Oct 1 2014

Why Italy Will Not Make It

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By Roberto Orsi

“Italian Landscape with Viaduct and Rainbow” by Károly Markó (1838)

Three articles by prestigious commentators (Ambrose Evans-Pritchard and Roger Bootle for The Telegraph, Wolfgang Münchau for Financial Times) have recently appeared in the financial press about the economic situation of Italy and the (in)stability of its national debt. The arguments and wording of these pieces deserve special attention, as their appearance may signal a new turn in the way in which market operators and policy makers are re-positioning themselves in relation to the Italian sovereign debt and the implications of its current trajectory, for the Eurozone and beyond.

In its essence, such turn consists in an at least partial embracing of parts of an admittedly “pessimistic” narrative already articulated by many, including by previous posts on this very blog. All three articles wonder what would happen if the Italian economy continues to stagnate or contract not only this year (which is certain), but also in 2015 and 2016.

In this respect, Bootle puts forward the view that

Italy is very close to the situation that economists call a ‘debt trap’, that is to say when the debt ratio rises exponentially. From this the only escape is through inflation or default. Italy cannot inflate while it has no separate currency. So, unless something big starts to change pretty soon, Italy is on course for the mother and father of sovereign default.

There are indeed technical discussions on the maximum sustainable level of public debt for any country, the threshold beyond which some sort of default becomes mathematically unavoidable. Japan’s national debt stands currently over 230% of GDP, but Tokyo is still regarded as a solvable creditor, in essence because Japan’s debt is expressed in the national currency. The case of Italy is notoriously difficult, since the Euro can effectively be considered as foreign currency. Evans is clear in stating that

[…] Italy’s public debt will spiral to dangerous levels next year, even further beyond the point of no return for a country without its own sovereign currency and central bank.

Münchau’s article is the most explicit of the three, and adopts what the establishment may consider alarmist tones, which are however pretty much adequate to capture the situation. The associate editor and European economic columnist for the Financial Times writes:

Italy’s economic position is unsustainable and will result in eventual debt default unless there is a sudden and durable change in economic growth. At that point, Italy’s future in the Eurozone will be in doubt and – and indeed the future of the euro itself.

These three pieces can be interpreted in several ways. At face value, they address the now very apparent question of Italy’s bleak financial future, pointing at possible risk and remedies. However, they can also be seen as (the beginning of) a media offensive directed at the ECB to force the adoption of monetary policies similar to those of the American FED, the Bank of Japan, and the Bank of England, a point for action which all three authors advocate, alongside the rapid introduction of sweeping reforms in the Italian economic and political system.

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Sep 29 2014

The Scottish referendum is still a victory for Scotland

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By Matthew Whiting

The Scottish referendum result strengthened Scottish nationalism and weakened Scotland’s position within the Union. That feels more like a victory than a defeat for Scottish independence.

Although David Cameron, and an apparently purring Queen, felt intense relief at the comfortable margin by which Scottish voters rejected independence, in reality the referendum looks more like a temporary delay in an ever closer journey to Scottish independence. Scottish nationalism, the driving force behind demands for independence, has come out even stronger from this process.

Winning majority support for a radical break with the Union was always going to be a tough task. The British constitutional tradition of preferring gradual reform and muddling through to all-out revolution meant that going straight to outright independence only 15 indexyears after devolution was first introduced was not very likely. However, no-one could realistically consider the current outcome to be the final resting place of the constitutional changes that began in 1999.

The recent referendum confirms the fact that it can no longer be assumed uncritically that Scotland’s rightful place is within the Union. This is highly significant because secession becomes much more feasible when there is no ideological hegemony amongst the political elite and the population as a whole that sees a territory as a natural or given part of a sovereign state. Take, for example, the position of Cornwall today – while there may be a dedicated few that are firmly committed to Cornish independence, the reality is that this is seen as somewhat laughable given that Cornwall is just ‘naturally’ a part of England and the United Kingdom. Scotland, in contrast, has lost the perception that its rightful place is sitting within the Union. This has been the case since the 1970s and even Margaret Thatcher acknowledged that Westminster would not stand in the way of Scottish demands for independence if that was the popular will of the people. The initial referendum on Scottish devolution in 1979 (which was passed but not implemented due to low turnout), the subsequent 1999 referendum on devolution, and the steadily increasing autonomy of Scotland since then, have all been a political recognition of the changing view that Scotland is, and ought to be, naturally a part of the United Kingdom. The results of last week’s referendum reinforced this even more starkly – they clearly showed that Scotland’s position in the Union is not naturally given, but is entirely contingent. Although the final result of 55% to 45% was more resounding than the polls predicted, a swing of just 200,000 votes would most likely have led to the resignation of David Cameron rather than Alex Salmond.

