC) structure – of which they are very well capable. While full-blown war might jeopardise Trump’s re-election, in Iran it would put the whole system into question and likely end mullah rule.
2. Soleimani’s killing has re-established deterrence against Iran
Taking out the mastermind behind Iran’s export of terror in the Middle East and beyond, the engineer of the slaughter in Aleppo and elsewhere who is also responsible for the deaths of hundreds of US soldiers, may well go down in history as a textbook example of escalating to de-escalate. This, nota bene, after a couple of Iranian attacks that remained essentially unanswered by the US. The bombing of tankers in the Strait of Hormuz in spring 2019, the shooting down of a state-of-the-art US drone in June and the missile attacks against Saudi refineries in September come to mind. And remember, it was a good part of the American and European security community that began to worry that Trump is being too soft on Iran, especially after he called back planes and drones already in the air after the drone incident.
Apparently, this week the Iranian military before the strike called up the Iraqi authorities, who then warned the US soldiers so they could get into shelters. Iranian leaders are tweeting very clearly that they want to avoid further escalation. Iraqi Shia leaders have issued calls to their faithful not to attack US troops for the moment. All these are signs that, for the first time in almost a year of direct aggression against the US, Iran is indeed standing down. Soleimani’s killing caused this.
3. The killing has not weakened Iranian moderates
First of all, don’t be deceived by Iranian TV pictures of millions of mourners in the streets of Iranian cities. Soleimani may have been a popular figure with some Iranians; but being the second most powerful leader and his IRGC the decisive pillar of the regime, he was certainly reviled by all dissenters – whose numbers have been growing, if anything, recently. Naturally, the regime spent all the carrots and sticks at the disposal of an authoritarian system to make people attend the rallies. And secondly, Iran’s moderate reaction this Wednesday can very well be read as a sign that the radicals, especially in the IRGC itself, are not calling the shots anymore, contrary to recent years.
4. US forces are not being kicked out of Iraq
That may still happen, and it would be detrimental to Iraqi democracy and especially the fight against ISIS, but Iraq’s non-binding parliamentary resolution of last weekend will not lead to an immediate withdrawal of US troops. Anti-ISIS operations have been halted; some US allies are withdrawing troops from Iraq, but this may very well not be the last word. It’s definitely too early to predict the end of the US presence in Iraq.
5. It is Europe’s sacred mission to bring both sides back to reason – NOT!
Non-European observers may be forgiven for thinking that Europe’s habitual calls on both sides to exercise utmost restraint, and defer from further escalation, have all the quaintness – and the effectiveness – of a Pottawatomi rain dance. Which doesn’t mean that de-escalation doesn’t happen (see above) but it certainly isn’t the result of Europe’s well-meant efforts to ‘bring both sides back to reason’, as German Foreign Minister Heiko Maas put it.
Fortunately, the heads of government of the UK, France and Germany were slightly more sober, putting the blame squarely on the Iranian side and Soleimani personally before repeating the standard memes of EU Iran policy. Europe’s problem with this crisis, as generally with the Middle East, is twofold: First, the EU and its members don’t have the wherewithal to take on any serious diplomatic role because, without the necessary military resources (not only troops but also transport, intelligence and command & control), they cannot alone become a security provider which is essential in the region. And second, some important European actors (Germany, for example) have a huge problem with the very idea of deterrence. Deterrence meaning the ability and the willingness to escalate, in a precise and limited and targeted manner in specific situations, as it happened last Friday. As long as this is so, we can call for utmost restraint or try to save the Joint Comprehensive Plan of Action (JCPOA) until we’re blue in the face.
Again: All this doesn’t mean that we’re heading for a peaceful future in the Middle East, or that the Soleimani killing was a brilliant, well-planned chess move by a stable genius in the White House. But it means that we Europeans have to rethink some time-honoured principles about security. Remaining pure vegetarians, we won’t survive in a jungle of carnivores.Roland Freudenstein Crisis EU Institutions Foreign Policy Middle East Security
After Soleimani: We Need to Talk About Deterrence in Europe
10 Jan 2020
Addressing the shrinking of the middle class is crucial to fight the rise of nationalism, protectionism and populism in the next European elections, Margherita Movarelli argues.
Margherita Movarelli is a senior project officer at the Wilfred Martens Center for European studies, the official think tank of the European People’s Party (EPP).Margherita Movarelli Crisis Middle Class
The success of populism, and why it’s all about the middle class
Articles and Op-Eds - In the Media
15 May 2019
In the last few years, digital platforms and social networks have provided a space for conspiracy theorists and theories to reach thousands of online users. As a consequence, some conspiracy theories have become part of the political debate at both the national and international levels. This policy brief provides a data-driven comparative analysis of a group of conspiracy-oriented Twitter accounts in Spain, Germany and Poland. The analysis suggests that there is a thematic alignment between conspiracy circles and populists.
In particular, the data shows that both have similar positions on the mainstream media, the corrupt nature of governmental institutions and migration. Moreover, the analysis indicates that there are users who are active both nationally and internationally and give a conspiratorial reading of current affairs that influences populist approaches to these same issues.Crisis Democracy Elections Populism Society
Suspicious minds: Conspiracy Theories in the Age of Populism
11 Feb 2019
On Thursday 28 June 2018, the European Council gave its endorsement to the concept of ‘regional disembarkation platforms’. These centres would be built in non-EU countries (presumably in North Africa) in cooperation with those countries. They would serve as facilities to which migrants rescued in the Mediterranean would be brought. Thus, a new option would be open to the EU, not to bring the rescued migrants automatically to one of the EU’s coastal member states.
This point from the Council conclusions elaborates one aspect of the broader trend to externalise EU migration controls. This trend is being promoted by the Austrian Chancellor Sebastian Kurz. Earlier in June, Kurz suggested sending immigrants back to the countries of transit and origin. These measures would stem mass migration and prevent drownings in the Mediterranean.
The idea of reception centres outside the EU borders has been circulating for decades now, without much tangible progress. The reason why implementing the idea has been so slow is the daunting scale of the challenge. The security, humanitarian, legal, political, diplomatic and financial aspects of the problem are multifaceted and interdependent in unexpected ways.
Agreement by a high number of institutions is necessary but the predictability of many players (national governments in and outside the EU and sub-national authorities and assorted tribal, religious and political groups in North Africa and the Middle East) is low.
Unlike Australia and the US which, each in a different way, have partly externalised migration controls, Europe is surrounded by several highly unstable regimes. Migration flows into the EU are notoriously mixed, including refugees and economic migrants from different countries. This increases the scope of the challenge that lies in front of the EU.
Main elements in externalising migration controls
The main elements in externalising immigration might be:
- significantly improved EU external border management, in cooperation with third countries
- determining asylum status of migrants as close to the country of origin as possible; this could be done at EU consulates or at reception centres set up by the EU
- guaranteeing safety, security and basic welfare in the reception centres
- encouraging voluntary returns to countries of origin
- offering (positive and negative) incentives to governments of non-EU countries, especially for accepting their own nationals
- potential resettlement of the most vulnerable individuals into the EU (resettlement means accepting selected refugees after security screening)
- decoupling of life-saving operations in the sea from bringing refugees into the EU.
Implementing these measures would herald a major step in tackling irregular migration. Thanks to common efforts, the migration crisis of three years ago is under control. No masses of refugees and migrants are crossing the Balkans into Western Europe, and the EU’s border management is now better than ever – although there is still a lot of room for improvement.
The EU is still searching for a recipe for cooperation with third countries on migration. The bloc is still struggling to mobilise finance, police the Mediterranean, agree on internal distribution of asylum seekers, implement returns and fulfil its resettlement pledges.
Develop expertise by starting small
Some EU members are conducting pilot schemes in externalising migration controls. We should look closely at, and learn from, these experiments. They promise to result in much-needed European expertise that can serve the larger goal of bringing migration controls closer to the sending countries:
- The EU-Turkey deal of 2016 should serve a major source of learning.
- In Niger, an EU-financed ‘multi-purpose centre’ in Agadez provides information and assistance to migrants, registers migrants and allows opportunities for safe and voluntary return and reintegration in the home country. Military presence has proved necessary. In January this year, the Italian government sent some 500 troops to the country to suppress migrant smuggling and exploitation.
- Also in Agadez and in other African cities, the French government has begun interviewing asylum seekers on a small scale. These individuals are typically returnees from Libya who have been pre-screened by the workers for the United Nations High Commissioner for Refugees (UNHCR).
- Certain EU members, for example Denmark, have been allowing asylum applications at their consulates, although only in a third country, not in a country of the asylum seeker’s origin.
The efforts conducted outside the EU borders have had a negligible influence on the numbers of people trying to cross the Mediterranean. But they send a message. Those with a credible claim have a chance of being granted asylum in the EU. Those without such a claim should not risk their lives with Libyan traffickers and smugglers.
Also, let us not forget Europe’s operations on its own territory. Italy and Greece have run, with the assistance of the EU and UNHCR, ‘hotspots’ to process asylum claims during the refugee wave of 2105-16. Evaluating this experience should be helpful in setting up similar centres outside the EU.
The Marshall Plan for Africa
Migration control always consists of carrots and sticks. A ‘Marshall Plan’ for Africa, advocated, for example, by Angela Merkel, would represent the former. The existing reincarnation of this plan, the Trust Fund for Africa, has so far been inadequate. Currently worth some €3.4 billion, the Trust Fund lacks public and private funds to make a real impact. But in the long run, helping Africa prosper – also by preferential trade tariffs – would motivate its inhabitants to stay at home.
On the legal front, two alternatives offer themselves.
Legal option one: reinterpret the Refugee Convention
As one option, the EU member states may start reinterpreting the Refugee Convention of 1951. As it is individual states, not the EU, who have signed up to the Refugee Convention, a coordinated approach would be essential.
Such a reinterpretation might be along the lines of the US and Australia. Australia does not apply the Convention outside its mainland territory. The US does not apply it outside its territorial waters. Both the US and Australia intercept unauthorised vessels. They save lives even outside their territorial waters but remove migrants to remote own or third-country territories, where lives are not in danger.
The rescued individuals have a chance of obtaining asylum (in the US case, only in a third country). Australia and the US take a punitive approach to ‘spontaneous’ asylum claims launched by those who attempt to cross the sea, but, in collaboration with UNHCR and the International Organisation for Migration, maintain resettlement programmes for those asylum seekers who enter through via regular channels.
Option two: encourage third countries to implement the Refugee Convention
A strategically more promising, although a much more demanding and long-term approach, would be to geographically extend the application of the Refugee Convention. With the exception of the Middle East, most countries in the immediate and distant EU neighbourhood are signatories of the Refugee Convention. Especially in North Africa though, official signatures on the Convention have not been followed up by setting up functioning asylum legislation.
The EU might incentivise these countries to adopt asylum legislation in line with their commitments under the Refugee Convention.
As one step further into the future, one can imagine the EU inducing neighbouring countries to buy into the EU’s ‘Dublin system’ of asylum seeker distribution. According to the Dublin rules, the first country of contact has responsibility for the asylum seeker who entered its territory.
Supported and co-financed by the EU, extending a similar system to Eastern Europe, the Western Balkans and North Africa would spread the burden of caring for refugees across many more countries than is currently the case. This would contribute to creating a supra-regional system of refuge governance in Europe and its surroundings.Vít Novotný Crisis Immigration Migration North Africa
Externalising Migration Controls? Think Big, Start Small
29 Jun 2018
Who doubts that history doesn’t repeat itself? In Brussels, 2018 is the new 1989. Everybody seems to have a “blueprint” or “vision” for the future of the Eurozone. The only problem is that three decades after the Delors report, Eurozone leaders risk the sustainability of the single currency area. The reason? Political goals rather than economic priorities are guiding Eurozone proposals. The possible result? A repeat of the mistakes of the 1990s and a Eurozone still ill-equipped to deal with future crisis.Crisis European Union Eurozone Leadership Macroeconomics
Keeping it Real: Building a Realistic and Inclusive Eurozone
11 Apr 2018
Media headlines seem to have given much larger attention to the bailout programme in Greece than to those of most other countries. But Greece’s experience with economic adjustment is in many ways an outlier, complicated by the election of the radical-left government of Tsipras.
Cyprus offers the interesting example of an economy saved with the help of economic adjustment and responsible reforms. Cyprus under centre-right leadership seems to be a rags-to-riches story after being shut out of financial markets only six years ago.
During the 2000s Cyprus registered strong growth driven by buoyant domestic demand according to a European Commission report. On average, Cyprus’ real GDP grew at a rate of 2.75% between 2000 and 2010 compared to the 1.4% of the euro area for the same timeframe.
The country enjoyed high employment rates, low inflation rates and rising real disposable income. This led to real convergence with the stronger economies in the European Union. Apart from domestic demand, Cyprus’ accession to the European Union in 2004 and its joining the euro area in 2008 contributed to this growth by boosting investor confidence.
While Cyprus resembles other countries in the euro area most affected by the crisis, it represents a success story in crisis management.
However, this positive image was underpinned by economic vulnerabilities and imbalances due to the mismanagement of the public finances. Notably, Cyprus ran current account deficits averaging 6.9% of GDP for approximately one decade during EU accession and entry to the euro area. In order to finance its current account deficit, Cyprus relied on foreign direct investment, which provided little added value to the economy.
Furthermore, the public sector had grown extensively in the 2000s, taxpayer compliance was low, and total government expenditure as a share of GDP increased. Additionally, the banking sector was vulnerable because of inadequate prudential supervision and because of its openness toward Greece.
When the financial crisis and subsequent euro crisis hit, the Cypriot banking sector was severely impacted. Cyprus reached a 6.3% budget deficit and gross debt rose sharply to 85.8% of GDP and subsequently going over 100%. Cyprus was shut out of financial markets for 18 months starting in mid-2011.
In order to adjust its economy, Cyprus agreed a bailout programme and undertook comprehensive structural reforms under centre-right President Anastasiades. The implementation of the bailout programme of €10 billion (56% of Cypriot GDP) took place between 2013 and 2016.
It was one of the largest sovereign bailouts in history. The bailout programme targeted Cypriot banks and involved a severe austerity programme (cuts to public spending, tax increases, and privatisation of semi-government organisations).
The reform to the banking sector, which saw Cyprus’ second-largest bank shut down, was received negatively by the public as it involved losses to all stakeholders in the banking sector, especially bondholders and depositors.
The government in Cyprus was determined in its response to the crisis and Cypriots were stoic in their resolve to see the reforms through. Apart from minor unrest toward the beginning of 2013, there were little protests and no riots against the austerity programme.
While Cyprus resembles other countries in the euro area most affected by the crisis, it represents a success story in crisis management.
The performance of Cyprus is a clear example of the positive link between a bailout programme for a country in deep crisis and sustainable economic activity.
The country exited the bailout programme on track in 2016 due to ambitious and consistent implementation of necessary reforms by the centre-right government led by President Anastasiades.
Statistical data from Eurostat supports the positive contribution government policy since 2013 has made to the country’s recovery. Cyprus ranks among the top ten countries in the European Union on key financial indicators.
Data for the third quarter of 2017 shows a 0.9% increase in GDP over the previous quarter and a 3.9% increase over 2016. Employment has increased by 0.7% in the third quarter when compared to the second and by 3.5% when compared to 2016.
Equally, Cyprus registered the fifth largest year-on-year decrease in unemployment in the European Union, from 13.1% in 2016 to 11.0% in the third quarter of 2017.
Cyprus had the largest year-on-year drop in government debt to GDP ratio (7.4%) in the EU in the third quarter of 2017. According to a European Commission forecast, growth is expected to remain strong in 2018 and 2019 coupled with a strong labour market and modest inflation.
The economy of Cyprus has outperformed the government’s budgetary targets, and government debt is likely to fall below 100% of GDP in 2019.
The academic literature on public administration reform often emphasises the difficulty of agreeing to and implementing reforms as well as of deciding whether or not the intended reforms had the intended outcome.
In this respect, the performance of Cyprus is a clear example of the positive link between a bailout programme for a country in deep crisis and sustainable economic activity. Notably, it is a victory for the centre-right, which has once more shown its ability to deliver results in highly challenging circumstances.
Even so, the Cypriot economy should not rest on its laurels even if it has registered a significant improvement. A forecast by Oxford Economics warns that reform is still necessary as the ‘legacy of the 2012-2013 crisis can still be seen in the banking sector’.
Further work on restructuring non-performing loans and improving public finances is required in order for the positive forecasts to become a reality. Rags-to-riches stories are popular, but so are riches-to-rags.Andrei Moraru Centre-Right Crisis Economy EU Member States Macroeconomics
Cyprus: from rags to riches?
01 Jan 2018
The Libyan conflict is the result of a complex and controversial series of developments, where local political events have been strongly influenced and driven by exogenous factors. A dual set of conflicting interests can be found in both the Euro-Mediterranean and inter-Arab dimensions, with Italy and Turkey struggling against France and Great Britain on one side, and Qatar being opposed by the United Arab Emirates and Saudi Arabia on the other.
Muammar Qaddafi’s regime, which was certainly not an example of good governance and respect for human rights, was quickly swept away by a conflict primarily fought by non-Libyan actors, which eventually caused the collapse of the central institutions in Libya and the creation of dozens of local militias. The failure of both local and exogenous ambitions has caused a crisis in which additional factors have been able to influence the Libyan civil war, making the situation very opaque and extremely difficult to solve.
Read the full article in the June 2017 issue of the European View, the Martens Centre policy journal.Nicola Pedde Crisis Mediterranean North Africa Security
The Libyan conflict and its controversial roots
04 Jul 2017
The architecture of the original euro was flawed, and so was the commitment of the EU member states to abide by fiscal orthodoxy. However, both did convey sound monetary principles, these being (1) to preserve the purchasing power of the euro and (2) to isolate it as much as possible from political pressures.
As evidenced in the euro crisis, both EU member states and European institutions have committed to maintaining the euro via further integration and the growing centralisation of monetary and fiscal powers in EU institutions. The European Banking Union is one example of this commitment.
This article argues that these changes have paved the way for the creation of another modern-state currency: a currency that belongs to a supranational state and that is ultimately linked to an ever-growing supranational treasury that works hand in hand with the central bank. This article offers a more market-friendly monetary alternative to such an arrangement.
Read the full article in the June 2017 issue of the European View, the Martens Centre policy journal.Juan E. Castañeda Banking Crisis Eurozone
Juan E. Castañeda
‘Euro 2.0’: a preliminary assessment of the European Banking Union
22 May 2017
The need for a fiscal union in the EU is an issue which has been debated many times and about which much has been written. However, the economic and financial crisis we have experienced in recent years has cast doubt on whether we have taken this debate in the right direction. Sometimes we tend to focus the debate on marginal issues and unrealistic proposals. Rather than helping us to move forward, this paralyses the EU and distances us from feasible targets. This article aims to give a general overview of the debate on a fiscal union to find out where we are in the process of fiscal integration and what we can really expect from it.
Read the full article in the June 2017 issue of the European View, the Martens Centre policy journal.Miguel Marín Crisis Eurozone Integration Macroeconomics
The only feasible fiscal union for the euro area
17 May 2017
This working paper looks at recent trends in the Russian economy after more than two years of recession. It analyses the fundamental reasons for the current economic crisis and argues against some of the mainstream views on ‘the end of the recession’ and the role of Western financial sanctions. The paper follows up the author’s publication on the same topic which was published by the Wilfried Martens Centre for European Studies in December 2015.Crisis Economy EU-Russia Growth Macroeconomics
The Russian Economy: Recovery Is Further Away than Some Might Think
12 Feb 2017
This article looks at how the Greek, German and British press have addressed the issue of the refugee crisis in Europe. Using a mixed research approach that combines corpus linguistics and discourse analysis, this article examines 1340 articles that were published online between 20 March and 31 May 2016 in Greece (Kathimerini, To vima), Germany (Die Welt, Süddeutsche Zeitung) and the UK (The Guardian, The Telegraph). The results presented by this article suggest that the press in all three countries mostly presented the refugee crisis in numbers. Geographical qualifiers were also deployed in the effort to broach this thorny issue, while the managerial aspect of the refugee crisis, the critical issue of child refugees and the EU–Turkey agreement were all among the most frequent topics covered by the press.
Read the full article in the December 2016 issue of the European View, the Martens Centre policy journal.Stergios Fotopoulos Crisis EU Member States Mediterranean Migration
Media discourse on the refugee crisis: on what have the Greek, German and British press focused?
07 Nov 2016
Professor Lars Jonung warning Sweden’s current economic momentum is unsustainable
According to economy expert Lars Jonung, the two drivers of the Swedish economy, expansionary monetary policy and the very loose fiscal policies that had led to over 20 years of continuous property price growth are likely to result in a real estate bubble based on credit expansion.
Jonung, who is a Professor Emeritus with the Knut Wicksell Centre for Financial Studies at Lund University, made his remarks during an event organised on October 11, 2016 in Brussels by the Martens Centre as part of its Food for Thought Country Series.
Professor Jonung argued that monetary policy cannot correct this trend by itself, but only in combination with fiscal, tax and regulatory policies. The Country Series events are designed to provide a discussion of the economic challenges facing member states in the EU.
Sweden’s economy grew by 3.6% in 2015 making it one of the fastest growing economies in the EU. According to European Commission data, in the short to medium term, economic prospects continue to look favourable with growth projected to moderate to 2.9% by 2017. Unemployment is projected to fall under 7% in 2016 with government debt stable at around 44% of Gross Domestic Product (GDP).
However, the Swedish economy faces a number of downside risks which jeopardise future growth potential. The arrival of over 160,000 refugees in 2015 poses longer term challenges regarding labour market integration.
To counter the rise of populists, the centre-right in Sweden will have to come up with long-term solutions and alternatives. MEP Gunnar Hokmark
Brexit and the potential for weaker growth among key trading partners also poses external risks. Internally, the dramatic rise in house prices and household debt is complemented by expansionary fiscal and monetary policies at government level, including negative interest rates.
