Tag Archives: europe

The Weight of Geopolitics. Is Democracy in Decline?

Politics follows geopolitics, or so it has often seemed throughout history. When the Athenian democracy’s empire rose in the fifth century B.C.E., the number of Greek city-states ruled by democrats proliferated; Sparta’s power was reflected in the spread of Spartan-style oligarchies. When the Soviet Union’s power rose in the early Cold War years, communism spread. In the later Cold War years, when the United States and Western Europe gained the advantage and ultimately triumphed, democracies proliferated and communism collapsed. Was this all just the outcome of the battle of ideas, as Francis Fukuyama and others argue, with the better idea of liberal capitalism triumphing over the worse ideas of communism and fascism? Or did liberal ideas triumph in part because of real battles and shifts that occurred less in the realm of thought than in the realm of power?

These are relevant questions again. We live in a time when democratic nations are in retreat in the realm of geopolitics, and when democracy itself is also in retreat. The latter phenomenon has been well documented by Freedom House, which has recorded declines in freedom in the world for nine straight years. At the level of geopolitics, the shifting tectonic plates have yet to produce a seismic rearrangement of power, but rumblings are audible. The United States has been in a state of retrenchment since President Barack Obama took office in 2009. The democratic nations of Europe, which some might have expected to pick up the slack, have instead turned inward and all but abandoned earlier dreams of reshaping the international system in their image. As for such rising democracies as Brazil, India, Turkey, and South Africa, they are neither rising as fast as once anticipated nor yet behaving as democracies in world affairs. Their focus remains narrow and regional. Their national identities remain shaped by postcolonial and nonaligned sensibilities—by old but carefully nursed resentments—which lead them, for instance, to shield rather than condemn autocratic Russia’s invasion of democratic Ukraine, or, in the case of Brazil, to prefer the company of Venezuelan dictators to that of North American democratic presidents.

Meanwhile, insofar as there is energy in the international system, it comes from the great-power autocracies, China and Russia, and from would-be theocrats pursuing their dream of a new caliphate in the Middle East. For all their many problems and weaknesses, it is still these autocracies and these aspiring religious totalitarians that push forward while the democracies draw back, that act while the democracies react, and that seem increasingly unleashed while the democracies feel increasingly constrained.

It should not be surprising that one of the side effects of these circumstances has been the weakening and in some cases collapse of democracy in those places where it was newest and weakest. Geopolitical shifts among the reigning great powers, often but not always the result of wars, can have significant effects on the domestic politics of the smaller and weaker nations of the world. Global democratizing trends have been stopped and reversed before.

Consider the interwar years. In 1920, when the number of democracies in the world had doubled in the aftermath of the First World War, contemporaries such as the British historian James Bryce believed that they were witnessing “a natural trend, due to a general law of social progress.”[1] Yet almost immediately the new democracies in Estonia, Latvia, Lithuania, and Poland began to fall. Europe’s democratic great powers, France and Britain, were suffering the effects of the recent devastating war, while the one rich and healthy democratic power, the United States, had retreated to the safety of its distant shores. In the vacuum came Mussolini’s rise to power in Italy in 1922, the crumbling of Germany’s Weimar Republic, and the broader triumph of European fascism. Greek democracy fell in 1936. Spanish democracy fell to Franco that same year. Military coups overthrew democratic governments in Portugal, Brazil, Uruguay, and Argentina. Japan’s shaky democracy succumbed to military rule and then to a form of fascism.

Across three continents, fragile democracies gave way to authoritarian forces exploiting the vulnerabilities of the democratic system, while other democracies fell prey to the worldwide economic depression. There was a ripple effect, too—the success of fascism in one country strengthened similar movements elsewhere, sometimes directly. Spanish fascists received military assistance from the fascist regimes in Germany and Italy. The result was that by 1939 the democratic gains of the previous forty years had been wiped out.

The period after the First World War showed not only that democratic gains could be reversed, but that democracy need not always triumph even in the competition of ideas. For it was not just that democracies had been overthrown. The very idea of democracy had been “discredited,” as John A. Hobson observed.[2] Democracy’s aura of inevitability vanished as great numbers of people rejected the idea that it was a better form of government. Human beings, after all, do not yearn only for freedom, autonomy, individuality, and recognition. Especially in times of difficulty, they yearn also for comfort, security, order, and, importantly, a sense of belonging to something larger than themselves, something that submerges autonomy and individuality—all of which autocracies can sometimes provide, or at least appear to provide, better than democracies.

