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The (irreversible) crisis of the European Union

Giancarlo Elia Valori

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According to a well-known Italian Research Centre, from 2003 to 2014 the European single currency cost an 11% GDP reduction throughout the Eurozone and 18 million additional unemployed people. Conversely, as a result of the Maastricht agreement only, throughout the Eurozone we have lost 8 million jobs and an additional 5% of Gross Domestic Product, owing to the obligation to eliminate deficit and cut investment.

Furthermore, the report of said Research Centre shows that, again in late 2014, the average EU unemployment rate was approximately 11.6%.

In a scenario of parity with the dollar, the EU unemployment in the Eurozone would have been 5.8%, more or less the same as the US rate in that phase.

Hence a monetary policy characterized by an excessive overvaluation of the European currency blocked both exports and the internal market at the same time.

Furthermore, it created the conditions for a deterioration of public budgets in terms of deficit and debt.

In fact, again at the end of 2014, the Eurozone recorded a public deficit totalling 269 billions which, without the single currency, would even be turned into a surplus of 165 billion euro, with a difference equal to 445 billions.

In terms of GDP percentage, the difference would be 4.1 points while, with specific reference to the Eurozone’s public debt, we would have had three trillion euro less.

Only for Italy, as many as 400 billion public debt less.

Working on this assumption, all current evils would have been avoided if there had not been the overvaluation of the euro against the dollar.

There would have not been the massive impact of the financial crisis coming from the United States, at first with Lehman Brothers’ bankruptcy on September 15, 2008 and later with the recurrent banking crises in Europe, which put a strain on the public finances of major European governments.

Considering that all EU governments were accustomed to borrow huge sums directly from the banking system, we can imagine the effects of the financial and credit crisis on the various European countries’ budgets.

It is worth recalling that the United States have never liked the euro – quite the reverse they have always considered it “imaginative and useless”, as former President George Bush I stated in recently-published public papers.

Reading between the lines of its official documents, the EU itself maintains that the financial crisis came from the United States and that it made serious mistakes.

Also according to the EU official documents, the mistakes were allegedly the following:

1) too much attention focused on the public budget deficit on an yearly basis, without being too much worried about the public debt as a whole.

According to European standards, the EU government submitted reduced annual budgets for obtaining EU funding – later obviously the public debt increased anyway and real trouble came.

Also thanks to the EU operating logic, the naive myth that the crisis was not structural and could be managed with some cosmetic measures has led to the current decline.

Said decline has been triggered off by the rapid growth of interest rates on the EU Southern countries’ public debt.

2) Again according to the EU papers, there has also been a lack of surveillance over competitiveness and macroeconomic imbalances. This is not great news. However, there is always someone who benefits from the economic disharmonies – just to use the old terminology of the remarkable Italian philosopher Mario Calderoni – while others stand to lose as a result of them. There has never been a solidarity-based Europe during crises, but only in “good times”.

Therefore, in the losing countries, we recorded growing indebtedness of the private sector, not controlled owing to the myth of companies’ autonomy – and hence an increasing weakening of banks.

The other EU “winning” countries took over the losers’ market shares. Again, instead of imposing draconian penalties which worsen the economic problems, we should have supported the weakest economies and the most unbalanced ones in terms of trade with the United States.

The United States exported their mass of bad loans, disguised as new securities, to the European Union, the financial enemy that had dreamt of relegating the dollar to the rank of a Euro ancillary currency.

There was also this geopolitical war within the crisis of the European currency.

Moreover, the European Central Bank aimed at maintaining financial stability but, by statute, it could not buy public debt from other non-EU countries, as all issuing banks do.

This is the main way in which central banks can nip in the bud speculative attempts against them.

Furthermore, in Italy, as in other South Europe’s economies, foreign competition has kept wages at very low levels and, in dealing with competition for exports, our political and economic structure has only reduced the labour incomes almost to the level of the worst competitor.

3) Another EU public self-criticism is relating to the slow decision-making mechanism: the European establishment has interpreted the small shocks of the global crisis as isolated phenomena and not as a common geoeconomic problem. Hence the slow pace and often the ineffectiveness of the EU “solutions”.

