Italy and the Euro

 

June 17, 2018

The change of government in Italy calls into question the German leadership of the European Union, which was myopic at best.
Italy has never benefited from the introduction of the euro. Its GDP per capita after the introduction of the common currency has stagnated. German-imposed austerity measures and the lack of solidarity among member countries in the euro club have contributed to transforming a once-promising monetary initiative into a fiasco. The common currency was supposed to bring prosperity and unity among its members. Instead, it brought misery in the South and pitched countries against one another (Joseph Stiglitz).
Sadly, nobody within the EU expects Germany to live up to the fact that it should have done much more to avert the euro crisis or to help countries in deep financial trouble. President Macron’s valiant efforts at reforming the Union and its common currency are likewise being torpedoed systematically by the German chancellor, who had lost touch with reality a long time ago and looks set to become the Union’s gravedigger.
In the current political climate, nationalists are gaining power in one member-state after another and xenophobia is on the rise. Such developments can only spell doom for the embattled Union, already weakened by Brexit and the debt crisis. Unfortunately, many economists or political analysts are not optimistic when it comes to the EU’s chances of overcoming its current woes. One can only hope that they are wrong and that the worst – i.e. the implosion of the Union – could still be avoided.

The Migrant Crisis: Why Germany Can't Cope

 February 1, 2016

The biggest refugee crisis in Europe since WWII looks set to get worse in 2016. The country most responsible for the huge inflow of migrants from the Middle East is, as we all know, Germany.

What is less well-documented is the fact that its state apparatus simply cannot cope anymore. Chancellor Angela Merkel is quick to reassure her national and European audiences that her country can handle the challenges of integrating a million refugees, but events have proved her wrong time and again.

The New Year’s Eve disorders in Cologne are, according to German police, just the tip of the iceberg. The sheer numbers of refugees Germany has agreed to accept have led to administrative and security chaos in a country known until recently as one of the best-run and most orderly in the world.

To be sure, last year’s huge refugee influx is only partly to blame. At least as important a cause has been Germany’s adoption of tough austerity policies in recent years, which had seriously affected the budget and capabilities of the police and civil service, both on a local and federal level. After years of hugely misguided austerity, Germany nowadays has 10,000 less police than in the year 2000. Since 2014, repeated requests by the Interior Ministry for the hiring of an additional 3,000 personnel have been denied funding by Mr. Schaeuble’s ministry, the latter being bent on balancing the German budget at the expense of its citizens’ most basic security needs.

What’s worse, nobody can expect this situation to improve anytime soon. Although the creation of 3,000 new posts has recently been approved, the new police recruits will have to be trained first, becoming effective only in 2019. Meanwhile, the safety of ordinary German citizens will continue to be affected by the chaos engulfing the entire country and the lack of manpower and resources needed to deal effectively with the migrants’ influx.

EU: No Silver Bullet Solution for the Migrant Crisis

 

EU: no silver-bullet solution for the migrant crisis

October 25, 2015

The recent flurry of diplomatic activity by EU leaders who are trying to slow down the migrant influx has not as yet yielded any tangible results. In truth, the situation has become so complicated that there are no good moves left in order to stabilize it.

 

To illustrate this, one should consider the results of German chancellor Angela Merkel’s October 18 visit to Istanbul, during which she offered Turkish authorities a 3 billion-euro contribution and the promise to speed up the country’s accession talks with the EU. (A deal so far refused by Turkey.) If anything, the visit has frightened the Syrian migrants into crossing to Greece in even bigger numbers. From around 5,000 people a day making the perilous trip before the visit, the IOM authorities have announced that the number of migrants increased to around 9,500 a day for the whole week following Merkel’s visit.

 

The Commission also tries to convince transit countries like Macedonia, Serbia, Romania and Bulgaria to help stem the flow of migrants to Germany. So far, the efforts have generated the fear that these countries might be obliged to keep a huge number of refugees on their territory for longer than a few days. Accordingly, the Bulgarian, Serbian and Romanian premiers have announced on Saturday October 24th, in a joint press conference, that if Austria and Germany will close their borders to migrants, they would have no choice but to follow suit. After the mini-summit held in Brussels on Sunday 25th of October, the Bulgarian prime minister Boyko Borissov has complained to the press that the European Commission suggested to governments such as his to take out loans from the EBRD or BEI in order to pay for the upkeep of refugees.

 

Finally, there is a lot of bickering going on between the Commission and a number of Central and Eastern European members which flatly refuse the imposition of migrant quotas. In fact, the leaders of these countries are resisting the very idea of quotas, as they feel that their populations are totally unprepared to accept Arab migrants in their midst and that their economies might be adversely affected by the expenditure necessary for the migrants’ upkeep.

 

The only glimmer of hope to date might come from the ongoing negotiations to reach a political solution in Syria which involves the US, Russia, Saudi Arabia and Turkey. The quartet might be joined next week by Iran and is expected to ultimately reach a deal in order to bring about an end to the bloody civil war that is the root cause of the current refugee crisis.

Towards a two-union Europe ?

 January 15, 2012

Standard & Poor’s decision this week to downgrade the country ratings of France, Italy, Spain and Portugal, not only aggravates the sovereign debt crisis, but it actually divides the EU in two.

