Category Archives: Economics

THE RETURN OF AN OLD SCOURGE: STARVATION

Another one of my articles, just published on Impakter, here is the opening:

Famine was supposed to be a thing of the past. True, 75 million people had died from starvation in the 20th century, but we had learned from these tragedies, how to predict them and how to address them. The largest famines dated back two decades: in the Horn of Africa in 1984-85 and 1992, and in North Korea in the mid-1990s. There had been only one serious famine in the 21st century, and it had occurred in Somalia in 2011, killing 260,000 people.

Now, all of a sudden, the scourge of starvation is back. The news came out over a month ago: 20 million people facing starvation, including 1.4 million children at “imminent risk of death”. The United Nations famine alert concerned four disconnected countries, across Africa and the Arabian peninsula: Nigeria, South Sudan, Somalia and Yemen.

IN THIS PHOTO: Photo was taken in Radfan village in Lahj city. It shows a young girl who is collecting water from a far distance due the water shortage in Yemen. PHOTO CREDIT:  UNICEF/UN018342/ASKOOL

THE FOUR-COUNTRY FAMINE: 20 MILLION PEOPLE AT RISK

The UN Secretary General Antonio Guterres did not mince his words at the press conference he held on 22 February in New York. This was a humanitarian crisis in-the-making, it was without precedent in scope and a total of $ 4.4   billion would be needed by the end of March to “avert a catastrophe” (see full transcript here). The Emergency Relief Coordinator Stephen O’Brien and several UN agencies heads (or their representatives) participated in that conference, including WFP (via video), UNDP, UNICEF and FAO (remarkably, not UNHCR).

Even though this was the largest alert in the 21st century and nobody had heard of anything like this for decades, the UN Secretary General’s appeal fell on deaf ears.

Was it a case of crying wolf too many times?

Read the rest on Impakter, click here.

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Filed under Economics, politics, United Nations

Europe at the Crossroads

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Impakter has just published my latest essay: EUROPE AT THE CROSSROADS. I’ve worked hard to try and figure out where Europe is going, if anywhere… 

Here is the beginning:

 

WHAT IS WRONG WITH THE EUROPEAN UNION?

On 25 March 2017, we will know whether Europe – as a “project” for an increased “union” – plans to go forward, fade away or split up.

That is the date of the much-awaited European Summit to be held in Rome to celebrate (without UK Prime Minister May) the 60 years of the European Union. The celebration could turn into a funeral if the 27 heads of EU member nations cannot agree on a so-called “White Paper”, a.k.a. “the Rome Statement”, that they are meant to adopt as a common declaration on Europe’s future.

Alarm-Europe-Logo PHOTO CREDIT: MARCH FOR EUROPE

What does this White Paper say? If you google it, you won’t find it. At the time of writing, it’s still under wraps in Brussels. All we know for now is that there has been a preliminary “white paper” prepared by the Benelux countries, Belgium, the Netherlands and Luxembourg, part of the original six founding member countries (the other three are France, Germany and Italy). And there was a recent declaration by German Chancellor Merkel at the EU Summit meeting held in Malta that drew attention and irked some EU members. “This would destroy Europe!” thundered the Pole with the nodding support of other Eastern Europeans.

What did Ms. Merkel say that was so provocative? She aired the possibility of a “multi-speed” Europe – the idea is simple enough: those EU members who want it should be allowed to go forward with integration, the others would be left to proceed slower, at their own pace.

IN THE PHOTO: ANGELA MERKEL PHOTO CREDIT: ELZA FIÙZA/AGÊNCIA BRASIL, CC BY 3.0 WIKIMEDIA COMMONS

This is not a particularly new idea, she had already aired it two years ago. And it is an idea dear to the Italians who have been pushing it for some time – most recently asking for a “Schengen union for security” to try and solve the problem of immigrants rushing across the Mediterranean. Leading Italian political scientists are also behind the “federal solution” for Europe –  notably Sergio Fabbrini, Director of the Luiss School of Government and author of multiple books on Europe who has also expounded it in the country’s leading financial paper, il Sole 24 Ore.

Annoyed by the brouhaha from Eastern European members, the French President Hollande who felt a reference to a “multi-speed Europe” should find its way in the March 25 White Paper, told reporters:

Europe isn’t a cash-box, not a self-service restaurant, a Europe where you come and take what you need, where you take your structural funds or get access to the internal market and then show no solidarity at all in return. Europe was built to be stronger together and it’s that rule, that principle, which should be driven home in March.