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Sep 25 2014

Finland’s Economic Woes: Competitiveness through unemployment

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By Anders Ekholm

Finland is slowly but steadily sinking into increased economic hardship. The lack of growth combined with increased unemployment is fought off by increased public spending and debt, with the implicit assumption that growth is just around the corner. It is hard to avoid the mental picture, where we stand on the deck of Titanic listening to a string quartet – instead of looking for a life boat.

The crisis that our nation faces is often quite correctly described as a structural crisis. It is however important to understand, that “structural” does not necessary translate into “unavoidable” in this context. Depicting the crisis at hand as structural, includes an implied assumption that we produce the wrong products, but at the right price. However, anyone who has studies basic economic theory – or attended Black Friday for that matter – knows that prices have an effect on demand.

Before we joined the euro zIndependent_Finland_90_years_5_euro_Obverseone, prices in Finnish markkas (FIM) could evolve differently from for instance prices in Deutschmarks (DM). When prices in FIM increased faster than prices in DM – as often would have been the case – the FIM/DM exchange rate reacted to counterbalance the relative price increase in FIM. Hence, the competitiveness equilibrium was maintained by demand and supply in the currency markets. A freely floating currency regulates the competitiveness of an economy in a much similar way to the centrifugal governor in the Boulton & Watt steam engine of 1788.

The introduction of the euro currency effectively meant, that the euro nations economic engines decided to implement a common centrifugal governor. The underlying assumption was that all euro nations’ economic engines were equal – which was simply not true.

Prices continued to evolve at different paces in different euro nations. In short, OCED’s statistics show that prices increased in all euro nations in relative terms to prices in Germany. A giant competitiveness crack emerged between the euro nations. The diverging competitiveness was covered up with increased debt in euro economies that had lost their competitiveness.

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Sep 22 2014

Socio-Economic Security, Transnational Solidarity and the Legitimation Crisis of the European Union

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By Alfio Cerami

This article offers some insights on the socio-economic security approach of the European Union (EU), its conception of transnational solidarity and subsequent ‘legitimation crisis’. The aim is to foster reflections on a future, more integrated socio-economic security politics, since this has important repercussions for the democratic legitimacy of EU institutions and for their acceptance among the population.

By ‘socio-economic security politics’ here I mean not only the set policies that can be introduced or promoted by national and international institutions, but rather the complex set of economic, political, legal and social principles, policies and procedures that 1europe_2001crystallize at different levels of the decision-making process. These can take the form of dominant ideas and discourses on specific political and policy priorities, of public policy instruments aimed at achieving a particular, previously agreed goal, but also of policy-making procedures that once in place may hinder or foster the achievement of determined political and policy outcomes

Concrete examples of the current socio-economic security politics of the EU include all those still uncoordinated actions promoted by the various Directorates-General (DGs) and affiliated EU agencies aimed at improving the quality of life of citizens. These may involve: (1) an economic dimension, such as those actions aimed at influencing the chances an individual has of having access to equal possibilities for their personal realization (e.g. absence of huge regional divides, of poverty, etc.); (2) an institutional dimension expressed in terms of an equal access to key positions in institutions, such as in the labour market or in the family; (3) a cultural dimension expressed in terms of an equal access to education or the possibility to afford the price of cultural events and so on; and (4) a social dimension concerning the possibility of citizens becoming involved in community and social life.

