Mar 23 2017

The Gaps of Nations & The Rise of Far-Right Populism

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By Marion Laboure and Juergen Braunstein

The Brexit vote and more recently the US presidential election suggest a noticeable rise of populism. Marion Laboure and Juergen Braunstein argue that this trend is not new. For example, Austrian Chancelor Schuessel’s invitation to the far-right freedom party to form a government in 1999/2000 caused upheaval in Europe, and beyond. Shortly after, during the French presidential elections in 2002, the far-right candidate Le Pen managed to gain enough votes to make it to the second round.

The rise of populism in 2016 has several potential explanations. Some commentators explain the US presidential election outcome as well as the Brexit vote as a form of protest with socio-economic origins. The tectonic plates upon which the socio-economic order of OECD countries rests have started to shift: opening new gaps while closing existing ones, and necessarily producing political change in the process. The 2008 Financial Crisis is only one aspect of these developments.

It is commonplace to assert that many citizens feel a loss of “control over their destiny”. Phrases along these lines are often found in popular media, and point to several fundamental dynamics and global shifts that play out along different social dimensions, including age, geography and education. Concrete observable implications of these shifts include, for instance, increasing inequality within countries and rising job insecurity. Giddens’ (1990) observation in The Consequences of Modernity, that as socio-economic systems become more complex they leave people with an increased sense of disempowerment, seems more pertinent than ever.

Globalisation – the “process by which businesses or other organizations develop international influence or start operating on an international scale” per the Oxford dictionary – has helped to close the economic gap between nations. Globalization makes competition global and has certainly benefited developing countries. This equalisation among nations took place via several mechanisms, notably production. It is much less expensive for a company to produce where workforce is cheap and resell manufactured products where purchasing power is high. Throughout the 1990s, the cumulated GDP of emerging countries represented barely a third of the cumulated GDP of the G7 countries. By 2016, this gap had virtually disappeared – reflecting the predictions of classical trade theory. Over the years, the gap tended to decline worldwide but to widen inside a country – a trend noted by Piketty in his best-selling book ‘Capital in the Twenty First Century’.

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Mar 15 2017

The Moral Question in Italian Politics

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By Roberto Orsi

Corruption in Italy is a constantly debated problem. However, it is largely framed as a moral and legal issue. This piece suggests instead that the root of the corruption problem is political and constitutional, as it lies in the creation and degeneration of clientelistic networks as the most straightforward way for the generation of political consensus given the Italian context. Only a complete overhaul of the state’s fundamental structures, which unfortunately appears unlikely, may diminish the role of clientelism and hence of its teratological developments.

The issue of corruption has never abandoned the core of Italian political discussions, and understandably so. Indeed the country’s situation is invariably and significantly worse than its major European partners in all corruption metrics, possibly being the most corrupt among developed nations, with an accelerating trend in recent decades. Numerous studies have highlighted that corruption, mainly defined by bribery, embezzlement, and other forms of power abuse, is extremely costly for the country, while it has certainly contributed to its massive national debt, locking Italy in a trajectory of endless stagnation and decline.

However, in the national press and political communication in general, the problem is overwhelmingly framed as a moral and legal issue. Certainly these are important aspects of the matter. But this is also not the most productive approach, neither intellectually, nor from a practical perspective, and the lack of substantial progress over such a very long period of time should prompt some deeper reflection and re-formulation of the basic question.

Instead of concentrating on a moral and criminal-legal narrative, it is time to address the problem as a political question. The root of Italy’s corruption problem is mainly political, i.e. it is a structural feature of how political consensus is created and can be created in the country.

 

How can a regime enhance its consensus base?  