And this faced with a “market” – if we may call it so – of investors who, as soon as they saw the crisis in the South, played a downward game or went away quickly. Good old days when the Treasury rightly bought the unsold debt securities at the Bank of Italy’s auctions. And, it is worth noting that, in so doing, it did not create inflation at all.

Currently, however, markets are fast like jackals, which smell corpses, while States have been slow as marmots. This is the real problem of today’s politicians.

States must increase their pace and be very quick and capable of understanding both adverse media and the political and military operations which are objectively dangerous for them.

Moreover considering that, at the time, the public debt securities were held mostly by banks, their default was possible and easy to take place.

Today there is a new crisis looming large on Europe, namely the crisis of non-performing loans: in Portugal, Italy and Spain, but also in some North European countries, the non-performing loans are worth over 540 billion euro. Hence shortly another European debt crisis will materialize.

4) Currently the European Union is basically a Gaullist-style “Europe of States” – even though it strongly denies so.

Hence the idea of creating the “United States of Europe” is extraordinary nonsense: the EU Member States are so different from one another, and with such a diversified economy, that these “United States of Europe” would create more contrasts internally than externally, namely with the United States of America, Russia and China.

Not to mention that, with a view to becoming today’s USA, America had to undergo a wide civil war, whose echoes are not completely over even today.

5) Moreover, the united Europe – and I am talking about the Euro zone – will be increasingly entangled in an area of structural deflation which condemns ‘Italy, together with other less economically strong countries, to face an indefinite period of very low growth rates.

On the contrary, the other North European countries will continue to grow and, above all, will not have to tackle the same problems we have, namely low wages and exports facing fierce competition, not protected by the Euro.

6) Hence what can be done? We must prepare for a slow but safe exit from the Euro, not waiting for the EU “bureaucratic Caesarism”, as well as redefining and protecting our export area.

Then we must use our credit instruments and debt securities as alternative currency, where possible – as well as use some well-disguised protectionism also vis-à-vis the EU itself.

Finally, we must rethink our overall strategy, which we have never done. The economic crises are always geopolitical crises.

Furthermore we must fund the companies’ technological upgrade projects with State funds, without waiting for the EU claims.

Last but not least, we must put an end to young people’s “brain drain”. It is true that, as some liberal-masochists maintain, the current professions’ market is global, but it is also true that the cost of their education and training has been borne by our State and our families.

Advisory Board Co-chair Honoris Causa Professor Giancarlo Elia Valori is an eminent Italian economist and businessman. He holds prestigious academic distinctions and national orders. Mr Valori has lectured on international affairs and economics at the world’s leading universities such as Peking University, the Hebrew University of Jerusalem and the Yeshiva University in New York. He currently chairs "La Centrale Finanziaria Generale Spa", he is also the honorary president of Huawei Italy, economic adviser to the Chinese giant HNA Group and member of the Ayan-Holding Board. In 1992 he was appointed Officier de la Légion d'Honneur de la République Francaise, with this motivation: "A man who can see across borders to understand the world” and in 2002 he received the title of "Honorable" of the Académie des Sciences de l'Institut de France

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Europe

From Davos to Munich

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An overview of the views and attitudes of European officials during the Davos and Munich Conference and their comparison with each other suggests that the security, economic, and political concerns of European countries have not only not diminished but are increasing.

During the World Economic Summit in Davos, the Chancellor of Germany and the President of France both gave a significant warning about the return of nationalism and populism to Europe. This warning has been sent in a time when Far-Right movements in Europe have been able to gain unbelievable power and even seek to conquer a majority of parliaments and form governments.

In her speech, Angela Merkel emphasized that the twentieth century’s mistake shouldn’t be repeated. By this, the German Chancellor meant the tendency of European countries to nationalism. Although the German Chancellor warning was serious and necessary, the warning seems to be a little late. Perhaps it would have been better if the warning was forwarded after the European Parliamentary elections in 2014, and subsequently, more practical and deterrent measures were designed. However, Merkel and other European leaders ignored the representation of over a hundred right-wing extremist in the European Parliament in 2014 and merely saw it as a kind of social excitement.