Socio-economic security must, in this context, be seen as a multi-dimensional concept, which includes various aspects of the individuals’ private and public life. It has often been described as an ‘equal and durable access to similar and decent living standards in a stable socio-economic environment’, but this definition is not exhaustive. Socio-economic security has, in fact, also been understood as the possibility to provide the individuals with the chances of conducting a good quality life through the entire course of their existence, ensuring that the individuals are not forced to seriously worry that their personal conditions might dramatically worsen in the near future due to changing economic circumstances.

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Sep 17 2014

A Cosmopolitan Take on the Referendum

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By Anthony Lang

Gordon Brown, the former Prime Minister of the United Kingdom, recently wrote the following concerning the referendum on Scottish independence that will take place on Thursday:

So a new idea of citizenship is emerging. It is not cosmopolitanism if that means that national loyalties do not matter. It is a citizenship that upholds national identities while recognising the benefits of shared sovereignty – the kind of citizenship Scottish people can understand: being Scottish, British, European and a citizen with connections with a world wider even than that. It is not abstract: it represents how people now live their lives – connected constantly through mobiles and the internet, able to communicate with anyone, in any part of the world, at any time – involving an identity that is, for individuals, more a matter of choice than at any time in history.

Brown’s intervention is in the context of his support for keeping Scotland as part of the United Kingdom. What is interesting is he puts it in terms of global citizenship, something that one wouldn’t expect in a debate between two sides that seemed very fixed on their 519px-Gordon_Brown_Davos_2008_cropunderstandings of nation and nationalism. Brown’s point, here and in other places, is that the United Kingdom can and will change, but devolving into smaller sovereign nation states is not the way to go. Rather, a new kind of citizenship and a new constitution is necessary to bind the UK together and simultaneously give it the chance to become part of the world in a different way.

His arguments have a strong appeal for me. Brown’s understanding of cosmopolitanism is close to my own – a mix of local, national, regional, and global orientations that allows us to understand and act in the global political sphere in new and interesting ways.

I know that for many in this country, Brown is a polarizing figure. His role as Chancellor under Tony Blair was part of the New Labour process of shifting the United Kingdom toward more neoliberal economic policies. And his tenure as Prime Minister was filled with stories of bullying and poor governance. But since leaving 10 Downing Street, Brown has embodied the kind of cosmopolitanism he describes above – he advocates for his own small constituency in Fife yet continues to speak on issues of national and global importance. Unlike his predecessor, whose cosmopolitanism is the jet setting world of the corporate executive, Brown’s cosmopolitanism is Scottish, British, European and global.

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Sep 15 2014

Foreign Reactions to the referendum in Scotland

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By William Walker

All eyes are on Scotland as the referendum nears. Governments, the media, financial institutions and hosts of groups and individuals are glued to the debate and wondering how it will end. Amidst concern there is fascination in an event that seems so unprecedented with an outcome that is so unclear. Among those fortunate enough to be visiting or living in Scotland at this time, there is exhilaration at the sight of democracy working at full tilt.

The international attention is very recent. There was hardly a flutter when the Scottish government announced in 2011 that it would hold a referendum. The Edinburgh Agreement of October 2012 between the Scottish and UK Government was a wake-up call, especially because it coincided with a nationalist upsurge in Catalonia that sparked a Spanish response (including a threat to block a future Scottish application to join the EU), imagesand with the Scottish National Party’s adoption of a pro-NATO policy despite pledges to remove Trident from the bases in Scotland.

After a brief surge of interest, foreign governments went back to sleep and remained asleep throughout 2013. The referendum was still far ahead, and the general assumption – encouraged by London and the metropolitan media – was that the independence movement would be heavily defeated. Developments in Scotland were mainly followed, if at all, from capitals or from embassies in London. Some Consuls General in Edinburgh warned that another outcome was possible, to which their masters should pay greater heed, but they were largely ignored.

In January 2014, opinion polls unexpectedly showed a marked shift in support for the yes campaign, unexpectedly because it was believed – abroad as in London – that Scottish voters would ‘come to their senses’ when the downside of independence was fully revealed to them by the analysis pouring out of Whitehall and Westminster. At the same time, the UK government’s emphasis on provoking fear among Scotland’s voters, rather than offering a positive vision of the Union’s future, began to attract criticism in the press and among foreign observers. Contrast was also being drawn between the increasingly vibrant grass-roots campaign for independence and its lacklustre unionist counterpart. Momentum seemed to be shifting in the nationalist direction, giving rise to warnings that opinion polls could narrow further.