Every political regime, democratic or non-democratic, anywhere and in any age, needs consensus. How can political leadership possibly gain such consensus from the society? At close scrutiny, it is arguable that there exist only a limited number of ways to achieve it, in practice only the following four:

  • Consensus is reached by rational discussion and consensus-making procedures as well as institutions in the context of a highly developed civil society (Habermas’s public sphere). This is (or used to be) the prevailing model of Nordic societies, or the Netherlands, and partly in UK, Germany, France. The creation of a highly developed civil society is the key to achieve this consensus making model, but there is no clear recipe on how to build one, and historically this may take rather unique circumstances as well as numerous generations.
  • Consensus is built by means of force, i.e. political violence and/or the threat thereof. This can be very effective in limited cases for limited amounts of time, raises grave ethical questions, and it is certainly extremely costly.
  • Consensus is built on the foundations provided by the authority (auctoritas facit legem) and prestige of certain individuals, or organisations. The authority of the state is largely reflected in the respect paid to its symbols. Authority is gained historically as a stratification of positive results, even resistance to oppression and martyrdom, as well as military victories.
  • Consensus is fundamentally traded in exchange for (direct or indirect) economic benefits financed with public resources, whether legal or even against the law, and in this second case one may have what is usually considered as corruption in a technical sense. An arrangement for consensus making based on continuous and immediate quid pro quo (clientelism) can function smoothly for quite a long time, until the leadership runs out of resources to distribute, also as a consequence of negative feedback effects generated by this very system on economic wealth production.

Every government gains consensus from the society utilizing a mix of these four methods, according to the available resources: authority and prestige, force and the ability/opportunity to use it, a strong civil society (if available), economic wealth.

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Mar 9 2017

Brexit and the First ‘European’ Generation

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By Michael Cottakis

Support for the EU is highest amongst Europe’s young. This is, perhaps, unsurprising. After all, we are talking about the Erasmus or EasyJet generation of cheap travel and study abroad; the first in Europe’s history to grow up without the imminent threat of war. With a growing number of this group feeling themselves to be “European”, there are inklings amongst the youth of an emerging transnational citizenship.

Yet whilst 75% of Britons under the age of 30 voted to Remain in the EU during the recent referendum, stats show that only 40% turned up to vote. This trend is repeated in Greece, where a mere 30% of this age group voted at the last general elections; whilst Spain, Italy and France exhibit similar tendencies. These attest to an increasing disinterest and frustration amongst the European youth, deriving partly from the failure of the EU (and its member states) to contain the damaging effects of the Eurozone and refugee crises; but also from a sense of hopelessness – that their ideas are brushed aside, and their concerns ignored.

In the years since 2008, young Europeans have suffered more than most. With youth unemployment in the South hovering above 50%, and career prospects non-existent, the risk that the Millennials will become a ‘lost generation’ is a real one. Cynicism and disinterest in politics, against such a backdrop, is understandable.

However, now is not the time for disengagement. Europe faces its worst crisis since the Second World War. The once-assured liberal international consensus has been eroded, with new political battle lines being drawn. In Europe these are expressed by the tussle between Europeanists and nationalists. It is a battle that will likely define the next decade.

With young Europeans forming a central component of this first group, their efforts to stem the populist nationalist tide will be crucial. To do this, Europe’s young must turn their frustration into ambition to help build a united European space that works better for all its citizens. The 1989 Generation Initiative emerged out of this thinking. Founded in London in 2015, its aim is to ‘regenerate’ Europe through the ideas and actions of its younger citizens. Its reaction to Brexit has been to open four new branches in separate European countries.

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Mar 3 2017

The Economics of Brexit Needn’t Be Quixotic: Towards a Green Industrial Strategy for Britain

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By Afzal S. Siddiqui and Max Hänska

“Fortune is guiding our affairs better than we ourselves could have wished. Do you see over yonder, friend Sancho, thirty or forty hulking giants? I intend to do battle with them and slay them. With their spoils we shall begin to be rich for this is a righteous war and the removal of so foul a brood from off the face of the earth is a service God will bless.”

