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Fair Trade – an alternative made to Aid and Free Trade?

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“Trade not Aid”: this used to be the slogan of third-worldist movements in the mid-1960s, an epoch when intellectual figures in the Third World were denouncing the unequal exchange between the capitalist Center and the Periphery.

The aim was then to challenge the capitalist system at its very basis. Forty years later, in a global neoliberal context, it seems that the issue of unequal exchange has resurfaced through the Fair Trade movement, a movement which purports to help the poorest and most marginalized producers of the global South. Based on the perceived failures of aid and free trade paradigms, the Fair Trade protagonists count on the generosity and solidarity of Northern consumers in order to achieve fairer trade relationships between the North and the South.

The Fair Trade movement is not monolithic however. There are at least two conflicting visions inside the movement. First, there is “historical” or “alternative” Fair Trade. In this approach, economic intermediaries are specialised in the distribution and/or sale of ‘Fair’ products – agricultural products or handicrafts – which are purchased from producers in the South by specialised group purchasing organisations in order to be sold in dedicated shops in the North. The rationale here is to create alternative trade channels operating outside standard distribution networks and where agrifood giants are excluded. At the global level, the World Fair Trade Organization (WFTO) federates specialised/alternative Fair Trade organisations.

Since the 1980s, another approach, the labelling one, has progressively imposed itself. It is epitomized by the Max Havelaar/Fairtrade label. Unlike the previous approach that certifies “organisations”, the labelling approach only certifies “products”. As there is no requirement to be ‘100 per cent fair-trade specialised’ in order to obtain a licence for the sale or distribution of Fair Trade products, the sale/distribution of certified products is in theory available to all corporations, provided that they comply with specific standards and pay their annual licence fees to the label holder (namely the national labelling initiative). As a result, the classical sale and distribution channels can be more easily integrated.

In this approach, producer organisations in the South that wish to sell their products under Fair Trade conditions must first of all obtain certification, which is subject to complying with the standards

defined in this respect by the certification organisation. It is also important to point out that the label holder does not buy or sell any product. It rather trades the use of the said label. At the international level, Fairtrade International is the federating entity whose mission is to promote the Fair Trade label. Created in 1997, Fairtrade International is based in Bonn, Germany.

The evolution of the Fair Trade movement from an “alternative” approach to a “product certification” approach has sparked many debates. The Max Havelaar/Fairtrade approach has often been accused of having betrayed the original mission of the Fair Trade movement. By working with agrifood giants and standard distribution channels, evolution that has helped boost his sales to unprecedented levels (4.9 billion euros in 2011), it would provide an opportunity of “greenwashing” for these controversial actors.

I will not follow this line of argumentation here. Rather, I will try to defend the idea that the Max Havelaaar/Fairtrade approach (abbreviated by FT), as it is currently conceived and as it currently works, is an alternative neither to aid nor to free trade. In some ways, as we will see, it tends to reproduce their shortcomings.

I – The Fair Trade economic model in theory

Developing countries producers face generally three kinds of interrelated issues in conventional markets: the price of their product are often very volatile; the price they receive for their products tend to be low, sometimes below the cost of production, and non-sustainable ecologically and humanely; due to the influence of middlemen and inequalities of power, their share of the added value created in agricultural value chains tend to be low, even in the circumstances when the price of their products is booming.

To address the issue of price volatility, the FT economic model sets for each product a guaranteed minimum price. The second issue is addressed by making sure that the guaranteed minimum price covers the cost of a “sustainable production” (that is a production which is environment-friendly and which is associated with decent working conditions for producers) and by the payment of an additional premium (which amounts to a pre-defined fraction of the FT volume sold by each producer organisation). As for the exploitation of producers by “unfair” middlemen, the issue is supposed to be tackled by the certification process (only buyers complying with FT standards are able to enter FT value chains).

The crucial element of the FT economic model is however the availability of “ethical consumers” from the North who are ready to pay a higher price for products labelled FT. This element of solidarity forms the basis without which the model is simply impracticable. The growth of FT markets is ultimately dependent on the growth of the population of “ethical consumers”. Hence the strong need for the FT movement to have recourse to awareness and marketing campaigns.