To the question “Has Sweden reached the point of no return?”, Jonung cited American economist Robert Aliber, who had in the past stated that a large number of building cranes on a city’s skyline was the sign of an upcoming crisis. “In Stockholm there are too many cranes”, Jonung concluded, “however a number of changes can still be made to give us a soft landing”.
Swedish Member of the European Parliament Gunnar Hokmark, also a speaker at the event, disagreed with Professor Jonung on the crane phenomenon, arguing that in order to cope with the high demand of housing in Stockholm, both a rise in prices and more construction is necessary.
According to him, addressing the challenges in the supply side of the economy is what Sweden needs. “Contrary to what many think, we are not a socialist country anymore, we are quite liberal. However, deregulation in the housing and the labour market are still needed”, MEP Hӧkmark stated.
Fredrik Erixon, Director of the European Centre for International Political Economy, a Brussels-based think tank, shared a rather pessimistic view about the future of Sweden. According to him, the Central Bank is the main source of monetary distortion. “Free money leads to a misallocation of resources, which will come back at some point and bite Sweden in the back”, according to Erixon.
During the Q&A session, several other points were raised such as managing the current levels of growth in a more sustainable way, investment and deregulation, as well as lessons learned from Ireland, Spain or Greece over the past decade.
The political consequences of any future economic slowdown were also raised, specifically how such a slowdown could strengthen populist political parties. A key issue raised by the panellists was that traditional centre-right political parties need to propose new solutions to combat the current economic imbalances.
Household debt in relation to disposable income in Sweden, the UK and the US, 1995–2014, with the Riksbank’s forecast for Sweden until 2019Business Crisis EU Member States Macroeconomics
Finance expert: Sweden’s booming economy not what it seems
13 Oct 2016
Joris Luyendijk was invited by The Guardian in 2011 to write a blog about the City of London and learn about the financial world. He did so for two years. Known in The Netherlands as a journalist and writer on the Middle East, he wrote a book entitled Het zijn net mensen (Hello everybody) in which he separated fiction from reality in journalism. Luyendijk himself knows little more about the financial world than we do and he had to find his way into the City to meet bankers, traders, analysts, brokers, lawyers, etc.
As an anthropologist he tried to go native in the world of finance. His book, translated from its Dutch title This can’t be true, is a summary from his blog for The Guardian, in which the mist of the credit crunch slowly evaporates. The reader gets a feeling of these faceless humans in their bespoke suits, its unwritten rules, taboos and hierarchies in this city that functions like a village or tribe. The book exposes the secrecy of the financial world and how it developed its own rules and (inter)national laws. The bankers’ personal opinions give the reader a human feeling of a world that is often considered in the popular media to be made up of little more than incalculable economic theories.
The problem described in the book is the onset of the financial crisis in 2008, which according to his interviewees had, at it’s a core, a small group of projects and people. Even the people that were most involved did not expect this crisis to happen. Over lunches and glasses of wine, Luyendijk learns about the reasons for the 2008 crash in the financial world. A lot of profit making by traders and brokers was, and still is, based on short-term thinking. Job insecurity makes the bankers less involved with their bank and therefore they are not concerned with long-term consequences. The CEO’s of the big banks only seem to be interested in profits and have little care about the impact or consequences of their products. And all of these pawns play with other people’s money for banks that are listed and have grown so big that they have become too big to fail.
Everybody was shocked when the credit crunch happened, nations, consumers and banks all agreed that something had to be done to alter financial practices. But, years later it looks like it is business as usual notwithstanding the increased financial regulation imposed by both the EU and British authorities. The banks are still too big. The so-called Chinese walls that separate divisions within banks, and the many extra rules are still breeched. And the same outrageous bonuses are back in the city. Bankers explained to Luyendijk that the caveat emptor, the contract law principle, of which the buyer should beware is still in a place. Hence, the buyer is responsible for any loss concerning the purchase, not the broker.
Joris Luyendijk ends his book the way he starts, with a story of him being on a plane when he sees a big flame coming out of the engine. He turns to his neighbous, but everybody tells him that all is well. He makes his way to the front of the plane and finds out that the cockpit is empty. The system with its perverse incentives is the problem and if we do not tackle the problem, 2008 will happen all over again. The increased financial regulation imposed in the EU since 2008 is only the first step in making the financial system safer for us all.Pieter Habets Banking Crisis Development
This Can’t be True: A book review
30 Jul 2016
The mass influx of refugees and migrants into the EU since August 2015 has raised questions about the EU’s responsibility to give protection to people fleeing conflicts and poverty. The EU’s common asylum system is rooted in international legal obligations, including the Refugee Convention of 1951.
What does the Refugee Convention expect us to do? And should the existing legal commitments be rethought altogether? In attempting a global system of shared responsibility for refugees, what is the role of the EU and that of non-European countries? The Martens Centre asked NGO and policy experts to answer these and other questions pertaining to the refuge crisis during an event organised on 8 November 2016 in Brussels.
The debate brought together both supporters and opponents of the idea of setting limits on refugee numbers. Speakers disagreed about whether the international law allows the EU to legally limit the numbers of people who are granted international protection.
Christian Calliess, adviser for the European Political Strategy Centre, the European Commission’s internal think tank, stated that the main principle of the Refugee Convention is non-refoulement, not returning a refugee to a country where he faces danger. However, the Convention does not guarantee that refugees are ensured an individual asylum, nor does it guarantee the choice of country of asylum. Refugees are entitled to apply for asylum but the state in question has the right to deny asylum status.
Christian Kremer, Head of the Policy and Strategy Department of the European People’s Party brought the political perspective into the debate and mentioned that a significant percentage of European citizens are against accepting more refugees. Regarding quotas, in practice they could be implemented with refugees brought through resettlement programmes from outside the EU. He also stressed the need to distinguish between refugees, asylum seekers and economic migrants and ensure European security as a priority in the process. As practical solutions, Kremer proposed the processing of asylum applications outside or at the EU external border, as well as creating safe zones outside the EU.
In disagreement with the previous two speakers, Minos Mouzourakis of the European Council on Refugees and Exiles stressed that subsidiary protection is not discretionary but follows from member states’ human rights obligations. He stated that belonging to a persecuted group does not preclude one from individually falling into the refugee status. According to Mouzourakis, the European definition of the refugee is not the most generous, even when compared with African states. In his opinion, the EU was not doing enough to match the commitment of many non-European countries to large numbers of refugees.Crisis Immigration
Do we need to rethink EU legal commitments towards refugees?
21 Jul 2016
Most of the recent commentary around Russian politics has been focused largely on one issue, the high personal approval ratings of Vladimir Putin. But the Russian political system is complicated, and even the ruling force consists of many elements: government, the ruling ‘United Russia’ party, Parliament, regional governors, and so forth.
There are strong indications that, despite Putin’s personal approval rating remaining quite high, approval ratings for all other elements of the system of power are essentially down to pre–Crimea annexation levels and even lower. There are strong and growing signs that the Russian population is deeply unhappy with the current situation, and that discontent has a chance to spill over into the territory of political consequences.
Despite the fact that Putin’s overall hold on the country remains largely unchallenged, authorities run a very serious risk of showing weak results at the upcoming Parliamentary elections in September 2016. The weak result of the ruling party at the previous State Duma elections in 2011 sparked a large-scale political crisis in the country, although the party did not even lose a majority in Parliament.
It is too early to predict specific results of the September 2016 Parliamentary elections, but the weaker the result for United Russia, the more reason to expect some modification of the current system towards power-sharing deals, softening of the ‘vertical of power’, emergence of a more dialogue-based environment and calls for some kind of transformation of the Russian political system.Crisis Elections EU-Russia Security
From Disapproval to Change? Russia’s Population May Surprise Putin at the Next Elections
09 Jun 2016
2016 has been marked by a return of uncertainty in the financial markets and increased doubts over growth prospects in key global economies such as China, Europe and the U.S. Nearly ten years after the U.S. sub-prime mortgage crisis first erupted, the global financial sector has returned as a key concern of economists and global investors.
This note identifies four key issues underpinning the current market turbulence. It argues that although these challenges are varied and serious, they are not insurmountable for Europe owing to the reforms undertaken since 2008.
However, in order to prevent regular cycles of market speculation further economic reforms are necessary which will challenge existing national preferences and change the governance of both the European and global economies.
Ultimately, for Europeans, the goal of these reforms is to lead to a more cohesive and robust European Union. However, the failure of the EU to act in a timely (and collaborative) manner will result in further periods of speculation.
Four policy priorities – increased investment, further global cooperation, the completion of Banking Union and the maintenance of sustainable public finances – are identified as being necessary for the EU to withstand future financial crises.Banking Crisis Economy Growth Macroeconomics
Financial Market Instability: A Four Point Plan to Avoid Economic Catastrophe in Europe
02 May 2016
Last week at the Munich Security Conference, the Russian Prime Minister Dmitri Medvedev once again threatened the West with a “new Cold War” and repeated the old blame-game approach to relations with the West. There’s one problem: a growing call from ordinary Russians to reconcile with the West, and normalize relations.
According to recent polls as conducted by FOM, a polling agency which is traditionally loyal to the Kremlin, 60% and 62% of Russians say that Russian leaders “must aim to improve relations” with the United States and Europe respectively. These numbers match those of an independent polling centre, Levada, which claims that 54% of Russians believe that Russia should “strengthen its ties with the West” (up from 40% a year ago).
This is not to say that the viewpoint of Russian citizens to the West has changed for the better. All pollsters show that more than two-thirds of Russians view the U.S. and the E.U. in a negative light (which is no surprise, given the tireless 24-hour brainwashing by propaganda machines, which claim that Russia is “under attack” by the West and that they “aim to overthrow the legitimate government” and “exploit Russian resources”). However, given all that negativity, it’s also quite clear that this is not backed by some kind of deep-rooted aggression within Russian society.
Russian people have visibly grown tired over the past several years of confrontation, and are not truly interested in the Kremlin’s foreign policy-related mobilization efforts. For instance, according to Levada, only 18% of Russians follow Russian military campaign in Syria attentively (half a year ago, the maximum number of people interested was only 25%), whereas over 80% show limited interest in the subject. The same thing has happened in relation to events around Ukraine: Levada has shown a recent surge in public indifference to those, with the number of people who do not truly follow these events or not follow them at all reaching almost 70%.
All these developments are hardly surprising, given the severity of the developing economic situation in Russia. I have described the nature of this crisis, hitting the consumer purchasing power of Russians the hardest since 1990s, in more detail in December; since then, retail sales in Russia have fallen further by 15.3% year on year in December and by another 7.3% in January, and real wages – by 10% and 6.1% respectively. Notably, in January 2016 sharp declines continued contrary to the “low base effect” that optimists hoped for (in January 2015, the decline had already commenced, and optimistic outlooks were based on the assumption that the population’s purchasing power will level off compared to last year’s weak numbers).
It’s quite clear that Russians are unhappy with these developments, and demand that the Russian Government devote more effort to domestic economic policies so as to solve these problems and to reconcile with the West.
Given Medvedev’s Munich speech, Russian leaders seem to be totally ignorant of that demand from the Russian society by simply continuing with the old confrontational style. This is worth remembering for any Western politician talking to them further: The Kremlin’s international tough talk is not really backed by solid public support anymore.Vladimir Milov Crisis Economy EU-Russia
Medvedev’s tough talk does not match Russian public opinion
22 Feb 2016
This working paper looks at the recent trends in the Russian economy and argues against the official view of the Russian authorities that the worst phase of the Russian economic crisis is over.
The paper highlights the main driving factor behind the current crisis, the sharp decline of domestic consumption, unprecedented in the past twenty years, and argues that Western sanctions have had a great role to play in these developments.Crisis Economy EU-Russia
Russia’s Downfall: The Worst Economic Crisis Since the Collapse of the USSR
17 Dec 2015
The period since the election of Syriza to power in January 2015 has been marked by increased political uncertainty, economic instability and a growing polarisation of public attitudes in both Greece and the EU. The reality of Syriza in power has worsened the underlying economic conditions of the Greek economy, reduced the ability of the Greek state to provide essential public services and led to a clear breakdown in trust with other EU members. The election of Syriza to power did not result in a fundamental restructuring of the Greek or European economies, rather their lack of a coherent strategy (beyond reneging on previously agreed support programmes) has set the reform process in Greece back by several years.
The coming to power of Syriza marked the culmination of pent-up public anger and discontent at prevailing economic/political conditions and the impact of such conditions across wider society. Notwithstanding several years of support programmes, the Greek economy requires further reform in order to ensure its long term sustainability. The shortcomings in the assumptions underpinning the initial programmes undertaken by the EU/ECB and IMF were complemented by implementation weaknesses which further eroded public support for the structural adjustments required. This resulted in a clear division arising between those in favour of the support programmes and those opposed.
The level of financial adjustment required in Greece – over 20% of GDP – imposed significant socio-economic challenges. In the public mind, ownership of the reform process then passed from national bodies to imposed, supra-national institutions, thus increasing resistance at both public and political levels in Greece. Resistance fuelled by populist political parties seeking short-term political gain.
Syriza in power has sought to deliberately widen the gulf between those who acknowledge the long term importance of the many difficult structural reforms required, and those who seek to blame “austerity” for Greece’s current woes. In reality, the experience of Syriza in power has highlighted its complete lack of a defensible economic and political strategy which safeguards Greece’s position in the EU, protects the well-being of its citizens and acknowledges the current standing of the Greek economy.
IN FOCUS is a new series of commentaries in which the Martens Centre looks closely at current policy topics, dissects the available evidence and challenges prevailing opinions.Crisis Economy EU Member States Eurozone Populism
Greece – Between farce and tragedy: Four realities of Syriza in power
16 Sep 2015
Joris Luyendijk was invited by The Guardian in 2011 to write a blog about the City of London and learn about the financial world. He did so for two years. Known in The Netherlands as a journalist and writer on the Middle East, he wrote a book entitled Het zijn net mensen (Hello everybody) in which he separated fiction from reality in journalism. Luyendijk himself knows little more about the financial world than we do and he had to find his way into the City to meet bankers, traders, analysts, brokers, lawyers, etc.
As an anthropologist he tried to go native in the world of finance. His book, translated from its Dutch title This can’t be true, is a summary from his blog for The Guardian, in which the mist of the credit crunch slowly evaporates. The reader gets a feeling of these faceless humans in their bespoke suits, its unwritten rules, taboos and hierarchies in this city that functions like a village or tribe. The book exposes the secrecy of the financial world and how it developed its own rules and (inter)national laws. The bankers’ personal opinions give the reader a human feeling of a world that is often considered in the popular media to be made up of little more than incalculable economic theories.
The problem described in the book is the onset of the financial crisis in 2008, which according to his interviewees had, at it’s a core, a small group of projects and people. Even the people that were most involved did not expect this crisis to happen. Over lunches and glasses of wine, Luyendijk learns about the reasons for the 2008 crash in the financial world. A lot of profit making by traders and brokers was, and still is, based on short-term thinking. Job insecurity makes the bankers less involved with their bank and therefore they are not concerned with long-term consequences. The CEO’s of the big banks only seem to be interested in profits and have little care about the impact or consequences of their products. And all of these pawns play with other people’s money for banks that are listed and have grown so big that they have become too big to fail.
Everybody was shocked when the credit crunch happened, nations, consumers and banks all agreed that something had to be done to alter financial practices. But, years later it looks like it is business as usual notwithstanding the increased financial regulation imposed by both the EU and British authorities. The banks are still too big. The so-called Chinese walls that separate divisions within banks, and the many extra rules are still breeched. And the same outrageous bonuses are back in the city. Bankers explained to Luyendijk that the caveat emptor, the contract law principle, of which the buyer should beware is still in a place. Hence, the buyer is responsible for any loss concerning the purchase, not the broker.
Joris Luyendijk ends his book the way he starts, with a story of him being on a plane when he sees a big flame coming out of the engine. He turns to his neighbous, but everybody tells him that all is well. He makes his way to the front of the plane and finds out that the cockpit is empty. The system with its perverse incentives is the problem and if we do not tackle the problem, 2008 will happen all over again. The increased financial regulation imposed in the EU since 2008 is only the first step in making the financial system safer for us all.Pieter Habets Banking Crisis Development
This Can’t be True: A book review
30 Jul 2015
If Greeks themselves do not trust their own government and their own banks with their money, it is difficult to expect the taxpayers of other countries to do so. Yet that is what the critics of the severity of the conditions imposed for the third Greek bailout seem to expect.
The euro was not imposed on Greece. It was something that Greece joined of its own accord. The fact that the possibility of Greece leaving the euro was raised by Germany, has been greeted by some as dealing a blow to the euro, because it supposedly ended the notion of the euro being “irreversible”. But nothing in political life is irreversible, even though some things, like the Byzantine and Ottoman Empires, did last a very long time indeed. “Irreversibility” was always a legal fiction, and fiction is not a sound basis for an economic policy.
The euro is a contingent compromise, where members trade some short term losses for greater long term gains. A euro, where rules were easily broken, would not endure. I agree with those who say that, eventually, some of the Greek debt will have to written off. That is both financially necessary and morally just. But that can only be contemplated when the Greek political and administrative system has reformed itself, and is capable of benefitting from a write off, and not looking at it as a precedent for a further write offs later on. We are not there yet.
The crucial difficulty seems to be that the Greek state does not work. The fact that Tsipras’ offer of reforms had to be crafted, not by Greek civil servants on their own, but with the help of French officials, tells its own story.
Some complain that elements of the package involve intrusion on Greek “sovereignty”. But a state is only sovereign to the extent that it is capable of fulfilling the internal and international responsibilities of a state. I believe Greece needs help in this regard, and it would be good if the World Bank, as well as the IMF, were involved in helping Greece reform its public administration.
Recapitalising the Greek banks will be a major task. Interestingly the biggest national exposure to the Greek banks is by banks in the UK. The UK is not in the euro, and is not contributing to the Greek bailout, which could be regarded as unfair.
Some argue that the austerity, that Greece is going through to meet its international obligations, is damaging its economic growth prospects. In the short run, this is true. But fuelling temporary growth, by taking on even MORE debts, would not be an answer. That would weaken longer term growth prospects, because of the additional debt service it would entail. This is the problem. The opponents of austerity never explain where the extra money would come from, other than from inflation and devaluation, and they solve nothing.
The important way of improving growth prospects is by generating confidence. If people believe the future will be better, and can borrow money to invest in it, the economy will grow. With renewed confidence, some of the money that Greeks themselves have moved abroad will then come back to Greece. If the bailout terms are fully and quickly implemented, by both Greece and its creditors, that will restore confidence, especially if it is rewarded by a prospect of some conditional and staged debt write offs in the future.
Meanwhile, Greece is in close proximity to the biggest refugee crisis in world history, caused by the Syrian and Iraqi civil wars. More migrants are now arriving in Greece from the Middle East, than are arriving in Italy from North Africa. 65% of the arrivals in Greece are Syrian. Greece’s neighbour, Turkey, is already providing shelter at its own expense for 1.8 million Syrian refugees. Meanwhile most Western countries are reluctant to take in any refugees. Greece, because of its geographic position, does not have that luxury.
The European Union should reorientate its Development Aid programmes to help middle income countries, like Greece, Turkey, Lebanon and Jordan, which are facing major refugee inflows, to cope with that huge burden. Some EU countries, like Germany and Sweden, are hosting many refugees. But most are keeping their heads down and doing little or nothing.
There should be burden sharing, based on relative income and population. Countries that are receiving the largest proportionate number of refugees should be getting direct ongoing cash help from those that are receiving the least.John Bruton Crisis EU Member States Foreign Policy Human Rights Migration
Greece and the refugee crisis
14 Jul 2015
Paul Krugman, in the New York Times, urges the Greeks to vote “No” in the referendum next Sunday. So does Joe Stiglitz in another article in the Guardian. Is this serious advice, or an unhelpful extension to Europe of an ongoing American polemic?
Paul Krugman says the Euro was a “terrible mistake” because he claims it failed to insulate the public finances of the states of the euro zone from bubbles in particular countries, like he says the US system does. In fact, the US only does this to a limited extent, and, unlike the EU, it has no general bailout fund for states.
If I recall things correctly, our present collapse in confidence originated in the United States, in a housing bubble in a small number of US states, that eventually engulfed the whole world! The US system did not prevent that.
Puerto Rico, a US dependency which is in the dollar zone, has got itself into a Greek style debt trap, without the US monetary union, which is much older and stronger than the EU one, being able to prevent it.
Krugman says that “most of what you hear about Greek profligacy is false”.
He makes this bizarre claim on the basis that Greece has made cuts and tax increases since 2010. He completely ignores the profligacy, poor tax collection and the debt accumulation that went on for decades before that, when Greece erected a completely unsustainable pension regime, on the strength of borrowed money.
He says that since 2010, the Greek economy has collapsed because of “austerity”.
He fails to outline what the Greeks might have used for money since 2010 if, as he seems to advocate, they had continued with their previous “non austere” spending policies. They would not have been able to borrow the difference on commercial markets. Where would they have got the money? Just because a country is in the eurozone it does not mean it can have an unlimited call on the taxes or loans of other euro members.
While there is more to do, like euro area wide deposit insurance, the EU has remedied many of the initial design flaws in the euro, something Paul Krugman does not acknowledge .
He says that “even harsher austerity is a dead end”, as if cuts and tax increases were all that the EU has been urging unsuccessfully on the Greeks.
Product and labour market reforms, opening up the professions, better tax collection, and privatisations, have been an important part of the recipe urged on Greece by the EU, and these would greatly improve the allocative efficiency of the Greek economy, and promote growth. Greece needs to move its human resources out of unproductive activities, into areas that will earn money from abroad and the EU reforms will assist that.
Another Nobel Prize winning economist, Joe Stiglitz, in his article in the Guardian also calls for a “No” vote, but is more extreme.
He claims the eurozone was ”never a democratic project”. He seems to have completely forgotten that the Maastricht Treaty, which created the legal basis for the euro, was approved by the elected parliaments of every state that is currently a member. It was approved in referenda in several countries, including France and Ireland.