In the 1920s and 1930s, the fascist governments looked stronger, more energetic and efficient, and more capable of providing reassurance in troubled times. They appealed effectively to nationalist, ethnic, and tribal sentiments. The many weaknesses of Germany’s Weimar democracy, inadequately supported by the democratic great powers, and of the fragile and short-lived democracies of Italy and Spain made their people susceptible to the appeals of the Nazis, Mussolini, and Franco, just as the weaknesses of Russian democracy in the 1990s made a more authoritarian government under Vladimir Putin attractive to many Russians. People tend to follow winners, and between the wars the democratic-capitalist countries looked weak and in retreat compared with the apparently vigorous fascist regimes and with Stalin’s Soviet Union.

 

Read more here :  http://www.brookings.edu/research/articles/2015/01/democracy-in-decline-weight-of-geopolitics-kagan

 

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Here are some statistics underscoring the severity of the crisis now reaching into all aspects of Greek life

Greece is reeling from the effects of the biggest economic crisis in its recent history. Here are some statistics underscoring the severity of the crisis now reaching into all aspects of Greek life.

  • 25% The Greek economy has shrunk since its peak in mid-2008.

  • 25.8% Percentage of Greeks who remain out of work, according to the national statistics agency. This means that 1.2 million people are unemployed, according to the October figures.

  • 3rd The position Greece is ranked among its European partners for the percentage of population at risk of poverty and social exclusion, according to Eurostat.

  • 23.1% Percentage of Greeks living at risk of poverty in 2013, according to Eurostat figures.

  • 33.5% or €77 Billion ($89.38 Billion) The amount of nonperforming loans—those for which debtors have failed to make payments for more than 90 days, according to Greece’s central bank governor.

  • €70 billion The approximate value of outflows from Greek banks over the past five years, according to central bank figures.

  • 83.9% Percentage the Greek stock market has fallen since 2008.

  • 1 in 4 Closures of small and medium-sized enterprises since 2008, according to the Hellenic Confederation of SMEs, or GSEVEE, amounting to some 230,000 in total.

  • 9 times How much more self-employed professionals had to pay in 2014 in types of taxes, according to the Parliamentary Budget Office.

  • 7 times How much more in tax Greek employees and pensioners had to pay in 2014 compared with 2009, according to the Parliamentary Budget Office.

  • 23% Percentage Greeks pay as value-added tax on most goods. The average VAT paid in the eurozone is 21.5%, and in the European Union 20.5%, according to the Parliamentary Budget Office.

  • 100,000 The number of Greek scientists now working abroad, according to the Economics Department of the University of Macedonia.

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MARIO DRAGHI :: Stability and Prosperity in Monetary Union

Source : http://www.project-syndicate.org/commentary/ecb-eurozone-economic-union-by-mario-draghi-2015-1

There is a common misconception that the euro area is a monetary union without a political union. But this reflects a deep misunderstanding of what monetary union means. Monetary union is possible only because of the substantial integration already achieved among European Union countries – and sharing a single currency deepens that integration.

If European monetary union has proved more resilient than many thought, it is only because those who doubted it misjudged this political dimension. They underestimated the ties among its members, how much they had collectively invested, and their willingness to come together to solve common problems when it mattered most.

Yet it is also clear that our monetary union is still incomplete. This was the diagnosis offered two years ago by the so-called “Four Presidents” (the European council president in close collaboration with the presidents of the European Commission, the European Central Bank, and the Eurogroup). And, though important progress has been made in some areas, unfinished business remains in others.

But what does it mean to “complete” a monetary union? Most important, it means having conditions in place that make countries more stable and prosperous than they would be if they were not members. They have to be better off inside than they would be outside.

In other political unions, cohesion is maintained through a strong common identity, but often also through permanent fiscal transfers between richer and poorer regions that even out incomes ex post. In the euro area, such one-way transfers between countries are not foreseen (transfers do exist as part of the EU’s cohesion policy, but are limited in size and are primarily designed to support the “catching-up” process in lower income countries or regions). This means that we need a different approach to ensure that each country is permanently better off inside the euro area.