The most affected group is made up of the Latin countries bordering the Mediterranean. Their interest bills are going to rise to levels that, in some cases, will make it prohibitive to finance their budget deficits and therefore to continue to provide quality public goods and services to citizens. To make matters worse, this group of countries has to swallow the bitter German pill of budget austerity at a time when long-term economic recession and possibly even stagflation look increasingly likely.

The second group of countries, headed by Germany, has kept their AAA credit rating. It includes Denmark, Sweden, the Netherlands and the UK, for example. Switzerland and Norway also belong to this group, although they are as yet unaffiliated to the EU. The main preoccupation of Germany and its like-minded northern European partners is fighting inflation, not unemployment. This is in sharp contrast with the economic philosophy of the Latin group of countries, which are quite tolerant of higher levels of inflation and budget deficits, provided these are used to significantly bring down unemployment.

Whilst a two-speed Europe might not be in the cards, in a not too distant future we might be faced with the prospect of two separate European unions, built out of the ashes of the current one. Thus, as Angela Merkel herself threatened in 2008, the Germans might be more interested in building a Baltic union, which could conceivably attract Russia as an associate, whereas the Latin countries might wish to explore further a separate Union for the Mediterranean that could potentially integrate Tunisia, Morocco, Libya and Algeria.

As far-fetched as this sounds, such an outcome might, however, prove to be the only solution to having a too-large and dysfunctional union, in which national interests prevail at the expense of the greater good of all existing members. In truth, the provisions of the Maastricht Treaty, the austerity packages and the German insistence on having an European Central Bank solely dedicated to fighting inflation do not work in practice for a majority of EU members, and especially for the first group of countries mentioned above. At this point in time, all good ideas aimed at solving the EU’s woes — such as fiscal union, the emission of eurobonds, a central bank dedicated to fostering employment, a common defence and security policy that works — have been discarded by Germany and some of its closest allies. In these conditions, no expert or responsible politician could be blamed if alternatives to the current union arrangements are actively being considered by them.

EU's Regional Security Concerns

 October 27, 2010

Slowly but surely, EU leaders are waking up to the fact that they should take regional security into their own hands and promote a neighbourhood diplomacy which would eventually have to exclude NATO or the United States, but would be inclusive of Russia and Turkey.

This is the new geostrategic context in which the Sarkozy-Merkel-Medvedev meeting has taken place last week in Deauville. As the leaders of the two most powerful EU countries, Sarkozy and Merkel could no longer overlook the adverse consequences for the Union of the US’ involvement in promoting the Orange revolutions in Ukraine, Georgia and Romania. The two previous winters beset by gas supply interruptions, as well as the Georgian war were alarming enough events for France and Germany to take action. Now that a pro-Russian president is again in power in Kiev, and that the Georgian conflict is largely frozen even if not solved, Merkel and Sarkozy can concentrate on the future relationship with Russia and, to a lesser extent, with Turkey.

Since 2008, president Medvedev has advanced a common Russia-EU security architecture project, which until recently has received the cold shoulder from Paris or Berlin. Far from trying to divide the NATO alliance, as American pundits claim, the Russians feel that regional security would be better served if Russia and the EU adapted to the new geopolitical landscape and built a regional security organisation. Indeed, as the EU is one of Russia’s largest customers for oil and gas, it makes sense for both supplier and end-user to join forces in ensuring the security of supply routes and – it goes without saying – in preventing the US from interfering again in each other’s “spheres of influence”. The pay-off, especially during these tight economic times, could be huge, as this way both EU and Russia would save tens of billions of euros earmarked for the construction of undersea pipelines, originally planned to bypass problem-countries like the Ukraine.

Further afield, the European Union has to compete for Central Asian oil & gas with a turbo-charged China and with a burgeoning India. By comparison, Russia’s cooperation with China is functioning smoothly : oil & gas pipelines have been built, from Turkmenistan and Kazakhstan to China, and more are planned and paid for. To date, the Europeans haven’t been successful in completing more than one such project with Russia, namely the North Stream pipeline. That brings it into the same leagues with India, which experiences similar difficulties in securing its energy supplies. In both cases, the negative outcome is the direct result of the US’ involvement in regional security matters and trade options, from Eastern Europe to the Persian Gulf.

Russia’s frustration with US-supported revolutions in Ukraine and Georgia, and the disruptions of gas supplies that affected Gazprom’s earnings, have determined Moscow to shift its geopolitical agenda towards China, taking its Central Asian allies along with her. Thus since 2001, Russia and China have established the Shanghai Cooperation Organisation (SCO), designed to deal with security threats affecting Russia, China and Central Asia. The SCO is the first working example of a regional security organisation which will become the hallmark of the security arrangements of the evolving multipolar world. Similarly, the ASEAN countries have this year started working on their own collective security architecture, and across the Atlantic, a group of Latin American countries have established Unasur as of 2008.

As a consequence, the European Union, will have to compete for the natural resources it needs and for political influence with a player like China. The latter was quicker off the mark and better at developing a brisk raw materials and energy trade with Russia, Central Asia and Latin America, as well as in reaching cooperative security arrangements with Russia.

Coming just weeks before the Lisbon NATO summit, the Deauville summit has given a clear indication of where the immediate security interests of the European Union lie. These, to be sure, are not global, but regional in scope and would have to involve Russia and Turkey. As for NATO, the outdated organisation is still in search of an elusive enemy, which will probably have to be found in outer space, in partnership with NASA. (sources: EurActiv, Presseurop, SME.sk, BBC)