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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Nov 15 2016

European Union’s Key Figures

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by Lucas Juan Manuel Alonso Alonso

With the objective to draw some conclusions about macroeconomic stability and economic structure, this article examines for the 28 Member States of the European Union, the following aspects: GDP and AIC per capita, General Government Gross Debt, Labour Productivity (monetary units and percentages), Average Annual Wages, Annual Hours Worked, Jobless and Average Hourly labour Costs. To develop this analysis, Member States have been divided into three blocks by the number of inhabitants: less than 6 million, between 6 and 17 million and more than 17 million.

 

Macroeconomic Stability and Economic Structure
european-central-bankAs a result of Brexit, the EU is going to face increasing socio-economic uncertainty. The day after the British referendum result, we have seen sharp falls in European equity markets, particularly of banking shares. In my view, this sharp fall is going to undermine consumer and business confidence and, consequently, and it is very likely to drag down economic growth— this situation is not unique and unusual but we are going to face a turbulent period in financial markets for several months—. Additionally, there is the Syrian refugees’ humanitarian crisis as well as serious social conflicts in many member states. Furthermore the advantage deriving from lower oil price was negated by the abrupt depreciation of the Euro against the U.S. dollar — indeed QE (Quantitative Easing) was a high priority when the exchange rate was about USD 1.5858 in July 2008 straining the socio-economic situation in the Euro area(one may wonder: why does nobody question it?). Now it is of little help to exports because these have already reached the maximum level, while leading to more expensive imports needed to support the domestic economy.

Despite the painful austerity measures, in 2015, general government gross debt (gross public debt as a percentage of the GDP) ratios in the EU-28 remain at a very high level—in Spain, Portugal, Greece is around 100%, Italy has the second highest debt load at 132.7% and in France and Ireland is between 85 and 95 percent. Concerning the volume index of GDP (Gross Domestic Product) per capita in PPS (Purchasing Parity Standards) we find a remarkable dispersion among the EU countries, such as Luxembourg, founder member with a population of 562,958 people, has the highest GDP per capita, 171% higher than the EU-28 average, while Bulgaria, state member since 2007 with a population of 7,202,198 people, records the lowest level of this index, 54% lower than the EU-28 average, but it is important to stress that it showed a steady GDP per capita growth, however still lower than the EU-28 average, from 65% in 2004. We now turn to carefully examine these facts.

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Oct 27 2016

The EU-Turkey Deal: Ambiguities and Future Scenarios

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By Pınar Dinç and Irem Aydemir 

The Arab Spring started the fire in 2011, and ever since the whole MENA region has been turkey-syria-refugeesin turmoil. The civil war in Syria has quickly become a global one with the ongoing war against the Islamic State (ISIL)–a terror organization and a self-proclaimed state at the same time— on the one hand, and the refugee crisis, on the other. The war against ISIL largely continues in the global sphere, with the involvement of the United States, Russia, Iran, the Gulf States, and Israel with geopolitical aims in the region. The refugee crisis, meanwhile, is a major issue to tackle primarily for neighboring countries like Turkey, Lebanon, and Jordan, as well as European countries.

The number of Syrian refugees in Turkey has increased from an estimated 25,000 in 2011 to nearly  3 million in 2016. The number of asylum applications from Syrians in European countries was 25,665 in 2012, and this number increased to 104,300 for 2016. At the end of June 2016, there were almost 1.1 million pending applications for asylum protection in the EU member states. Between March 2011 and March 2016, 250,000 people died in the Syrian war. So far in 2016, 414 people have lost their lives as they were trying to cross the Aegean Sea, 366 of them before the Turkey-EU deal. The living conditions for those who made it to Turkey or Greece are also worrying.

turkey-merkelOne year ago German Chancellor Angela Merkel appeared on TV show Anne Will and announced her plan for the refugee issue, which depended not only on Germany but also on Turkey. Merkel’s plan originally belonged to the European Stability Initiative (ESI) and its founding chairman Gerald Knaus. This initial plan included asylum grants for some 500,000 Syrian refugees in one year. It suggested that not only Germany but also other European states should accept claims for asylum directly from Turkey to avoid unsafe routes, Turkey should take back immigrants who made it to Greece in order to discourage people to cross the Aegean via smugglers, and that Germany should help Turkey to achieve visa liberalization.

Clearly, Merkel saw Turkey as a key partner in dealing with this refugee crisis, but she had to convince her European counterparts, too. Despite the ESI’s insistance “to move quickly” in implementing their plan, “the European leaders handed over responsibility to the notoriously slow-moving and less influential European Commission.” Merkel convinced the EU to take joint action in solving the refugee crisis. The Turkey-EU Deal was finally formulated almost half a year later when Merkel announced her version of the plan on March 18, 2016. But the main trick was in the implementation of this plan. In their policy brief in June 2016, Toygür and Benvenuti were already hinting at major problems and a potential Plan B in dealing with the refugee crisis. Continue reading

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Oct 20 2016

Democracy Between Compromise and Control

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By Henry Radice

The slogan ‘take back control’ was widely credited as a key factor in the UK’s vote to leave the EU on June 23rd.  That vote revealed many cleavages in how we understand our democracy. One significant one lies between understandings of democracy as the control of power by the majority, and a more subtle notion of democracy as the art of compromise. This latter understanding appears to be in retreat throughout the liberal democratic parts of the world, to say nothing of more fragile political environments.

2016619_174727The contrast between control and compromise is important, and the lesson it yields sobering. In an ‘interdependent, globalised world’, to recycle the cliché – more-or-less accurate as it happens – the notion of control intervenes as a comforting delusion. It soothes the angst of those who would stop the world in order to get off. But it also appeals to the individual scale, and evokes domestic analogies in which control is seen as something achievable.

Indeed, the use of domestic analogies has become both widespread and problematic in both national and international political discourse. Witness the success in the UK of the frequent comparisons between the UK economy and a putatively overstretched, finite household budget. ‘Taking back control’ evokes a world in which borders can be as solid and straightforward as the walls of a house, where an Englishman’s home is his castle and it is his right to raise the drawbridge when feeling besieged (though he would be wise in such circumstances to have an adequate stock of provisions, or, in other words, a plan…). Continue reading

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Oct 14 2016

The Rise of Populism Could Persist as Western society and its Academic Institutions Fail to Promote Critical Thought

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By Athanasios Gkoutzioulis

On the 4th of May, Donald Trump became the Republican presidential nominee while on the 23rd of June, Nigel Farage’s (and Arron Bank’s) campaign largely contributed to Brexit to the surprise of international public opinion. Trump’s or Farage’s triumph does not necessarily reflect the rise of populism or demagogy – the spectre of this has always lurked within societies to a greater or a lesser extent. It simply shows how Trump and Farage capitalized on the absence of critical thinking and the uncritical digestion  of their electoral campaign messages.

Donald Trump in Manchester NH February 8, 2016 Cropped This can strongly influence our fast moving world, where the media ‘rule’ and information is not carefully assessed. This lack of critical thinking can also threaten democracy since voters can be lured to adopt misleading approaches to politics and vote without scrutinizing complex political issues.

Academia cannot sufficiently help to protect democracy or insulate society from the shortcomings emerging from the absence of critical thought. Universities today accommodate a rich curriculum. Nevertheless, lately they appear to put more emphasis on improving their facilities and their student’s employment prospects, neglecting the enrichment of their students’ critical skills.

Critical thought, however, can be very important in today’s world in two ways: Continue reading

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