Furthermore, each of the Eurogroup of Finance Ministers, who make all the key decisions, represent democratically elected governments.
Greece was not forced to join the euro in the conditions and at the time that it did. This was a free choice of the Greek government. Now, governments everywhere would sometimes like to repudiate some decisions of their predecessors, but if that luxury is to be afforded it would destroy the basis for credit and inter state relations.
He makes a more substantial point when he says that a good deal of the money lent to Greece by the taxpayers of other EU countries and the IMF has gone to help them pay debts they owe to private creditors. But he fails to point out that, unlike those of Ireland and Portugal, Greece’s private creditors have been obliged to take a haircut.
It is true that the money from the EU has been used in part to repay banks money they had put into Greek government bonds. Some of these banks were indeed French and German. But some were from outside the euro zone altogether, including from Professor Stiglitz’s own country and from the UK, in one of whose newspapers he is writing.
Back in the 2010/2012 period, thanks the crisis which started after Lehman Brothers went south, there was a legitimate public interest, a public good, in preventing a run on ANY of these banks.
There remains a justifiable argument, however, that it was unfair that the taxpayers of a few countries should now be bearing a disproportionate share of the cost of this public good, which the whole world has enjoyed.
Yes, the taxpayers of the rest of the euro zone should, in moral terms, bear more of the burden.
But if that is so, so also should the taxpayers of non euro zone countries like the US and the UK, whose banks were also saved when Ireland, Greece and Portugal got help .
Why should German taxpayers, whose personal incomes have grown more slowly than elsewhere in Europe, and who face substantial extra costs in the near future due to ageing, be the focus of all the wrath?
But then neither Professor Krugman, nor Professor Stiglitz are writing for German, Slovak, Latvian public opinion.
They are writing in journals, published in countries, whose governments are not being asked to write more and more cheques for a Greek Government, that seems to blame everyone else for home grown problems.
There is, I believe, an argument for a comprehensive debt conference to consider whether the burdens of dealing with the aftermath of the Lehman collapse, have been fairly distributed between the governments of the world.
But the convening of any such conference, and eligibility for any help from it, should be something that might happen five years from now, and be conditional on growth promoting reforms, and budget balancing, already having been fully implemented by governments seeking debt relief from it. Perhaps a Third Party might put such a proposal forward, as a way of getting out of the terrible situation Greece is bringing upon itself.John Bruton Crisis Economy European Union Eurozone
Krugman and Stiglitz: dispatches from a far far away land
02 Jul 2015
In an act of irresponsibility and opportunism, Alexis Tsipras put on the shoulders of the Greek people the burden of the decision about the country’s destiny. The referendum, scheduled for next Sunday, 5 July, rests on shaky grounds for several reasons.
- Is it legal? It is questionable whether it is in conformity with the Greek Constitution as it concerns an issue of fiscal economics. There are also serious procedural deficiencies.
- Is it late? The referendum is untimely as it will be waged five days following the date on which Greece failed to make a debt payment to the IMF. The Tsipras government has planned to receive the people’s verdict when it might be too late.
- Is it fair? The Greek people are asked a very cunning question. They are called to say whether they approve or not a program consisting of a series of austerity measures, following five years of recession. The ‘Yes’ vote is set to signify approval of some version (as negotiations were never completed) of the bailout program. The ‘No’ vote, that carries the endorsement of the government, indicates disapproval for the program and, allegedly, nothing more. Although the crux of the matter is the country’s position in the Eurozone, Tsipras deceitfully tries to conceal or downplay the true consequences of the people’s choice.
The Greek government has admittedly committed a series of mistakes since its election in January. To be fair, the creditors too have underestimated the socio-economic consequences of a long array of austerity measures that have been applied since 2010. There is widespread ‘austerity fatigue’ in the country and despair for the lack of a clear vision for the return to growth.
Yet, the overwhelming majority of the Greek people unequivocally supports the country’s EU membership. The most vicious part of this campaign is that the government uses a deeply divisive nationalistic rhetoric that seeks to alienate and separate the Greek from the European identity. But this is a nonstarter.
- Are the ‘Yes’ voters less Greek? On the contrary. In the referendum, most Greeks are expected to vote ‘Yes’ in order to protect their country’s place in the European family. In an unprecedented demonstration of wisdom and bravery, thousands of low-income pensioners and employees may vote themselves (in the place of their government and contrary to the latter’s suggestion) in favor of a bailout plan containing measures that will affect their lives directly.
- Are the ‘No’ voters less European? Far from the truth. Those who will vote ‘No’, do not collectively form an anti-European constituency. Many pro-European forces may buy into the rhetoric of Tsipras that Greece’s position in the Eurozone is not in jeopardy and cast a vote for ‘No’ out of fear of prolonged austerity.
The outcome of a referendum revolving around a complex and nastily articulated question that additionally takes place within just a week in a climate of fear and uncertainty is hard to predict. Although the country’s European future is at stake, we should not hastily read the referendum result as a vote containing a genuine answer to the question, in or out of the EU. Remember, the government has not dared to articulate such a clear-cut question.
Irrespectively of the referendum outcome, the EU is urged not to turn its back to the Greek people. For every Greek, being European is not a matter of choice. It is self-referential. And the EU should not lose sight of the insidious way Tsipras attempts to extract the ‘No’ vote. In all circumstances, the EU partners should be ready to help the country to overcome a hardship that has lasted for too long. If the ‘Yes’ vote prevails as I am expecting, the referendum will be studied in the future as a paradigmatic case of a demos that defied its government in times of crisis and put its European identity above and beyond any other discussion.
[Photo source:www.bloomberg.com]Nikolaos Tzifakis Crisis Democracy European Union Eurozone
The right answer to the wrong question
01 Jul 2015
Ukraine is on the brink of financial collapse. It is not able to meet interest payments it is due to make this week. Its GDP fell by 6.8% last year and is liable to fall by an even greater extent this year. Meanwhile, it is having to defend itself against a neighbour which guaranteed its frontiers as recently as 1994.
Instead of stepping forward to help Ukraine financially, the EU and the United States are both leaving the job to the IMF. The IMF is offering Ukraine $40 billion, whereas the EU says it can only manage $2 billion. The European Union has already extended forty times as much credit to Greece as it has given to Ukraine, whose population is four times that of Greece. If this ratio reflects the EU’s real priority, it is unbalanced.
GDP per head in Greece is, after all, about three times that of Ukraine. Like Greece, Ukraine has a lot to do to create a functioning and efficient legal and administrative system, stamp out corruption, and collect taxes fully and fairly. But Ukraine is having to do this while recovering from the effects of a Communist system which was imposed on it from outside since 1919, whereas Greece has been the democratic shaper of its own policies for many years.
Greece is, of course, in the EU and the eurozone, while Ukraine is not. However, both are in Europe and both aspire to a democratic European future.
Furthermore, Ukraine had it borders guaranteed in the Budapest declaration of 1994 by EU countries, including Britain and France, and by Russia and the US, in return for Ukraine giving up nuclear weapons. Despite this, Ukraine was invaded and a portion of its territory annexed by one of its guarantors, Russia, because Ukraine wanted to make a modest cooperation agreement with the EU.
Notwithstanding that, the EU is now being stingy in helping Ukraine in its financial crisis, and is fixated instead on the drama in Athens.
Ukrainians believe they have a European destiny, and are prepared to die for it.
The Russian leadership, on the other hand, believes that Ukraine, with its Russian speaking minority, is in their sphere of influence, and sees a link up of Ukraine with the EU as a form of foreign interference in their backyard. One would have to respond that this view is not in accord with Russia’s guarantee to Ukraine of 1994, nor with international law.
The entire post World War Two European security order rests on the acceptance of international law. Similarly, any prospect of voluntary nuclear disarmament in future must depend on solemn obligations, like the Budapest commitment given to Ukraine in 1994 being seen to be honoured.
In Ukraine’s case, all the EU is expected to do is provide financial help. But if Ukraine falls, the Russian threat may move on to other countries, with Russian speaking minorities, like Latvia and Estonia, which are NATO members and to whom most EU countries (not Ireland) have a solemn, Treaty-based obligation to provide military help if their territory is threatened.
Meanwhile, the Greek government, while looking for new loans and debt write-offs from the EU, is ostentatiously aligning itself to the very country that has invaded Ukraine, Russia. It is looking for more credit from the EU, without implementing reforms that would generate long term growth, which would enable those loans to be repaid.
In contrast, the new Ukrainian government is implementing painful reforms to increase the growth potential of its economy, for example by eliminating inefficient consumption subsidies, which have quadrupled gas prices paid by Ukrainian households. Parts of its reform programme are being delayed in its parliament by opposition figures like Julia Timoshenko, once the darling of the Western media and still part of the EPP family to which Fine Gael and the German CDU belong.
Ukraine’s financial situation is now so critical that President Putin believes that all he has to do is sit and wait, and Ukraine will collapse back into Russian control simply because, in the absence of large western credits, it will run out of money.
If this happens, and if the EU continues to do little or nothing to stop it beyond talk, that will deal a huge blow of confidence in the EU’s ability to defend its values and help its friends. Other countries on Russia’s perimeter will they too feel that they have to make a deal with Putin rather than rely on the EU.
In Ukraine’s case, European countries do not have a Treaty obligation to give military help. But, in their own interest, they should give generous financial help to ensure that a success in Ukraine does not embolden Russia to undermine countries like Latvia and Estonia, which also have Russian speaking minorities (but where most European countries do have a Treaty based military obligations to help).
When questioned in a recent Pew poll as to whether they would be willing to use force to defend another neighbouring NATO country that found itself in conflict with Russia, 51% of Italians, 53% of French and 58% of Germans answered that they would not.
If that frightful dilemma is to be avoided, it would be wise for Europeans to draw the line in Ukraine now by providing the country with enough financial help to build a properly functioning state that can pay its way and look after itself, as well as be capable on its own to resist intimidation from its big neighbour.John Bruton Crisis Defence Eastern Europe EU-Russia
Ukraine and Greece: Has Europe set its priorities right?
15 Jun 2015
If Greece defaults on its debts, and leaves the euro, the effects will be very hard to calculate. Nobody really knows what will happen. Nobody even wants to talk about it. But a very serious precedent will have been established. That precedent, that of a euro zone country defaulting on its debts and leaving the euro, will eventually place upward pressure on the interest rates charged to small euro zone countries with substantial debts. Financial markets are emotional and erratic and often fail to make distinctions that should be made.
The effect of a Greek default may not, of course, be felt immediately, thanks to quantitative easing, but the underlying precedent will tend to corrode of confidence in government bonds generally and confidence in the irreversibility of the euro, and confidence is the basis for all money. Maintaining confidence, and doing what is just and rational in an abstract sense, are not always the same thing. Just as in the private sector, a risk of not being repaid in full usually leads to a higher interest rate…a risk premium. For example, if , for legal political or cultural reasons, banks have difficulty getting hold of properties, given as security for loans that are no longer being serviced by borrowers, they will tend to charge a higher interest rate on such loans. The gap between the rate of interest banks charge, and the rate they pay for funds, will be wider than it would be if they knew they could easily realise their security, if a borrower defaults.
The rules for capital adequacy of banks, set by global banking regulators, have treated government bonds held by banks as risk free, and this has meant that banks buy a lot of government debt. If, thanks to a Greek default, government bonds are no longer risk free, this will call these rules into question. That , in turn, would make government borrowing more difficult.
The present Greek crisis was not inevitable. It is the result of a decision by Greek voters.
A few months back, it looked as if the Greek economy was about to start growing again, admittedly from a low base. For example, as recently as August 2014, Deutsche Bank forecast that the Greek GDP would grow by 2.2% this year. This was to be almost twice the forecast growth for the euro zone as a whole, and second only to the forecast growth for Ireland of 2.3%, which has proved to be a big underestimate in the Irish case. Greece had put in place a lot of structural reforms, under the previous Greek government, more than almost any EU country by some measures. The labour market reforms improved the competitiveness of the Greek economy, but the full benefit of these reforms was not achieved because of cartels protecting some professions and services. The reform programme of the previous government was not a “failure”, but it was delivering results too slowly for an impatient electorate in Greece. 40% of loans in the Greek banking system were non performing, but the banks were not dealing with this. Greece was suffering a brain drain.
That prospect of 2.2% growth in the Greek economy was blown away by the uncertainty caused by the Syriza election victory, and the nationalistic rhetoric and grandstanding that surrounded it. This led to a flight of confidence, and money, from the Greek banking system and an unwillingness of foreigners to invest in Greece as long as the political uncertainty persisted. It did nothing to slow the brain drain.
The new government threatened to undo the labour market reforms and to make it more difficult for Greek banks to deal with non performing loans.
The structural reforms, put in place by the previous Greek government, had begun to work, when they were derailed by politics.
Syriza won office on a false platform which asserted that the previous structural reform programme had been a “failure”. It had not been a failure, it had brought Greece to the point where its forecast growth rates for this year were second best in the euro zone. It had simply taken longer to work than it , if international conditions were more favourable, and if it had been extended as vigorously to the professions, and to tax evasion, as it had been to employees.
Syriza convinced Greek voters the “austerity” was a “failure”, without saying what those terms meant in practice, but implying instead that others should pay Greece’s debts for it, as part of some sort of moral obligation the rest of the world had to Greece. This was naive. Greeks forgot that other EU nations have electorates too!
If one is spending more than one is earning, “austerity” is inevitable, sooner or later, unless you can achieve a rate of economic growth that is faster than the growth in your state’s obligations. That was always going to be difficult for an ageing society like Greece, with an under funded pension system, and a disproportionate amount of early retirement.
The tragedy is that modern election campaigns have become shouting matches, that do not lend themselves to the sort of informed discussion that would have led voters to see, in time, the fallacy of policies that imply that one can persistently consume more than one is earning, without eventually facing “austerity”.
There is some ground for hope. A deal can be reached. Because of the nature of its support base, Syriza may have more freedom to tackle tax evasion and cartels in the professions, than the previous government. This could get Greece back on a growth path, so long as Syriza does not attempt to reverse the reforms the previous government HAD put in place.John Bruton Crisis Economy
What happens if Greece defaults?
20 Apr 2015
The West is being challenged in an unprecedented way: as crises and conflicts multiply in the eastern and southern neighbourhoods of the EU, terrorist movements, authoritarian regimes and especially a newly aggressive, fundamentally antagonistic Putin’s Russia are threatening the core values as well as the cohesion of the West. But the West is stronger than it looks and has lost none of its normative attraction to democrats across the globe or the subversive power that authoritarian regimes fear. A West that is rising to the challenges can open the way to a bright future: a Western Renaissance.
The confrontation with a newly aggressive Russia is the most severe test. The European Union has to bury the idea of a modernisation partnership with Russia as long as the Putin regime is in power, let go of its Russia First approach, engage massively on reform in Eastern Europe and learn to accept the reality of a substantial conflict with Russia.
The EU as an organisation must become stronger economically, streamline its decision-making structures and improve its security and defence policy while intensifying links with NATO. It has to reform its eastern neighbourhood policy and reduce its energy dependence on Russia. NATO members will have to increase defence spending, reform structures and find new answers to the challenge of hybrid warfare. EU member states will also have to find answers to the growing Russian propaganda and information warfare.
Transatlantic relations remain the foundation of the global liberal order. They have to be strengthened and put on a more strategic basis. This includes much more determination on both sides to make the Transatlantic Trade and Investment Partnership a success. But it also implies a better burden sharing, with Europe assuming more responsibility in security and strategy, and improved Euro-American coordination in global democracy support.Crisis Democracy EU-US Leadership Transatlantic
The Renaissance of the West: How Europe and America Can Shape Up in Confronting Putin’s Russia
24 Feb 2015
As I write, it remains unclear whether Greece will reach an acceptable deal with its creditors, who are mainly other European Governments.
It is important to say that the recession in Greece has been much deeper than expected by those who agreed the original bailout package with Greece in 2010, a 25% fall in output as against a predicted 7% fall. The budgetary adjustments have also been bigger than in any of the other bailout countries.
It must be acknowledged that, when Greece got a bailout from the other Governments and the IMF, the ultimate beneficiaries included banks, not only in Europe but also elsewhere.
These banks had been lending to the Greek Government, long after they should have stopped doing so, and have forced Greece to confront reality. They assumed that, because Greece was in the euro, someone somewhere would ensure they were repaid.
Yes, some the banks, who were thus saved from their errors by the bailout, were indeed German. But many of the banks who were rescued from their embarrassment were British and American, and the British and American taxpayers have avoided a proportionate exposure to the costs, through the Greek bailout, of saving THEIR banks!
The Euro zone is bearing the main burden, while the others offer free advice.
That said, it would have been in nobody’s interest, for a panic about Greece to have infected banks around the world. Bank credit constitutes 95% of the money we use, and a collapse in confidence in money could have had really devastating global consequences. Without confidence in banks, economic activity would have come to a shuddering halt.
We would have had a crash, rather than just a crisis. Hindsight critics can ignore that now, but it was a real risk then.
The origins of the Greek problem are very deep and longstanding. For years, Greeks had been consuming more than they were producing, retiring on pension earlier than is normal in other countries, and running an educational system that had few links with the real economy. All these gaps were bridged by borrowing money from foolish investors, who averted their eyes from the profound underlying problems of the Greek economy.
Meanwhile Greece supported a cumbersome and slow courts system, and an equally inefficient system of public administration and of regulating entry to professions. These systems got in the way of growth, because growth needs a capacity to move human and other resources quickly from less, to more profitable activities. Such systems might have been affordable in a very rich country, but Greece never was a rich country.
Meanwhile Greece failed to develop a broad modern industrial sector. It relied too heavily on tourism and ship building. Greeks made money selling things to other Greeks, rather than to the rest of the world.
Greek businesses stayed small, not big enough to become exporters. Indeed the proportion of micro businesses in Greece is very large, and this sort of business frequently under declares its income for tax purposes. This is part of the reason for poor tax collection in Greece.
There is growth potential in the Greek economy
A McKinsey study back in 2011 suggested, for example, that Greece could develop medical tourism (it has a large population of dentists). I met someone recently who was waiting for ages a treatment for tonsillitis in Ireland, who went to Greece, and had the operation done in days. McKinsey suggested big scope for Aquaculture and food processing in Greece. Greece could develop its port infrastructure to provide a regional cargo hub.
But none of these things can be financed unless Greek business people have access to a healthy banking system.
The Greek banking system is far from healthy. Its capital is tied up in Greek government bonds. The credibility of these bonds has been called into question by the brinkmanship and loose rhetoric of the new Greek government. The uncertainty over whether Greece will still be in euro, in a few months time, also inhibits investment, and nationalistic rhetoric in Germany on that topic has added greatly to that uncertainty.
Greece’s future needs to be underpinned by a credible plan that focuses on private sector led growth, backed by a healthy European banking system,that invests in productive Greek businesses, rather than just in Greek government bonds, as it did in the past.
If that is to happen, it is not just Greece that needs to do a lot of homework, but the entire European Union. The EU needs a real banking union that allows banks to lend across borders to good projects wherever they are found in the euro zone. This needs common EU legislation on debt collection, collateral and the like.
The fact that Greek, Irish, Portuguese and Spanish taxpayers have borne large burdens to recapitalise their banks, or have undertaken new debts, as part of a project to sustain the global banking system, also needs to be recognised by the rest of the world.
This cannot unfortunately be done straight away. The problems that gave rise to the crisis must be understood, and fixed, first.
The Greek election result would not lead one to believe that Greeks understand the source of their problems. And the credence that many voters elsewhere give to rhetoric that suggests that being “against austerity” constitutes an implementable policy, in a world of free capital movement, suggests that many do not understand what went wrong or what can realistically be done about it.
But ultimately there must be an honest attempt to find a fair settlement of these legacy issues.
A Global Debt Conference, some time before 2022, when Greece has to make huge repayments, should be considered. It could be sponsored by the IMF, and might negotiate debt relief on the basis of the extent to which countries have, in the seven years between 2015 and 2022, implemented growth promoting reforms and achieved primary surpluses on their current budgets, taking account of the demography and the tax raising potential of each country.John Bruton Crisis EU Member States Growth
The long crisis in Greece
15 Feb 2015
We live in turbulent times. Our world is facing serious challenges: Ukraine is struggling for its very survival, while Putin expends all efforts to prolongue his regime; the Islamic State is waging unspeakable violence across the Middle East while the threat of major terror attacks has returned to Europe; the political establishment is being undermined by a new vawe of populism; the Euro is weaker than ever before, threatened by the twin economic woes of stagnant growth and deflation. And if all this was not bad enough, elections in Greece brought victory to a political party that aims to maintain its place in the Euro club while disregarding all its rules.
The new Greek PM claims that “Greece needs space to breathe.” Translated into plain language: a Greek politician won the post of prime minister on the promise that he would negotiate softer terms for repaying (or even writing off) financial aid, which Greece still needs.
And that is the central problem. In fact, the position that will be taken by other members of the Euro area, by the EU, by the European institutions, can become a dangerous precedent for gamblers of Tsipras‘ ilk in other EU countries. Brussels-bashing, Europe-bashing, has become not only fashionable – it has even become an effective tool for scoring success in the domestic political sphere. This is evident not only in post-communist countries, but also in states with more established democratic states. The blame on “evil” Europe is laid by Cameron in the UK, Le Pen in France, Geert Wilders in the Netherlands. But if the EU gives in to Tsipras, a moral contagion will spread. Blackmailing the EU and its disciplined and responsible members will likely come from Spain, Italy and Portugal. The countries that, albeit with many difficulties, are managing to climb out from the bottom of the economic and financial pit.
The populist movement Podemos is gaining in strength in Spain; Italy has Beppe Grillo; the Portuguese populists could be expected to also raise their voice; and the Irish, who have made significant reform efforts in the recent years, are already seeing surging support for Sinn Féin. If the EU and the Eurozone waver and yield to the demands of Tsipras, the project of a unified Europe would be shaken to its very foundations.
