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Grexit: Leading to the Rebirth of EU and Driving the Path for a New Yalta

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Alexander Drivas & Michalis Diakantonis

After the Grexit, the Greek economic and political system is in great shock. The Greek economy faces tough hurdles for the first 8 to 10 months but it gradually recovers, creating a new paradigm of success.

Initially, Eurozone faces separatist trends but Germany’s intervention stabilizes the situation causing the appreciation of Euro. That results to higher European/German export prices making necessary discussions for the designing of a new market area. In South Europe and South East Mediterranean indications for a geopolitical chaos arise (Ukraine and ISIS) forcing EU and US to form a New Yalta Agreement until 2018.

Outline- Description of Greece’s Exit from the Eurozone

Despite the efforts of the European institutions to urge and force Greece to reform and comply with the proposed pathway to recovery, the Syriza government faces intra-party disputes and decides to take “a friendly divorce” with the Eurozone and Euro. Greece’s special geopolitical position makes the US to take initiatives through international organizations (such as G-20) in order to provide assistance on a bilateral and multilateral level. Some staple goods are offered free or at low prices by international organizations and states to prevent a Greek humanitarian crisis while large companies invest in Greece in order to create a new type of Marshall Plan.

Economic Implications of a Grexit in Greece

Grexit will cause a short-term financial panic in the country. Banks and ATM’s will remain closed for a few days in order to avoid bank run while capital controls will be imposed to stop a rush of money out of the country. Thereafter, there will be two possibilities for the Greek financial system: Either the EU will decide to support Greek banks in order to avoid social chaos in the country or it will leave the Greek banking system to its luck. In the second case, the Greek banks will have to operate without the Eurosystem ELA help and some of them are going to bankrupt. For the first weeks transactions will be made in Euros and with the help of credit cards. A dual currency system (euro and a form of digital money) can be applied as the government has to pay wages, pensions and debts to private companies until the printing of the “new drachma” will be completed (at least 6 months).

Inflation skyrockets causing shortages of staple goods and the new currency is devaluated at a percentage between 20-50%. A black market of Euros is created due to the lower value of the new drachma, leading to the creation of a dual-type economy (one for the rich people who hold euro and one for the poor which have drachma). The national debt goes huge but it cannot be repaid and a large part of it’s been restructured. Gradually the bank of Greece applies a loose monetary policy, creating new government deficits in a try to ease unemployment and depression. Finally, after a period of about 10 months, the currency rate and inflation are stabilized and the economy begins to rise again attracting foreign investments, mainly from US and China.

Economic Implications of a Grexit for the EU

Germany has fears of a domino-effect in the Eurozone and is obliged to support the banking system of Italy/Spain with extra liquidity through ECB. In order to avoid their exit from the Eurozone, some countries demand the restructuring of their debts and a loose monetary policy.

The euro area is now stronger and more concrete causing the appreciation of the Euro. European exports are made more expensive posing difficulties for the German industry and hurting the EU’s economy. EU should now seek for new markets if it wishes to avoid the return of the economic crisis.

Economic Implications of a Grexit for Other Financial Institutions

As the largest part of the Greek debt is now in public hands, the consequences for foreign financial institutions are relatively mild. But the fear for a domino-effect causes drain of deposits from European banks forcing the ECB to provide extra liquidity and to bail out (or bail in) some of them. Large financial institutions participate in Greek investment projects in order to take advantage of the cheap Greek asset prices and help the country to succeed in his economic recovery.

Political Implications in Greece after the Grexit

The leading party “Syriza, tries to neutralize the consequences of Grexit and signs its resignation. The fear for the emergence of radical right parties (such as the “Golden Dawn”) remains high and creates a necessity for a new-multiparty government to protect the state from social chaos. After the first months’ economic and political shock, the Greek economy recovers and Grexit starts to seem as a paradox “success story”.

Political Implications for the EU

Eurozone’s members which had participated in Greece’s loaning put pressure and criticize Germany for the billions that have lost. Moreover, some member-states noticing Greece’s economic recovery and examine the scenario of leaving the Eurozone. Thus, Grexit provokes the opposite results than these that Berlin desired. “Podemos” in Spain gains power and radical Eurosceptic parties rise up in other Eurozone states. Germany tries to avoid such a catastrophic development and decides to restructure an important part of the Eurozone’s debt for countries such as Italy and Spain. These facts call emergence for a new European Treaty.

Political Implications for Other Actors

Germany and other members of Eurozone face severe economic consequences and political instability. Making an effort to neutralize the negative developments for its economy, Germany agrees to pursue the US-EU Free Trade Agreement (FTA). This political decision brings the USA back in the front line of the European affairs.