-Miguel de Cervantes, Don Quixote

Much attention is currently focused on migration, identity, and related factors in explaining Brexit and related phenomena. The emphasis on regaining sovereignty and “control,” limiting immigration, and scapegoating others has characterised public debate not only during the referendum campaign but also since Leave won. Indeed, Prime Minister Theresa May’s newly appointed government has prioritised so-called sovereignty over access to the common market as part of its Brexit plan. In Mrs. May’s narrative, “citizens of the world” and shadowy multilateral agencies have undermined the U.K. by foisting multiculturalism and regulation upon its industrious citizens. At the risk of being unfashionable, both in our perspective and diagnosis, it is worth returning the discussion to the long-term causes and directing our thinking towards possible long-term strategies. Euroscepticism, resurgent nationalism, and a turn inward are the immediate symptoms of a longer standing malaise that may be best expressed by the widespread belief that future generations will be worse off than present ones. The decline in reliable middle- and working class jobs, the erosion of social services that provided a baseline of stability throughout people’s lives, and the attendant economic vulnerability that many experience have been mobilised by populists for their nationalist causes. Rather than offering a sober
assessment of the underlying trends giving rise to the despair genuinely felt by much of the British populace and proposing creative ways forward, British politicians across the spectrum are opportunistically channelling anger by blaming ready-at-hand foes such as immigrants and the EU, who, we are told, are the sole culprits. As an alternative to this quixotic penchant for a “hard Brexit,” we outline an industrial strategy that addresses the U.K.’s economic and social challenges, while being environmentally sustainable and forward-looking.

Diagnosis of what ails thee

In our reading, Brexit is, to a significant extent, the expression of long-term trends that have gnawed at the economic foundations of the middle – and working classes (see here and here). The erstwhile ostensible panacea of economic liberalisation also eroded the wide base of material well-being on which liberal democracy’s social contract rested. In response to stagflation brought on by the first oil crisis of the 1970s, many OECD countries sought to reinvigorate their industries by shifting manufacturing to the global south and by transitioning towards the service sector for domestic jobs.[1] These alterations were underpinned by deregulation and reduction of trade barriers. The resulting increase in offshoring benefited the global north as its multinational corporations were simultaneously able to lower unit production costs and increase domestic demand as their citizens subsequently gained greater access to credit even if real wages stagnated. Thus, benefits from this restructuring accrued primarily to multinational corporations and their shareholders with some modest gains for the middle class from cheaper goods and real-estate speculation. For example, taking the specific case of the electricity industry, its deregulation was promoted in the U.K. in the 1980s on the basis of increasing choice for customers. However, retail electricity prices did not decrease in real terms after privatisation in 1991. In fact, the main benefit from deregulation was the removal of subsidies to British Coal (which could have been implemented without recourse to deregulation) and windfall profits to shareholders in privatised power companies.[2]

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Feb 20 2017

The European Union at a Crossroads

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By Roberto Orsi

The European Union is approaching a moment of difficult decisions which will determine whether it will manage to survive in the near future or whether it will enter the final trajectory of its dissolution. In the past few years a series of crises have shaken the very foundations of the European integration project, often with damage which clearly appears irreversible, particularly the ongoing migration crisis, Brexit, and the festering Eurozone crisis. Now a new chapter of the crisis in the common currency is rapidly becoming apparent. On the one hand, Greece is again dealing with financial trouble which would require another round of international intervention; talks of Grexit have re-gained momentum. On the other hand, and adding to that, the worsening of Italy’s financial outlook is bringing about this time unavoidable and fundamental questions about the entire euro-project and its future.

With Renzi’s defeat in the referendum concerning constitutional reforms (November 4th, 2016) and the collapse of his government, political uncertainty has returned to Rome. However, this time it is not the stereotypical situation of Italian politics. A few things have become rather clear to all those who want to see them:

  1. Italy’s economy is not going to grow much faster than 1% per year in the foreseeable future in the best possible scenario. This comes after roughly twenty years of stagnation-depression. If Italy can only record a 0.9% growth in 2016, a year when numerous external circumstances were massively in its favour (a weak euro, ultra-low interest rates, quantitative easing from the ECB, low oil prices, growing trade partners), what will happen when this exceptional alignment of propitious planets dissolves?
  2. Italy’s chances of economic growth are hampered by a severely negative demography, a well-known problem which cannot be solved by additional immigration, particularly considering that many migrants have started to leave for more dynamic economies or more generous welfare systems, and hundreds of thousands of young Italians, often with high qualifications and skills, are leaving the country for good. Demography alone condemns the country to a near-zero or negative GDP growth, with all the financial implications.
  3. A series of financial cracks have started to appear: not only the well-known story of MPS bank, but the banking sector in general is under pressure, with numerous institutions facing serious trouble. Unicredit, the largest bank in Italy, has closed 2016 with a loss of €8 billion, and it is now trying to raise an unprecedented €13 billion in new capital. Furthermore, it emerged recently that INPS, the largest state-owned pension fund and one of the largest in Europe, runs a deficit of over €12 billion/year and during 2016 has crossed the boundary into negative equity. Directly or indirectly, all these are deficits which will have their impact on the state budget, as candidly admitted by the INPS president.
  4. Italy has a debt/GDP ratio of well over 130%. With an economy which cannot grow in real terms, it can only reduce its debt burden by means of inflation. However, on the one hand the ECB has to keep inflation within limits in the interest of the Eurozone at large, and on the other higher inflation would push interests in the Italian debt higher, with a heavier interest burden which Italy cannot afford (if not financially, then certainly in political terms). After 2011-2012, when it became clear that markets were pushing Italy towards insolvency, the ECB has engineered a protection net to prop-up the national debt, thereby gaining time. However, this came as a consequence of a political agreement within the EU, according to which Italy received (indirect, but massive) financial aid in exchange for deep reforms of its economic system: from labour market laws to pensions, from spending cuts to governance changes. The German/EU idea was that Italy could be put back on the tracks of economic-financial sustainability through those reforms, which were even listed in all detail in a famous letter from the ECB in summer 2011.
  5. After more than five years and three governments (Monti, Letta, Renzi) in which the technocrats of the economic ministries and the Bank of Italy have played an important role, it is clear that Italy is fundamentally unable to reform itself and therefore it will not regain the aforementioned economic and financial sustainability. In all frankness, the German/EU plan was hyper-optimistic at best, bordering on delusion.
  6. As these elements become all too apparent, the political debate in Italy is becoming more disillusioned than ever about the immediate future of the country. What was once the twisted idea of some pessimist commentators, including the author of this piece, it is now becoming widely accepted: Italy will face a major financial shock, and state insolvency is now practically impossible to avoid within the current formulation of the euro-system. Hence the rise of a growing number of those who argue for exiting the Eurozone altogether, as well as a strong anti-EU and anti-German rhetoric.

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Feb 7 2017

Against Anti-Pluralism

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By Max Hänska

Citizens are voting for candidates hitherto considered unlikely; the future of the EU, and indeed the post-war international order is in question. It is unsurprising that the current fin de siècle atmosphere, and many citizens’ sense of precarity, uncertainty, and loss of control, would produce the current outpouring of scorn in response to perceived political immobilism in the face of burgeoning challenges. A few weeks ago Roberto Orsi contributed to the expansive debate about the causes, consequences and appropriate responses to these political ruptures emerging across the western world. Orsi’s piece is helpful because it identifies important symptoms and systematic failures in western policy, but he willfully pushes a uni-causal account of events, and points us towards fallacious solutions. Though this pieces is at least in part a response to Orsi, having read his piece (which can be found here) is by no means a prerequisite for following this one.

Competing narratives

The Ratification of the Treaty of Münster, 15 May 1648 (1648) by Gerard ter Borch.

