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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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Merkel’s projection regarding nationalist movements in Europe

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In recent years, we have repeatedly spoken about the blows that hit the United Europe hard, and resulted in constant and overwhelming crises in this block. The European authorities now refer to “returning to nationalism” as a potential danger (and in some cases, the actual danger!) In this block, and warn against it without mentioning the origin of this danger.

The German Chancellor has once again warned about the rise of nationalism in Europe. The warning comes at a time when other European officials, including French President Emmanuel Macron, have directly or indirectly, acknowledged the weakening of Europe’s common values. This indicates that the EU authorities don’t see the danger of extensive nationalism far from reality.

“Nationalism and a winner-take-all attitude are undermining the cohesion of Europe”, German Chancellor Angela Merkel said. “Perhaps the most threatening development for me is that multilateralism has come under such pressure,” Merkel said. “Europe is facing attacks from the outside and from the inside.”

A simple contemplation on the issue of “return of the United Europe to nationalism” suggests that the current European authorities have played an active role in the desire of their citizens to return to the time before the formation of the European Union. In the 2014 general election, we saw more than 100 right-wing extremist candidates finding way to the European Parliament.

This could be the starting point for making fundamental changes in macroeconomic policies and creating a different relationship between the European leaders and the citizens of this block. But this did not happen in practice.

Although the failure of European leaders to manage the immigration crisis and, most importantly, the continuation of the economic crisis in some of the Eurozone countries has contributed to the formation of the current situation, but it should not be forgotten that the growth of radical and nationalist parties in Europe has largely been due to the block’s officials incapability in convincing European citizens about the major policies in Europe. In this regard, those like Angela Merkel and Macron don’t actually feel any responsibility.

Undoubtedly, if this process doesn’t stop, the tendency to nationalism will spread across the Europe, and especially in the Eurozone. European officials are now deeply concerned about next year’s parliamentary elections in Europe. If this time the extreme right parties can raise their total votes and thus gain more seats in the European Parliament, there will be a critical situation in the Green Continent.

The fact is that far-right extremists in countries such as France, Sweden, Austria and Germany have been able to increase their votes, and while strengthening their position in their country’s political equations, they have many supporters in the social atmosphere.
Finally, the German Chancellor remarks, shouldn’t be regarded as a kind of self-criticism, but rather are a new projection of the European leaders. Merkel, Macron and other European officials who are now warning about the emergence of nationalism in Europe should accept their role in this equation.

This is the main prerequisite for reforming the foundations in Europe. If they refuse to feel responsible, the collapse of the European Union will be inevitable, an issue that Merkel and Macron are well aware of.

First published in our partner MNA

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Dayton Peace Accord 23 Years On: Ensured Peace and Stability in Former Yugoslavia

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For the past twenty-three years life has been comparatively peaceful in the breakaway republics of the former Yugoslavia. The complicated civil war that began in Yugoslavia in 1991 had numerous causes and began to break up along the ethnic lines. The touching stories and the aftermath effects of the breakaway republics of Bosnia- Herzegovina, Croatia and in Kosovo are still unfolding. Though the numbers of deaths in the Bosnia- Herzegovina conflict in former Yugoslavia are not known precisely, most sources agree that the estimates of deaths vary between 150,000 to 200,000 and displaced more than two million people. During the conflict a Srebrenica a North-eastern enclave of Bosnia once declared as a United  Nations  (UN ) safe area” saw one of the worst atrocity since second world war.

It has been estimated that more than 8,000 Muslim Bosniaks were massacred in Srebrenica and it was one of the most brutal ethnic cleansing operations of its kind in modern warfare. The US brokered peace talks revived the a peace process between the three warring factions in Bosnia- Herzegovina. For Peace in Bosnia and Herzegovina a United States (US ) -brokered peace deal reached in Dayton on 21st November 1995. In a historic reconciliation bid on 14 December 1995 , the Dayton Peace Accord was signed in Paris, France, between Franjo Tudjman president of the Republic of Croatia and Slobodan Milosevic president of the Federal Yugoslavia (Serbia and Montenegro), Alija Izetbegovic, president of the Republic of Bosnia-Herzegovina.