In the meanwhile, ISIS remains the main internal security problem and the Ukrainian crisis continues to take place in the Eastern Europe. For military and security reasons, US encourages France to restore the idea of a Mediterranean Union as a part of EU. Washington and Paris with NATO’s support try to eliminate the ISIS using the Mediterranean waters. Concerning the Ukrainian issue, USA and Russian Federation agree to find a solution which respects the concerns of Moscow in Ukraine and Syria. As an exchange, Russia, agrees to keep a minor role in Europe and Eastern Mediterranean Sea.

The result of the Grexit seems to open the Pandora’s Box and the agreement appears to be something between a new Yalta Treaty and what Lord Ismay’s claimed in 1947 for NATO’s establishment purpose: “Keep US in, Russia out and Germany down.”

 

Alexander Drivas PhD, Project Coordinator of “Greece, Cyprus, Egypt & Israel: Opportunities and Restrictions of a Mediterranean Coalition” Project at the International Relations Institute of Athens

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Economy

Conversion of Local Business into E-Business by Effective Use of Social Media

Ahsan Siraj

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The spread of coronavirus (Covid-19) has affected almost all areas of life. The whole world is facing a crisis because of this pandemic issue. A lot of people have lost their jobs and many are struggling to survive in this situation. All businesses whether working at a large scale or a small scale are facing problems due to the unavailability to resources to operate businesses successfully. The developed countries are somehow managing this situation because of the successful implementation of online businesses from a long-time period. So, for those countries both customers and businesses are relatively ok with the situation by not going in the markets to buy things and place orders online and get it delivered at the doorsteps easily.

Whereas many developing countries like Pakistan have certain barriers in the full acceptance of e-business offered by the local and international companies. As per many studies on this topic, there are a lot of factors that pose hindrances in full acceptance of e-commerce in Pakistan. However, there is one thing worth mentioning that these hindering factors are related to all stakeholders. A few of those factors include insufficient technological resources, Government Policies, legal issues, social acceptability of the online shopping trend because of trust issue between companies and customers whether in terms of provided customer information at online shopping platforms, payment security, or the difference in shown and finally delivered product at customers doorstep, etc. But there has been seen a change in this trend in a couple of years with the development of the telecommunication industry. As most of the people now days have internet access at their places and are following social trends all around the world. So, the trend on online shopping from official brand stores’ websites has developed rapidly due to the trust of customers in brands’ shown and delivered products on their official online websites. But as far as local businesses and third party online shopping websites are concerned they are still a certain group of people consider taking a chance to shop online.

    In the pandemic situation, as all the markets were closed due to the lockdown in the country, everyone was worried about the situation whether a businessman or a customer. In this crucial time of survival, there has developed a new trend of conversion of local businesses into e-businesses by using social media effectively. Here are those businesses are under discussion who are owned by the people who are not mostly educated enough to know the value of effective use of social media or those people who even being educated at a certain level didn’t think before that they can utilize social media for their businesses to operate when everything was closed. Talking about the customers who were conscious about all the factors of trust and all before were just considering one thing and that was the availability of their desired products at their doorstep in their required time frame. Somehow, like big brands and businesses, many small businesses managed it quite well and provided online shopping facilities to the customers.

In the period of locked down, these small local businesses used social media i.e. Facebook, Instagram, what’s app, LinkedIn, etc. to display their products online offering discounted prices and free home delivery. This step not only provided them the opportunity to earn money in the time of crisis but also put the foundation of new trends in online shopping i.e. the acceptability of online shopping in the society even in the smaller and backward areas of Pakistan. We hope that this conversion of local businesses into e-businesses will continue to flourish successfully in the future and the acceptability of online shopping in Pakistan will grow over time. Here, in the end, one thing that matters is that all the stakeholders should play their effective role in this growth especially the Government should make policies to support the effective implementation of online business trends in Pakistan.    

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Impact of COVID-19 On Somalia’s Economy: Will the virus be a springboard to severe crisis?

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The COVID-19 pandemic imposed unprecedented challenges to global health systems and economies and transferred to Somalia one of the poorest and susceptible to crisis economies of the world. The economy of Somalia was already severing due to structural deficiencies and lack of unity. The federal-level economic institution such as the ministry of finance, ministry of trade, and central bank are mainly residing in Moqdisho and have no capacity to extend their services to other regions. The central bank is not yet ready to function properly. It does not have the capacity to innovate suitable economic policies to stabilize the country’s currency value, prevent hyperinflation, and keep unemployment lower. In addition, the nation’s taxation procedures and revenue collection policies are not unitary. The regional states have autonomous economic and political institutions with different taxation and revenue maximation policies. In terms of employment, the state employs to a small fraction of the nation’s labor force compared to the private sector. Therefore, considering all these facts one may conclude state plays a negligible role in the economic activities of the country.