This is in a nutshell the logic, or the spirit, of the FT economic model.

Though the rhetoric of FT activists might sound progressive and opposed to free trade, as a matter of fact, the FT economic model obeys in practice to a neoliberal logic. I must add that this unexpected and unfortunate outcome derives from the premises of the FT economic model itself.

II – Some limitations of the FT economic model

For the FT economic model to be efficient and to be considered as a superior alternative to free trade, it has at least to provide to producer organisations better outcomes in terms of prices and market access compared to conventional international trade. However, owing to the way in which it has been conceived, there is no guarantee a priori that producers involved in the FT movement should be better-off than conventional producers, or at least that the FT economic model can help stabilise or improve the revenues of FT producers.  

First, there are limits to the “generosity” of the FT minimum price. If it is too high relative to standard price observed in conventional markets, there is the risk that consumers will be discouraged to buy FT products. However, if the FT minimum price is not generous enough, it will probably not have a significant effect on poverty. In other words, there is a trade-off to be made between the need to ensure the growth of FT markets and the need for the FT movement to have a significant economic impact for the producer organisations involved. Given the high level of competition in the field of “ethical consumption” (with the proliferation of “ethical labels” with varying standards), there is a growing tendency in the FT movement to privilege FT sales growth, tendency which implies to lower standards and to align FT prices more closely to conventional market prices.

Second, contrary to a popular belief, the disposal of a FT label does not guarantee producer organisations that they will be able to sell all of their FT production at FT conditions. Labelling initiatives can just simply define the rules of the game for FT markets (certification, minimum price,

pre-financing, traceability, etc.) and try to ensure that standards are enforced. They cannot guarantee that each producer organisation involved in the movement will have access to FT markets. They cannot guarantee either that buyers involved in the movement will pay a price higher to FT minimum price. In other words, as in conventional markets, market access and prices are also determined on a competitive basis in the FT value chains. Free trade logic takes place once FT rules and standards are accepted by the different protagonists in the FT value chains. As underscored by one author: “Fair Trade does not pose any challenge to the free market system; rather it is a part of that system that increases the welfare of a target group through a speciality market” (Mohan, 2010: 45/6).

Following this free trade logic, it is not a surprise that FT producer organisations are generally recruited not from the most marginalized but from the better-off among them. Producer organisations that have some “social capital” and some international ties are those that are more likely to enter the FT value chains.

“Over-certification” is the other unfortunate implication of this free trade logic. “Over-certification” means that some FT production (production obtained by following FT standards) had not been sold according to FT conditions. According to estimates from F air t r a d e I n t e r n a tio n al (FLO), over- certification concerns on average 30 per cent of the volume produced by producer organisations and up to 70 per cent in the case of “hired-labour” (that is plantation wage workers) organisations. Note however that some case studies tend to report higher over-certification rates. Whatever the case, one scenario must be borne in mind: as FT producer organisations tend to have higher costs on average, they might incur huge losses in the case where their “over-certified” production is sold on conventional markets at prices below their costs.

These limitations regarding price-setting mechanisms and market access explain why the local impact of the FT movement is generally mixed. In some circumstances, involvement in Fair Trade has proved beneficial for producer organisations. In other circumstances, this had not been the case.

III – The global impact of FT

If the evidence regarding the local impact of the FT label tends to be mixed, it is all but unambiguous regarding its global impact. It is at this latter level of evaluation that the shortcomings of the FT economy are more apparent. We must say that if Fair trade has been a huge marketing success (revealed by the important sales growth rates recorded until now), it remains until now a very insignificant part of the world trade system.

As an alternative economic model which aims to supersede aid and free trade, the FT approach tends to generate low average revenues for producer organisations involved in it. In 2008, the gross average revenues that accrued to producer organisations amounted to 74 Euros annually per worker. This figure which represents 16 per cent of the average GDP per capita of the Least Developed Countries in 2008 is not measured net , i.e. costs are not deducted.