Encouraged by London, several governments began to debate the pros and cons of issuing statements favouring the UK’s survival. Besides Spain, they had hitherto remained silent, wary of intervention and happy to regard the referendum as a domestic British affair. President Obama’s carefully chosen words at a press conference on the 5th of June, expressing the United States’ hope that the UK would remain ‘a strong, robust, united and effective partner’, broke the ice. A number of political leaders followed his lead. The Australian Prime Minister apart, they adopted his cautious tone, declaring their respect for Scotland’s democratic right to decide on its future whilst making clear their preference for the status quo. Although the majority, including the UK’s closest neighbours Ireland, France, Holland and Norway, have so far chosen to keep quiet, they would not disagree. Only a handful – Argentina and Russia come to mind – might relish the UK’s demise. Even they have kept quiet.

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Sep 11 2014

Is an independence referendum the appropriate political tool to address the Catalan problem?

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By Jose Javier Olivas

The question whether Catalonia should be allowed to hold an independence referendum can be approached from different angles. In addition to important legal and procedural issues, the organisation of this referendum is highly problematic from both a deontological and a consequentialist perspective.

On 12 December 2013 the Catalan regional government Generalitat announced the organisation of an independence referendum to be held on 9 November 2014.[1] The referendum would contain two questions: ‘Do you want Catalonia to become a State?’ and ‘In case of an affirmative response, do you want this State to be independent?’ This has been another step on the ‘national transition process’ launched earlier by the Generalitat with the support of several nationalist parties.

Referendum de independencia

A multitude of criticisms have been expressed about the procedural and legal validity of the political process through which the Catalan government have sought to bring about a referendum. The questions proposed for the referendum were defined and approved by Catalan nationalist parties without the participation of non-nationalist parties. Their wording is ambiguous and the two-question design may lead to results which can be difficult to interpret. The thresholds required for the validation of the secession process have not been clearly defined.

It is also peculiar that the ‘national transition process’ was initiated and some institutions for an independent state were created without waiting for the results of such a referendum. Moreover, the purpose and questions of the referendum clash with the Spanish Constitution which explicitly states the ‘indissoluble unity of the Spanish Nation’ and received 91 per cent support in Catalonia in 1978. Claims of Catalonia being a sovereign entity have been unanimously rejected by the Spanish Constitutional Court. While the British Parliament validated the organisation of the Scotland independence referendums, the Spanish Parliament rejected the Catalan one by a very large majority. Continue reading

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Sep 9 2014

A Few Reflections on the Demonisation of Putin

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By Roberto Orsi

Giotto’s depiction of the devil (Padua, Scrovegni Chapel, ca. 1305)

Henry Kissinger once declared that “Putin’s demonisation is not a policy, but an alibi for the absence of one”. However authoritative the source of this recommendation, the collective fixation with the Russian President has reached new heights during the ongoing geopolitical crisis in the Ukraine. In many different ways, the idea that, if the President of the Russian Federation could meet a however premature end of his earthly journey, even by violent means, this would solve the Ukrainian crisis and the problem of Russia’s resurgence, is gaining momentum among Western elites.

The most explicit articulation of such thoughts can be found in a piece written by Herbert E. Meyer, Special Assistant to the Director of Central Intelligence and Vice Chairman of the CIA’s National Intelligence Council during the Reagan Administration. Meyer puts forward the view that “Russian President Vladimir Putin is a serious threat to world peace”, he is in essence a thug, and “thugs like Putin don’t stop because they’ve been punished [the reference here is to the EU sanctions] or because they see the error of their ways. Thugs have a high tolerance for pain, and they are incapable of changing their behavior. They keep going until someone takes them out – permanently – with a knockout punch”. Without Putin, Moscow would cease to be a threat to world peace, as Russia is a “one-man show”. The Russians should get rid of Putin in one way or the other, either peacefully or, “if Putin is too stubborn to acknowledge that his career is over, and the only way to get him out of the Kremlin is feet-first, with a bullet hole in the back of his head – that would also be okay with us”.