The nation’s economy has been massively relying on foreign aid, remittance revenues, and import. The budget of the federal government and running costs are mainly financed through budget supports and other forms of assistance from donors. Almost every Somali household receives income from her overseas family member, especially Europe and the USA. Hence, remittance revenue is the lifeblood of the Somali household’s economy. On the other hand, Somalia is one of the countries with the largest trade deficit in the world, imports extremely surpass over exports. Since the livestock industry, the nation’s export backbone has been blemished by continual export bans from Saudi Arabia, the nation ended up an entirely import-dependent economy.

The foreign aid, remittance revenues, and import are not reliable sectors because they are prone to global shocks such as political clashes, trade wars, and pandemics. For instance, COVID-19 pandemic adversely affected Somali remittance firms. The Somali remittance firms source funds from western countries where COVID-19 is massively damaged both human and economic. These countries have been executing a complete lockdown to fight against and attenuate the spread of the virus among the community. The business, schools, universities, and public transportations were completely closed. So, this instigated Somali immigrants in Canada, the USA, and EU countries to lose their jobs and not able to send money back home. Remarkably, Somali immigrants in Europe and the USA are one of the highest deadly effected diasporas by COVID-19.

The World Bank estimates show that Somalia receives nearly US$1.4 billion remittance annually which contribute 23% of the nation’s GDP. Although Somali remittance firms in western countries have been victimized by money laundering and terrorism involvement allegations, however, still remain dominant in the nation’s basic financial service and recently annexed to banking and real estate. The lockdowns in western countries due to COVID-19 have reduced the smooth follow of remittance funds and this may have a deleterious effect on household’s livelihood, families may not able to pay utility expenses. The reduction of remittance funds means people will have no cash to buy things and small business which employ a significant share of the nation’s formal and informal workers will face critical financial crisis.

Most affected areas

It is very difficult to capture the impact of COVID-19 on economy like Somalia where financial data is hardly available in public. However, the World Bank expressed concern that the pandemic may reverse decades of economic progress and poverty alleviation in the world’s poorest regions like Sub-Saharan African countries. World Bank recently estimates projects that the Sub-Sahara region could lose around $79 billion in output in 2020. In fact, Somalia will be one of the highly affected states in the region. Somalia could not impose a complete lockdown strategy, but schools, universities, local and international flights have been closed. The Khat or Qat (stimulant and flowering plant native to East African and Arabian Peninsula) import was temporarily banned.

The education sector of Somalia which is 95% private has been extremely devastated by Corona Virus (Covid-19). The primary, intermediate, and secondary school teachers have lost their salaries since tuition fees are paid monthly. The Madarasa (Koranic School) teachers also have lost their jobs and the lives of their families are endangered to die for hunger and underfeeding. There are no safety packages, food, and cash distribution to ameliorate the deteriorating economic situation of Somali teachers.

The Federal government of Somalia has banned the import of Khat in a bid to reduce the spread of Corona Virus across borders with neighboring countries, this sends a paroxysm of anger and frustration to thousands Khat traders, and street based Khat small business. The Khat is a paradoxical business, on one hand, it employs a significant share of the nation’s informal workers, and it is the only source of income for many destitute and vulnerable families like internally displaced families, and widowed women with children. It is also the mainstay of the government’s source of tax revenue. On the other hand, anti-Khat campaigners argue that Khat drains the economy and destroys the family. In fact, the ban of Khat import policy immediately impoverished thousands of families whose livelihood depends on directly or indirectly to Khat business. The government has not yet come up with any initiative to refurbish the lives of these hopeless families and workers.

The health impact of COVID-19 on Somalia is not as nasty as predicted and expected. Somalia has confirmed only 2944 cases and 90 death cases so far, although the testing rate is very limited and some of the fatuous test result cases were reported in the media. However, a country like Somalia where social protection programs, unemployment insurance benefits, and other welfare schemes are not even in the dictionary of the society deep economic downtown is imminent and unavoidable amid COVID-19 pandemic. As long as the 23% of the GDP of the country is remittance revenues from the west so any possibility of second wave pandemic that can outburst and prolong lockdown in western countries will have a catastrophic short- and long-term impact on Somali Economy.