As a transfer mechanism, the FT economic model seems also to lack efficiency. To take the case of the United States, for each dollar paid by “ethical consumers” to buy a FT coffee product, only 0.03 dollars are actually transferred to producer organisations. This low rate of transfer is illustrative of the fact that the surplus paid by consumers is appropriated by intermediaries, including the labelling initiatives.

If the FT economic model is supposed in principle to benefit producers in the poorest countries, in actual practice, the FT movement targets more those in the richest developing countries. The Least Developed Countries are for example underrepresented among FT producer organisations (13 per cent of the total). This outcome derives from the bias associated with the FT certification model. To be involved in the FT value chains, producer organisations have to pay for the certification (which is to be renewed annually). Given that the certification process is relatively costly, this tends to favour producers in countries with a higher level of development. There is also the fact that the offer of certification by labelling initiatives is biased towards products exported by Latin America countries (coffee and bananas for example), a region which is on average richer than Africa and developing regions in Asia.

Besides excluding producers in the poorest countries, the FT movement tends also to marginalise the countries which are the most dependent of the revenues obtained from the exports of primary products. To illustrate this, let’s take for example the case of coffee, the FT flagship product. Ethiopia and Burundi are the two countries most dependent in the world on coffee revenues which account respectively for 34 and 26 per cent of their export revenues. Until 2009, there were only three FT coffee certifications in Ethiopia and none in Burundi. Paradoxically, Mexico and Peru which are not dependent at all on coffee exports (less than two per cent of their export revenues) accounted for 31 per cent of the total FT coffee certifications, that is a share superior to those of Latin America countries like Honduras and Nicaragua which are much more dependent on coffee exports. For products like bananas and cocoa, the same pattern can be observed. In these different cases, the geography of trade flows obeys the classic determinants of conventional trade flows: development level and distance. American buyers of FT products will prefer to buy FT coffee in Mexico at lower costs than to travel until Burundi just to make the world trade exchanges “fairer”!

Conclusion

Despite the generous intentions of its protagonists, the FT economic model is not in practice an alternative to aid and free trade. It tends rather to reproduce their deficiencies, those of free trade notably. If the FT label has been more successful than previous attempts (“historical” Fair Trade) in terms of sales, it owes that performance to its association with standard distribution networks and the giants of the agrifood business, i.e. the same actors who are considered by many as responsible for a non-negligible part for the “unfairness” of the international trade system. Looking at its global socioeconomic impact, the limits of the FT economic model are certainly illustrated by the way in which it marginalises the poorest producers and the most dependent countries as well as it low average returns.

However, the most important criticism that can be levelled at the FT movement is that it does not challenge the current structure of the international trade system. Its acceptance of the current global division of labour is a serious impediment to the achievement of fairer distributional outcomes. For producer organisations in developing countries are not poor because they receive low prices. The fundamental reason is that they are trapped in low-productivity economic activities. Unless developing countries change their economic specialisation, by starting to process locally their own primary products, it will be in vain to expect a strong economic development. Centuries of history within the capitalist global system show that specialisation in the exports of primary products is not conducive to economic development. That lesson is still to be learnt by the FT movement.

The current challenge is not to adapt to the current neoliberal order (what the FT movement does) but to transform it. This radical idea of “alternative” Fair Trade remains relevant more than ever. Its practicability will no doubt necessitate stronger mechanisms of international solidarity between peoples.

References

Mohan, Sushil (2010) Fairtrade without the Froth: A Dispassionate Economic Analysis of ‘Fair Trade’ (London: Institute of Economic Affairs).

Sylla, Ndongo Samba (2014)

The Fair Trade Scandal. Marketing Poverty to Benefit the Rich (Pluto

Press; Ohio University Press).

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Economy

Convergence Of Competitive Markets And Indian Elections

Joseph Abraham

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If competition is a key component of a flourishing economy, it is equally true that competition in electoral politics and elections is a powerful force for the healthy growth of a vibrant democracy enhancing legitimacy of political parties and their responsiveness to the aspirations of the electorate.