PHOTO (above): FRANÇOIS HOLLANDE PHOTO CREDIT: FLICKR/JEAN-MARC AYRAULTCC BY 2.0, WIKIMEDIA COMMONS

So we have two contrasting views of the European Project and, implicitly, a two-speed Europe: a “Europe à la carte”, that pleases Eastern Europeans and Scandinavians who only seek economic benefits and balk at political integration; and a “federal Europe”, more forward-looking and congenial to continental Europeans. Also, good news for federalists, the French-German alliance that had been driving Europe so far could turn into a foursome: France, Germany, Italy and Spain. They have already agreed to meet in Versailles on 6 March – holding a preparatory “mini-Summit” of their own; and thus immediately angering Poland that threatens to hold counter mini-summits with either the Visegrad group (Poland, the Czech Republic, Hungary and Slovakia) or the Bucharest nine (Bulgaria, the Czech Republic, Estonia, Latvia, Lithuania, Poland, Romania, Slovakia and Hungary).

Multi-speed Europe is already a reality…

Meanwhile, the Benelux countries in their “white paper”, while supporting the “Bratislava Declaration and its roadmap” as the way forward, talked about the “subsidiarity” and “proportionality” principles in the usual convoluted EU Treaty language that baffles most European citizens:

“The EU shall only act if and in so far as the objectives of the proposed action cannot be sufficiently achieved by the member states, either at central level or at regional and local level, but can rather, by reason of the scale or effects of the proposed action be achieved at Union level. The EU will only do what member states themselves are not able to deliver for their citizens.”

Note the phrase “by reason of the scale or effects of the proposed action”: this is meant to indicate the Union (because it is larger in scale) can do certain tasks better than a member country. The corollary: European integration cannot impinge upon what is best done at national level, that’s where “subsidiarity” stops.

So where does this leave the “European Project”? Do we go for more “union” or less? Is “more union” politically viable?

THE ROOTS OF EUROSKEPTICISM

The basic problem is rising “euroskepticism”, a new term coined to indicate that Europeans are distrustful of Brussels and European institutions that they see as “power-grabbing” and too distant from them.

Brexit was only the first alarm bell. We now speak of Frexit (for France), Nexit (for the Netherlands), Auxit (for Austria) etc. Trump’s constant denigration of the EU (calling it a “vehicle for Germany”) and his open support of Brexit and other EU-member exits, has further unsettled Europeans.

On 18 February, at the Munich Security Conference, US Vice President Pence sought to reassure Europeans that the US supports NATO and the Minsk II accord for Ukraine, indicating America would stand firmly behind Europe against Russia. Can Europeans trust Pence? A month into the Trump presidency, it is still unclear whether Trump is top dog and therefore his bark matters, or whether he is a tweeting Reality TV star and therefore his cabinet matters. On February 24,  in an interview with Reuters, Trump made a surprising u-turn, declaring himself  “totally in favor” of the EU…but for how long?

It is a fact however that Trump has become a populist icon, deeply resonating with the rising populist movements in Europe, all calling for an exit of the Euro and Europe – from Marine Le Pen in France to Geert Wilders in the Netherlands to Frauke Petry in Germany to Beppe Grillo in Italy. They all liken themselves to Trump.

IN THE PHOTO: BEPPE GRILLO AT THE RALLY OF THE FIVE STAR MOVEMENT IN PIAZZA DANTE IN TRENT, ITALY, FOR THE PARTY’S PRESENTATION OF ITS 2013 ELECTORAL SLATE PHOTO  CREDIT: NICCOLÒ CARANTI

Listen to Grillo, an ex-TV comedy star, now sixty-nine but with a continuing appeal on young Italians:

“I’m a comedian. You have to understand that my brain doesn’t work like a politician’s brain. I think about something, then the next day I say something else. It’s a very beautiful word, populism. I’m proud to be a populist.”

And about Europe, this is what he had to say:

“It is an enormous apparatus, with two parliaments, in Brussels and Strasbourg, to please the French. I am in favor of a different Europe, where each state can adopt its fiscal and monetary system. I want the Eurobond, a 20 percent devalued euro for southern European countries, protecting our products against those arriving from abroad, and a revision of the 3 percent deficit budgetary rule. I no longer feel the spirit of Europe.”

