"It's Economic Growth, Stupid !"

 March 28, 2012

Over the last two weeks, economic discussion among EU leaders has revolved around two main topics: austerity and increasing to 1 trillion euros the money available to the ESP. Few of the current leaders, if any, are concentrating on finding solutions to the real economic challenge facing the Union, that of kickstarting economic growth on the continent. As Barry Eichengreen argues,

“Though no one can say for sure what Tobin would have thought of Europe’s crisis, his priority was always the pursuit of full employment. One suspects that he would have urged European policymakers to dispense with their silly fixation on a financial transactions tax and instead repair their broken banking systems and use all monetary and fiscal means at their disposal to jump-start economic growth”.

With the exception of a few EU members (Germany, Finland, Austria, Denmark), growth is stagnant, or negative (in Greece, Portugal and Ireland, for example) and the average rate of unemployment has crossed the psychological threshold of 10 percent. Whilst countries like China have spent close to 1 trillion USD in 2008-2009 in order to maintain employment and growth, the EU is envisaging to invest a measly 100 billion euros to the scale of the continent, if that. To compound economic woes, aggregate demand in deficit EU countries is about to suffer further shocks as a result of the unwise implementation of draconian austerity measures.

According to Jean-Claude Trichet, former ECB director, the average budget deficit within the EU is 70 percent of the aggregate GDP. That compares very favourably with Japan’s 212 percent or with the US’ 100 percent public debt ratios. Maastricht Treaty “fair weather” provisions notwithstanding, most EU member countries could add a few percentage points to their deficits in order to adequately finance growth and employment investment schemes coordinated by Brussels. To avoid pressure from international financial markets, national governments could – as the Japanese have always done – sell their treasury bonds to their own citizens, vital stakeholders in a solid economic recovery.

Whether our political leaders realise it or not, the only way out of the current crisis is by spending close to 1 trillion euros over the next few years on various development and infrastructure projects. The EU’s energy security, for example, does need the Nabucco project to go ahead in order to diminish our dependence on Russian oil and gas and pipelines. Although the European Commission is trying to allocate money for other much- needed infrastructure projects, the EU budget is at the mercy of member states’ contributions. That brings into question Brussel’s ability to adopt and implement the pan-European growth agenda we need.

And yet, a comprehensive pro-growth strategy is essential, if both the employment and current sovereign debt crises are to be overcome. To get to it, national leaders should, however, do away with their fixation on golden rules and austerity measures, and start investing massively in projects that will slash the current unemployment rate, taming it to the levels experienced by Germany, Austria or Finland. The urgency of such an investment and spending agenda is, unfortunately, recognised only by economists. Unable to deliver the right mix of economic policies, EU politicians have found it more expedient to give in to xenophobia, racism and nationalism, some of them for electoral reasons.

Whilst populist discourse might in normal times prove helpful in winning elections, in the current economic climate it could only aggravate matters and prolong the crisis. In fact, voters in major European countries are more concerned with their diminished purchasing power and job prospects than with illegal immigration and/or security issues. Any politician or their advisers who fail to grasp that should make an exit from the political game. (sources: Project Syndicate, Le Monde, Reuters, Deutsche Welle, Xinhua)

The Eurasian Union: Two Competing Geopolitical Visions

 March 21, 2012

The implosion of the Soviet Union has in many ways adversely affected the stability of the Central Asian republics like Kazakhstan, Kyrgyzstan, Turkmenistan or Uzbekistan. Since 1991, a loose alliance of 11 former Soviet republics, the Commonwealth of Independent States (CIS), was formed in order to preserve, at least in part, the Soviet-era heritage in regional economic integration.

The geopolitical competition for influence in Central Asia has ceased to be a Russia-only affair, however. China is rapidly becoming a big player in the energy sweepstakes, if its direct dealings with Turkmenistan and others are any guide. Closer to Europe, Turkey has also been willing to take the lead in promoting Eurasian integration. Thus, on the 5th of February 2010, Turkish foreign minister Ahmet Davutoglu has stated during a business conference that “there is a need to embark on a new vision in order to have the Eurasia region regain its historical importance”. Assembling the five “stans” into an Eurasian common structure would, in Davutoglu’s view, be useful to establish “a link between energy-supplying countries and energy-receiving countries”.

Turkey’s ability to foster Eurasian regional integration is based on common cultural and religious roots of the inhabitants of the Central Asian republics. To further its diplomatic aims, Turkey has founded TURKSOY in 1993 in Alma Aty (Kazakhstan), as an international organisation for the promotion of Turkish culture abroad.