Viewed from the Indian perspective, there is a striking identity between the rights of consumers in the free market economy and the rights of voters in our political democracy. Equally noteworthy is the identity of the fundamental principles governing the rule of law in the free market system, the institutional arrangements for safeguarding consumer rights and the rule of law of elections and the regulatory environment for monitoring the functioning of a free and fair electoral democracy. The free market system ensures the best available goods and services are offered to the consumer at the optimal price following the principles of free market competition without restrictive and unfair trade practices enforced through the Consumer Protection Act1986 and the Competition Act 2002. 

 In the democratic system, the voters are given the right to elect the best available persons as people’s representatives through conducting elections in a free and fair manner which forms the bedrock of democracy. This is ensured by the Election Commission through the enforcement of the Guidelines of Model Code of Conduct for political parties and candidates during elections mainly with respect to speeches, polling day, polling booths, portfolios, election manifestos, processions and general conduct. Thus, while the role of a Referee in the free market system in India is played by the Consumer Disputes Redressal Forum and Competition Commission of India, the rules of  free and fair elections in  political democracy are enforced by the Election Commission of India.    

In a market economy, competition facilitates a host of benefits: awareness and market penetration, higher quality at same prices, increase in demand and consumption through competitive pricing, product differentiation, upgradation and innovation, improvements in efficiency of production at optimal levels by minimising cost and losses and increasing customer service and satisfaction. Competition in politics and elections elevates the voter to a pivotal role in democracy as that given to the consumer in a market driven economy. Electoral candidates vie for votes by promising reforms such as better governance, greater socio-economic equity and positive measures for poverty alleviation.

Each political party through its campaigns, manifesto and other propaganda machinery strives hard to win the maximum number of voters in electoral democracy transforming it as a political free market system with fierce competition  between the players similar to the efforts of sellers in the  free market economy to attract the maximum number of customers.

A   free market system across the globe,  is characterised by the existence of not only the  most efficient firms but also several  inefficient ones who are unable to produce the best quality goods and services  at lowest prices and even  those resorting to fraudulent ,  restrictive and unfair trade practices. Similarly, in political democracy and elections around the world,  besides politicians and parties with high degree of integrity and democratic values, there are those with criminal records, adopting ideologies prejudiced by notions of  race,  caste, colour, gender and religion based politics, and those charged with allegations of vote buying etc. which continues to undermine the democratic process.

Consumer Rights in a Free Market Economy

In India,  the interests of the  consumer in the market economy from restrictive, unfair and anti-competitive trade practices by firms  is safeguarded through several strong legal provisions which inter alia includes  the enactment of the  Consumer Protection Act 1986  and the Competition Act 2002. In addition, consumers rights in the economy are further protected through The Indian Contract Act, 1872, The Sale of Goods Act, of 1930 and  The Agriculture produce Act of 1937.   This is further strengthened by the establishment of supportive quasi-judicial institutional arrangements i.e the Consumer Disputes Redressal Commission at the National, State and District level as well as the Competition Commission of India.

The main objective of the competition law of India is to promote economic efficiency using competition as one of the means of assisting the creation of market responsive to consumer preferences. The advantages of perfect competition are three-fold: allocative efficiency which ensures that costs of production are kept at a minimum and dynamic efficiency which promotes innovative practices.

To achieve its objectives, the Competition Commission of India endeavours to do the following:

  • Make the markets work for the benefit and welfare of consumers
  • Ensure fair and healthy competition in economic activities in the country for faster and inclusive growth and development of the economy.
  • Implement competition policies with an aim to effectuate the most efficient utilization of economic resources.
  • Develop and nurture effective relations and interactions with sectoral regulators to ensure smooth alignment of sectoral regulatory laws in tandem with the competition law.
  • Effectively carry out competition advocacy and spread the information on benefits of competition among all stakeholders to establish and nurture completion culture in Indian economy.

Voters Rights in a Political Democracy

As a free market economy cannot sustain consumer rights without supportive legal and institutional framework, there is little doubt that for the survival of a free and fair democracy, the rule of law should prevail and it is necessary that the best available persons should be chosen as people’s representatives for proper governance of the country (Gadakh Yashwantrao Kankararao v Balasaheb Vikhepati lAIR 1994 SC 678). India isa sovereign, socialist, secular democratic republic. Democracy is one of the inalienable basic features of the Constitution of India and forms parts of its basic structure (Kesavanand Bharati v State of Kerala and Others AIR 1973 SC 1461). The concept of democracy, as visualised by the Constitution, pre-supposes the representation of the people in Parliament and State Legislatures by the method of election (N.P.Punnuswami v Returning Officer Namakka lAIR 1952 SC 64).