This social excitement has now become a “political demand” in the West. The dissatisfaction of European citizens with their governments has caused them to explicitly demand the return to the twentieth century and the time before the formation of the United Europe. The recent victories of right wing extremists in Austria, Germany and…, isn’t merely the result of the nationalist movement success in introducing its principles and manifestos. But it is also a result of the failure of the “European moderation” policy to resolve social, security and economic problems in the Eurozone and the European Union. In such a situation, European citizens find that the solutions offered by the moderate left parties didn’t work in removing the existing crises in Europe. Obviously, in this situation “crossing the traditional parties” would become a general demand in the West. Under such circumstances, Merkel’s and other European leaders’ warnings about the return to the twentieth century and the time before the formation of the United Europe simply means the inability of the Eurozone authorities in preventing the Right-extremism in the West.

These concerns remain at the Munich Security Conference. As Reuters reported, The defense ministers of Germany and France pledged to redouble their military and foreign policy cooperation efforts on Friday, inviting other European countries to participate if they felt ready to do so.
In a speech to the Munich Security Conference, German defense minister Ursula von der Leyen said Europe’s countries would not be able to respond nimbly enough to global challenges if they were stymied by the need to decide joint foreign policy approaches unanimously.

“Europe has to up its pace in the face of global challenges from terrorism, poverty and climate change,” she said. “Those who want to must be able to advance without being blocked by individual countries.”

Her French counterpart Florence Parly said any such deepened cooperation would be complementary to the NATO alliance, which itself was based on the principle that members contributed differently depending on their capacities.

“The reality has always been that some countries are by choice more integrated and more able to act than others,” she said.

The push comes as Germany’s political class reluctantly concedes it must play a larger security role to match its economic pre-eminence in Europe, amid concerns that the European Union is unable to respond effectively to security concerns beyond its eastern and southern borders.

But in their deal for another four years of a “grand coalition” government, Chancellor Angela Merkel’s conservatives and the Social Democrats have agreed to boost spending on the armed forces after years of post-Cold War decline.

The deal, which must still be ratified by the Social Democrat membership, comes as Germany reluctantly takes on the role of the continent’s pre-eminent political power-broker, a role generations of post-war politicians have shied away from.

Days after U.S. Secretary of Defense James Mattis reiterated President Donald Trump’s demand that European countries spend more on their militaries, Von der Leyen pledged to spend more on its military and the United Nations, but called in return for other countries not to turn away from mulitlateralism.

The pledges come as the EU seeks a new basis on which to cooperate with Britain, traditionally one of the continent’s leading security players, after its vote to leave the EU.

Earlier on Friday, the leaders of the three countries’ security services said close security cooperation in areas like terrorism, illegal migration, proliferation and cyber attacks, must continue after Britain’s departure.

“Cooperation between European intelligence agencies combined with the values of liberal democracy is indispensable, especially against a background of diverse foreign and security challenges,” they said.

First published in our partner Tehran Times

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Election Monitoring in 2018: What Not to Expect

Alina Toporas

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This year’s election calendar released by OSCE showcases a broad display of future presidential, parliamentary and general elections with hefty political subjecthoods which have the potential of transforming in their entirety particularly the European Union, the African Union and the Latin American sub-continent. A wide sample of these countries welcoming elections are currently facing a breadth of challenges in terms of the level of transparency in their election processes. To this end, election observation campaigns conducted by the OSCE Office for Democratic Institutions and Human Rights (ODIHR), the Council of Europe, the Organisation for American States (OAS), the United Nations Electoral Assistance Division, the National Democratic Institute, Carter Center and even youth organisations such as AEGEE and Silba are of paramount importance in safeguarding the incorruptibility of election proceedings in fraudulent and what cannot be seen with the naked eye type of fraudulent political systems, making sure elections unfold abiding national legislation and international standards.

What exactly does an election observation mission supposed to accomplish?   