As the Arab revolutions have forced Turkey’s diplomats to put the Eurasian project on the back-burner, the opportunity has astutely been seized by Vladimir Putin. In an article entitled “A New Integration Project for Eurasia: The Future in the Making” published by Izvestia on the 4th of October 2011, Vladimir Putin has outlined his vision for the creation of an Eurasian Union larger in size than the European Union. Putin argues that the objective is to build “a new, strong, supranational union that could become one of the poles of the modern world, and could play the role of an effective bridge between Europe and the dynamic Asia-Pacific region”.

His proposed union would be much more than a mere customs union and would include such common institutions as an Eurasian Commission, similar to the one in Brussels, an Eurasian parliament, as well as an Eurasian common currency. To foster regional integration, the Eurasian union “should be built on the inheritance of the Soviet Union: infrastructure, a developed system of regional production specialisation, and a common space of language, science and culture” (V.Putin).

Putin claims that the impetus for the regional integration plans was provided by the financial crisis – a reason invoked by the Chinese, as well, in plans to build their own trade bloc together with the ASEAN countries.

According to Mars Sariev, a Kyrgyz political scientist, Putin and the Russian foreign policy elite have had little choice but to come up with a blueprint for integrating the former Soviet republics into a regional bloc. The alternative, he claims, would be for Russia to become a mere supplier of raw materials for the EU and China. Recently, during an Eurasian Economic Community summit involving Belarus, Kazakhstan, Kyrgyzstan and Tajikistan, their leaders have decided to postpone the creation of the Eurasian Union until 2015. Curiously enough, the project’s most vocal opponent was Belarus’ president Lukashenko, although Ukraine’s president Yanukovich, whose country was present at the summit as an observer, also expressed serious reservations regarding Putin’s plans.

Professor Gerhard Simon of the University of Cologne assesses the chances of success for the proposed Eurasian Union project as “slim to none”. The president of Georgia, Mikhail Saakashvili, considers the project as being the blueprint for “a new Soviet Union”, a charge vehemently denied in his Izvestia article by Vladimir Putin.

The biggest misgivings concerning the Eurasian project come from countries like Azerbaijan and Georgia, which together with Turkey have already formed a geopolitical team that benefits from US assistance. Both countries experience ethnic turmoil, Azerbaijan in the Nagorno-Karabakh region and Georgia in South Ossetia. Azerbaijan would rather export its oil and gas directly to Europe, through the Baku-Tbilisi-Ceyhan pipeline. SOCAR, the Azeri state oil company has invested 1 billion US dollars in Georgia and controls 80 percent of the latter’s fuel stations. Georgia, meanwhile, is strongly courting NATO and EU membership and is complaining about Brussels’ foot-dragging regarding its accession hopes.

To be sure, the geopolitical competition between Turkey and Russia for the creation of an Eurasian union is heating up. Whilst it is hard to envisage an Eurasian union built around Russia, given its enormous size and colonial record, Turkey’s recent policy paralysis does not qualify it as a strong regional leadership contender, either. (sources: EurActiv, Voice of America News, Deutsche Welle, The Atlantic, Izvestia, Today’s Zaman, www.TurkishCentralNews.com)

Military Spending: Less Boots on the Ground for the EU

March 20, 2012

International military analysts have recently pointed out that military spending in Asia has increased to 262 billion euros in 2012. The amount could overtake the EU’s own military spending in the near future, possibly as early as next year. Smaller military budgets, however, are consistent with the EU’s new focus on soft power and diplomacy, as opposed to investment in new weapons systems and more ‘boots on the ground’. Moreover, European countries have had an insignificant military presence in the Middle East or Asia, its former role being filled over the past sixty years by the United States. Naturally, the financial crisis and subsequent austerity measures are also considered responsible for the anaemic military spending by EU members.

In 2012 the US will spend an estimated 739 billion dollars, which, combined with the EU’s own 270 billion euros in military spending, will secure NATO’s position as the world’s most powerful military alliance. The refocusing of the US’ military strategy on Asia, which includes a new base in Australia and more American warships in Singapore, has been recently decried by Middle Eastern kingdoms feeling somewhat abandoned to their fate. Accordingly, they have increased their own military purchases and are intensifying diplomatic pressure on the US to remain engaged in their region. For Arab leaders, these lobbying efforts could not have been undertaken at a worst time, as the Obama administration plans to further reduce military spending to an estimated 500 billion USD per year.

Russia has recently announced that it would spend 775 billion dollars until 2022 for a much-needed refurbishment of its armed forces’ equipment, and for making its troops more professional.