Therefore, the next few days and weeks will be a moment of truth: for Greece, as well as for the whole Euro area and the EU. I believe that the bailout funds have supplied abundant oxygen for countries at risk, including Greece. Many politicians paid a heavy political price for committing their countries‘ finances to bailing out Greece and other countries. Greece faces a serious test of its resilience but also of its civil and political maturity. This includes awareness of the fact that support and solidarity also have their limits. Greece has only two currently viable options: either Tsipras comes to terms with reality in a broader, i.e. the European and the global context, or he is swiftly replaced. Any other option would cause the Greeks much more pain.
But we will soon learn the truth about ourselves and about our united Europe. We will get the answer to the question of whether we are capable of taking a strong, principled and thus a forward-looking position, or whether the Eurozone and the EU will be rocked to such an extent that they eventually fall apsunder. What could destroy us is weakness and yielding to populism. The European institutions – both public and private – have had sufficient time, mainly due to the operation of new financial mechanisms, to prepare for a situation where a Member State would be incapable or unwilling to fully function as a member of the Euro area. Potential losses from giving in to populism would be significantly greater than the possible exit of Greece from the Eurozone. Bowing to populists would destroy the project of European integration.Mikuláš Dzurinda Crisis EU Member States Leadership
The moment of truth
03 Feb 2015
Greek elections were not about the end of austerity and debt-write off. This was just an election narrative that captured the hearts of the Greek electorate and, surprisingly, dazzled large majority of the pundits, commentators and economists in Europe.
As good as it gets
As financial analysts are explaining, countries like Italy, Spain, and Portugal are spending larger share of their GDP to service their official debt than Greece. Much of the debt has already been written off or “hair cut”, a lot has been reprogrammed, postponed, the interest rates on the European loans are quite small. The troika is not requiring any substantial new austerity measures anyway. Much of what Syriza claims it wants has been done already.
In the words of Daniel Gros: “… in the end, the difference between a government that has never made good on its promises to pay and a government that promises not to pay might not be that large.”
If not much will change with respect to debt and austerity, what was this election really about then?
The problem of Greece is that it is not competitive, exports are sluggish and foreign investors are avoiding it. There is much to be done to make the country friendlier to entrepreneurs. This may include liberating the markets from the capture of tycoons and family networks that prevent fair competitive capitalism. It also includes a more efficient public sector.
The elections were hardly about this either.
Instead of a debate how to achieve that Greek economy would earn more, the elections were a mix of national and social populism. Like any populists, Syriza exploited natural and (in fact positive) instincts of compassion and patriotism.
National and social populism
The national populism was manufacturing an outside enemy in Europe and particularly Germany. The social one was spreading hatred towards capitalists and was promising hand-outs that the Greek citizens should be getting. Cheaper rents, cheaper oil, higher minimum wage, even more employment in the public sector …
National and/or social populism has proven a receipt for populists, anarchists and radicals to get to power. Generally few people fall for it. But under special circumstances, like war or major crisis, it works. As we have learned the hard way in the 20th century.
What is also needed is wishful thinking by democrats. A conviction that what populists say is what they really want. Like ending the humiliation of a country and all will be well; abolishing a treaty; some other small concession.
Economists (equipped with a hammer they too tend to see all problems as nails) are already proposing a compromise between what Syriza wants and what the EU and the creditors need to stick to.
Power. To the “people”
The real danger of Syriza and other populist left and right wing parties is their ambition for revival of ideology that has been proven wrong in the 20th century. Its essence is a disrespect for the human rights, the individual, her life, freedom and property.
The fight against domestic and foreign enemies in the noble name of social justice and patriotism was just a pretext, a side show, a slide show, to capture the hearts of the voters. Let’s not mistake this with the real agenda of the radical left – which is capturing of power and ruling the country, perhaps Europe, according to their ideological agenda. The agenda is to shape a “radically new post 2008 world”.
Center left and right
The radicals and populists may not be alone in this. Tony Judt once wrote that the Western European social democrats were always envious of their Easter European communist comrades. The latter could exercise the leftist agenda without the trouble of elections and without checks and balances of democratic society.
Today, traditional European left has a choice to make. Are left wing populists and radicals an ally or a competitor? Should they celebrate their success and join them in their struggle for a “better” world. Or see them as an enemy of democracy and liberty and therefore incompatible with modern Europe.
While the left may be inclined towards appeasement, the center right must confront populism with reason. That there are no free lunches. That hard work pays. That opportunities are there to exploit for everyone. That jobs are created by entrepreneurs and the role of the state is to make sure there is fair competition among them.
That solidarity is important too and it is not just an internal affair of each member state.
Revival of populist and radical utopian regressions, not the debate about more or less austerity, is the story behind the curtains in Greece and beyond. Debating austerity and hoping for an economic compromise is a discussion about a smokescreen. Not entirely irrelevant, but definitively not central.Žiga Turk Crisis EU Member States Growth
Greece: it is not about the austerity
02 Feb 2015
The response to Syriza’s election in Greece has been marked by much comment on the impending conflict between the new government and the EU, European Central Bank (ECB) and the International Monetary Fund (IMF). ‘Greece and global creditors dig in for fresh struggle over austerity’ headlined the Financial Times. In this narrative, Syriza in Greece, Podemos in Spain and Sinn Fein in Ireland are new forces in European politics, a left wing phalanx with a harder edge and a radical path to economic rejuvenation. This path to salvation will be achieved, in the short run at least, by increasing public expenditure (everything from pensions to salaries) and casting off the perceived shackles of the existing agreements with the EU, ECB and IMF.
However, as noted recently by my colleague Angelos Angelou, Syriza itself is characterised by deep rooted divisions over its long term economic goals. The recent moderation of Alexis Tsipras is matched by a substantial internal opposition who view the Euro (and the EU) as symbols of capitalist oppression and real impediments to the creation of a fairer Greek society. However, now confronting the realities of power, Syriza is faced with a fundamental choice – engage with the wider economic system as it is, or attempt a full blown restructuring of Greek society based on isolating Athens from her European partners.
These internal contradictions within Syriza also form part of the wider strategic shift to left-wing political movements in many member states, particularly in those states subject to bailout programmes since 2009. For these movements (which are more diffuse than traditional political groupings and generally bring together a diverse range of left wing interest groups) the campaign to end ‘austerity’ represents an opportunity to refashion classic socialist (and even communist) mantras for the twenty first century.
This strategic shift to the left does not just represent a campaign against the bailout agreements Rather, movements like Syriza are acting as lightning rods for public discontent at dire economic conditions, mistrust in centre-right political elites and a sharp decline in the public’s belief in the EU as a mechanism for achieving higher standards of living. The populist appeal of Syriza is based on the classical socialist approach of more public spending. Apart from a laudable commitment to tackle tax evasion the Thessaloniki Programme is very high on aspiration, but very short on hard economic realities or definite timescales.
For the centre-right in Europe the challenge now is to provide a more coherent vision of the social market economic model in the twenty first century: An updated model that places private enterprise at the centre of Europe’s return to growth. A model that gives all people – from start-ups to well established firms – equal opportunities to succeed and flourish. And of course, we need to keep working on the most effective way to provide countries in distress with a sustainable reform path based on our guiding principle of solidarity.Eoin Drea Crisis Elections Euroscepticism Eurozone Growth
The economic realities of Syriza in power
29 Jan 2015
Book review: European Spring: Why Our Economies and Politics are in a Mess and How to Put Them Right, by Philippe Legrain
The efficiency of Europe’s reaction to the post-2008 economic crisis continues to fuel a vibrant debate. Was austerity the best solution to the problem or did it make things worse by creating a vicious circle of underdevelopment? Did European leaders respond effectively to the challenge or did they get carried away by developments which they just couldn’t control? And what about the European Union itself? Was the crisis a positive test for its coherence or did it prove that it was ill-equipped and badly prepared to deal with extraordinary conditions?
This debate lays the background of Michael Legrain’s analysis which can be found in his much discussed book, European Spring. Legrain argues that Europe has made a series of mistakes, the most important of which is the obsession with fiscal austerity. For Legrain austerity measures not only did not cure the illness of public debts, but on the contrary plunged the members of the European Union into a much deeper recession. The ‘medicine’ had exactly the opposite results than the ones expected. It drained economies of valuable resources without dealing with the deeper underlying causes of the problem: Europe’s low productivity and low competitiveness in comparison with the United States, China, India, Brazil, as well as other emerging economies. He even suggests that the German example, which is presented as the model that other European countries should follow, is nothing more than an illusion.
Apart from describing the grim picture, Legrain makes suggestions on how to build a brighter future for Europe. He seeks the answer in a combination of economic and political renewal. European economies should try to become more adaptable to rapidly changing conditions: openness and flexibility seem to be the key words here. From a political point of view, he argues that Europe should not hesitate to experiment with new forms of democracy (including direct democracy) which will make citizens more actively involved. Economy and politics are seen as the two sides of the same coin. Despite the great obstacles, the author remains optimistic. On condition that European countries make the necessary reforms, he believes that they still stand a good chance of overcoming these obstacles and that the European Union will continue to remain a focus for development in the long term.
Legrain’s book is crisply and obviously benefits from its firsthand knowledge of EU decision making at the highest level based on his period as an Economic advisor to then Commission President Barroso. His arguments are very well articulated and can be easily understood by the average reader. He appears to have an answer to every question. However, one cannot refrain from thinking that many of the things he proposes are easier said than done. Innovative ideas often seem too good to become reality. But that’s exactly what makes them ever more appealing!Antonis Klapsis Crisis Development Economy European Union Macroeconomics
Easier said than done
16 Dec 2014
According to budgets they published this month, France and Italy are failing to meet the Euro area requirements for reducing Government debts and deficits to sustainable levels. Italy has given an indication that it will meet the European Commission half way and make some further adjustment, but France is taking a harder line.
If France, as a big country making up 20% of the Euro area’s GDP, were to be exempted from the EU debt and deficit rules, in ways that were not open to smaller euro area countries, this would do great damage to the credibility of the euro, and could drive up to the interest rate euro area governments must pay to borrow. It is thus very important to all EU states that France overcomes it’s problems.
In recent years, France has lost competitiveness, and is running a balance of payments deficit. In other words its people are spending more abroad, that than they are earning from abroad.
The French economy is projected to grow by only 1% in 2015, as against a projected growth of 2% in Germany and Spain, 2.7% in the UK, and almost 3% in Greece and Sweden.
The loss of competitiveness of France is due to several factors
+ Fewer people are working fewer hours for fewer years. For example, of people between 55 and 64 years of age, only 44% are still working in France, as against 73% in Sweden, 65% in Japan, 60% in the US and 58% in the UK.
+ There is substantial youth unemployment, because young people find it hard to get on the career ladder because of an over regulated labour market that protects existing jobs at the cost of discouraging the creation of new ones. Last year 80% of all new jobs created in France were on temporary contracts.
+ The bigger a company grows, the more rigid are the rules that apply to it in terms of the right to hire and fire. So, while France has some of the most successful big companies in the world, it lacks a large corps of middle sized export oriented companies, like Germany has. 90% of all French companies have fewer than 10 employees and they have strong incentives to stay small.
+ Monopolistic practices exist in a number of sectors controlled by the state and in some private professions. The vested interests protecting these monopolistic practices are very strong. These inefficiencies contribute to extra costs and loss of exports by French companies.
The current Socialist Government of Manuel Valls was making a serious effort to tackle these underlying weaknesses, but that the dividends of some the reforms, while very substantial, may be slow in coming, perhaps not in time for the 2017 elections.
There is a risk Prime Minister Valls will lose his majority because of defections in his own party. Meanwhile the opposition UMP is split on personality questions. The Front National is making huge strides in the polls, but its economic policy would break up the EU and introduce heavy state controls which would be incompatible with France’s global economic success. Meanwhile business leaders are afraid to speak up about the global realities France must face.
Faster growth is crucial, and the margin between success and disaster is very narrow. If the French economy grows at only 1% per annum over coming years, France could be on the road to ultimate default and a social crisis, but if it can manage a growth rate of 1.6% or better, it will work its way out of its difficulties.
The stimulus for French growth will have to come to come both from inside and outside France. French people save a lot, and if they could get the confidence to spend a little more of their savings, that would help. Likewise if Germany, which has been neglecting its infrastructure, stated to invest more that would help French exports.
The trouble is that French and Germany economists and politicians have very different intellectual assumptions, and dialogue between them can become a dialogue of the deaf. German economists may accept the Keynesian idea that one should spend extra in a down turn but they doubt if the other, essential, side of Keynes’s theory-running surpluses during the good times is politically realistic, and the historic evidence supports them.
Meanwhile, partly because it was wise enough to stay out of the Iraq debacle in 2003, France alone of the western powers, has the confidence to intervene directly in places like Mali, Libya and the Central African Republic.
France retains a strong nuclear deterrent and a civil nuclear industry that does not do the sort of climate damage that other EU countries’ energy industries do.
Politics are important. Its Presidential system enables France to be strong and decisive in international affairs.John Bruton Crisis Economy EU Member States Eurozone
But that strength does not extend to domestic economic policymaking, where factionalism and introspective thinking are preventing the creation of any kind of “Grand Coalition for Reform”, of the kind that has enabled countries like Germany and Mexico to deal decisively with long standing blockages to growth. France needs a new politics, even more than it needs a new economic model.
France…solving the problems of the Eurozone’s second biggest economy
28 Oct 2014
The period since the outbreak of the financial, economic and social crises in Europe has witnessed a renewed focus on the need to develop a more sustainable and qualitative growth model. A model where the traditional focus on economic growth (i.e. GDP growth) is complemented by an adherence to a wider range of qualitative indicators. Indicators which more broadly characterise the well-being of society as a whole. This paper defines a model for Sustainable and Qualitative Growth (SQG) in the EU and questions if existing EU economic and social governance arrangements are consistent with this wider approach to building a sustainable growth model. This paper identifies a number of key recommendations. First, a more encompassing, balanced and multi-dimensional EU strategy for growth should be adopted. This refined strategy should take into account the broader indicators underpinning the SQG model and should be addressed in key EU documents such as the Annual Growth Survey. Second, a symmetric and ‘time consistent’ macroeconomic strategy, allowing for investments in SQG related domains, should be pursued. These growth-enhancing investments should primarily target relevant policy areas such as education and training, technological innovation and lifelong learning strategies. Third, a common automatic stabiliser in the EU should be set up in order to provide a minimum level of EU investment across all member states.Crisis Economy Growth Sustainability
A Model for Implementing Sustainable and Qualitative Growth in the EU
02 Jun 2014
Italy is experiencing the first tepid signs of recovery after years of pain and crisis. According to the IMF, Italian GDP will increase by 0.6% in 2014 and will supposedly reach 1.1% in 2015. Nevertheless, all that glitters is not gold. Unemployment is still high (currently 12.4%) and public debt in January reached a frightening height of 2.089,5 million, more than 133% of GDP. According to Unioncamere, the organization that supervises the Italian Chambers of Commerce, in the first three months of 2014 about 3,600 businesses declared bankruptcy – which equates to an average of forty per day, two per hour.
The decline of the Italian economy started at the end of the 1970s, well before the launch of the monetary union in 1999. The single currency on the contrary gave Rome greater room to manoeuvre by giving Italy access to cheap credit. Instead of using the euro dividend to restructure the economy in the first year of the new millennium the parties in power resorted to an increase in government spending – about €141.7 billion between 2000 and 2010, an increase of 24% – this created a false sense of growth while Italian industry was losing competitiveness in the face of growing global competition. Currently, public spending in Italy accounts for almost €800 billion, which is equivalent to about 50% of the GDP.
In the summer of 2011 the ECB clearly identified the woes of the Italian economy and urged the Italian government to take “bold and immediate action” to balance the budget by reducing taxes, cutting government spending and liberalizing the job market by making it more flexible. However, more than two years later almost none of the abovementioned problems have been addressed.
On the contrary, the incredible tax rises (the fiscal pressure has increased from 41.9% in the early 2000 to 44.1% in 2013) coupled with almost non-existent spending cuts in recent years was a mortal blow to the real economy and plunged the country into recession. According to the World Bank Data, the Total Tax Rate (the amount of taxes and mandatory contributions payable by businesses) in Italy reached the frightening level of 65.6% in 2013 compared to 49.4% in Germany, 34% in the UK and 25.7% in Ireland. If we couple high taxation with slow justice and inefficient bureaucracy, it should come as no surprise that Italy falls behind other big economies, according to the Doing Business ranking – it is in 65th position compared to France 38th and Germany 21th.
After the failure of the previous governments, great hope has been invested in Matteo Renzi, former mayor of Florence and head of the current coalition government. It’s still questionable whether Renzi will be able to reign in the opposition inside his own party, the Democratic Party, and make the necessary reforms. Any action to unravel the current economic crisis will face strong resistance from bureaucrats inside the ministries, who may fear losing their jobs, and from the trade unions, who still enjoy a privileged relationship with some key figures of the ruling élite and who will almost certainly use their power to sabotage the reforms. One example of this is the recent measures aimed at liberalizing the job market, the so called Jobs Act, which faced strong opposition from the leftist side of the Democratic Party that is making every effort to stop or radically change the reform process. Therefore, the chances of success are low.
A failure by the current government would embolden the populist movements and political parties who blame the EU institutions, the common currency and the “eurocrats” for the economic decline. For instance the Five Star Movement, despite being able to uncover and denounce bad practices and corruption cases in politics, still lacks a strategic vision of the future and tends to be easily influenced by conspiracy theories which are of little use in interpreting, let alone solving, the current problems.
Every step to embrace change is going to be delicate and probably painful in the short term. Furthermore, it’s not going to succeed without a clear long-term plan and a new social contract between the citizens, the economic actors, the political élite and the EU institutions. Whoever is at the helm of the country during the current tempest needs to have exceptional leadership qualities and great courage to lead the country towards a better future without being afraid to challenge potential enemies along the way and of opposing populist tendencies for the sake of Italy’s future.
[Photo: European Parliament; Flickr]Davide Meinero Crisis Economy EU Member States Eurozone Leadership
Italy: is the crisis over?
06 May 2014
As the eurozone starts to emerge from the deep financial crisis of the last three years we should maintain a sense of economic urgency. The fact that Europe had a growth problem before the financial crisis was common knowledge. This is still the case. The growth trend, in total factor productivity, has been negative for quite some time and the performance of the European Union’s economy relative to the United States’ economy has been deteriorating for at least twenty years.
This is all the more striking in light of the fact that the EU has undertaken a number of growth initiatives and reforms since 1992, which promised to deliver a significant growth boost, as well as welfare gains. Does this mean that structural reform has not worked in Europe and that some other factor must explain why we still have a growth problem?
I was recently asked to answer this question. My answer was simple: structural reform must be supported and promoted, otherwise it will fail to deliver. It is this element — the political and institutional framework for reform — that we need to focus on as we return once more to Europe’s growth puzzle. The best example we have of structural reform in Europe, the reform agenda of the last ten new member states, was actively promoted by institutional arrangements whose main goal was to expand the policy range of governments during the reform process.
In brief, there is an obvious contradiction between affirming the crucial role of structural reform for economic prosperity while doing far from enough to create the right framework and the right instruments to support and encourage it.
Often structural reform is so difficult because it pits governments against organised interest groups that have a lot to lose from a more open and competitive economic environment. Other times, severe financial constraints force governments to undertake reforms in less than optimal conditions and may even render them entirely unfeasible. Clearly the best way to involve national stakeholders such as social partners and national parliaments is to smooth the rough edges around structural reform and make it much easier to carry out than it is at present.
The good news is that an increasing number of people in Europe have come to realise that there is a better way. Both the European Commission and Council have put forward proposals that aim to mobilise the public for reform, strengthening the hand of governments against organised interest groups and providing financial support where it is needed.
In its December meeting the European Council defended the need for a system of mutually agreed arrangements and associated financial support mechanisms designed to support a broad range of growth and job-enhancing policies and measures. This was a good start, but the conclusions did not sufficiently emphasise the structural reform element. This is above all a political issue. Structural reform partnerships are elements of what I would call a political union. They would help countries become politically closer, allowing them to overcome social and political standstill in order to learn from each other and from the policy dialogue going on between them. Political fragmentation (by which I mean complete path dependence, the inability countries have to break from their habitual way of doing things) is just as dangerous as financial fragmentation.
At the current moment we face a paradoxical situation. Either structural reform is implemented in an emergency, when the right conditions for it are mostly absent, or then it is simply postponed. These structural reform partnerships would introduce a much needed preventive logic into European economic policy making. It makes little sense to wait for structural economic problems to develop into a fully-fledged economic and fiscal crisis before putting together the instruments and political will to address them. At the same time, favourable conditions for reform cannot be wasted if we want to seriously tackle Europe’s growth problem.
[Note: a previous paper on how to create the right framework for structural reform can be found here: http://ces.tc/1fLa7nJ ]Bruno Maçães Crisis Economy European Union Eurozone Macroeconomics
The structural reform puzzle
05 May 2014
Heavy soul-searching has been the trademark of the European Socialists for the past decade. Lost elections in country after country led to strong reflections about the future of Socialism and Social Democracy in Europe.
The victory of Hollande in France gave European Socialists a new hope. Finally Socialism would have a new flagship, President Hollande, who would turn the tide not only for France, but would also give a badly-needed boost for socialists across Europe. Or so they hoped.
From the beginning it was obvious that it would not work out for Hollande. Hiring 60000 teachers and 75% taxation on those earning more than €1 million a year were popular for some voters, but it could not return France to economic stability. No real reforms or fiscal balancing was on the shopping list.
Thus, from the beginning one could guess two possible outcomes for Hollande. The first scenario was that he would promote the policies he was proposing in his electoral programme, which would lead to an economic disaster for the country, to an electoral disaster for his party and ultimately, to a political disaster for himself. That is, if he would try to re-run as a President, of course. The second scenario was that he would very soon understand that the only way out for France is to push for reforms. This way he would be able to put France on the right track. However, the stark contrast between the things he said he would do and what he actually did ultimately disappointed his core voters and is costing him and the French socialists dear.