It is undeniable communities have changed. They have become more diverse in their ethnic makeup, languages spoken, and in some communities immigrants form majority sub-cultures that can make natives feel unwelcome. This may not be apparent to those with the means to move to cities in search of the best jobs, or to the neighborhoods with the best schools and amenities. The best paid jobs usually draw from a global talent pool, involve airport lounges, and the kind of cosmopolitan culture in which nationality as a relevant marker of distinction is all but irrelevant. The failure to understand the concerns of many voters, goes hand in hand with the so-called ‘elite’s’ failure to relate to experiences of those whose economic lives are more precarious, whose regions have lost stable jobs, and for whom national identity still holds significant purchase. As the economic and cultural experience of urban (or in the US, costal) populations diverged ever more starkly from the experience of rural, small-town, deindustralising parts of the West, the public narrative contrived by politicians and the news media lost resonance with large parts of the public who’s lives are clearly shaped by a sense of decline. British tabloids, Breitbart, InfoWars, Trump and UKIP have filled this narrative void. The story Orsi tells is distinctly in this vein. It was prescient to recognize that there was a need for an alternative narrative where prevailing stories rang hollow to many. These narratives fill the gap, characterizing the struggle as one of elites against the people, returning the scorn many citizens have felt themselves exposed to (let’s be honest, those living in urban centres of prosperity, where political, media, and economic power is concentrated have had little patience or regard for the culture, concerns and views of the population outside these melting pots). But these narratives are also wrong, and their moral arc leads to conflagration.

This isn’t all about identity

It is, for instance, true that politicians failed to properly articulate the wider challenges and risks that the refugee influx brought, which is not to say that admitting refugees was wrong (the frequently peddled idea that Merkel invited a million refugees is, in any case, a rhetorical device of the right which suggest that there was some simple and obvious alternative which politicians, conspiring against their own people, declined to pursue.). But for those, who for decades were on the receiving end of the neoliberal mantra of individual responsibility, to whom the political system signaled that they must make their own fortune, calls for solidarity with refugees must have rang cruelly dissonant.

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Jan 19 2017

Rerouting Globalisation: from economic to human development

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Βy Lucas Juan Manuel Alonso Alonso

a6538bd8099b94d569c76448ac10e8a6When the different stages of a production process are carried out in different countries, a form of global integration is being developed. The global integration of the production process is usually understood as economic globalisation. This internationalisation process is a result of strategies, such as specialisation, cost-cutting, innovation in manufacturing processes and marketing, outsourcing, sub-contracting, in which only the economic aspects are considered, putting aside human development.

Economic globalisation is largely dependent on the general principles of the division (specialisation) of labour. For example, think about a European printing company that, in order to reduce costs, decides to move part of its production process to Ningbo (China) and keep the rest in Europe. Therefore, the production process is divided between China and Europe. Now, additionally, assume that the company buys an international patent on design stickers—marketing innovation strategy that allows the company to achieve its main competitive advantage: product differentiation—from United States to be used in company’s products. Final assembly and sale of the finished products is carried out in Europe. Through this internationalisation strategy the European printing company can sell cheaper—delocalising part of its production to low-cost production area—its differentiated product—acquisition of international patent on design stickers—and enhance its competitiveness in Europe.

In the above example, we get a glimpse of what is usually understood as globalisation:

  • Delocalisation of part of the production process abroad, which result in a staff reduction in the home country and job creation in the destination country. Obviously, costs of producing abroad will be lower than those for equal production in Europe, consequently implying poorly-paid jobs in the Chinese manufacturing location. Perhaps in the name of competitiveness the European company is employing sweatshop
  • Transfer of money out of Europe to the United States as a fee for intellectual property rights related to the purchase of the international patent.

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Dec 20 2016

President Trump and the Politics of Tragedy

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By Roberto Orsi

gloomydayFor someone who tries to think in dialectical terms, the catastrophic handling of the immigration crisis in 2015 raised more than just some concern. It appears simply impossible that this kind of blunder could have not generated some kind of equally powerful reaction, or even more accurately, it is hard to think that this will not end up in tragedy. Tragedy not in an exaggerated or metaphorical sense, but, as the classical Greeks envisaged it, as the series of events leading to the destruction of those who have overstepped the boundaries of divine laws (hybris), thus incurring in the wrath of the gods (phthonos theon or nemesis).