This implies two main things. First, we have to create the conditions for all countries to thrive independently. All members need to be able to exploit comparative advantages within the Single Market, attract capital, and generate jobs. And they need to have enough flexibility to respond quickly to short-term shocks. This comes down to structural reforms that spur competition, reduce unnecessary red tape, and make labor markets more adaptable.

Until now, whether or not to carry out such reforms has largely been a national prerogative. But in a union such as ours they are a clear common interest. Euro area countries depend on one another for growth. And, more fundamentally, if a lack of structural reforms leads to permanent divergence within the monetary union, this raises the specter of exit – from which all members ultimately suffer.

In the euro area, stability and prosperity anywhere depend on countries thriving everywhere. So there is a strong case for sharing more sovereignty in this area – for building a genuine economic union. This means more than beefing up existing procedures. It means governing together: shifting from coordination to common decision-making, and from rules to institutions.

The second implication of the absence of fiscal transfers is that countries need to invest more in other mechanisms to share the cost of shocks. Even with more flexible economies, internal adjustment will always be slower than it would be if countries had their own exchange rate. Risk-sharing is thus essential to prevent recessions from leaving permanent scars and reinforcing economic divergence.

A key part of the solution is to improve private risk-sharing by deepening financial integration. Indeed, the less public risk-sharing we want, the more private risk-sharing we need. A banking union for the euro area should be catalytic in encouraging deeper integration of the banking sector. But risk-sharing is also about deepening capital markets, especially for equity, which is why we also need to advance quickly with a capital markets union.

Still, we have to acknowledge the vital role of fiscal policies in a monetary union. A single monetary policy focused on price stability in the euro area cannot react to shocks that affect only one country or region. So, to avoid prolonged local slumps, it is critical that national fiscal policies can perform their stabilization role.

To allow national fiscal stabilizers to work, governments must be able to borrow at an affordable cost in times of economic stress. A strong fiscal framework is indispensable to achieve this, and protects countries from contagion. But the crisis experience suggests that, in times of extreme market tensions, even a sound initial fiscal position may not offer absolute protection from spillovers.

This is a further reason why we need economic union: markets would be less likely to react negatively to temporarily higher deficits if they were more confident in future growth prospects. By committing governments to structural reforms, economic union provides the credibility that countries can indeed grow out of debt.

Ultimately, economic convergence among countries cannot be only an entry criterion for monetary union, or a condition that is met some of the time. It has to be a condition that is fulfilled all of the time. And for this reason, to complete monetary union we will ultimately have to deepen our political union further: to lay down its rights and obligations in a renewed institutional order.

Read more at http://www.project-syndicate.org/commentary/ecb-eurozone-economic-union-by-mario-draghi-2015-1#wT2uAcWGG5wpMyxM.99′

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When hedge funds are overwhelmingly on the same side as the broader market, you know it’s a crowded trade.

 

When even hedge funds are overwhelmingly on the same side of an investment as the broader market, you know it’s a crowded trade.

This is where the euro finds itself going into 2015. Traders, investment banks, asset managers and the so-called “smart money” of hedge funds are all betting on a weaker euro, leaving the only point of disagreement being by how much.

The rationale behind it is simple: the European Central Bank will aggressively ease monetary policy by undertaking a large-scale government bond buying programme to prevent low growth and inflation from strangling the region’s economy.

The contrast between monetary easing and weak economic growth in the euro zone with likely monetary tightening and stronger growth in the United States should push the euro lower.

ECB president Mario Draghi has indicated that the central bank is poised to expand its balance sheet by around 1 trillion euros of asset purchases, including politically sensitive purchases of government debt.

It is a policy that has already been adopted by the U.S., UK and Japanese central banks since the 2007-08 financial crisis, with varying degrees of success.

But the only problem with the expectation of a lower euro next year is that everybody shares it.

“I’ve never seen such a big consensus in my 20 years of investment life,” said Yves Kuhn, chief investment officer at Banque Internationale à Luxembourg.