What we see now is that in fact both scenarios happened. French government was paralysed for almost two years and the economic indicators got worse for France every day. At some point he came to realise that he needed to totally change the fundamental philosophy of his economic policy. And so he did. One of the many witnesses of this fundamental change was Krugman’s article bashing Hollande for abandoning the “out from crisis by spending” strategy ( http://nyti.ms/1eSEZiA ). Nevertheless, by his initial inaction Hollande had burned the political capital he had, and so half-hearted attempts for reforms with a demotivated team were very unlikely to produce a success story. Unfortunate for France. And for Europe.
In addition, the understandable U-turn of Hollande in economic policy has led the socialist candidate for the position of Commission President, Martin Schulz, into a difficult position. Schulz’s vision of debt-driven growth matches badly with the current French Economic policy. Often the discrepancy creates odd situations both for the socialists and Schulz. For example, during the visit to Paris, Head of the Spanish socialist list Elena Valenciano was preaching against “the tyranny of austerity”, in a common political rally with the socialist candidate Martin Schulz, only a day after new Socialist French Prime Minister Manuel Valls announced an unprecedented and comprehensive package of austerity measures in France, heading to save over 50 billion euros in the next three years.
Thus, there is a substantial disparity between the programme of Schulz and the policies of Hollande’s administration. But then again, Hollande has to deal with economic reality – and Schulz does not.Tomi Huhtanen Crisis Economy European Union
Schulz’s vision meets Hollande’s reality
25 Apr 2014
This paper argues that a fully-fledged European banking union is needed to stabilise the euro and to prevent a decade of high unemployment and low growth in the Vulnerable Euro Area Periphery Countries (VEAPs). What has been agreed by the European Council and the European Parliament in March 2014 is a step forward but remains insufficient.
A further transfer of responsibilities to European institutions and more risk sharing are essential to sever the doomed loop of banks and sovereigns because individual EU countries are too weak to address this challenge alone. Ideally, we need a treaty change, but we also need to develop a second best solution that is based on the current treaty, while using its institutional and legal capacity to the full.
However, a European banking union is not enough, given that banks’ assets exceed the EU’s gross domestic product (GDP) threefold. The banking industry needs restructuring so as to prevent systemic risks and the legislator needs to have the power to intervene efficiently when needed. Finally we stress that any European banking union should be open to future eurozone member states.Banking Crisis European Union Eurozone
A Banking Union for an Unfinished EMU
24 Apr 2014
“Capitalism is not a form of spontaneous order or the embodiment of a basic structure of human rights, but one of the great constructions of the human mind”, so says David Sainsbury, former UK Minister in the Blair Government in his book “Progressive Capitalism, how to achieve economic growth, liberty and social justice” published last year by Biteback Publishing. Inevitably, the book does not fully live up to its unrealistically ambitious title, but it makes some really important points and goes beyond putting forward a critique of what wrong, but also some constructive solutions.
Capitalism will only work if politics works. Capitalism allows resources, human and material, to be constantly allocated and reallocated in a way that meets people’s needs, as they express those needs by way of the relative price they will pay for different goods and services. Without stable money in which to set those prices, the system would not work. Money is a promise. One must have a stable political system to underpin those promises if one is to have stable money. Without order and security and laws to prevent theft, fraud and unsafe products, capitalism would collapse. Again one has to have a stable political system if these requirements are to be met.
If capitalism leads to outcomes that are socially, financially or environmentally unstable, or are perceived as grossly unfair, the stable political order on which capitalism itself rests will fail.
These are some of the things that David Sainsbury tackles in this book. He points out that:
1. In 1965, the average US CEO earned 24 times as much as the average worker. But by 2007 he earned 300 times as much. That trend is not socially sustainable.
2. UK pension funds earned a 5% return on capital between 1963 and 1999. But between 2000 and 2009, they earned only 1.1% return. That’s not financially sustainable.
3. Between 1950 and 1973, the western economies grew at twice the rate they had grown during the period from 1800 to 1950. That was not economically or environmentally sustainable. But the West built welfare states during that period on the premise that the 1950-1973 growth rates were permanent.
These problems can only be tackled if the rules governing capitalism are updated. Sainsbury makes some useful suggestions.
Company law and taxation should be changed to require CEO’s to be paid on the basis of longer term goals and achievements, rather that short term share price movements. Remuneration of fund managers should be restructured to reflect a similar philosophy of long term returns and stable investment strategies. The threat of takeover, to the extent to which it incentivises pursuit of purely short term share price gains, may have to be mitigated. Firms should have incentives to use scare materials like energy, water, clean air, metals and chemicals extracted from the earth sustainably and renewably. These things cannot be done by one country acting on its own. They need to be tackled at international level, in the European Union and/or between the EU and the US.
This book may not have all the answers, but it asks all the right questions. They are questions that could usefully be tackled in the forthcoming European Elections which are, after all, the only multinational elections that take place anywhere in the world.John Bruton Crisis Economy Elections European Union
Saving capitalism from itself…a topic for the European elections?
27 Jan 2014
Vít Novotný Crisis Economy Growth Sustainability
From Reform to Growth – Managing the Economic Crisis in Europe
05 Nov 2013
The EU Summit last week discussed the digital economy, a youth guarantee, apprenticeships, and the European Semester. During the Semester, each EU state will have an input to the policies of each of the other states. Hopefully, they will learn from each other.
But it would be a mistake to think that the main ingredients of a solution to the economic problems of the countries of the eurozone will be found at European level, because the problems did not, in the main, arise at European level. Although they had the same currency, some countries did much better than others did. Between 2008 and 2013, the growth in the euro zone ranged from plus 6% growth in Slovakia, to minus 6% in Greece. Some countries (Bulgaria, Sweden and Germany) grew faster than the United States between 2008 and 2013, while most of the other EU countries saw their economies contract.
It is good that, at EU level, we will now, through the European Semester, have detailed peer review of one another’s growth policies, including market liberalisation, taxation and public spending. But it would be a great pity if this encouraged national governments to delegate strategic thinking, about how to maximise the growth of their own economies, to the European Union.
Growth promoting reforms, whether these reforms be
+ of professional restrictions,
+ of slow and costly courts systems
+ of welfare systems that penalise work,
+ of educational systems that leave too many 15 year olds unable to read properly,
+ or of public sector wage and pension policies that are unaffordable,
will all differ from country to country, and can only be made on a country by country basis. The EU cannot do that job for national governments. They must do it themselves.
EUROPE MUST TAKE RESPONSIBILITY FOR THE EUROZONE BANKING SYSTEM
The EU has some things it must do. It must set up a single banking system for the euro zone. Given that most money takes the form of bank credit of some kind, it makes no sense to have a single currency without a single banking system. It makes no sense either that, at the moment, a badly run, and possibly insolvent bank in a well run country can borrow much more cheaply than can a well run and solvent bank in a country whose public finances are in a mess. These things can only be put right by EU action. Nor is it right that European arrangements to deal with banking and currency problems should be held hostage to the decision of the constitutional court of one country (Germany).
THE NEXT GENERATION WILL BE LESS ABLE TO REPAY THIS GENERATION’S DEBTS THAN THIS GENERATION IS TO MAKE SAVINGS
I find the arguments against “austerity”, in countries whose governments are spending more than they are collecting, to be lacking in rigorous thought. If a state is spending more than it is taking in by taxes, to borrow more today is simply to decide to pass the “austerity” on to a later generation, and to do so with interest! As a result of compound interest, a future generation will have to repay a lot MORE that the present generation will have borrowed. But the next generation will be far LESS able than we are to meet our bills that this one is.
This is because, 35 years from now, there will be two Europeans at work for every European who is retired, whereas today there are four Europeans of working age for every European who is retired. Thus the future burden of debts taken on today will have to borne out of the earnings of a smaller number of working people than are at work today. And those working people will also have to provide for a larger number of retired people than this generation has to cater for.
I wonder what the anti austerity protesters think of that!John Bruton Banking Crisis Economy Sustainability
EU can help, but states must take primary responsibility for reforms
30 Oct 2013
I have just spent three days in Cyprus talking to political and economic figures in the island. I encountered a very strong sense of determination to overcome their present severe economic difficulties.
These difficulties arise from mistakes made in the banking sector, whereby very large overseas deposits (mainly from Russia) were invested by the banks in lending to the Greek private sector and in Greek Government bonds. Banks exposure to Greece totalled 28 billion euro, or 170% of the entire Cypriot GDP. This concentration of risks in one place was bad banking practice, in the same way that excessive concentration of risks in the construction sector, was bad banking practice in Ireland and Spain.
As in Ireland and Spain, Cypriot banks also lend unwisely in the domestic economy, fuelling a real estate bubble. Meanwhile, and partly as a result, the Cypriot economy also lost competitiveness.
The Cypriot Central Bank must accept a major share of the blame for this excessive concentration of risk. It did not use its power to stop it.
At European level, once Cyprus joined the euro, the European Central Bank also had a responsibility. Under article 14.3 of the ECB statute, national central banks are obliged to “act in accordance with the guidelines and instructions of the ECB”. And under Article 25.1, the ECB may also offer advice on the scope of national legislation for the prudential supervision of credit institutions”. It is open to question whether the ECB used these powers in sufficient time. ECB policy of saying that banks did not have to set aside reserves against holdings of government bonds artificially incentivised Cypriot banks to invest in Greek and other government bonds, and that distortion continues.
At the end of 2011, the EU/IMF/ECB found that the situation of the public finances of Greece was so severe that senior bondholders (whose position had been famously protected from haircuts by the ECB in the Irish case) would have suffer a 75% haircut. This created an immediately critical situation for the Cypriot banks. They lost 33% of their capital.
This crisis for the Cypriot banking system was known to the EU/IMF and to the Cypriot Government of the time of the Greek haircut. Apart from a temporary loan from Russia, little was done. The Cypriot Government of the time did not respond to suggestions that it apply for assistance in a timely way. Given the powers cited above, more could perhaps have been done to require the then Cypriot Government to act.
THE MYTH ABOUT RUSSIAN HOT MONEY
Meanwhile a press campaign was mounted to suggest that the Russian depositors in the Cypriot banks were tax evaders, money launderers, oligarchs or worse.
This campaign seemed to be designed to persuade public opinion that depositors in Cypriot banks were less deserving of protection than depositors in banks in Athens, London, or Frankfurt. In fact, little evidence has subsequently emerged to justify any of these stories.
And, indeed, there is a perfectly good, and legitimate reason for these Russian deposits in Cypriot banks.
Many Russian businesses did not trust their OWN legal system, and felt that their assets would be better protected in a country like Cyprus, with a common law legal system, and which was in the euro. But in March of this year, they were to be brutally disabused of the notion that euro zone banks were a safe haven. Eventually the problem was tackled, in March 2013, in an agreement by IMF, the EU, and the ECB with a newly elected Government in Cyprus, who had had little or no time to assess the options for themselves.
TROUBLING ASPECTS OF EU DEAL
The March 2013 agreement contained a number of elements that are troubling.
For the first time this century, depositors have had to take a haircut. This was a radical departure from previous policy.
The fact that this procedure was followed creates a new and permanent uncertainty for depositors who hold more than 100000 euros on deposit in any bank in the euro zone.
They now must, to protect their assets above 100000 euros, scrutinise the situation of their bank on an ongoing basis, and move money regularly out of banks that seem to them to be pursuing risky strategies. Some would see this as a market solution to bank supervision, but markets only work if there is full and timely information available to all marker participants. But most depositors will not have the requisite information.
For a retail bank depositor, who may have little financial expertise, getting the relevant information of the safety of banks, in which he may need to keep a deposit account, will be difficult and time consuming. The accounts of banks are often opaque and do not always tell the full story.
There will be a tendency to move money towards bigger banks, which will aggravate the “too big to fail” problem.
In the Cypriot agreement of last March, no haircut was, however, imposed on the depositors in the Greek branches of the Cypriot banks, and those branches were transferred to Greek banks. This inflicted additional losses on Cyprus, and is hard to justify, within a monetary union that comprises both Greece and Cyprus as equal partners.
CREDIT FROZEN FOR CYPRIOT BUSINESS
The Cypriot banking model of attracting overseas deposits has been destroyed, although Russians continue to invest and holiday in the island, which disproves the suggestion that they were all fly by night tax evaders and hot money merchants. . It would be interesting to know which country’s banks are now benefitting from these Russian deposits that were formerly in the Cypriot banks.
Meanwhile, viable Cypriot businesses, that were well capitalised and equipped with working capital before March, are struggling to access funds to keep going.
Deposits they could have used have been reduced by haircuts, and capital controls mean that what remains in their accounts cannot be used freely. Bank credit is frozen.
A Cypriot export model, to replace the old bank deposit led model, cannot be put in place without access to day to day funding.
I left Cyprus feeling that, if Cyprus did not constitute a mere 0.2% of the euro zone GDP, and was physically closer to the centre of Europe, it would not have been the subject of these radical experiments in European banking policy.
It would, instead, have been the subject of much timelier, and less harsh, actions by its partners. That said, none of the options were palatable. Asking Cypriot or European taxpayers to recapitalise the Cypriot banks would have not have been easy and might have set a dangerous precedent in place. But burning depositors is a bad precedent too, when restoring confidence is so important.
Of course, Cyprus must now abide fully by the terms of the March agreement, and, like Ireland, establish a good track record.
But if it does so, it should, like Ireland, see progressive easements in the terms of its bailout, so that its economy can be allowed to breathe again.
Meanwhile, the Cypriot horror story should remind us of the urgency of completing European Banking Union, including some form of mutual deposit insurance.
Europe also needs to develop automatic stabilisers to deal with the problem of asymmetric shocks to individual states, as suggested in a recent IMF paper on the euro.
Otherwise the European economy will continue to run at below capacity, at the very time when it should be running at full capacity, so it can build up surpluses to deal with the looming cost of ageing.John Bruton Banking Crisis
Is the Cypriot formula the right one for banks in difficulty?
03 Oct 2013
Speech by John Bruton, Former Prime Minister (Taoiseach) of Ireland (1994 to 1997), to a meeting of Zhejiang Chamber of Commerce at the Guangzhou Baiyun International Convention Centre, at 9am on Sunday 1 September.
A COUNTRY TRANSFORMED
The last time I was here in Guangzhou was in 1978 when, as a relatively young member of the Irish legislature, I came here to observe the beginning of the modernisation of China , under the leadership of the late Chairman Deng.
My impression, at the time, was that everybody travelled by bicycle, and wore uniform clothes. The sound of China for me, was the tinkle of a thousand bicycle bells. China struck me, then, as a sensibly frugal society, which let nothing go to waste. There was a sense of order, a sense that people knew where they were going.
I also found a people who were was immensely welcoming towards a European like myself, who came from a continent whose interactions with China, over the previous 150 years, had often been marked, on the European side, by exploitation and racism.
I even saw the remnants of the European concessions here in this city, where, until 1949, European nations had applied their own rules, even though on Chinese sovereign territory. In the French concession I came across a disused Catholic church, that had been converted into a clothing factory. I sometimes wonder if it has since been restored to its former use.
I also had a strong sense, then, that China was a society on the move.
Now, 35 years later, I am back in a very different city. In one of the great commercial centres of the world, to see the results of the modernisation initiated 35 year ago.
Most people in the west did not really understand what China was doing then.
THE FOUR MODERNISATIONS
Many may have thought that the Four Modernisations were only rhetoric.
I came across a phrase recently that will probably be familiar to many here, that sums up the Four Modernisations policy initiated here in 1978.
It was that the country was “wading across a river, by feeling for stones underfoot”.In other words, it was a policy of experimentation, of trial and error, of allowing mistakes to be made, of trying different approaches in different regions, and allowing competition between the different approaches and the different regions.This flexibility explains the difference between Chinese and Soviet economic policy at that time, and explains why the first succeeded, and the other failed.Indeed, the strength of the western capitalist economic model, is that it, too, encourages experimentation and trial and error, but uses different methods to do so.
China has made huge strides since 1978. It is now well established, on an income per head basis, as a middle income country according to World Bank classifications.
FROM A MIDDLE INCOME COUNTRY TO A HIGH INCOME COUNTRY
In 1960, there were 100 middle income countries in the world. Ireland was one of them.By 2008, only 13 of those 100 countries had reached high income status. Ireland was one of the 13 that made it, along with Hong Kong, Japan, South Korea, Mauritius, Spain, Equatorial Guinea, Portugal and Greece. The remaining 87 countries, which were middle income countries in 1960, have undoubtedly made progress since, but they are still middle income countries, and some of those who attained high income status by 2008, may now be falling back into the middle income category.Nothing stands still. Progress to the next stage is not automatic.
Economic growth is, as the economist Schumpeter put it, a process of constant creative destruction. Growth is about change. Change is often painful, and painful, but necessary, change can easily be confused with mindless austerity.
When a country is moving from less developed, to middle income, status, it is often able to compete by doing things , that are already being done, more cheaply than established competitors can do them. It does not have to come up with brand new technologies. it can use existing technologies, but apply at less cost and with minor improvements.
Moving a country, from middle income, to high income status, in contrast, often requires it to push at the boundaries of technology, to find a niche that no one else if filling, to invest in people and ideas as well as in concrete and metal. That is the stage into which China is now moving its 1.4 billion people, a move that promises to be one of the great transformations of human history.
ENGINES OF ECONOMIC GROWTH
The size of the transformation involved explains why China is today spending 2% of its GDP on Research and Development (R&D), which is more, as a proportion of GDP, than Ireland, Netherlands, the UK, Norway, Luxembourg, Italy, and Spain and many other European countries are spending.
Incidentally, Israel, Korea, and Finland are the biggest proportionate spenders on R & D.But R&D alone will not move a country from middle to high income status. It must be made easy for entrepreneurs to use the R&D, by setting up new businesses and to recruiting talented local people to help them do it.Here, Ireland has a strong advantage in that it is one of the easiest places in Europe to set up a new business, and one of the easiest in which to recruit young well educated people at competitive salaries.
This has already attracted 18 different Chinese companies to set up operation in Ireland. Ireland is particularly interested in Chinese companies that are in fields like Life Sciences, Clean tech, financial services and information technology.
Ireland is also active in food exports to China ,which have grown by 92% in just two years!
I believe there are aspects of the Irish educational system from which China could benefit . 5000 Chinese students study in Ireland. Numerous agreements exist between Irish and Chinese Universities. These must be built upon, especially in key areas of research ,like financial services.
REMOVING BLOCKAGES IN THE SYSTEM
If China is to exploit its investment in R&D to the full , it needs to liberalise its system of local residency permits, which discourage migration within China, and to make it easier for new Chinese companies to set up, in competition with existing state owned or established enterprises.
The European Union, with its 0.5 billion people is a much smaller entity than China with its 1.4 billion people, but in the European Union, there are still restrictions on internal migration, analogous to the Chinese residency permit scheme, in that the EU does not have full transferability of Social Security rights, and full mutual recognition of professional qualifications, for internal migrants within the EU.
THE DANGER OF PROPERTY BUBBLES….THE IRISH EXPERIENCE
But it would be unrealistic for me to come here and fail to refer to some of the recent economic difficulties Ireland has encountered. These difficulties are being overcome. Growth has been resumed, foreign investment in the country is at an all time high, and the government is following a careful plan. But it is also important to analyse objectively how Ireland got into these difficulties, and I believe that would be helpful to a country, like China, that is also undergoing rapid development and wants to avoid converting that into a destructive bubble.
Indeed, the latest IMF report on China, contains warnings that will sound familiar to those who have studied recent Irish economic history. It talks of the risks of “a steady build up of leverage eroding the strength of the financial sector”, of “a boom in non traditional sources of credit”, and of the need to take “steps to reduce moral hazard to ensure that banks do not engage in potentially destabilizing competition” in China. On the other hand, it recognises that China has very well capitalised banks.A few years ago, these risks existed in Ireland, and were not adequately addressed by the authorities in Ireland itself, or in the European Union. We have suffered for that, and these are useful lessons for China.As I see it, this is what happened in Ireland. Thanks to artificially cheap credit, and rapidly rising property prices, Ireland experienced a property bubble between 2000 and 2007. This bubble led to a radical distortion of the country’s economic structures, and to a big increase in private and government debt.The cheap credit was available because of decisions taken by the US Federal Reserve and by European Central Bank. Both favoured low interest rates. They did so to avoid dislocations to the economy, that might have arisen from the dot com burst, 9/11, and the costs of German reunification. In these goals they succeeded.But the extra credit found its way across national boundaries into housing markets in various countries, causing a bubble in prices, most notably in Ireland. In 2008, the bubbles burst.
BUBBLES DISTORT THE ECONOMY
The bubble distorted the Irish economy in ways that will take years to repair. There was distortion in the form of a doubling in the size of the construction sector, large and uncompetitive pay increases across the economy, and rapid increases in numbers of people employed in the public sector. The fact that money flowing in, temporarily, to government coffers, made it hard to resist demands to increase the size of the government sector, permanently. In just five years from 2001 to 2006, the share of the workforce in the public sector reached 29%, as against 19% in Germany. The numbers in top grade positions in the civil service grew by 86% .
Bubbles misallocate human capital. Instead of choosing careers and skills, for which there is enduring global demand, talented people were drawn, by quick rewards, into activities for which demand is inherently temporary, like construction.
WHY BUBBLES HAPPEN
In a way, it is easy to see why people made the mistake of thinking, in the 2000 to 2006 period, that house prices in Ireland (and household wealth) would never stop rising. Recent history seemed to suggest that the only way house prices could go was up. House prices had already risen by 133% between 1994 and 2000. These increases were justified by rapid economic growth, immigration, and new family formation, all of which created a genuine demand for housing. The trouble is that the increase in house prices continued after 2000, and was financed, not by improved competitiveness, but by excessive lending, and by income generated from, inherently temporary, construction spending.