 Accordingly, in India,  in the  realm of political democracy and elections, the interests of the voters and electorate  is safeguarded through the Constitution of India,  Representation  of the People’s Act 1950 and 1951,Presidential and Vice Presidential Elections Rules 1974, Registration of Electors Rules 1960 and Conduct of Elections Rules 1961.

In India, the above legal provisions of elections and voting under political democracy    are administered and further supplemented by the Election Commission’s directions and instructions on all aspects. The underlying principle of  parliamentary democracy enforced by the Election Commission of India  is to ensure free and fair elections for which there are three pre-requisites: (1) an authority to conduct these elections, which should be insulated from political and executive interference, (2) set of laws which should govern the conduct of elections and in accordance whereof the authority charged with the responsibility of conducting these elections should hold them, and (3) a mechanism whereby all doubts and disputes arising in connection with these elections should be resolved. The Constitution of Indi has paid due attention to all these imperatives and duly provided for all the three matters.

The Constitution has created an independent Election Commission of India in which vest the superintendence, direction and control of preparation of electoral rolls for, and conduct of elections to, the officers of president and Vice President of India and Parliament and State Legislatures (Article 324). A similar independent constitutional authority has been created for conduct of elections to municipalities, panchayats and other local bodies (Articles 243 K and 243 ZA) along with legal and institutional provisions for  settlement of disputes relating to elections.

Model Code of Conduct in India

Election Commission of India  has laid down a set of guidelines for conduct of political parties and candidate during elections. The main points of code of conduct are:

  1. The government may not lay any new ground for projects or public initiatives once the Model Code of Conduct comes into force.
  2. Government bodies are not to participate in any recruitment process during the electoral process.
  3. The contesting candidates and their campaigners must respect the home life of their rivals and should not disturb them by holding road shows or demonstrations in front of their houses. 
  4. The election campaign rallies and road shows must not hinder the road traffic.
  5. Candidates are asked to refrain from distributing liquor to voters.
  6. The Code hinders the government or ruling party leaders from launching new welfare programmes like construction of roads, provision of drinking water facilities etc or any ribbon-cutting ceremonies.
  7. The code instructs that public spaces like meeting grounds, helipads, government guest houses and bungalows should be equally shared among the contesting candidates. These public spaces should not be monopolized by a few candidates.
  8. On polling day, all political party candidates should cooperate with the  poll-duty officials at the voting booths for an orderly voting process. Candidates should not display their election symbols near and around the poll booths on the polling day. No one should enter the booths without a valid pass from the Election Commission.
  9. There will be poll observers to who any complaints can be reported or submitted.
  10. The ruling party should not use its seat of power for the campaign purposes.
  11. The ruling party ministers should not make any ad-hoc appointment of officials, which may influence the voters in favour of the party in power.
  12. Before using loud speakers during their poll campaigning, candidates and political parties must obtain permission or license from the local authorities. The candidates should inform the local police for conducting election rallies to enable the police authorities to make required security arrangements. 

Conclusion

In a wider sense, both free markets and democratic elections are run on the basis of a set of rules with respective regulatory bodies enforcing the rules of the game. While there is a strong element of political centralization in the decision making process of elections, free market system is tilted more towards the principle of economic decentralisation. However, the consumer and the voter whose rights are legally and institutionally safeguarded remain as the principal beneficiaries of both systems- the economic and political. Thus free markets and democracy have identical underlying objectives of maximising welfare of the people. The convergence of the political economy of free markets and elections therefore highlights the democratic principles governing the welfare of citizens.

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Euro – 20 years on: Who won and who lost?

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The common European currency – the euro – came into being 20 years ago. Since January 1, 1999, the euro has been widely used in cashless money transfers. On January 1, 2002, banknotes and coins were introduced into circulation. How did the European countries benefit from the single currency? How many profited from its introduction?