“I just don’t like a consensus like that.”

http://www.reuters.com/article/2014/12/09/markets-euro-idUKL6N0TS3GT20141209

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Wake Up, Europe by Soros

The following article will appear in The New York Review’s November 20 issue.

Europe is facing a challenge from Russia to its very existence. Neither the European leaders nor their citizens are fully aware of this challenge or know how best to deal with it. I attribute this mainly to the fact that the European Union in general and the eurozone in particular lost their way after the financial crisis of 2008.

The fiscal rules that currently prevail in Europe have aroused a lot of popular resentment. Anti-Europe parties captured nearly 30 percent of the seats in the latest elections for the European Parliament but they had no realistic alternative to the EU to point to until recently. Now Russia is presenting an alternative that poses a fundamental challenge to the values and principles on which the European Union was originally founded. It is based on the use of force that manifests itself in repression at home and aggression abroad, as opposed to the rule of law. What is shocking is that Vladimir Putin’s Russia has proved to be in some ways superior to the European Union—more flexible and constantly springing surprises. That has given it a tactical advantage, at least in the near term.

Europe and the United States—each for its own reasons—are determined to avoid any direct military confrontation with Russia. Russia is taking advantage of their reluctance. Violating its treaty obligations, Russia has annexed Crimea and established separatist enclaves in eastern Ukraine. In August, when the recently installed government in Kiev threatened to win the low-level war in eastern Ukraine against separatist forces backed by Russia, President Putin invaded Ukraine with regular armed forces in violation of the Russian law that exempts conscripts from foreign service without their consent.

In seventy-two hours these forces destroyed several hundred of Ukraine’s armored vehicles, a substantial portion of its fighting force. According to General Wesley Clark, former NATO Supreme Allied Commander for Europe, the Russians used multiple launch rocket systems armed with cluster munitions and thermobaric warheads (an even more inhumane weapon that ought to be outlawed) with devastating effect.* The local militia from the Ukrainian city of Dnepropetrovsk suffered the brunt of the losses because they were communicating by cell phones and could thus easily be located and targeted by the Russians. President Putin has, so far, abided by a cease-fire agreement he concluded with Ukrainian President Petro Poroshenko on September 5, but Putin retains the choice to continue the cease-fire as long as he finds it advantageous or to resume a full-scale assault.

http://www.nybooks.com/articles/archives/2014/nov/20/wake-up-europe/

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Big-time Euro-QE is not the answer.

‘It sounds far-fetched, I know,” I wrote in this column in December 2007. “But the ultimate victim of this subprime crisis could be nothing less than the single currency’s existence”.

Reading it today, the above statement seems pretty reasonable. Many mainstream analysts now recognise the huge stresses imposed by the ongoing credit crunch could yet see monetary union break up, with at least one country leaving. To argue otherwise, certainly in Anglo-Saxon company, is to risk appearing in denial.

After the eurozone’s successive summer bond crises of 2011 and 2012, it’s no longer particularly controversial to accept what we sceptics have been warning about for years; that the “irreversibility” of monetary union is merely a political slogan.

A peripheral member-state could indeed leave of its own accord, or be forced out, so escaping the straitjacket of a vastly overvalued currency. Another may then opt, or be asked, to follow. Saying so is now part of reasonable economic discourse, not necessarily the start of a row.

The first time I wrote the words that begin this article, though, getting on for seven years ago, the situation was rather different. Back then, only “xenophobes” “cranks” and “nutters” argued the eurozone might not survive. The subprime meltdown, moreover, was seen as “America’s crisis”, for most French, German (and even British) observers a problem most definitely made on Wall Street.

http://www.telegraph.co.uk/finance/economics/11171424/Panic-money-printing-wont-save-the-eurozone.html

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How Sweden fights inequality: not by taxing the rich

There seems to be an obvious solution to rising inequality: higher taxes. But there’s an inconvenient fact here. The way most advanced, industrial countries have made real gains on inequality is through relatively regressive taxes that fund programs that reduce inequality. In fact, America’s tax system is already unusually progressive by international standards. Our ongoing research suggests that this unusual relationship is not a coincidence.