The assumption of the bankers, who were lending this money, seemed to be that demand for housing could go on growing, to infinity. A moment’s thought would have shown how nonsensical that was. But, in the middle of a boom, people are often too busy, to take a moment to think. The revenue of the Government became unhealthily dependent on taxes derived from property sales such as stamp duty, capital gains tax, and VAT on house sales. Property related revenues reached 18% of all revenues in 2006, whereas they were only been 8% in 2002. But once house sales stopped or slowed down, of course, that revenue growth stopped, leaving a huge hole in the Government’s budget.
Again, a moment’s thought would have shown how dangerous it was, to build up permanent spending programmes, on the back of inherently temporary streams of revenue. But very few people, in politics or outside it, took a moment to think. For a country like China, the relevant question to ask about Ireland’s recent experience is
“How can sensible, and generally public spirited, people make mistakes like this, and how can such mistakes be avoided ?”
THE CAUSES OF BUBBLES………….SILO THINKING, AND FOLLOWING FASHION, WITHOUT REFLECTION
I would identify two tendencies of policy making in both the public and private sector, that were at the heart of the problem in Ireland
1. “Silo tendencies” within institutions, charged with mitigating risks, where people only thought about their own immediate responsibilities, and did not question wider assumptions.
2. A “consensus approach”, which encouraged a single view to be taken of any issue. Human beings are followers of fashion. We need institutions that deliberately challenge fashionable assumptions, and those institutions did not work, in Ireland or in the wider European Union.
These errors can occur in ANY country, under ANY political system. They are not unique to Ireland, Spain, Arizona, California, Florida, or any of the other parts of the world where property bubbles arose.
China must be wary that these problems do not arise here, and I know the authorities here are fully alive to these risks.
THE GLOBAL CHALLENGES…..AGEING, MIGRATION, CLIMATE CHANGE, AN ERODING TAX BASE , AND SOUND FINANCE.
These are the five big problems that the counties of the world must come together to tackle. They are all loosely related to one another. With the exception of the finance problem, they are all problems that are silently creeping up on us, so silently in fact that it is difficult to create a sufficient sense of immediate crisis, to get anything done about them. Technology will provide some of the answers, and I know China is devoting a significant proportion of its R&D to some of these issues.But sacrifices and compromises will be needed between and within nations. Pension entitlements will have to be limited in some countries, working lives extended, and elder care vastly expanded with the aid of technology. Migration will have to be accepted in ageing economies, and that is a big cultural challenge.CO2 emissions and pollution will have to be tackled by making the ultimate polluter meet the full cost of what he does.
We may eventually need some form of global taxation, to meet the cost of preserving out common global heritage, but, in the meantime, we need to restore the tax base of states, in a cooperative way. We cannot expect Governments perform functions if its revenues are artificially depleted.
And finally we need to put banking on footing that will be sound enough to allow incompetent banks to be closed down without putting the whole economy at risk. “Too big to fail” and “ too interconnected to fail” should no longer be characteristics of our banking systems.
THE EURO….WHAT IS ITS FUTURE?
The existence of the euro, the single currency, has not created the economic crisis in Europe.This was going to come anyway because of lost competitiveness, the emergence of new competitors, like China, for traditional European industries, and the progressive ageing of European societies. Expansionary monetary policy could only have postponed the emergence of the symptoms, it could NOT have prevented the illness.
What the existence of the euro has done is impose discipline and mutual solidarity on Europe.
Without the euro, countries would have pursued the route of devaluation and inflation in response to their problems. Savings would have been wiped out. This is not possible now, and that is good. Instead problems are now being tackled at their source.Without the euro, wealthier and stronger European countries would not have come, so quickly, to the aid of other European countries in difficulty. They have now done so on a systematic basis, and that too is good.The EU is moving toward a common system for winding up banks that need to be wound up, without putting the overall system at risk. It is moving toward a common system of deposit insurance. These are issues that also require attention here in China.Much better systems are now being put in place in the European Union, to ensure that, in future, public finances, and underlying competitiveness, do not get out of line again. Out of the crisis, we are now facing up to problems we had ignored for the past 20 years in Europe.
The euro will survive. Not only that, I believe it will eventually be imitated in other parts of the world.
To sum up, the euroJohn Bruton Crisis European Union Eurozone Foreign Policy
+ is a protection against the expropriation of savings, through inflation and devaluation.
+ is a factor for economic stability in the world, and
+ is a major political step forward for unity Europe.
China, Europe and the Political Economy of the World
05 Sep 2013
Youth politicians all around Europe are thrilled. The topics of the young generation are finally high up on the political agenda: the Youth Guarantee, Youth Unemployment, and ‘Employability’ are now established in the political jargon. The political focus on the younger generation and the amount of policies made is evolving for each day that goes by.
As much as we embrace the fact and try to make our – the young people’s – voice heard, we still have to ask ourselves which tools would enable us to live a self-determined life – and which are the ones arousing covetousness at its best but add, in fact, little to a sustainable solution. Don’t get me wrong! Any efforts embracing what the young generation calls for should be appreciated. While elderly have their own strong representations, every young generation has to fight for their spot. Two initiatives are highly debated at the moment: The Youth Guarantee and the Loan Scheme for Master students.
While the Youth Guarantee is aiming at sudden support for the youth and tries to offer training or employment opportunities within four months to young people under the age of 25, we have to question whether the allocation of funds to achieve these goals is granted properly: the idea to focus on regions is good since it follows the principle of subsidiarity, solutions should be found on the level on which the problem actually exists. Nonetheless, by setting the measurement that youth unemployment needs to reach a level above 25% in the region, moral hazard behaviour might be triggered. Regions will have an interest in presenting themselves in a worse state than they actually are.
Even if an improvement would be achieved – that means young people will have found their way into the labour market or into training – the regions will have an incentive to present their levels of youth unemployment to remain above 25%. While this race to the bottom will aim at securing cash flow into the region, it weakens the efforts to move the youth out of its misery. It is effective, sustainable solutions that need to be considered. The grants provided in the Youth Guarantee program need to be orientated to programs that ensure sustainable educational programs and trainings. They need to focus on the actual demand in the labour market.
It is important to point out that actual achievements are not the main factor in the planning of policies. It is rather the opposite, if we take a look at the Master Loan Scheme Guarantee. It is a mean that shall empower students to move across Europe, in order to study in a master programme in their desired field of studies. Both, the EU Commission and the European Parliament tasked the European Investment Bank (EIB) to channel through guarantees to private banks. These will then be able to hand out student loans at a reasonable interest rate. It is a tool envisioned to particularly fill one gap: provide financing for students that desire to complete their entire master studies abroad. Conventional Erasmus funds cannot be tapped for such, they can only be utilized if a student is enrolled in a university program from which he then takes parts of his study for a semester or two abroad.
It is more than just closing a financing gap, it is also considering the regional diversity and richness we provide in Europe: in the 21st century, it is more important than ever to invest in human capital ad in education. While technology is certainly a tool in helping to bridge distances, this is only true within a limited scope. When education cannot be delivered to the student wherever he may be, then the student must be enabled to go get this knowledge at another destination. Specialized learning at the best can be achieved easily with the loan scheme guarantee. 300.000 students shall benefit from this mean in the period 2014 – 2020. It is 300.000 young, highly-skilled students that do believe in their abilities. They are willing to put their claims onto the future and their prospect in life.
Opposing this idea of creating opportunities will only result in the creation of a ‘lost generation’: Not a ‘lost generation’ in a sense as some politicians refer to these days when speaking about the unemployed youth. But we need to be careful not to create a lost generation that is being patronised! No one is forced to apply for any loans, but if people want to achieve great things in their lives and have trust in their abilities; they should by no means be stopped.
We need a generation that believes in its bright future here in Europe!Eva Majewski Crisis European Union Jobs Youth
Freedom and the Prospect of Education
25 Jul 2013
Jürgen Matthes, co-author of a new CES study on public finances and growth talks about how to counter the dangers of self-defeating austerity and the four objectives that have to be taken into consideration when implementing smart fiscal consolidation measures.Jürgen Matthes Crisis Growth Macroeconomics Social Policy Sustainability
Smart Fiscal Consolidation: Achieving Sustainable Public Finances and Growth
10 Jul 2013
This report surveys recent works in political economy showing that trust—and civic capital more generally—matter for various aspects of economic well-being and presents new evidence from European countries showing that trust has deteriorated considerably in those European countries that have been affected the most by the ongoing economic downturn. We also discuss policy recommendations. The key message is that because trust and social capital matter crucially for economic and institutional development, countries must both monitor developments closely and pursue policies that cultivate civic social capital. Given strong inertia, changing people’s beliefs and promoting civic engagement will not occur overnight. Targeted policies can increase civicness and promote social capital considerably. First, promoting education seems crucial as, a higher level of education cultivates social capital. Second, countries where primary and secondary education are based on lecturing and memorising, should alter the curriculum towards more group activities, team projects, and critical thinking based on a dialectic method. Third, policymakers should continue promoting the outward orientation of the economy and the removal of administrative barriers to entry that fuel corruption and impede competition.Crisis Economy Education Ethics Values
Trust(ing) in Europe? How increased social capital can contribute to economic development
10 Jun 2013
With respect for common rules and values, solidarity but also strong national responsibility, and the EU functioning in a way the citizens can support it and feel it as their own, Prime Minister Jyrki Katainen highlighted.
PRESS RELEASE, 6th June 2013 Helsinki
Today in Helsinki, the Prime Minister of Finland, Jyrki Katainen, opened the 4th Economic Ideas Forum (EIF) organised by the Centre for European Studies (CES) with the title “From Reform to Growth: A Roadmap for Europe”, by emphasising the need to keep Europe united. “Europe cannot afford divisions between Member States. Leadership is about unity, not about divisions.” PM Katainen stressed that leaders have to be responsible. In his speech he pointed out the need for a profound debate about Europe’s future, “we should not allow dogmatic voices to dominate it”. He reminded the audience of both populists, who attempt to blame the EU without offering solutions, and of those who demand the immediate creation of a United States of Europe. Instead, he advocated a modern, pro-European pragmatism that includes both ‘more Europe’ and more national responsibility. “We need more Europe, but fair Europe”, with respect for common rules and values, solidarity but also strong national responsibility, and the EU functioning in a way the citizens can support it and feel it as their own. PM Katainen said it’s time Europe regained its self-confidence: we need to highlight what has worked, reminding the international audience of that the euro has been successfully stabilised and the eurozone kept intact. “In Greece, the talk is now of “Greekovery“ instead of Grexit”. He also mentioned the importance of strengthening the Economic and Monetary Union, for instance by establishing the banking union, reminding, however, that more needs to be done. According to the Prime Minister, unemployment remains the biggest challenge, especially with the youth. Measures are also needed to improve financing for small and medium-sized companies and to make Europe strong enough to meet global competition. “We have to also protect our continent from protectionism”, he added. Prime Minister Katainen lauded the Economic Ideas Forum for providing a good opportunity for leaders to exchange views without time constraints. On Friday 7th June the EIF will welcome discussants such as Enda Kenny, Taoiseach of Ireland, Antonis Samaras, Prime Minister of Greece,Valdis Dombrovskis, Prime Minister of Latvia, Olli Rehn, Vice-President of the European Commission, and Michel Barnier, European Commissioner for Internal Market and Services, among others.Business Centre-Right Crisis Economy Jobs
We need a united and fair Europe
06 Jun 2013
The global economic crisis that began in 2007 has posed huge challenges for European citizens and governments. The crisis has shown that the ﬁnancial sector has not been adequately regulated and supervised, that governments and individuals have overspent, and that European economies are suffering from structural problems. This book, a collaboration between the Centre for European Studies and its member foundations, assesses government responses to the crisis at the national, EU and regional levels, and also offers policy recommendations. Governments should work with one another and with EU institutions to improve bank supervision and regulatory mechanisms. They should undertake ﬁscal consolidation measures, bearing in mind that government deﬁcits and debt incur costs that burden future generations. Finally, they should undertake structural reforms such as creating ﬂexible labour markets, increasing the retirement age and shaping efﬁcient public institutions. Implementing such measures would bring about lasting economic growth, contribute to job creation and set Europe on the path to prosperity.
You can buy the book, including e-book versions, at:Centre-Right Crisis Economy EU Member States Growth
ibookstore.com (http://ces.tc/1eFKvDP) and
From Reform to Growth: Managing the Economic Crisis in Europe
31 May 2013
Today, no one disputes that credit is vital for small and medium enterprises. Despite the momentum that big businesses give to our economies, SMEs are still the basis of the Spanish productive sector and the ones employing the majority of citizens in Spain and in Europe.
With the crisis, the challenges facing SMEs have become more pronounced. Not only because of the drop in sales as it is the case for other companies, but because of major difficulties in accessing credit. A few years ago, almost any solvent SMEs in Europe could take out a loan. However, the situation has changed and today, the financial market is “fragmented”. What do we actually mean with this? Simply that the criteria for accessing credit varies greatly across Europe. For example, an SME in Spain must satisfy vastly different criteria than an SME in Germany in order to take out a loan.. The result of this is that banks are failing to grant loans to companies in Spain, while similar companies in Germany are being provided with the credit they need. Moreover, even in cases where they can access loans, Spanish companies end up paying a hefty premium, estimated by Deutsche Bank to be in the region of three and four percent.
This fact is drowning many small and medium Spanish enterprises and therefore affecting the recovery of the country and of Europe as a whole. If SMEs do not have access to credit, their ability to run a business is severely impeded and this in turn has serious consequences on the employment situation and economic growth. We need to consider the different possibilities available to solve this problem. The ECB is expected to cut the interest rate by 0.5% in a few months. However, we have observed how a decrease in interest rates will not solve the fragmentation in the financial markets. We should therefore consider measures such as the ECB changing its collateral policy and authorising banks to use SMEs debt to access credit from the ECB. There is also possibility that the ECB could buy SMEs debt directly from banks in the periphery countries.
These measures, as opposed to low interest rates, would have a direct impact on SMEs, as they could access credit and thus bring us back to the path of growth. The two questions that will decide the future are: will Germany accept such measures? Will the ECB assume a role that it has until now refused? I have no doubt that something is moving in the ECB.Pablo Zalba Banking Business Crisis Growth Jobs
SMEs: A Solution from Europe
30 Apr 2013
WHY ARE MODERN BUSINESS REGULATIONS SO COMPLEX?
I believe that across the western world we may be reaching some sort of limit in the complexity of rules governing business. The response to the financial crisis has been ever more complex rules, that only a tiny number of professional advisors could ever hope to remember or understand properly. In the United States, the Glass-Steagall Act, introduced to regulate banking after the Depression of the 1930’s ran to 37 pages; in contrast, the Dodd-Frank Act, introduced in the wake of the recent crisis, runs to 848 pages of basic text, plus 30,000 pages of implementing rules. In the UK, the 1979 banking act ran to 75 pages, while the 2012 Financial Services act runs to 534 pages. It is the same with taxation: in 1997, Tolley’s guide to the UK tax system had around 5000 pages, while the latest edition has 17,795 pages. I have no doubt the pattern is similar in other countries and in other areas of regulation.
Why is this happening? I think the explanation is ethical, political and legal. Ethics may have declined in many organisations to a point that something is deemed acceptable so long as it is legal, even if it may be very unfair to customers, creditors or the taxpayer. This may be accompanied by other excuses like “everyone else is doing it” or “we must do this to keep market share.” In politics, the” gotcha” principle may be at work: no politician or administrator wants the buck to stop with them if something goes wrong. As a result, they make ever more complex rules to pass the responsibility on to some other body, preferably to an anonymous quango. Also businesses themselves lobby for “certainty” in legislation, which often involves more and more complex exceptions and qualifications. The ingenuity of lawyers in devising complex ways of getting around rules also drives rule makers to introduce new complexities to close loopholes. Some of these new laws are so long that parts of them are never properly debated, or even understood, in parliaments.
A REGRESSIVE TAX
Complex rules are a sort of regressive tax. They give an artificial advantage to those who can hire “the most sophisticated risk modeler, the slickest tax accountant” as Andrew Haldane of the Bank of England pointed out in a speech earlier this month. These complex rules carry huge economic costs. They divert talent, time and money away from productive activity to an activity that adds nothing to the competitiveness of our economies in international markets. Andrew Haldane asked the question: “If complex frameworks come with economic and social costs-why has society not done more to tackle them Resistance is strong, particularly among those who gain most from squeezing through the loopholes. There is also an inbuilt professional inertia among regulators, lawyers and tax accountants with large amounts of human capital invested in complexity.” Simplifying regulations must be part of any serious effort to make the European economy more competitive.
A RETURN TO BASIC ETHICAL QUESTIONS IS NEEDED
Rather than ever more complex rules, covering every conceivable thing that could go wrong, we may need to return to simpler, more general rules and rely on the courts to decide whether people acted in accordance with the spirit and intent of those rules. For example, instead of prescribing in ever greater detail what companies must put in their annual reports, we may need to simply lay down a rule like ”the company must disclose all material facts that shareholders, customers and creditors would need to know in their own interests.” Then leave it to the courts to decide if the company has disclosed all those material facts and provide harsh penalties if the courts decide they have not. That may mean businesses living with more uncertainty: rather than know for sure whether some shortcut they are proposing to take is legal or illegal, and if legal feel free to go ahead with it, businesses in future may have to ask themselves the question “is this action right, fair to my customers, fair to my shareholders, and fair to the general public?” If the answer is “no” to any part of that question, they should decide of their own accord without consulting any regulator or professional advisor, that they will not do it.John Bruton Business Crisis
Who are the real winners from complex financial regulations?
29 Apr 2013
News emerged last week which contributed to a climate of confusion, fuelled by conflicting messages fantasising about unlikely scenarios.
After a series of reports suggesting that the Commission could carry out a Macroeconomic Imbalance Procedure (MIP) with Spain, some sections of the media interpreted this as a reprimand of the Government of Spain. Last week the President of the Eurogroup, Jeroen Dijsselbloem, re-affirmed his confidence in Spain, stating that Spain can be the engine of growth in the Eurozone.
These events give the feeling that some sections of the Spanish media are liable to deliberately magnify the negative when reporting economic news.
Despite of the importance that carrying out a MIP could have, one must bear in mind certain facts. Firstly, we must remember that any decision to carry out a MIP will be made on the basis of previous procedures, including an analysis of relevant data in 2011 under the government of President José Luis Rodríguez Zapatero. Subsequently, there is a final check to identify the countries with excessive macroeconomic imbalance. In this case, Spain and Slovenia.
This process involves an information gathering process and does not necessarily involve any mandatory corrective action. We must bear in mind that in order for this procedure to have consequences, like the imposition of conditions or sanctions, we would have to move to a new step of the process in which the Council, on the basis of a recommendation from the European Commission, would advise the concerned Member States to take corrective action.
Therefore, it is obvious that the controversy does not respond to reality. Moreover, I have no doubt that corrective actions will not be recommended. The Vice President of the Commission, Olli Rehn, has already hinted the fact that the Commission would give Spain two additional years to meet its deficit targets.
Data shows that Spain, despite the challenges that still have to be faced and of which its current Government is fully aware, is on the right track.
But let us not forget that is also time for Europe to act. Even if Spain is on the right track, every effort will be useless if Europe does not create a banking, economic, fiscal and ultimately political union.Pablo Zalba Crisis Eurozone Growth
Much ado about nothing
17 Apr 2013
There is a tendency whenever a eurozone country gets into difficulty and needs help from its neighbours to blame Germany for the severity of the terms imposed and to say there is bullying involved. In both Greece and Cyprus, we hear references to the Second World War, as if offering Greece a low interest loan to keep its state functioning was equivalent to a military invasion of the kind Greece experienced in 1941.
There is also talk of the “solidarity” that Germans ”owe” the rest of the rest of the eurozone, even though any money Germany might pay has to be raised from German citizens, under the German tax system. This is the way it has to be done, only because there is no common eurozone tax system, applicable to all euro zonecitizens, from which the money might otherwise come. Indeed those who call most loudly for “solidarity” would probably be the first to object if a common eurozone tax system, equally applicable to all eurozone citizens, was proposed. Others criticise Germany for insisting on “austerity” in spending by countries that are spending more than they are earning, as if there was some alternative to spending less in those circumstances.
The fact is that some countries, including Ireland, are still spending more than they collect in taxation, even after one has left out of account the interest paid on past debts. Such countries have what is called a “primary deficit”. Ireland had a huge primary deficit in 2010, has a small one today, and hopefully will have a tiny primary surplus next year. But if it is to reduce its debts, and thus not be vulnerable to disaster, if there was to be a sudden increase in international interest rates of the kind that occurred in 1979/80, Ireland will have to have a primary surplus for many years to come.
That is the only way to reduce the debts it ran up through the primary deficits it ran in the recent past. This is not something “imposed by the Germans”, it is imposed by the rules of mathematics, and by compound interest in particular. Of course there is one alternative, inflation, the alternative of inflating debts away. Inflation devalues everything. It reduces the value of money, and in so doing, it also reduces the value of debts and, of course, of savings. If inflation is greater than the rate of interest, debts will reduce.
But the value of pension funds, of bank deposits and of life assurance policies would also reduce. Inflation would mean falling living standards all around, because if a country is to stay competitive, wages would have to increase at a slower rate than prices. Those on fixed incomes would see their living standards decline even more, because they could buy much less each year with their fixed income. Inflation is very hard to keep under control, once it starts to take hold.
Germany tried to inflate away its First World War debts in the 1920s, and the experience was a complete disaster. Understandably, it does not see inflation as a solution to Europe’s debt problems today, and nor should we. Some argue that Germans themselves should spend more and save less, and say this would help other countries in Europe. This is already happening to some extent.
German imports were 10% higher in 2011 than they were before the recession, whereas almost every other European country is importing less now that it was then. It is fair to say that Germany’s balance of payments surplus, at 6% of GDP, is very high indeed, too high, and that this surplus is not being used all that wisely. Germany could do more to free up its own internal market, and the OECD has been critical of it on that score, but that offers a long term, rather than a short term solution for the rest of Europe.