To read the rest, click here: http://impakter.com/europe-at-the-crossroads/

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Death of the Euro: Thinking the Unthinkable

Impakter Magazine just published my latest article, here it is:

BOOK REVIEW “THE EURO: HOW A COMMON CURRENCY THREATENS THE FUTURE OF EUROPE” BY JOSEPH. E. STIGLITZ (PUBLISHED BY W.W. NORTON & CO, AUGUST 16, 2016)

Nobel laureate Joseph Stiglitz’s latest literary effort, a new book about the travails of the Euro and Europe, published in August with the apt title “The Euro: How a Common Currency Threatens the Future of Europe” couldn’t land in the muddy European political waters at a more appropriate time.

The summer of 2016 was a turning point for the so-called “European Project” – Europe’s long-run attempt to build a United States of Europe that began with the 1957 Treaty of Rome setting up the European Economic Community (EEC) with six founding members (Germany, France, Italy, Belgium, the Netherlands and Luxemburg), and continued in 1993, with the Maastricht Treaty, the European Union (EU) with (up to now) 28 member countries.

 

Problems have piled up this summer, relentlessly.

The opening salvo came in June with the UK referendum that unexpectedly led to “Brexit”, the decision to leave the European Union with 17.4 million Brits voting in favor. For the first time since its foundation, the EU is expected not to expand but to contract, down to 27 members – probably by 2019, when UK exit negotiations will be completed.

 

The most recent problem came in October with another referendum, this time in Hungary, calling on the population to disregard EU policies on refugees and reject quota obligation to accommodate asylum seekers. The referendum did not break the 50% threshold and the result was therefore declared illegal, but it did demonstrate that once again, a hefty minority, 3.6 million Hungarians (43% of voters), supported their government’s continuing opposition to Brussels.

 
Against this background, Joseph Stiglitz’s book has special resonance.
 
As he convincingly argues, the Euro was supposed to bring the European project forward but it has done nothing of the kind – if anything, the European Project has suffered setbacks just as much outside as within the countries of the Eurozone, the 19 EU members who use the Euro as a common currency. Incidentally, this is not a minor currency: The 19 European countries together account for roughly 14 percent of world GNP, making it the third largest economy in the world, after the United States (20 percent) and China (18 percent).
 
Do not delude yourself into thinking this is not important for the rest of the world: should the Euro collapse, the shock would shake the whole world.
 
It could even start another Great Depression.

A SLOW DEATH

Stiglitz minces no words in roundly chastising European leaders for “muddling through” a succession of Euro crises, ever since the first Greek debt scandal broke out in 2010. The book is a convincing diagnosis of what went wrong and why successive “bailouts” of Greece (three so far) have failed miserably, leaving the country six years later with an inexorably rising debt and a Gross Domestic Product diminished by a quarter, while the exceptionally high unemployment (a mind-boggling 50% for the young) won’t budge – really as bad as a war. Stiglitz’ detailed description of the Greek case is harrowing. A must read for anyone who hasn’t followed the drama closely.

And he is equally convincing in arguing that Ireland, often promoted (mostly by Germans) as the “poster child” of the success of Europe’s monetary and austerity policies is no such thing. EU-imposed austerity measures “helped ensure that Ireland’s unemployment rate remained in double digits for five years, until the beginning of 2015, causing untold suffering for the Irish people and a world of lost opportunities that can never be regained.”

Tough words that apply equally well to the other “crisis countries” of the Eurozone. For example, Portugal, also promoted by the IMF as a “success”, is far from that: The facts are that “the government might be borrowing with more ease, but the Portuguese people never experienced a real recovery.” Indeed, across Europe, excessive reliance on austerity and monetary policy “has resulted in even greater inequality: the big winners are the wealthy, who own stocks and other assets […]; the big losers are the elderly who put their money in government bonds, only to see the interest rates generated virtually disappear.”

 

The reason for such a deplorable state of affairs?  

First, a misplaced belief in what another famous economist, Paul Krugman, calls the “confidence fairy”: the idea that with austerity and a balanced budget, business confidence will be restored, which overlooks the simple fact that when consumer demand is depressed, business has no incentive to invest. In a recession, the confidence fairy, as Krugman says, becomes a zombie.

 

To read the rest, click here

NOTE TO MY READERS: Stiglitz’s advice on how to fix the Euro is truly excellent, and I sincerely hope our political leaders will read this book and act on it. I’ve tried to focus on the policy measures that are really doable among the many ideas Stiglitz presents. Eminently practical, they would take VERY LITTLE EFFORT… if only Germany would stop focusing on stupid austerity policies that are destroying Europe!

Go over to Impakter to read about those policy measures and tell me what you think!

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Filed under Book review, Economics, European Union, politics, Uncategorized

Greece vs. Germany: A Game of Chicken Or Cat and Mouse?