China’s military will receive an estimated 89 billion dollars in 2012. In recent times, the Chinese military expenditure has shown a tendency to double every five years or so. Worries about Chinese hegemony in Asia have prompted other Asian nations, including India, to increase their military spending this year, which is good news for European weapons manufacturers. Fortunately – according to most analysts – the danger of a confrontation between major powers is rather remote at this point in time, as the Chinese military’s might will match America’s only in 15 or 20 years from now. (sources: www.sipri.org, Le Monde, International Institute for Security Studies, Reuters)

The EU's Austerity-induced Recession

 March 1, 2012

The eurozone’s unemployment rate has reached 10.7 percent in January, meaning 16.9 million people out of work, of which 5.5 million young people under 25. If we add to these figures the 2.7 million people unemployed in the UK as well as another few million jobless in the other EU member-states, we can understand why the European Union is now being viewed as the biggest recessionary threat to the world economy. Countries in the eurozone’s southern periphery, like Greece or Spain, are afflicted by 19.9 percent and 23.3 percent unemployment rates respectively. By contrast, Austria, Luxemburg and the Netherlands enjoy a jobless rate of 4 to 5.1 percent according to Eurostat. Even more alarming, the eurozone’s manufacturing sector has entered its seventh month of contraction, pointing to an EU-wide recession for 2012 and possibly beyond.

In denial about the economic consequences of their actions, the eurozone’s leaders will meet in Brussels this weekend for the signing of a new fiscal pact, whose stringent conditions are at the root of the current economic problems. Nobody that’s anybody in the economic profession still supports the view that the austerity measures – as implemented unwisely over the last two to three years – could improve the economy. Draconian austerity measures could only lead to negative growth, mass unemployment and a wave of unprecedented social unrest across Europe.

Aloof German politicians and bankers, however, are currently attacking the ECB for lowering interest rates and for providing fresh liquidities to the banks in order to spur economic activity, even as the German export engine itself is showing signs of sputtering.

Ideologically motivated national leaders from most other European countries are towing the austerity line and cutting expenses in health, education and essential social services to the bone, further depressing aggregate demand in their own countries.

Together, all these policies will in time provide the fuel for social revolutions, as stressed-out wage earners and the working poor can barely tolerate the harshness of the measures aimed at reducing private and public debt in eurozone countries. Meanwhile, labour union leaders have all but given up hope of making politicians gauge the gravity of the mega social crisis unfolding under our own eyes. One thing is certain, however. Brussels’ summitry is not expected to make a significant contribution to improving Europe’s growth prospects or to reducing unemployment anytime soon. (sources: The Guardian, Reuters, Deutsche Welle, Le Monde)

Serbia's Russian Bases Alternative

 February 18, 2012

It is a well-known geopolitical fact that from 1914 to this day, Serbia has received military support or security guarantees from Russia. The latest such support was in evidence during NATO’s intervention in Kosovo, when Russian troops were present in the province in order to make sure Serbian interests were being respected by the Western coalition.

Serbia’s deputy premier and Interior Minister Ivica Dacic has recently declared that if his country is not going to be recognised as an EU candidate-state in March, Serbia might be pushed into a closer alliance with Russia than it has been the case until now. That might involve the option of allowing the Russians to establish military bases in Serbia, a fact that could adversely affect the fragile geopolitical balance in the Western Balkans.

According to Professor Predrag Simic from Belgrade, Serbia has always been forced to perform a balancing act between the Western powers and Russia in order to preserve or promote its own national interest and geopolitical agenda. Whilst the possibility of having Russian military bases in Serbia does seem rather remote for now, EU officials should, however, be mindful of the fact that thwarting Serbia’s EU membership aspirations could ultimately lead to such an outcome.

To his credit, Dacic is a supporter of closer ties with both the US and Russia. He points out that Germany, too, enjoys a good working relationship with both powers, and that provided the US gave more consideration to Serbian interests in Kosovo, he sees no problem for Serbia in adopting a similar foreign policy approach. During his tenure as Interior Minister, Dacic has lifted visa requirements with Macedonia and Albania and has signed a number of cooperation agreements on police matters with most countries from the Western Balkans and beyond, based on his conviction that cooperation is the key to fighting organised crime. (sources: Deutsche Welle, www.setimes.com, www.tanjug.rs )

EU Foreign Policy Assessed

 February 7, 2012

Amid international media acclaim, the European Council on Foreign Relations has recently released the results of its innovative EU foreign policy research project, the 2012 European Foreign Policy Scorecard.

The ECFR’s researchers have assessed the EU’s foreign policy performance in 2011 in six major areas: the relationship with China, Russia, the US, Wider Europe (Western Balkans, the Eastern Neighbourhood and Turkey), crisis management handling and the EU’s support for multilateralism. The Scorecard proves that the EU’s influence as a global player has diminished significantly as a result of the mishandling of the sovereign debt crisis. With an average unemployment rate of some 10,5 percent, the EU’s soft power model has lost its lustre, the continent being currently viewed as the main source of economic instability in the world, instead of as an active participant in providing solutions to the current crisis.