An election monitoring mission consists of operational experts and analysts who are all part of a core team and are conducting their assignments for a period of time varying between 8 and 12 weeks. Aside from the core team experts and analysts, there can be short-term or long-term observers and seconded observers or funded observers. Joining them, there is usually a massive local support staff acting as interpreters and intermediaries. Generally, an election observer does not interfere with the process, but merely takes informative notes. With this in mind, it is imperative of the observer to make sure there isn’t any meddling with votes at polling stations by parties and individual candidates; that the people facilitating the election process are picked according to fair and rigorous benchmarks; that these same people can be held accountable for the final results and that, at the end of the day, the election system put in place by the national and local authorities is solid from both a physical and logical standpoint. Oftentimes, particularly in emerging democracies, the election monitoring process goes beyond the actual process of voting by extending to campaign monitoring.

In practical terms, the average election observer needs to abide by certain guidelines for a smooth and standardised monitoring process. Of course, these rules can vary slightly, depending on the sending institution. Typically, once the election observer has landed in the country awaiting elections, their first two days are normally filled with seminars on the electoral system of the country and on the electoral law. Meetings with candidates from the opposition are sometimes organised by the electoral commission. Talking to ordinary voters from builders to cleaners, from artists to businesspeople is another way through which an election observer can get a sense of what social classes pledged their allegiances to what candidates. After two days in training and the one day testing political preferences on the ground, election day begins. Since the early bird gets the worm, polling stations open at least two hours earlier than the work day starts, at around 7am. Throughout the day, observers ask voters whether they feel they need to complain about anything and whether they were asked to identify themselves when voting. Other details such as the polling stations opening on time are very much within the scope of investigation for election monitors. Observers visit both urban voting centres and rural ones. In the afternoon, counting begins with observers carefully watching the volunteers from at least 3 metres away. At the end of the day, observers go back to their hotels and begin filling in their initial questionnaires with their immediate reactions on the whole voting process. In a few weeks time, a detailed report would be issued in cooperation with all the other election observers deployed in various regions of the country and under the supervision of the mission coordinators.   

Why are these upcoming elections particularly challenging to monitor?  

Talks of potential Russian interference into the U.S. elections have led to full-on FBI investigations. Moreover, the idea of Russian interference in the Brexit vote is slowly creeping into the British political discourse. Therefore, it does not take a quantum physicist to see a pattern here. Hacking the voting mechanism is yet another not-so-classic conundrum election observers are facing. We’re in the midst of election hacking at the cognitive level in the form of influence operations, doxing and propaganda. But, even more disturbingly, we’re helpless witnesses to interference at the technical level as well. Removing opposition’s website from the Internet through DDOS attacks to downright political web-hacking in Ukraine’s Central Election Commission to show as winner a far-right candidate are only some of the ways which present an unprecedented political savviness and sophistication directed at the tampering of the election machinery. Even in a country such as the U.S. (or Sweden – their elections being held September of this year) where there is a great deal of control over the physical vote, there is not much election monitoring can do to enhance the transparency of it all when interference occurs by way of the cyber domain affecting palpable election-related infrastructure.

Sketching ideational terrains seems like a fruitful exercise in imagining worst-case scenarios which call for the design of a comprehensive pre-emptive approach for election fraud. But how do you prevent election fraud? Sometimes, the election observer needs to come to terms with the fact that they are merely a reporter, a pawn which notwithstanding the action of finding oneself in the middle of it all, can generally use only its hindsight perspective. Sometimes, that perspective is good enough when employed to draft comprehensive electoral reports, making a difference between the blurry lines of legitimate and illegitimate political and electoral systems.

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Can Europe successfully rein in Big Tobacco?

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Photo by Mateo Avila Chinchilla on Unsplash

In what looks set to become the ‘dieselgate’ of the tobacco industry, a French anti-smoking organization has filed a lawsuit against four major tobacco brands for knowingly selling cigarettes with tar and nicotine levels that were between 2 and 10 times higher than what was indicated on the packs. Because the firms had manipulated the testing process, smokers who thought they were smoking a pack a day were in fact lighting up the equivalent of up to 10, significantly raising their risk for lung cancer and other diseases.

According to the National Committee Against Smoking (CNCT), cigarettes sold by the four companies have small holes in the filter that ventilate smoke inhaled under test conditions. But when smoked by a person, the holes compress due to pressure from the lips and fingers, causing the smoker to inhale higher levels of tar and nicotine. According to the lawsuit, the irregularity “tricks smokers because they are unaware of the degree of risk they are taking.”