The countries in northern Europe that have made the biggest strides in reducing economic inequality do not fund their governments through soak-the-rich, steeply progressive taxes. Instead, they have broad-based taxes that ask all workers to contribute to a generous welfare state. Countries with highly progressive taxes that disproportionately hit the rich — like the United States — tend to have the stingiest welfare states.

THE WAY A TAX SYSTEM FIGHTS INEQUALITY ISN’T JUST REDISTRIBUTION

The figure below makes this point clearly, showing that the more progressive a country’s taxes, the less the country does to reduce inequality.

 

http://www.vox.com/2014/10/8/6946565/progressive-taxes-are-not-the-solution-to-inequality

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Intressting : Who lives where in Europe? Nationalities across the continent mapped

Can you guess where most Chinese nationals are in Europe ? The answer is Italy.

Who lives where in Europe? Nationalities across the continent mapped

People of many different countries are now living in Europe, with the continent’s residents coming everywhere from Jamaica to Tuvalu. Using data from 2011 censuses we have mapped the prevalence of different nationalities across the continent. Pick a country and the map will tell you how many people from that country live in each* European state

http://www.theguardian.com/news/datablog/interactive/2014/sep/26/who-lives-where-in-europe-nationalities-across-the-continent-mapped

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Is the Euro Ok now ?

A number of changes have been taken or proposed as a result of the financial crisis of August 2007 and the “Great Recession” that are worth discussing in terms of the euro crisis. Most important, though, are the changes of the period between late 2011 and 2012: strict budget rules, banking oversight stripped from national governments might make the European Central Bank (ECB) become “lender of last resort.” We concentrate on the most recent ones at some length before we reach conclusions as to whether the euro has been saved from the euro crisis.

The European Union (EU) summit meeting, 28/29 June 2012, took a number of decisions: banking licence for the European Stability Mechanism (ESM) that would give access to ECB funding and thus greatly increase its firepower; banking supervision by the ECB; a “growth pact,” which would involve issuing project bonds to finance infrastructure. Two long-term solutions are proposed: one is a move towards a banking union and a single euro-area bank deposit guarantee scheme; another is the introduction of eurobonds and eurobills. Germany has resisted the latter, arguing that it would only contemplate such action only under a full-blown fiscal union; not much has been implemented in any case.

See more at: http://triplecrisis.com/has-the-euro-been-saved/

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History : 6 September 2011 : Swiss National Bank acts to weaken strong franc

The Swiss National Bank (SNB) has set a minimum exchange rate of 1.20 francs to the euro, saying the current value of the franc is a threat to the economy.

http://www.bbc.com/news/business-14801324

“The Japanese example with yen intervention teaches us that intervention can work in the very short term but changing long-term global currency flows is near impossible – a lesson that the UK learned from George Soros,” Cooper said.

http://www.theguardian.com/business/2011/sep/06/switzerland-pegs-swiss-franc-euro

The long rumored Swiss Franc peg has arrived…

The Swiss National Bank is tired of the surging Franc, and is taking intervention to the next level.

Read more: http://www.businessinsider.com/wow-swiss-national-bank-takes-intervention-to-a-new-level-franc-plunges-2011-9#ixzz3CjnOQLC7

Exploiting the franc peg

We already are seeing some market parallels with the early signs of the great financial crisis of 2007-08: Peaking global inflation rates, topping formations in G10/emerging market equities and tightening bank liquidity. As European banks rush to raise funds and borrow U.S. dollars, their borrowing cost on USD funding has risen to its highest since 2008. But one thing is different — the Swiss franc.

The Swiss currency is no longer rallying the way it did during market distress on Eurozone debt concerns. It all changed when the Swiss National Bank (SNB) announcement pegging its currency against the euro at the EUR/CHF rate of 1.20, aimed at preventing excessive franc acceleration against the debt-ridden euro. As credit rating agencies rushed to downgrade the sovereign debt of Southern Europe in late 2009, investors rushed their savings out of the single currency and into safe-haven francs. The exodus took the form of cash flight, property sales and bank transfers as “default” became a recurring theme in Greece, Spain, Portugal Greece, Ireland and Italy.

Consequently, the franc soared 35% and 40% against the euro and the USD respectively from 2009 to September 2011.

http://www.futuresmag.com/2012/01/01/exploiting-the-franc-peg

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