Whilst in some areas the EU’s foreign policy initiatives have earned decent marks (relationship with the US, crisis management or participation within multilateral institutions), in some others (diplomatic relationship with China, Russia, Turkey or the Western Balkans) its performance was below average.

The authors have also highlighted in the report the EU’s slow and inadequate response to the 2011 Arab Awakening, as well as the fact that to this day the EU has failed to frame a functional and comprehensive Southern neighbourhood policy.

The EU’s foreign policy leaders have traditionally been France and the UK. Recently, however, Germany, Poland and Sweden have also positioned themselves in the lead, with the rest of the member-countries falling into the «slackers» category. A common, coordinated EU-wide foreign policy is yet to emerge, as a consequence of the continent’s obsession with its internal woes and the inability of its leading countries to adopt adequate pro-growth, pro-employment economic policies. More often than not, as Justin Vaisse, co-lead author of the Scorecard has noted, EU countries prefer to conduct foreign policies which reflect their national interest at the expense of the general interest of the Union. Not surprisingly, the EU’s influence as a multilateral, multi-national model has lost most of its appeal in Asia and Latin America alike. (sources: ECFR, Le Monde, Der Spiegel, NYT)

EU Decision-making: Going the Wrong Way About It

 

January 31, 2012

We’re heading towards a Soviet-style union run by a Politburo made up of national political leaders uninterested in consulting the European Parliament on important decisions affecting our lives.

Whilst in Brussels where the EU heads of government were busily hammering out measures aimed at solving the euro-crisis, Martin Schulz held his first speech as President of the European Parliament. He rightfully incriminated the cumbersome and un-democratic way EU political leaders make decisions bearing on the future of Europe’s almost half a billion citizens. To be sure, the EU is not a fully functioning union yet and the fiscal arrangements concluded on January 30th only serve to reinforce this.

As Martin Schulz has complained, the European Parliament is rarely consulted before a vital, Europe-wide decision is made. Indeed, it seems national leaders act as a veritable Soviet-style Politburo. The German chancellor, like Russia’s leaders had within the Soviet federation, is increasingly able to railroad the other national leaders into agreeing to policies that will ultimately bring about… the unravelling of this union, as well. We have been used to comparing Germany to the other exporting powerhouse, China. So why compare it to Russia now? To their credit, the Chinese are pouring tens of billions of dollars into infrastructure projects within their ASEAN neighbourhood every year, sometimes without even being asked. Moreover, they are buying hundreds of billions of dollars worth of US treasury bonds, only to keep their business partner afloat and able to buy Chinese goods. Would anyone see the Germans doing likewise ? Not unless they really had to, and then on condition they get to take over the fiscal management of the country in need of assistance.

Look no further than the adoption of the so-called «golden rule», as a panacea for solving the sovereign debt crisis and so much more (!). Unfortunately, however, most of the countries that were forced to adopt austerity measures aimed at balancing their budgets have been beset by huge social turmoil, du jamais-vu in post-war Europe. To the current leaders who met in Brussels on Monday, warnings constantly issued by Nobel prize laureates like Joseph Stiglitz or leading economists like Martin Feldstein seem to matter little, if at all. If the trend continues, I sincerely wonder who is going to be left with enough funds to buy German cars and German machine tools around here… As Christine Lagarde has courteously reminded her German hosts recently, for every surplus country like Germany, there have to be a number of deficit countries left, in order to absorb its exports. There’s simply no other way about it. This is why the «golden rule» can only have a boomerang effect on the German economy, but to people affected by political myopia, that, of course, is no valid reason to desist.

And what if the European Parliament, since the spring of 2011, was in favour of the introduction of eurobonds? Nobody has invited its representatives to have a say at the summits where such decisions are taken. Let’s face it: for complex issues, inter-governmentalism as a decision-making mechanism has proven highly detrimental to the running of the Union’s affairs. More often than not, the Commission and the European Parliament look on as powerless spectators of the ongoing series of policy blunders which, instead of solving the crisis, aggravate it.

Whilst national governments are being constrained to stop much-needed investments in infrastructure and other projects, the European Commission is supposed to pick up the slack and spend some 82 billion euros on regional projects in order to kickstart growth. Now, if anyone believes that this sum is going to make a significant dent in the continent’s unemployment, good luck to them. Sure, as Martin Schulz has observed, the adoption of a 0.05% financial transactions tax would bolster the EU’s budget by 200 billion euros per year, but who listens to Euro-parliamentarians ? As in the illustrious Soviet example, apparently nobody…

Author : Spotlight on Geopolitics
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External Relations  , E.U., euro