It is also important to deal with the myth than Germany is a terribly wealthy country, that it can afford to bail everyone else out. Germany’s present competitiveness is of recent origin. A dozen years ago it was the “sick man” of the European economy, struggling with the unexpectedly high costs of absorbing East Germany. Germany got a big bonus from the opening up of China, which imports a lot of German engineering goods, while other European countries (eg. Italy) have lost for the same reason, because Chinese consumer goods are undercutting them in their specialist markets.
Germany is an elderly country, with far more people approaching retirement age than preparing to enter the work force. Probably for this reason, its medium term growth potential, and thus its medium term debt repayment potential, is low by comparison with other countries in Europe. The OECD did an estimate of real growth potential for different countries from 2016 to 2025. Its estimate for Germany was only 1.2% pa over the ten year period, for Netherlands 1.4%, for Italy 1.5%, for Portugal 2.1%, for Spain 2.3%, and for Ireland it was projected to be 2.7% a year!
German families are apprehensive about the future, and if those OECD figures are to be believed, it is hard to blame them. German families do not FEEL wealthy. Only 44% of Germans own their own home, as against 58% of French people, 69% of Italians and 83% of Spaniards. According to a recent Bundesbank study, the average household wealth in Germany is 195,000 euros, as against 229,000 euros in France and 285,000 in Spain.
This is the reality with which German politicians have to cope. It does not mean that they are always right, but it does mean that they have to be cautious. It also means that Germany alone cannot solve Europe’s financial problems.John Bruton Crisis European Union Eurozone
Can Germany bail out all of Europe?
28 Mar 2013
If the eurozone had a facebook page, it would have changed its status last year from single to it’s complicated. European leaders had neither time for a spring fever, nor a summer break. They fell into a spiral of emergency summits adopting immediate decisions to save their economies and the eurozone’s single status. Amid this challenging context, political leaders, leading economists, analysts and businesses met last month to discuss the future of Europe at the Tatra Summit in Bratislava; under the title “Shaping a Genuine Economic and Monetary Union“, the event was the first international conference organized by the new kid on the EU-policy scene, the Center for European Affairs, in cooperation with other like-minded organisations in Europe, including the Centre for European Studies as a main partner.
I was there and chaired a session on the upcoming edited volume of the CES and its member foundations, entitled ‘From Reform to Growth: Managing the Economic Crisis in Europe.’ This book looks at the financial and economic crisis in Europe, detailing and comparing the different measures taken to handling this crisis in different countries and regions, and providing a centre-right narrative on approaches to the crisis. The volume is due to be published in late May.
Whoever thought that Slovakia was too small to absorb two big international conferences per year proved to be wrong. The Globsec security conference, which is to take place in Bratislava this April again, has in recent years become one of the leading security conferences in Europe. Without any tradition, the Tatra Summit has also been able to attract a solid number of high-level speakers and participants to Bratislava. Here are my five key takeaway points from the conference:
1. Europe has not been hit by one crisis but by multiple, intertwined crises: financial and economic crisis, banking and debt crisis, eurozone crisis, with all these resulting in a political crisis. These crises have brought to light the “known unknowns” and the “unknown unknowns”, as one leading speaker explained at the conference. Even prior to the crisis, it was clear to everyone that there was a rather strong economic asymmetry between the individual members of the monetary union. What was however unknown, was the degree of the financial fragility of the Economic and Monetary Union (EMU).
2. Because of the always existent unknown unknowns, the future crises cannot be prevented. Nevertheless, as Professor Sklias from the University of Peloponnese in Greece underlined, there’s hope that Europe is better prepared today. We not only know that the crisis is a real thing and not a myth, but we have also improved the EU’s financial infrastructure. For example, the steps towards the creation of a banking union among the eurozone members, and possibly other EU countries, are steps in the right direction; however, its functionality has not been tested yet and belongs to the unknown unknowns.
3. There was a broad consensus among conference participants that “every crisis in Europe always ends with more Europe, never with less Europe.” However, more Europe, according to Harald Waiglein from the Austrian Ministry of Finance, needs better coordination, more flexibility of labour, capital and prices, enhanced capacity, joined liability for debt and a functioning last resort facility. Nevertheless, it remains to be seen whether a genuine EMU is a realistic scenario due to the different economic realities of its members and a general understanding that one size does not fit all.
4. Unlike widespread consensus on “more Europe”, the conference uncovered different approaches among participants towards fiscal consolidation and growth. Slovakia’s Finance Minister Peter Kažimir has been one of the strongest opponents of the growth-friendly fiscal consolidation. According to him, any fiscal consolidation is always bad for growth. On the other hand, ECB Board Member Jörg Asmussen believes that one has to look beyond a short-term perspective because a responsible fiscal consolidation leads to sustainable growth in the medium and long-term.
5. Crisis recovery is not a sprint, it is a marathon. Fiscal recovery is just the first part of the story. Only at a later stage will the improvement on the financial front gradually lead to the improvement of the real economy, the social situation and political stability. Moreover, the level of patience and trust of Europeans in their politicians has never been as low as now, so political recovery is very likely to take even longer than one would imagine. To restore people’s confidence, Europe needs to reform. Drastic spending cuts and tax increases will not do the job but the structural reforms in the healthcare, social and pension systems as well as education reform could be a solution.
A small caveat to these five points: what the conference slightly lacked was a more clear Central European dimension. I would have liked to hear Central European speakers to tell us whether there is something like a common Central European vision on the future of Europe and the economic and monetary union, and to explain whether and if so, what the old Europe can learn from the new Europe.
Nevertheless, there is no doubt that the first Tatra Summit was an icebreaker in bringing the European debate closer to European citizens by moving it from the usual Brussels’ comfort zone to another EU and eurozone capital. I am positive that the Tatra Summit will become a known brand in Europe and will, the next time and among many other issues, offer a stronger Central European perspective.
[photo source: Centre for European Affairs]Katarina Králiková Crisis EU Member States Eurozone Macroeconomics
A genuine Economic and Monetary Union: Five key takeaways from the Tatra Summit
26 Mar 2013
All resolutions of banking crises involve imposing and sharing sacrifices. As far as possible, people should know in advance how sacrifices are to be shared. No way of saving is completely risk free, but the greater the risk, the greater should be the reward and vice versa. A high yield bond should be riskier than a low interest deposit.
It is on this basis that the terms of the proposed bailout of the Cypriot banking system should be scrutinised, because it illustrates how Euro Zone policy makers are thinking. The initially proposed bailout of Cypriot banks involved imposing haircuts of the depositors in Cypriot banks who have been covered by the deposit guarantee scheme, that is depositors with amounts less than 100000 euros. Whose idea was this? Setting aside the terms of a deposit guarantee like this would be a very serious step for Euro zone policy makers to have taken. It calls into question the integrity of deposit guarantees generally. That is hardly a good idea when we are trying to restore confidence in banks and rebuild their capital bases
SENIOR BONDHOLDERS TO BE PREFERRED TO DEPOSITORS?
According to today’s Wall Street Journal, an alternative to burning the guaranteed depositors was proposed by the IMF. This was “radically shrinking the two largest banks, including bailing in senior bondholders, and letting deposit insurance kick in. In that case, depositors in Laiki Bank and Bank of Cyprus would have faced losses of 30 to 40% above the insured 100000 euros.” It would appear therefore that an explicit legal guarantee of deposits is to be set aside so that senior bondholders and un-guaranteed deposits are to be reduced, or, in the case of senior bondholders, no haircuts. The net effect of this is that a deposit guaranteed euro in a Cypriot bank is not worth the same as a euro in a bank somewhere else in the eurozone.
This is contrary to the underlying principle of having a single currency. The philosophy behind the decision to afford protection to the position of the admittedly small number of senior bondholders of Cypriot banks at the expense of guaranteed depositors has yet to be explained. Senior bondholders are commercially well informed investors, depositors are not. Senior bondholders also earn a better interest rate than small depositors do.
SHOULD BONDHOLDERS OF BANKS BE PREFERRED TO BONDHOLDERS OF STATES?
It is also hard to understand why the EU policy imposed a haircut on the senior bondholders of the sovereign Greek state a few months ago, but it did not impose a haircut on the senior bondholders of private Cypriot banks, when that was suggested by the IMF. Indeed, part of the problem of Cypriot banks is that they were themselves senior bondholders of the Greek state, who suffered a haircut on those bonds as part of the terms of the Greek bailout. Who are the senior bondholders of Cypriot banks who are so deserving of 100% protection? Who are the big depositors whose haircuts were to be reduced by attacking the under 100,000 euro guaranteed depositors?
A credible and consistent banking system is essential to a modern economy. The EU is committed to establishing a banking union, including a single system for winding up banks and guaranteeing deposits. The precedents being set in the Cypriot case are important and, in my personal view, troubling. They do not indicate clarity or consistency of thought by either the eurozone, finance ministers, or the European Commission. The rejection of the deal by the Cypriot Parliament now gives eurozone policymakers a chance to think again about the underlying philosophy of their approach to the financial crisis.John Bruton Banking Crisis European Union Eurozone
Cyprus, a test case for future European banking policy
21 Mar 2013
It has been five years since the banking crisis erupted in the United States. If, instead of boasting of having the most robust financial system in the world, the Spanish Government had immediately begun the process of restructuring its financial system, Spain would not have needed European aid to complete this arduous task. However, we should not cry over spilt milk. The important thing right now is to ensure that this type of crisis will never be repeated.
One year ago the Spanish savings banks finally acknowledged that they had serious problems after making excessive loans to the construction sector. Months later, problems with the saving banks turned into a government crisis: after injecting money into the financial system in order to save the banks, they continued to experience problems with financing because of the lack of trust of investors. This problem in countries like Spain and Ireland spread to the rest of the European Union. What started as a banking crisis ended up being a threat to the euro. It created a vicious circle between the banks, the trust in the Member States and the euro.
If we have learned anything from this crisis is that the architecture of the euro was flawed, since we created a monetary union with different economic policies and banking regulations. The result was that the citizens ended up paying for the banking disaster. Now we have the opportunity to change the structures supporting the euro which we were not able to be put in place at the time of its introduction..We are entirely committed to this task.
In order to do this, the European Parliament has been proposing to create a banking union for more than a year. The primary goal of this proposal is to protect taxpayers being forced to pay for the banking crises. Firstly, we need a single supervisor to ensure that all EU banks are supervised and they do not pose a risk to the rest of the banking system. This would guarantee that, for instance, a badly supervised saving banks in Spain or poorly supervised banks in Ireland would not pose a risk to the rest of the countries. This joint monitoring system, along with a Deposit Guarantee Fund and a common crisis resolution mechanism should be the three axes of a reform that will protect the citizens of all euro countries from another banking crisis.
The truth is that progress in the last year has been substantial. However, there is some cause for concern in relation to the speed at which European institutions are responding to the problems posed by the banking crisis. Sometimes it seems that we fail to react until we are on the brink of another crisis. Progress was made last year because Europe felt the pressure of rising bond spreads. With lower spreads, we probably would have not reacted. Therefore, this year we risk failing to take decisive action and creating the banking union that is so urgently needed as bond markets appear more stable.
These days there is a heated debate on a bailout for Cyprus which seems to be breaking the taboo of the deposit insurance fund and its consequences for the fledgling banking Union. It is important to contextualize the measure. A high percentage of deposits in Cypriot banks are foreigners, mostly Russians. This is not the case in other euro zone states. Also, whether we like it or not, we must not forget that Germany faces an election in two months. I tend to be positive and believe that the Cyprus bailout may be the price we have to pay so that the Banking Union becomes a reality.Pablo Zalba Banking Crisis Economy EU-Russia Eurozone
Cyprus bailout and the banking union
20 Mar 2013
The Schuman Report on the State of the Union is a work of reference which everyone now looks forward to reading every year. For decision makers and observers of European policy it is a source of original thought and ideas, underpinned by a strong requirement for quality. It is a tool for those who are looking for reliable sources in terms of European statistics and macro-economic data. Some eminent people have chosen to contribute their ideas also. In 2013, Josef Ackermann, former CEO of Deutsche Bank, Chairman of the Board of Directors of Zurich Insurance Group , offers his analysis of the banking Union, Lord Dykes, Foreign Affairs Spokesperson for the LibDems in the House of Lords, provides readers with his view of the future for the UK in the European Union and Alain Lamassoure, MEP, Chairman of the Budget Committee in the European Parliament, suggests a budgetary federation.The very best specialists help to throw light on the major trends ongoing in the economy and also in international and European politics. This book includes around 35 maps that are often unique, in explanation of the major issues the Union is facing. It also includes a summary of political Europe which analyses the 2012 electoral year (among France, Greece, The Netherlands, Romania), looks into the political and economic representation of women in Europe and draws up an overview of normative output in the Union in 2012. A unique series of commented statistics and maps covers all of the main topical issues (growth, buying power, economy, demography, immigration, energy, environment) and enables the Schuman Report 2013 to present a full view of the European Union and its policies.Crisis Economy European Union Eurozone Values
Schuman Report on Europe: State of the Union 2013
25 Feb 2013
The Greek economic crisis has imperilled the stability of the eurozone, generating much global anxiety. Policymakers, analysts, and the media have daily debated the course of the Greek economy, prescribing ways to move forward. This collection of essays progressively moves from an analysis of the causes of the crisis and the policy responses so far to a debate on some of the country’s advantages and capabilities that should underpin its new development model and propel the return to growth. The book seeks to provide motivation and inspiration for change by indicating some of the economic sectors where Greece maintains a comparative advantage. Therefore, it challenges the emerging picture of Greece as a country doomed to failure, where everything falls apart.Crisis Economy EU Member States Eurozone
Greece’s Horizons: Reflecting on the Country’s Assets and Capabilities
31 Dec 2012
Like elsewhere in Europe, the crisis has affected economic developments in the Western Balkans, from Croatia in the north to Albania in the south. The countries in the region face difficulties such as high unemployment, decreased availability of bank credit and reduced trade. Furthermore, the inability of their political institutions to deal immediately with these economic challenges has reinforced the negative effects of the crisis. What does this mean for the Western Balkans’ accession to and integration within the EU? This paper by Rumiana Jeleva shows that improving the economic situation is an essential precondition for public support for EU integration. At the same time it argues that the pro-European orientation of the Western Balkans ensures that they will continue to look towards the EU, rather than to the US or Russia. This is demonstrated by the fact that they are not merely taking measures to recover from the crisis: they are taking measures that are aligned with European regulations. The Western Balkan countries may have a long way to go to become EU members, but they have proven their commitment to a future within the EU by their pro-European solutions to the crisis. This makes it all the more important for the EU, even in this time of crisis, to continue to support the accession process and bring the Western Balkans closer to the EU.Balkans Crisis Economy
The Impact of the Crisis on the EU Perspective of the Western Balkans
28 Nov 2012
The long running crisis in the euro area is caused, at least in part, by the fact that the participants in the bond markets have little understanding of, and for a long time had little interest in how the eurozone makes its decisions at political level. In the past, these bond market participants assumed, without much enquiry as to why, that Greek government bonds were no more risky than German Government bonds, simply because Germany and Greece had the same currency. At that time, they took no interest in the internal politics, or relative competitiveness, of Greece and Germany.
This misunderstanding often also encompassed economic commentators, especially in the English language media, who, then and now, are unduly influential in the mind of bond market participants. Then, in the wake of the shock of the Lehman collapse, everything changed. The slightest political ripple now sends amplified shock waves through the bond markets, and the interest rates charged to lend to different countries within the euro zone vary greatly. Long ignored indices are now scrutinized obsessively. Both bond buyers and economists, having blithely ignored the EU political system for years, now crave complete and definitive answers from it, and they want those answers yesterday!
Of course, the markets worry about the viability of the public finances of individual countries or of their banks, but an even greater concern is to know whether a particular country will stay in the euro in all circumstances. A country leaving the euro could impose an immediate and shocking loss on lenders to that country, and to its banks. So the first priority for the markets is convincing them that, no matter what happens, nobody is going to leave the euro. That is a matter of political conviction, not macroeconomic analysis. After that, everything else can be negotiated. However, the political leaders of the euro zone come at things from a very different angle to that of the commentators and bond buyers. While the political leaders understand the bond buyers’ craving for certainty, they are engaged in a complex multidimensional political negotiation, in which they have to balance the interests of 17 different sets of national taxpayers, some of whom want to shift liabilities to someone else, and others of whom who want to take on as little liability as possible, for the debts of others. The political negotiation is further complicated by the fact that the EU does not yet have the legal power to do some of the things it needs to do, and some of its members want to withhold agreement to giving it those powers, in pursuit of national concessions.
Britain is the most outstanding example of this, but more recently Italy played that game. In Ireland, one political party wanted to veto the ESM, which is beneficial to Ireland, simply to get concessions on something else. This sort of silly thing goes on often in EU negotiations, because EU negotiations are conducted by humans, not by angels. While there is a European Union, the people who make the final decisions for the Union are national politicians, elected by national electorates, and the national electorates frequently do not understand one another very well, or choose not to do so. The cheap caricaturing of Germany in some other EU countries has been matched by equally juvenile caricatures in parts of the German press of other countries, like Greece. Sometimes the critics have a point, as when Germans complain about the possibility of extending their credit to countries like France, which is reducing its retirement age to 60, while Germany feels it has to raise its retirement age to 70 to maintain German creditworthiness. As well as making decisions, leaders have to bring their parliaments, which reflect these very diverse electorates, along. Sometimes they need a two thirds majority, as in Germany, or a referendum, as in Ireland. To use a construction analogy, the markets want the EU to produce a fully constructed and furnished building in time for next week’s bond auction. But the politicians are trying to build the foundations without having finalised the architectural drawings, while simultaneously arguing about the height of the building, investigating whether they can buy some units prefabricated, and deciding how much bricklayers are paid per hour by comparison with carpenters. That’s politics, and this is a political negotiation. It is the way it has to be. No one is going to show their full hand until the moment they are satisfied that everyone else is going to show their hand too.
Commentators criticise the outcome of individual meetings as if it was not a political negotiation, but an academic exercise, and the 17 eurozone leaders were “Platonic guardians” unconstrained by anything except the requirement to produce a theoretically symmetrical outcome. For example, one notable commentator (Wolfgang Munchau in theFinancial Times) announced recently that the crisis was going to last 20 years, just because Angela Merkel had not accepted that there would be joint euro zone insurance of deposits in euro zone banks, before she had seen the details of exactly what level of central scrutiny of their banks, the other countries would accept, so as to ensure that they would not take a free ride on the backs of German depositors. What did he really expect? Mrs Merkel will not show her hand until she absolutely has to, any more than Enda Kenny or Francois Hollande will. Likewise, it is unrealistic of people like Nouriel Roubini to demand that the size of the ESM fund be doubled or tripled at this stage, before anyone knows for sure whether the intended beneficiaries of an enlarged ESM will do all that is required of them to deserve the money. Uncertainty about the size of the fund, and doubt about whether it will be big enough in all circumstances, is essential as an incentive to get debtor governments to do the things they need to do, to be sure they do qualify for the fund, if they need it. The Euro area Summit statement of 29 June said it was “imperative to break the vicious circle between banks and sovereigns.”
But it also said that, for EU funds to be directly invested in banks, an “effective (European) supervisory mechanism” would first have to be established, and that any injection of funds would have to be accompanied by conditions that would be “institution specific, sector specific, and economy wide.” So a deal will have to be negotiated in respect of each individual bank, each national banking sector, and each country. According to a paper published recently by the highly regarded Brussels think tank Bruegel, a European Banking Union would require decisions on at least 8 big questions: 1. whether to include countries not yet in the eurozone 2. whether to bring all banks under direct EU supervision, or just the big ones 3. the scope of an EU wide deposit guarantee, as to the amount covered and whether there would have to a local contribution, without which the system might be abused 4. an EU wide system for closing banks down and distributing the losses between shareholders, different classes of creditors, taxpayers and other banks in the country in question and elsewhere.
Associated with this is the question of requiring all banks to draw up “living wills” to say what would happen if they go out of business 5. some form of limited euro zone wide taxing capacity to act as a back stop if the deposit guarantee fund proves insufficient 6. how to distinguish between past, and potential future liabilities 7. the proper focus of eurozone bank supervision. Should it be on capital ratios, liquidity ratios, business models, diversification or other variables? Should different types of banking be separated from one another, or does a mixed system make it easier to get over short term difficulties? 8. what to do about Britain, which wants nothing to do with the euro or a a European Banking Union, but still wants unfettered access to eurozone financial markets on the same terms as everyone else. These are difficult political issues and they will need to be resolved in a way that is BOTH theoretically sound AND politically balanced, between all the 27 countries in the EU.