In the early 1990s, the European Community entered a new stage of development which was characterized by a transition to a higher level of integration within it and expansion to include more members. This was provided by the Treaty on European Union, which was signed on February 7, 1992 in the Dutch city of Maastricht and entered into force on November 1, 1993. The Maastricht agreements and the subsequent decisions of the EU’s governing bodies – the European Council and the Council of the EU –formed a groundwork for a gradual, stage-by-stage creation of a monetary union and the introduction of a single currency, the euro.

At the time the decision on the introduction of the euro came into effect it was believed that the main objectives of the transition to a single monetary policy and the replacement of national banknotes with a single European one were the following. First of all, a monetary union was supposed to put the finishing touches to the formation of a common market and was to transform the EU territory into an economic space with equal opportunities for all players. A single currency was expected to facilitate the transition of the EU to a common economic policy, which, in turn, was seen as indispensable for moving to a new level of political integration. Many also viewed a single currency as vital for cementing European integration and a symbol of the economic and political integrity of the region. It was assumed that the euro would keep European countries “in the same harness” even in times of crisis and would help them to overcome differences and even resist outbursts of nationalism.

The second goal was to prevent losses caused by continuous fluctuations in the rates of Western European currencies. Once the euro was established, risk payments for possible losses in different-currency transactions became a thing of the past. It was assumed that stable and low interest rates would bring down inflation and stimulate economic growth. Thirdly, it was thought that fixed exchange rates within the euro zone with no more fluctuations would boost investment activity and, as a result, would improve the situation on the labor market. In addition, a better economic performance was to make it easier for countries to enter the EU and adapt to the new reality. A better economic performance was supposed to make European products more competitive in world markets.

Fourth, a single currency was supposed to significantly cut circulation costs. At the end of the 1990s, the existence of various national currencies cost the EU countries 20-25 billion ECU (26-33 billion dollars) annually, including the cost of keeping records of currency transactions, insuring currency risks, conducting exchange operations, drawing up the price lists in various currencies, etc. Finally, fifthly, the initiators of the single currency hoped that the euro would become one of the international reserve currencies. The introduction of the euro was supposed to change the balance of strength between the United States and united Europe in favor of the latter. In the long run, it boiled down to ensuring more independence of the EU economic policy since interest rates on long-term loans would be less dependent on American ones.

What is happening at present? Not surprisingly, the greatest difficulties emerged  while grappling with the most pressing and large-scale agenda involving the ambitious plans of the political and economic transformation of the EU and the strengthening of its global geo-economic role. Indeed, since the late 1990s, the economic and financial spheres of the EU have undergone dramatic changes. In 2004 and 2007, the majority of Central and Eastern European countries joined the Union (an increase in social dumping). The current EU “bears little resemblance” to that of 20 years ago. “Not only the currency has become different, but the entire European economy has changed.”

Nevertheless, as predicted by those who criticized the approved version of transition to a single European currency, chances for meeting the criteria of eurozone membership in case the global economy followed an unfavorable scenario are pretty slim for most countries of the eurozone. As economic and financial crises sweep Europe one after another, the presence of the euro and the unprecedentedly high level of the European Central Bank’s autonomy and its extensive powers are restricted by the “possibility of influencing the economy” of separate states. Since inflation rates vary from country to country, the interest rate suggested by the ECB (about 2%) turns out to be too low for countries with high inflation (which leads to financial bubbles) and too high for countries with low inflation (which has a negative impact on investments).

As a result, the economic slowdown in European economies in the 2000s through 2010s led to increases in budget deficits. According to the requirements of the eurozone, governments have to raise taxes or cut spending, even if it damages national economy. Formally, there exists a procedure to tackle economic upheavals in this or that country of the eurozone to minimize their consequences for other members. From the point of view of abstract macroeconomic indicators this procedure is functioning well. But, judging by what happened in Spain, and then in Greece and Italy, its social, economic and subsequently, political costs are too high. In the first place, we talk about social upheavals, which became one the main reasons for the rise of “right-wing populists” across Europe.