 China is the Africa’s main trade partner, especially Somalia’s business community extremely depend on Chinese markets. The full lockdown on Chinese economy and ban of international flights significantly reduced imports from china to Somalia. This skyrocketed the most of food and basic stuff prices. Somalia cansimply face food insecurity, if second wave of COVID-19 hits China again and Chinese officials prolong lockdown period. By the time I’m writing this opinion essay, china is struggling a new swine flu virus. This is not only bad news to Chinese economy but also to Somali economy.

Possible options for economy refurbishment  

COVID-19 pandemic presenting aberrant challenge to the Somali Economy amid Somalia is expecting full debt relief from the international creditors. The debt relief program will enable the country to get developmental aid, and non-concessional loans. The government should speed up the debt relief program to get loans and developmental aid to improve the lives of citizens impoverished by the COVID-19 pandemic.

The government should consult with individual donors and international financial institutions to design the kind of foreign assistance Somalia needs for economic recovery in the post-COVID-19 pandemic era. The government should allocate a significant amount of foreign assistance it received to income generation projects for internally displaced people (IDP). The government cooperating with local business communities and international NGOs should set food distribution packages to vulnerable workers such as teachers, unskilled construction workers, widowed women with children, Kat workers, and so on.

Policymakers should direct international NGOs to implement small business development and income generation projects in villages, districts, and regions where poor and susceptible communities are inhabited.

The government in partnership with international donors and local investment banks should prepare soft loans and investment mechanisms suitable to poor farmers to promote local production efficiency. Small business development, fishing and agriculture, training and skill development, and empowering women and poor farmers oriented international and local projects will lead to favorable economic growth in the post-pandemic era.

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Transformation of E-Commerce Businesses and their Future after COVID-19

Ehtisham Ali

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World has witnessed an unprecedented human destruction caused by Covid-19.As on 7th July 2020, the virus has taken 533,780 lives and 11,419,529 have been tested positive worldwide. It started in December 2019 when Wuhan Municipal Health Commission China reported cluster of pneumonia cases which was eventually identified as novel coronavirus. On 5th January 2020, World Health Organization (WHO) made a flagship technical publication for Global Media as well as scientific and health communities on the first ever aperture on disease outbreak of new virus. Later on WHO declared health emergency worldwide and issued public health advisory when a large number of cases were reported outside China.

Subsequently, governments across the globe started taking precautionary measures to contain the infection rate which included lockdowns, border restrictions and even economic activities were strictly restricted. People themselves started opting for social distancing to avoid potential contagion and physical proximity. On the one hand this strategy has proved as the best measure to reduce the rate of infection but on the other, due to minimal economic activities, economies of many countries have been badly affected. Barring essential businesses like food and grocery etc., every other business got effected. Thousands of traditional style businesses and companies were severely affected and lot of them even went bankrupt.

In these circumstances, E-Commerce appeared as a promising major pillar in fight againstCOVID-19 as it helped reduce the rate of infection by offering online delivery of commodities and services. Supermarkets started online delivery of groceries by providing door-to-door services to their customers, preventing risks of in-store visits and subsequently online payments obviated in-person cash transactions.

Moreover, E-Commerce helped economies in preserving jobs during crisis. Online businesses strived to maintain the basic revenue stream which helped them to get their businesses afloat through the crisis. Restaurants and famous food chains started offering online takeout services. Almost all famous brands of clothing, shoes and many others, transformed their business from traditional to online.

Many companies changed the nature of their businesses and were successful in creating new jobs as consumers shifted towards online offerings. Recently a Dubai based raw coffee supply company transformed its business from B2B to B2C due to emerging demand of consumer products.

Interestingly many new small level ventures were set up during this period. People started delivering homemade food and home grown fruits and vegetables to meet the needs at both ends and the response from their customers is most encouraging. These continued availability of consumer goods helped the governments to increase the acceptance of persistent physical social distancing measures among masses.

Lockdown orders will definitely be lifted eventually but there are thousands and millions of customers whose patterns of purchase have changed drastically for a more comfortable way of getting what you need at your doorstep. They are comfortable with the online system not only for their convenience but also for getting into any risk of catching the virus. According to a recent survey on social media, young consumers are more motivated than ever to maintain social distancing and shop online while staying at home. This trend is creating ideal market conditions and great motivation for newly entrant digital entrepreneurs.

The trend of changing customers’ buying habits and behavior is an opportunity for digital entrepreneurs. Now how they react,it is the future of e-commerce that will be the deciding factor. Once the situation improves, sales of E-Commerce industry may stabilize at low growth rate than today but the changing behavior of customers is already in action to overall change the retail and commerce for years to come.  

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