Only about a year later, the gods are closing in. Brexit has prevailed, the EU is in tatters, and finally Mr. Donald J. Trump has been elected President of the United States of America. Without any possible overstatement, the consequences of his ascent to the US presidency cannot be underestimated. It is a veritable game changer for global politics, an unexpected and glorious triumph for some, an unfathomable disaster for others.

In a previous piece, written a few weeks before the EU referendum in Britain, the rise of a strong Brexit movement and of Trump as a new polarizing political figure were explained as manifestations of a great pushback against a social reality which has been built, over the past few decades, on the systematic exclusion of a very large number of people in Western societies. The clearest articulation of this concept came from Hillary Clinton with her inadvertently ironic slogan “better together”: together, but minus about 63 million Americans – the “deplorables” – who eventually voted for Trump. Those excluded folks have now found new and quite effective ways not only to assert their presence and proclaim their dissent, but increasingly to indicate some kind of path forward (whatever the reader may think of that path). That piece concluded with the words

On both sides of the Atlantic fundamental intellectual and political structures are crumbling: it is not a coincidence, and it will not go away anytime soon, even if Trump or the Eurosceptics may fail in this round, but it will continue to re-emerge in many different forms, as time is ripe for a change of direction.

The year 2016, annus mirabilis or horribilis, marks the beginning of a large-scale political transformation, but this is indeed only the start. It is too early to know who Trump the President will be and what kind of policies he will pursue, particularly on the international front. However, a series of considerations are possible.

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Dec 16 2016

Windfall Revenues in Europe: What’s Next?

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By Juergen Braunstein, Marion Labouré and Julius Sen

By Colin Smith, CC BY-SA 2.0, https://commons.wikimedia.org/w/index.php?curid=13603234

By Colin Smith, CC BY-SA 2.0, https://commons.wikimedia.org/w/index.php?curid=13603234

European countries need to start thinking of what to do with windfall tax revenues from multinationals. We argue that there is a need to create a structure addressing the risks relating to potential windfall tax revenues. One solution could be the creation of sovereign venture funds.

Currently a number of European countries face windfall tax revenues from multinationals. Economic actors, for-profit organisations and multinationals make their decisions in a context where countries compete for foreign direct investments and headquarters. This article is about the policy responses and potential implications, but not about whether tax minimisation procedures are good or bad.

Now there is a lot of debate about how to recoup these taxes. The prospects have specifically grown with recent EU Commissions investigation of MNCs such as Apple where Apple owes Ireland US 14.5 bn (see Table 1).This would be significantly more than the total of Ireland’s VAT revenues in 2015. Continue reading

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Dec 9 2016

A View on Brexit from Abroad

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By Henry Freeman

brexit from abroadPromises of an extra £350m a week, posted on the side of a bus. Doomsday economic predictions from the Remain campaign; the reply, “We’ve had enough of experts!”. Jo Cox MP shot dead in the street, the same day that Nigel Farage unveils an anti-immigration poster which echoes propaganda images from 1930s Nazi Germany. The UK votes to Leave, and the pound collapses. Scotland votes differently, and claims new justification for independence. “What is the European Union?” the second most googled question on the day of the result. A marked increase in hate crimes reported. Boris Johnson calls for a new Royal Yacht. “Hard Brexit” and “Soft Brexit” new terms in public discourse. A country divided. Immigration at the heart of political debate in the UK. Our international reputation damaged, perhaps beyond repair.

These are my impressions of Brexit from abroad. When I left the UK in March this year, and arrived in Nepal, the idea that Britain would vote to leave the European Union was worrying but did not seem realistic. I am troubled by what has happened since, and I’m worried about the UK’s future. In the days after the referendum result several Nepali friends asked me in genuine perplexity as to why so many British people had voted to leave the EU. In particular, one friend asked why were people in the UK so scared of foreigners? Why had immigration dominated the referendum campaign debates, when there were so many wider implications of this decision that affected the UK’s future relationship with its neighbours, and the rest of the world? Continue reading

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