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Sep 3 2014

The impact of the European Employment Strategy in Greece and Portugal: soft power in a world of neglect?

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By Sotirios Zartaloudis

Unemployment has been one of Europe’s long-standing problems – a problem greatly exacerbated by the ongoing economic crisis. In addition, unemployment affects almost a fourth of the youth labour force compounding the social problems associated with unemployment. Moreover, labour markets are characterised by significant inequalities between highly skilled and low-skilled workers and between men and women.

In this context the European Union (EU) has developed its own employment policy, with the European Employment Strategy (EES) being the most recent, more experimental and more ambitious pillar. At the 2000 Lisbon Summit the EES was used as a model for other policy areas under the umbrella of a new EU instrument – the Open Method of Coordination/OMC. The significance of the EES has been hotly debated in the literature. In imagesa recently published monograph, I tried to investigate under what conditions the EES can influence the domestic employment policy of European Union member states. To answer this question, I focused on examining two critical or ‘least likely’ cases: Greece and Portugal. These two countries have a number of features that could be expected to inhibit any significant impact of the EES, such a culture where neither political nor administrative elites adhere to the norm of compliance with EU law (Falkner 2005); high misfit between national and EU policies; weak and inefficient political systems and administrations, gaps between legislation and practice and a weak civil society (see: Hartlapp and Leiber, 2010: 471-474).Yet, both appear to have implemented domestic policy reforms as a result of the EES.

The study focused on three key areas of employment policy: public employment services (PES), gender equality policies (mainstreaming, reconciliation and pay gaps) and ‘flexicurity’. It employed the ‘Europeanization’ approach whereby Europeanization was defined as EU-induced change of domestic policy. It tested the hypothesis that ‘if the EES altered Greek and Portuguese employment policy at all, it did so through one of three main Europeanization pathways: 1) policy learning; 2) the domestic empowerment of policy entrepreneurs; 3) financial conditionality.’

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Aug 28 2014

The End of Tolerance and the New Populism

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By Marina Prentoulis and Lasse Thomassen

Reflections on the 2014 local and European election results have heavily stressed the rise of the populist far right. Clearly they have emerged as a leading political force at home and abroad, but this is not the whole story.

UKIP, the French Front National and the Danish People’s Party have declared an end to tolerance of ‘the others’. This refers both to migrants and asylum seekers invading ‘our’ space, and the elites hidden in Brussels and Strasbourg governing without ‘our’ consent. Whether ethnic others or political and cultural elites, they are not part of ‘us’, and our intolerance of them is promoted as natural.

An anti-UKIP demonstration in Edinburgh, on May 9, 2014.

Seen from the mainstream and from the left, these parties capitalise on the anxieties experienced within communities increasingly subject to internal social diversity and external economic control. Although UKIP et al. present themselves as rebels against ‘establishment politics’, they are nothing more than its monstrous offspring. This is the same politics that has allowed democratic accountability and participatory citizenship to take the backseat as neo-liberal interests dominated Europe.

The old parties are clearly in crisis and losing electoral ground to new parties, right, centre and left. Concerned politicians of the mainstream parties are calling meetings to tackle the problem. In their minds, the challenge no doubt has little to do with them and the neo-liberal policies they have been backing. It is a challenge that has, for some time now, been dismissed as ‘populist’—a description which writes it down to the ignorance and fears of the ‘peoples’ of Europe.

Bridging the divides

The success of the radical left has drawn less attention, but there has been steady progress towards an alternative ‘populist’ discourse. Like the populism of the far right, the narrative of these groups is also intolerant of current political elites, and cast in the name of the peoples of Europe.

Mainstream politicians currently accord both the far right and the left the same label: Eurosceptics. But the new left populism that is slowly winning ground across Europe is rooted in different legacies and pursues a very different vision than the more successful far right. Whatever their success, one thing is sure: enough of traditional politics.

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