Paul Krugman in the New York Times has called the rapidly unfolding Euro crisis a “game of chicken” (here). I think it’s more like a  cat-and-mouse game played by Germany against Greece, in which Germany is a Big Fat Cat trying to immobilize a darting Greek mouse.

As I explained in my previous blog post, the Greek Prime Minister Alexis Tsipras and his Finance Minister, Varoufakis, started by refusing to talk to the “troika” (European Central Bank, International Monetary Fund and European Commission) and traveling all over Europe to raise support for a renegotiation of the bailout that has caused so much suffering in Greece – from unbearably high unemployment (over 40%) to a collapse of the national health system and a 25% shrinking of the economy.

Yes, a darting mouse.

Next, last Wednesday (4 February) , the European Central Bank (ECB) made the first move,  announcing that it would no longer accept Greek government debt as collateral for loans. And the announcement came just before Varoufakis, the Greek Finance Minister, was to visit the ECB President, Mario Draghi.

Mr. Krugman did not see this as a serious move. Yet, it means further pains to the Greek banking system that is already suffering from a run that began last week with Syriza’s victory. No surprise there: wealthy Greeks are all taking their deposits out and with the click of a button sending them to Frankfurt or London.

When that happens, it is in principle the role of the ECB to provide liquidity to the affected banking system and this is normally done by accepting national bonds as collateral,  at a very low cost. Mr. Krugman sees the ECB decision as merely one step in the on-going negotiations – a warning signal that doesn’t substantially change Greece’s situation since it can still have recourse to an ECB special loan program designed to support banks, called Emergency Liquidity Assistance (ELA). That’s true but the trouble is that it’s much more expensive, about three times as much.

Then, the next bomb exploded: on 6 February, one of the world’s three major rating agencies, Standard & Poor’s, downgraded Greece’s rating from B to B-, practically junk.

The upshot? To raise funds, Greece will now face higher costs on international capital markets.

The reasons given for the downgrade – liquidity constraints on the banking system and prolongation of talks with official creditors for a revised bailout deal –  come as no surprise.  As Standard & Poor’s put it:

In our view, a prolongation of talks with official creditors could also lead to further pressure on financial stability in the form of deposit withdrawals and, in a worst-case scenario, the imposition of capital controls and a loss of access to lender-of-last-resort financing, potentially resulting in Greece’s exclusion from the Economic and Monetary Union.

Needless to say, the Tsipras-Varoufakis travels did not yield the expected returns. Even Italy’s Prime Minister, Matteo Renzi, abandoned the Greek cause, siding with Merkel – alleging the Italian banking system held €40 billion in Greek debt.

The Greeks are taking it well (so far) saying they’ve got sufficient sources of financing.Varoufakis, upon his return, exhibited his usual self-assurance, saying that he had “logic” on his side.

Logic? Yes, if Europe, with its continued demands for austerity, pushes Greece too far against the wall, there won’t be any reason for it to stay in the Euro. In particular, if the ECB doesn’t act as a lender of last resort to Greek banks, why should Greece continue with the Euro? A collapse of the banking system has always been identified as the first thing that would happen to any Euro-zone member leaving the Euro. But if it is already collapsing, why stay in?

I know, for years, I have blogged about the Euro crisis, taking the position that a Grexit (exit of Greece from the Euro) was impossible. Now, I believe it’s entirely possible. The main reason for believing that a Grexit would never happen used to be the so-called “domino effect”: if Greece left, the next in line would be all the Southern European States suffering from the same debt overload and faced with the same urgent need to reform, i.e. Spain, Portugal, Ireland and Italy. This was such a huge chunk of the Eurozone that it would have caused an avalanche, burying the Euro.

But now something is changed: starting in March, the ECB will be able to engage in Quantitative Easing (QE), on the model of the Federal Reserve – something it has never done before because the Germans, fearful as always of any growth in sovereign debt, had prevented it. But now, the German red light has turned yellow, and QE is no longer out – indeed, it is in.

This means that if Greece exits the Eurozone, the ECB has the power to stabilize the currency through QE. And Greece is a small part of the game: its GNP is about 2.5% of the total Euro-zone. The ECB surely has now the firepower to handle a Grexit.

So, the outcome could really be a Grexit…Your opinion? Do we want Greece out of Europe? If it goes back to the Drachma, it will find new friends to help its finances: Russia and China – perhaps even Turkey (in spite of historic dislikes…) How will Europeans feel when Greek ports on the Mediterranean are run by the Chinese? When Greek banks recycle Russian money? Where is European solidarity and the dream of a United Europe?

Ask the Germans…

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