The euro is running into problems mainly because it hinges on politics, rather than economics. On the one hand, it is this that largely keeps it from the collapse. The EU leadership is ready to sustain any financial or economic losses to preserve the single currency.  However, from the economic viewpoint, the ECB’s readiness for currency interventions has ruined market discipline. In March this year the German Wirtschafts Woche stated that the euro had failed to become either an effective currency or an EU stability enhancing tool. What proves it is the fact that without “billions and billions in financial injections on the part of the European Central Bank and European governments to save the euro the single currency would have long sunk dead”. The 2008 financial crunch quickly triggered the crisis of the eurozone which culminated in the Greek debt crisis of 2010. As a result, “the dispute over how to save the single currency laid bare purely political differences across Europe”.

As skeptics forecast, membership in the eurozone, sought by countries with different levels of economic development regardless of the tough requirements and selection criteria, resulted in a situation in which a setback in the global economic performance hit weaker members the hardest. Citing the IMF, Le Figaro points out that “the euro exchange rate is too high for France and Italy (which deals a blow on their competitiveness), and is too low for Germany (by about 20%)”.  This provided the German economy with a clear edge over other EU members and secured a “huge foreign trade proficit”. Moreover, in the course of the eurozone crisis in 2009 there emerged a vicious circle: Germany’s domineering position in the EU enabled Berlin to dictate its policy of austere budgetary measures to the greater part of the rest of Europe, which, in turn, gave rise to an outburst of anti-German sentiment in a whole range of countries, including Greece and Italy.

Therefore, in 20 years of its existence the euro has made Germany yet more powerful economically than it used to be. Simultaneously, it has become a major factor that contributed to Germany’s isolation in Europe. Critics say that while drafting the euro project its authors meant to weaken Germany. Instead, the single currency “strengthened it, providing it with competitive advantages through a “weak” euro”. Central Europe has become a supplier of spare parts for German businesses thereby putting into practice the Mitteleuropa Doctrine in the 21st century. The rest of the EU countries have become a market for German goods. Meanwhile, Germany has to pay for economic failures of an ever greater number of its EU partners. In such a way, Germany’s economic might has all but become a major threat to European integration. Pessimists fear the current economic and geopolitical trends will sooner or later push the Germans into pursuing a more “egoistic” and “aggressive” policy, in every sense of the word. Everyone remembers what this kind of policy ended with in a period from the mid19th to the mid20th century.

As for the second and third points of the objectives of a single currency, the results are contradictory. Inflation in the eurozone is indeed at an all-time low. There has occurred a unification of the common market of goods, capitals and workforce. At the same time, measures which are being taken by the European Central Bank to fight low inflation have more than once driven a number of EU countries into recession and sovereign debt crises. Living standards in EU countries have not been growing steadily over the past few years. A rise in wages has turned out to be much smaller than predicted in the late 1990s.  Most European banks still prefer holding debt obligations of their countries only, which, in case of financial crisis, is fraught with banking problems and could ruin national economy. As for competitiveness, the appearance of a single market “in the first place, aggravated competition between  EU countries”. Simultaneously, the introduction of the same standards and requirements for all countries of the eurozone “cemented their differences, rather than brought them together”.

The fourth point can be considered fully implemented. Economic transactions have been simplified, cost less and have got rid of exchange-related risks. According to the British The Economist, three out of five residents of eurozone countries consider the euro useful for their country. And 75% of Europeans are sure that the single currency benefits the EU. Meanwhile, the removal of barriers to capital movements has led to a significant imbalance in investments, especially in the industrial sector. The main benefits went to countries located in the center of the EU while the geographical “periphery” of the eurozone has lost some of its former investment attractiveness. But the presence of the euro makes it impossible for the less fortunate countries to stimulate the economy by bringing down the currency value.

As for the fifth point, some of the ambitious plans have been implemented. The euro has already made a significant contribution to the weakening of the position of the US dollar in the global economy. According to the European Commission, one-fifth of the world’s currency reserves are denominated in the single European currency. “340 million citizens use it daily, 60 countries and territories link their currency to it”. On the other hand, 10 years of 20 years of its history the eurozone has devoted to the struggle against an “unprecedented crisis”. By now, experts say there has been a “fragile recovery.” Nevertheless, unlike its main competitors, the dollar and the yuan, the euro has no solid foundation. The EU budget is used mainly for paying subsidies to member countries, while the years-long disputes over prospects for creating a common EU ministry of finance all but fuel differences between 19 eurozone governments.