It was only the most recent example of what appears to be a deeply entrenched propensity for malfeasance in the tobacco industry. And unfortunately, regulatory authorities across Europe still appear unprepared to just say no to big tobacco.

Earlier this month, for instance, Public Health England published a report which shines a positive light on “tobacco heating products” and indicates that electronic cigarettes pose minimal health risks. Unsurprisingly, the UK report has been welcomed by big tobacco, with British American Tobacco praising the clear-sightedness of Public Health England.

Meanwhile, on an EU-wide level, lawmakers are cooperating too closely for comfort with tobacco industry executives in their efforts to craft new cigarette tracking rules for the bloc.

The new rules are part of a campaign to clamp down on tobacco smuggling, a problem that is particularly insidious in Europe and is often attributed to the tobacco industry’s own efforts to stiff the taxman. According to the WHO, the illicit cigarette market makes up between 6-10% of the total market, and Europe ranks first worldwide in terms of the number of seized cigarettes. According to studies, tobacco smuggling is also estimated to cost national and EU budgets more than €10 billion each year in lost public revenue and is a significant source of cash for organized crime. Not surprisingly, cheap availability of illegally traded cigarettes is also a major cause of persistently high smoking rates in the bloc.

To help curtail cigarette smuggling and set best practices in the fight against the tobacco epidemic, the WHO established the Framework Convention on Tobacco Control (FCTC) in 2005. The first protocol to the FCTC, the Protocol to Eliminate Illicit Trade in Tobacco Products, was adopted in 2012 and later ratified by the EU. Among other criteria, the Protocol requires all cigarette packs to be marked with unique identifiers to ensure they can be tracked and traced, thereby making smuggling more difficult.

Unsurprisingly, the tobacco industry has come up with its own candidates to meet track and trace requirements, notably Codentify, a system developed by PMI. From 2005 through 2016, PMI used Codentify as part of an anti-smuggling agreement with the EU. But the agreement was subject to withering criticism from the WHO and other stakeholders for going against the Protocol, which requires the EU and other parties to exclude the tobacco industry from participating in anti-smuggling efforts.

The EU-PMI agreement expired in 2016 and any hopes of reviving it collapsed after the European Parliament, at loggerheads with the Commission, overwhelmingly voted against a new deal and decided to ratify the WHO’s Protocol instead. Codentify has since been sold to the French firm Impala and was rebranded as Inexto – which critics say is nothing but a front company for PMI since its leadership is made out of former PMI executives. Nonetheless, due to lack of stringency in the EU’s draft track and trace proposal, there is still a chance that Inexto may play a role in any new track and trace system, sidelining efforts to set up a system that is completely independent of the tobacco industry.

This could end up by seriously derailing the EU’s efforts to curb tobacco smuggling, given the industry’s history of active involvement in covertly propping up the black market for cigarettes. In 2004, PMI paid $1.25 billion to the EU to settle claims that it was complicit in tobacco smuggling. As part of the settlement, PMI agreed to issue an annual report about tobacco smuggling in the EU, a report that independent researchers found “served the interests of PMI over those of the EU and its member states.”

Given the industry’s sordid history of efforts to prop up the illicit tobacco trade, it’s little surprise that critics are still dissatisfied with the current version of the EU’s track and trace proposal.

Now, the CNCT’s lawsuit against four major tobacco firms gives all the more reason to take a harder line against the industry. After all, if big tobacco can’t even be honest with authorities about the real levels of chemicals in their own products, what makes lawmakers think that they can play a viable role in any effort to quell the illegal cigarette trade – one that directly benefits the industry?

Later this month, the European Parliament will have a new chance to show they’re ready to get tough on tobacco, when they vote on the pending proposal for an EU-wide track and trace system. French MEP Younous Omarjee has already filed a motion against the system due to its incompatibility with the letter of the WHO. Perhaps a ‘dieselgate’ for the tobacco industry might be just the catalyst they need to finally say no to PMI and its co-conspirators.

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