Patience will be required.John Bruton Crisis Eurozone
The Eurocrisis: a Case of Negotiation rather than Academic Exercise
16 Jul 2012
The third annual Economic Ideas Forum, EIF12 took place in Dublin on the 19th and 20th of April and brought together experts and policymakers from across Europe and beyond. Participants included EU officials, parliamentarians and senior Irish politicians, as well as high-level representatives of major corporations. As Europe continues to struggle, fresh ideas are urgently needed for revitalising the economy, generating growth and creating jobs. This unique gathering of speakers and participants provided an ideal opportunity to discuss current economic issues and challenges while offering innovative policy ideas and solutions.Over the course of five panel discussions, as well as keynote addresses by EU officials, ministers and heads of government, significant and timely topics were tackled including greater integration in the European Single Market, greater fiscal responsibility in all Member States, closer economic coordination with Europe’s partners, especially the United States and creating a stronger European identity and sense of solidarity among citizens.Business Crisis Economy Eurozone Growth
Economic Ideas Forum Dublin 2012 – Conference Report
02 Jul 2012
The Schuman Report on Europe, the State of the Union 2012 edition is a unique, unequaled reference work on Europe. The Report is a source of information, analysis and proposals in which the most eminent thinkers express their ideas on governance, federalism, the euro, regulation, European industry, European budget, energy, international policy, social model, in other words a complete review of the European Union and its policies. This publication is also a practical tool with 34 unique maps, a summary of political and legal Europe and a complete range of statistics on the European economy. The third edition is devoted to the means to implement to overcome the crisis, with an exclusive interview with Jean-Claude Trichet, former President of the European Central Bank. All 26 contributions in the Schuman Report converge to one message: “the reasons calling on Europeans to stand together have never been as numerous as today”. Basing themselves on 67 commented tables and graphs and 34 colour maps, most of which are unique, the authors invite you to understand all of the challenges that the European Union faces today.Crisis Economy European Union Mediterranean Values
Schuman Report on Europe: State of the Union 2012
05 Mar 2012
The purpose of this publication is to examine the True Finns’ good result in the 2011 parliamentary election from the viewpoint of political communication. On the one hand, it analyses the True Finns’ media publicity prior to the election as regards the coverage of the European Union and the global economic crisis in particular. On the other hand, it reviews how the True Finns’ MP candidates employed blogging in their electoral campaigns and the kind of response they received. These two forms of political communication are linked by the result: the True Finns gained credibility as a representative for many people as well as an agent in political activity. The main argument is that the mainstream media inadvertently mobilised the True Finns’ potential supporters, while the MP candidates of the party themselves managed to mobilise many more through the social media and, in particular, by blogging. Political mobilisation here means the capacity to reach potential supporters and convince them of the credibility of a party as well as the political alternative it has to offer. This, in short, is what happened to the True Finns prior to the parliamentary election in April 2011. The political communication exercised produced a self-conscious community of values aware of its right and authority to speak for significant mass of Finns, and whose power is recognised by other functionaries in the society. In this sense, the True Finns gained much symbolic power: the right to define social problems and point out ways to solve them.Crisis Party Structures Political Parties Populism
The Many Faces of Populism: The True Finns through the lens of political history and the media
18 Dec 2011
In all probability 2011 is going to be one of the most critical years in recent decades. The problems created by the global economic crisis continue to affect the lives of ordinary people and could become a source of social instability. At the same time, developments at international level are creating a sense of uncertainty since long-established balances are facing profound challenges. With contributions by distinguished scholars and policymakers from Greece and abroad, the Konstantinos Karamanlis Institute for Democracy Yearbook 2011 addresses various issues of public debate both in Europe and internationally. Special attention is given to the global economic crisis and, more specifically, to its impact on Greece, which has recently found itself at the epicenter of international attention. Certain of the essays highlight the importance of leadership as an instrument for political reform, while a special section provides an update on the major global issue of climate change.Crisis Economy Environment EU Member States Globalisation
The Konstantinos Karamanlis Institute for Democracy Yearbook 2011: The Global Economic Crisis and the Case of Greece
05 Dec 2011
Spanish parliamentary elections were held on the 20th of November 2011. Spanish citizens elected their representatives for both the Congress of Deputies and the Senate.
The results show a clear victory for Partido Popular (PP) and a remarkable defeat for the Spanish socialists (PSOE). Focusing on the outcome of the elections at the Congress, which is the main legislative body in the Spanish bicameral system, the PP won the elections with the 44.62% of the votes, followed by PSOE with the 28.73%. The global turnout of the elections was 71.69%, slightly lower to the latest elections of 2008. We can fairly speak of historic results concerning the PP and the PSOE alike, but for very different reasons though. These constitute the best results ever for Partido Popular,beating both the number of seats and the total number of votes obtained during the absolute majority of former PP government lead at the time by the Prime Minister Aznar, reaching a total of 10.830.693 electorates. Regarding the seats in the Parliament, PP increases its representation from 154 to 186 (+32), being 176 the minimum seats required in order to have an absolute majority.
Obtaining their worst results ever, the PSOE went from 169 seats in the past elections to 110 (-59). Rubalcaba, the defeated socialist candidate, stood up and explain the electoral results while calling for a party congress to discuss the future political strategy, which will likely include a reorganization of the party leadership. In a speech characterized by its prudence, Mariano Rajoy, leader of the PP and future Prime Minister of Spain, called for national unity and hard work as the formula to get away from the crisis. “My only enemies will be the unemployment, the deficit, the excessive debt, the economic stagnation and anything which keeps our country in this critical situation”.
Concerning the role of Spain in the European Union, Rajoy claimed for Spain to have a leading voice in Brussels and Frankfurt, being the most loyal of the Member States as well as the most demanding one. “We shall stop being a problem to start being part of the solution once again”. The political spectrum after the elections Beyond the results of the two main parties, these elections produced other data which is worth-mentioning. Izquierda Unida (IU), a collation of leftish parties including the Communist Party, raised its representation from 2 seats to 11, with the 6.92% of the votes. Unión Progreso y Democracia (UPyD), a party attending the general elections for the second time in its history, with a support of 4.69%, multiplied by 5 its number of seats, going from 1 to 5. Convergència i Unió (CiU), a Catalanist centre-right coalition, with 4.17%, managed to become, for the first time in history, the leading political force in Catalonia with 16 seats, ousting the socialist from the first place. AMAIUR, a leftish nationalist and separatist Basque coalition, with 1.37%, accessed for the first time in history the Congress and will have its own political group, with a total of 7 seats. Finally,Partido Nacionalista Vasco (PNV), a Basque nationalist party centre-right minded, with 1.33% and 5 seats, is no longer the political party with the biggest representation in the Basque Country. The other parties which managed to obtain representation at the Spanish Parliament are Esquerra Republicana de Catalunya (ERC), Catalan leftish separatist with 1.05 %; Bloque Nacionalista Galego (BNG), Galician leftish and nationalist party with 0.75%; Coalición Canaria-Nueva Canarias (CC-NC-PNC), a coalition of parties from the Canary Islands, with 0.59%; COMPROMÍS-Q, a regionalist leftish and green coalition from Valencia, with 0.51 %; FAC, a regionalist centre-right party from Asturias, with 0.4%; and GBAI, a Basque nationalist and progressist coalition, with 0.17%. This makes a total amount of 13 parties represented at the Congress, one of the highest numbers in Spanish democracy.
A careful reader would have already realized of the fact that there are some apparent contradictions in the above mentioned data. While not examining in depth this question, let us just highlight the fact that, under the current electoral law, geographically concentrated votes (provinces being the constituencies in Spain) have greater value than disperse votes along the Spanish geography. Therefore those parties whose electorates are concentrated in a reduce space, are comparatively overrepresented at the Parliament if we only look at the absolute number of votes. Analysing the results: what happened to the socialists? Taking into account the fact that the global turnout has only been slightly lower than in the past elections, one could wonder where the votes of the socialists went to. If we have a look at the remarkable increase of IU and UPyD, we may find, at least, part of the explanation. IU would have ‘stolen’ votes from the left-side of the PSOE, while UPyD would have taken some of the most centrist or moderate socialist voters.
There is also a pool of independents that has, to some extent, shifted from PSOE to PP. Another interesting variable to analyse would be the impact of the so-called ‘indignados’ movement (Spanish indignants) on the elections outcome. Even if the movement has been characterized from the beginning precisely by the lack of a clear-cut ideology, many of the mottos the movement has used along their demonstrations suggest disagreement with the decisions that are being taking in Brussels and, in broader terms, with the international financial system (some of the messages being openly anti-capitalist). We could therefore fairly expect that, at least part of these ‘indignados’, have shown their support for the leftish coalition IU.
How could these results influence on the Spanish political and social dynamics? On the one hand, the Partido Popular has earned enough popular support to carry out the necessary measures Spain will have to go through to get away from the crisis. Moreover, taking into account the last movements of PM Zapatero following the line proposed by Angela Merkel, the PSOE is expected to support PP actions taken upon Brussels’ request. On the other hand, however, we should not underestimate the increase of power that IU has experienced in the Parliament. We could expect a reinforced IU to gather support from the trade unions and take actions against the future government through, for example, the call of a general strike. After the elections What are the steps to follow? The intention of the PP is to have a transfer of power as soon as possible taking into account the current economic situation. Contacts have been made already between the two main parties in that sense.
The foreseen timeline is as follows: the 13th December a new Parliament will be constituted and the appointment of the new Prime Minister should take place before Christmas time. Speculations are focused now on who will be the men and women Mariano Rajoy will trust to form the new government. Although there are just a few concrete names on the table, what seems to be very likely is the creation of a double-hatted minister who would take care both of economic issues and the relations with the EU. Rajoy’s first contact with some of the most prominent European leaders will be as soon as the 7th of December. The Spanish leader is expected to attend to the European People’s Party Congress in Marseille as the Spanish Prime Minister in pectore. This will be a good opportunity for a first exchange of views between Rajoy and Angela Merkel, Nicolas Sarkozy, Herman Van Rompuy and Durao Barroso, among others.Rodrigo Castro Nacarino Crisis Elections
Rodrigo Castro Nacarino
Spanish elections dominated by the centre-right
22 Nov 2011
The “Occupy Wall Street Movement” has gathered in New York since September. Organising via blogs and adopting the slogan “We are the 99 per cent” (as opposed to the 1 per cent of the population who are wealthy), these protests have reignited an almost forgotten counter-globalization movement. Many different groups within society–not only unemployed people–are involved in a movement which currently has no real core identity.
The Left, including the extreme Left, wants to claim ownership of the intentions and goals of the very heterogeneous groups participating, which even differ from country to country. In many European cities, protest movements are visibly on the rise, including the “United for Global Change”, a so called world-wide protest day, on October 15th. This counter-globalisation movement is seeking to find a strategy to combine their objections with those of the national protesters. On 15th of May “los indignados” (the indignants) protested in economically troubled Spain, and protests in Greece likewise were composed of people with different political views and social backgrounds united by anger and despair. In Greece, one can even say a massive movement has emerged.
The counter-globalisation movement seeks to use these opportunities to recall their old slogans such as “A better world is possible!”. Indeed, after its emergence at the end of the 1990s, global, European and national elites have taken the old demands of the organization “Attac” seriously (the introduction of the Tobin Tax on financial transactions), which was founded in Paris in 1998 under the name = Association pour une taxation des transactions financières pour l’aide aux citoyens. Maybe surprisingly, the counter-globalisation movement was not very visible during the first global financial crisis in 2008.
This is changing now. First of all, after 3 years of crisis in many EU countries, with bank bailouts and an apparent retrun of at least some actors in the financial sector to some bad old habits, managers and bankers are much more clearly the scapegoats today. Second, countries like Greece, Spain and Italy have to implement strict austerity measures that are seriously hurting more and more people. Third, dimming economic perspectives for many Europeans correspond to a pervading sense of relative decline of Europe (and North America) vis-à-vis the emerging economies in China and elsewehere. Moreover, “citizens in anger”, formerly supporters of the state and the market economy who are shocked by the political and business elite, correspond very much to the bestselling French booklet “Indignez-vous!” (Time for Outrage). The author, Stéphane Frédéric Hessel, born in 1917, is a former ambassador, concentration camp survivor and French resistance fighter. The 32-page essay was first published in a small batch of 6,000 copies selling for not even 3 euro per piece. By the end of 2010, 6 million copies had been sold. But the ideas are extremely heterogeneous and specific: Hessel’s reasons for personal outrage include the growing gap between social classes, France’s treatment of its illegal immigrants, Israel’s behavior towards the Palestinians, the need to “re-establish a free press”, the need to protect the environment and the importance of protecting the French welfare system. He calls, from a leftist perspective for a peaceful and non-violent insurrection.
The Left has tried with the emergence of the counter-globalisation movement to give themselves a new narrative, in the words of the philosopher Slavoj Å½iÅ¾ek, a “communist manifesto for the 21st century”. Å½iÅ¾ek was involved in the Wall Street protests, as well as Naomi Klein. The Canadian journalist wrote in 2000 with “No Logo” a bible for counter-globalisation activists. Her bestselling book can be interpreted as a manifesto with neo-anarchist and Marxist inspiration.
But the protests have also met with some applause, or at least profound empathy, among conservative thinkers: Philipp Blond (the “red Tory”) has criticized Thatcherism from a fundamentally Catholic perspective years ago. The Daily Telegraph columnist and biographer of Margaret Thatcher, Charles Moore, has begun to think, in his own words, “that the Left may have been right, after all”, in a column written even before the London riots of early August 2011. His critique of neoliberalism was eagerly taken up by some German conservative intellectuals such as Frank Schirrmacher (editor of Frankfurter Allgemeine Zeitung) and Lorenz Jaeger (journalist). In Southern European countries, conservative criticism of the market has a longstanding tradition. But in European electoral politics, the main thrust relevant to the EPP family will continue to come from the Left.
The mainstream Left, such as the Party of European Socialists and many of its member parties, is trying to profit from the new wave of protests by pointing out that they have criticized “neo-liberalism” and “casino capitalism” for a long time already, and demanded stronger state intervention in the economy (“more politics, less capitalism”), a financial transaction tax, stricter banking regulation, as well as less emphasis on austerity and more on stimulus. Of course, this last point is made especially by socialist parties in opposition, not those in power in Greece and Spain which have to enact austerity themselves.
Currently, we can see all possible forms of protest: violent and non-violent, reactive and preventive in terms of the timing of police intervention, spontaneous and long-planned, illegal and legal in respect to the law, repressive and tolerant in the ways of expression, brutal and calm related to the degree of force used and broad and selective in terms of an intended programmatic agenda. There is an ambivalent, declining confidence in legislatures and governments, but no general distrust of coherent polities within European national systems. But more and more, populations (as well as the media) are in fear of a so-called casino-capitalism and the alleged injustice of the financial system.
Options for a smart reaction:
Here is how the EPP family should react to the protests and their underlying resentments, as well as their instrumentalisation by our political competitors:
• The new global protest movement is extremely heterogeneous. It combines really existing new fears about the future of individual people with well-known and somewhat worn out radical leftist ideology.
• The main difference between 2008 (when protests were expected but never materialized) and today is that austerity has begun to bite, and that the general mood of economic decline has spread.
• The EPP family should point out that it understands the individual fears about economic perspectives, and some of the anger about financial market instabilities and bankers’ payments. But it should not buy into the anti-capitalist rhetoric of the Left. Nor should we show any understanding of the violence used by diverse radical groups which have only been waiting for the moment to profit from protest movements like this.
• It should point out the contradictions in the leftist narrative: between a general critique of austerity on the one hand, and the budget cuts by socialist governments themselves. Above all, it should make a clear distinction between smarter financial market regulation that is needed to SAVE the markets, and a fundamental critique of the market economy which is the road to nowhere.
• It should keep on repeating that besides airing their resentments (however justified or unjustified they are) and criticizing “global capitalism”, the “Occupy together” protests have not shown any coherent, systemic alternative to the globalized economy. Socialism, for the time being, is not on the placards. As soon as it appears, our family’s answer should be to point to the evident failures of socialist economics in the 20th century.
• Above all, it should point out that in order to overcome the crisis, we will all have to work longer and harder, and keep on innovating our economies, which includes both smarter regulation and further liberalisation, f.e. in completing the EU Single Market.
Picture source: www.blog.timesunion.comFlorian Hartleb Crisis Jobs Society Values Youth
Occupy Together: The emergence of a unified global protest movement?
10 Oct 2011
At present there is deep concern about the Union’s ability to deal with the sovereign debt crises currently being faced by certain Member States. The authors believe that it is time to use the crisis as an opportunity to take some bold decisions.Banking Crisis Economy
The EU at a Crossroads: An Action Plan
01 Oct 2011
One could view the current crisis as an opportunity to make up for past mistakes or past reluctance to do what was necessary. This was the approach adopted by the European institutions when they came up with their proposals on economic governance. This paper aims to provide an insight into the thinking of French and German policymakers when it comes to the issue of how the economic governance of the European Union should be organised, as well as assessing what has been done so far and providing new ideas for future steps.Crisis Economy Eurozone
EU Economic Governance: The French and German Views
01 Sep 2011
The second annual Economic Ideas Forum, EIF11 took place in London on the 25th and 26th of May and brought together high-level government officials, business leaders and other influential stakeholders from across Europe and the United States. Participants included EU officials, parliamentarians and senior British politicians, as well as high-level representatives of major corporations. This unique gathering of speakers and participants provided an ideal opportunity to discuss current economic issues and challenges while offering innovative policy ideas and solutions. Over 200 participants took part in EIF11, which counted on the support of our partners the Stockholm Network and Business for New Europe.Business Crisis Economy Growth Macroeconomics
Economic Ideas Forum London 2011 – Conference Report
25 Jul 2011
The 2011 edition is devoted to “Europe and the Crisis and Threats at Large” (economic crisis, budget, Euro, reciprocity, defence, terrorism, industrial policy populism, etc) notably with articles by Jacques de Larosière, Anne-Marie Idrac, Alain Lamassoure, Joachim Bitterlich, Philippe Camus, Arnaud Danjean. It also includes an exclusive interview with Herman Van Rompuy, President of the European Council. 26 specialists offer readers original analyses, supported with unique data (48) and maps (28), covering everything there is to know about Europe in 2011. The articles focus on the following themes:
• the European Union and the crisis, the rise of populism, Germany 20 years after reunification.
• lessons to be learned from the world economic and financial crisis, outlook for the next European budget, the debt crisis, central banks and monetary policy, Europe and industrial ambition, economy and speculation.
• the threat of al-Qaeda, EU’s new trade policy, European Defence.
• the results of the electoral year, the representation of women in Europe, the protection of human rights, legislative output.Crisis European Union Foreign Policy
Schuman Report on Europe: State of the Union 2011
29 Apr 2011
World trade is recovering from its sharpest decline since the Great Depression. Europe remains the world’s leading trading entity, despite the crisis. The authors of this paper assert that the EU should not retreat to protectionism, but should rise to the post-crisis challenge. The paper assesses how Europe can do this through strengthening the single market, proposes various objectives for external trade policy and examines the need for greater political advocacy regarding the benefits of open markets.Crisis Economy Trade
The Future of World Trade: EU Priorities for the Global Trading System after the Crisis
01 Mar 2011
The financial crisis and global warming have led to a crisis of confidence in our traditional ways of measuring wealth because they do not take speculative risk and environmental costs into consideration. A number of alternative indexes have been proposed that would measure people’s well-being and the environmental sustainability of the planet.
Even though the gross domestic product (GDP) measure has its problems, a look at the alternatives reveals that they are constructed with a specific political agenda in mind and are easily manipulated by governments.
In fact, a strong argument for sticking with GDP is that it is narrow in scope and value free. It tells us what we can do, but not what we should do, and does not even try to define well-being. It fits a liberal, pluralistic society where people have different interests, preferences and attitudes to well-being. Our present environmental and financial problems can and should be solved within the intellectual framework of economic growth.Crisis Economy Growth
GDP and its Enemies: the Questionable Search for a Happiness Index
01 Sep 2010
The first annual Economic Ideas Forum brought together high-level economic experts, Ministers of Economy, EU Commissioners, former Prime Ministers and Ministers of EU Member States and business representatives from around the world in an effort to set in motion a synergetic chain by involving EU leaders with the business community and inspiring them with strategic insights. The Forum took place in Madrid, 15 April 2010 during the ECOFIN Meeting of Ministers of Economy and Finance and was a perfect opportunity to present new ideas and offer solutions for overcoming the current global financial and economic crisis. The Forum tackled the hottest topics in the economic agenda: international cooperation; coordination of strategies; economic dynamism; the promotion of a value-driven economy; building a competitive and sustainable economy that promotes green investments, innovation, the promotion of small and medium-sized enterprises, and the activation of sustainable recovery actions. Over 250 participants joined in the Forum, which counted on the support of the two of the Centre’s member foundations, FAES (Fundación para el análisis y los estudios sociales) from Spain and KAS (Konrad-Adenauer-Stiftung) from Germany.Business Crisis Economy Globalisation Growth
Economic Ideas Forum Madrid 2010 – Conference Report
01 Jun 2010
In the 2009 elections, the European centre-right emerged victorious, thus affirming its political domination in contemporary European politics. The aim of this book is not to provide an analysis of the factors that contributed to the EPP’s political prevalence. Instead, it is to help this large political family maintain its vigour of political thought and policy prescriptions. The book provides a forum for prominent centre-right thinkers to debate the major European problems of our times, with particular emphasis on the management of the financial crisis and the next institutional steps regarding the European integration project. It assembles the views of politicians, academics and think-tank fellows from different national backgrounds and dissimilar ideological perspectives (Christian Democrats, conservatives and neo-liberals) who unfold their vision for Europe’s future. Moreover, it reflects the origins of contemporary European centre-right parties in order to reaffirm the core values and main priorities that have historically informed their policies. Overall, the book attempts to both highlight and stimulate the centre-right contribution to the discussion of Europe’s main contemporary challenges.Centre-Right Christian Democracy Crisis European People's Party European Union
Reforming Europe: The Role of the Centre-Right
18 Dec 2009
Small and medium sized are the backbone of Europe’s economies and represent the future, driving innovation and change. Therefore, SMEs are important to economic recovery. This paper examines the issues facing SMEs, including the role of SMEs in Europe’s economy in times of recovery and growth and the effects of bureaucracy and punitive taxes on enterprise.Crisis Economy Industry
Powerhouses of Recovery: Small and Medium Enterprises during and after the Financial and Economic Crisis
01 Oct 2009
This policy brief conducts a simple but daring exercise in counterfactual history by discussing the hypothetical consequences of the crisis for Europe in the absence of the EUCrisis EU Institutions Eurozone
Europe without the EU?
01 May 2009
It took only several months for Russia and a number of other developing markets that had been experiencing miraculous economic growth to deteriorate to the point of near economic collapse.The financial crisis has been a central issue in Russia’s monetary and credit sphere since September 2008. This paper presents trends and prospects for the development of Russia’s economy in 2009 and beyond.Crisis Economy EU-Russia
The Russian Economy in the Crisis: Trends and Perspectives
01 Jan 2009