Thus, according to optimists, criticism of the euro is first of all the result of profound differences on the fundamental issues of European economic policy. The single currency consolidated the leaders of Europe, provided them with the common goal of creating a more integrated, a more attractive for trade and business, and a globally competitive, economy. However, a further stable existence of a single currency mechanism in Europe calls for urgent reforms, which European politicians are either not ready for or are not capable of. According to critics, the single currency has driven the different economies of the EU countries into the Procrustean bed of all-fitting standard format. The single currency mechanism completely ignores, if not completely denies, the geographical, historical and cultural specifics of the member states. Overall, the current model of economic and monetary integration in the EU mindlessly forces countries whose national economies do not match the general format “to carry out endless reforms,” which all but aggravate their long-standing inherent problems.

 First published in our partner International Affairs

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Afreximbank Meets Ahead of Russia-Africa Summit

Kester Kenn Klomegah

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The African Export-Import Bank (Afreximbank) plans to hold its 26th annual meeting in Moscow on 18-22 June. A series of closed sessions will be held as part of the event including the meeting of Board of Directors of Afreximbank and a meeting of Shareholders of Afreximbank, as well as the open Russia-Africa Economic Conference.

The African Export-Import Bank, the Roscongress Foundation, the Ministry of Finance of the Russian Federation, and the Russian Export Centre are the key organizers of this event. The Afreximbank Annual Meetings is a high-level event, bringing together political and business leaders from across Africa to discuss the issues of trade, industrialization, export, and financial stability and efficacy.

Key themes planned for the economic conference are: State of Russia-Africa Relations: An Overview; Mining Industry: An Integrated Approach to the Fields Development; Prospects for Multilateralism in an Era of Protectionism; Railways Infrastructure as the Key Element for Development in Africa; South-South Trade: Path for Africa Integration into the Global Economy.

The other topics are Emerging Trends in Sovereign Reserves Management; Reflections on the Transformative Power of South-South Trade; Launch Afreximbank ETC Strategy; Cyber Solutions and Cyber Security for Solving Governmental and Municipals Tasks; Financing South-South Trade in Difficult Global Financing Conditions; The Future of South-South Trade and Infrastructure Financing.

Over 1,500 delegates are expected to attend the economic conference, including shareholders and bank partners, government representatives, members of the business community and media representatives. The conference will be a crucial stage in preparation for the full-scale Russia-Africa political summit and the accompanying economic forum, scheduled for October 2019 in Sochi.

“Russian and African countries are basically on the track of bilateral strategic partnership and alliance based on openness and trust. The fact that the Afreximbank Annual Meeting is to be held in our country gives a positive momentum for the mutually beneficial cooperation of the parties ahead of the full-scale Russia-Africa Political Summit that will take place in Sochi in October, and will add to the inclusive nature of the events,” emphasized Anton Kobyakov, Advisor to the President of Russian Federation.

Following the setup of the Organizing Committee for the Russia – Africa summit and other Russia–Africa events in Russia in 2019, Russian officials have described that this year truly as a year of Africa for Russia.

“We witness the clear growing interests from the both sides to establish the new level of relationships, which means a perfect timing to boost the economic agenda. All economic events planned for this year will become a platform to vocalize these ideas and draw a strong roadmap for the future,” Russian Export Center’s CEO, Andrei Slepnev, argued in an emailed interview with Buziness Africa.

In December 2017, Russian Export Center became a shareholder of Afreximbank. Russian Export Center is a specialized state development institution, created to provide any assistance, both financial and non-financial, for Russian exporters looking for widening their business abroad.

On March 19, the Organizing Committee on Russia-Africa held its first meeting in Moscow. President Vladimir Putin put forward the Russia-Africa initiative at the BRICS summit (Russia, Brazil, India, China, and South Africa) in Johannesburg in July 2018.

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