When conflict in Bosnia- Herzegovina, Croatia ended, the reconciliation began between ethnically divided region. The US played a crucial role in defining the direction of the Peace process. In 1996, North Atlantic Treaty Organization (NATO) -led 60,000 multinational peace enforcement force known as the Implementation Force (IFOR)) was deployed to help preserve the cease-fire and enforce the treaty provisions. Thereafter, the Court was established by Resolution 808 and later, Resolution 827 of the United Nations Security Council, which endorsed to proceed with setting up of the International Criminal Tribunal for the former Yugoslavia (ICTY) to try crimes against humanity . International Criminal Tribunal for the Former Yugoslavia (ICTY) was the first United Nations (UN) war crimes tribunal of its kind since the post-second world war Nuremberg tribunal.

In the late 1990’s, as the political crisis deepened a spiral of violence fuelled the Kosovo crisis between the Kosovo Liberation Army (KLA) and the Yugoslav forces. Unlike the Bosnia- Herzegovina, Kosovo was a province of Serbia, of former Yugoslavia that dates back to 1946, when Kosovo gained autonomy as a province within Serbia. It is estimated that more than 800,000. Kosovos were forced out of Kosovo in search of refuge and as many as 500,000 more were displaced within Kosovo.

Subsequent t hostilities in Kosovo the eleven week air campaign led by NATO (North Atlantic Treaty Organisation) against Yugoslavia in 1999 the Yugoslavian forces pulled troops out of Kosovo NATO. After the war was over, the United Nations Security Council, under the resolution 1244 (1999) approved to establish an international civil presence in Kosovo, known as the United Nations Interim Administration Mission in Kosovo (UNMIK). Nevertheless UNMIK regulation No 1999/24 provided that the Law in Force in Kosovo prior to March 22, 1989 would serve as the applicable law for the duration of the United Nations Interim Administration Mission in Kosovo (UNMIK).

In this  context reconciliation is a key to national healing of wounds after ending a violent conflict. Healing the wounds of the past and redressing past wrongs is a process through which a society moves from a divided past to a shared future. Over the years in Serbia, Bosnia- Herzegovina, Croatia and in Kosovo the successful peace building processes had happened. The success of the peace building process was possible because of participation of those concerned, and since appropriate strategies to effectively approach was applied with all relevant actors. The strengthening of institutions for the benefit of all citizens has many important benefits for the peace and stability of former Yugoslavia. Hence, the future looks bright for the Balkan states of Serbia, Bosnia- Herzegovina, Croatia and Kosovo.

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Hungarian Interest, Ukraine and European Values

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Diplomatic conflicts that have recently arisen between Hungary and its neighboring countries and the European Union as a whole most clearly show the new trend in European politics. This trend is committing to national and  state values of a specific  European country, doubting  the priority of supranational  interests within the European Union. Political analyst Timofey Bordachev believes that “the era of stale politics and the same stale politicians, who make backstage decisions based on the“ lowest common denominator,” are finally coming to an end. Politicians with a new vision of the world order come to power, such as Hungarian Prime Minister Viktor Orban, Austrian Federal Chancellor Sebastian Kurtz, or the new head of the Italian Interior Ministry, leader of the right-wing League of the North Party, Matteo Salvini ”.

It is not the first year that Hungary is trying to protect the interests of its citizens and the state from external influence, to protect the Hungarians in the territory of neighbouring states  by establishing for this  a special position (Commissioner  for the development of the Transcarpathian region of Ukraine), to determine relations with other countries on the basis of their attitude to the rights of Hungarians. This is how conflicts with the European Union arose, after Hungary refused to let migrants into the country, in the same manner, a conflict  arose with Ukraine, which is trying to build a state ideology, based on nationalism, which a priori does not provide for the proper level of realization and protection of the rights of non-titular nations.

In relation to Hungary, Ukraine follows the same policy as in relation to Russia – to initiate various accusations, to call for punishment, to talk about the inconsistency with European values of the Hungarian policy under the leadership of  Orban. Doing so Kiev has its multifaceted interest: cooperation with NATO and the EU, support  for any decisions of Brussels, the anti-Russian course, domestic policy based on the nationalist  ideology. And in all these areas  Hungary poses  a problem for Ukraine. In the description of relations with Hungary  Kiev even  uses the word “annexation“.

Hungary is hardly planning to seize any Ukrainian territory, but on what  grounds Ukraine falsely accuses Hungary of its annexation intentions in relation to Transcarpathia?  The Ukrainian side highlights several positions:

Issuing Hungarian passports  to Ukrainian citizens (ethnic Hungerians)

This  is an old story, it has come to light again recently due to the growth of Ukrainian nationalism. Moreover,  there are concerns about the implementation by Hungary of the “Crimean scenario” in relation to Transcarpathia.

The Hungarian government has created the position of  “Commissioner  for the development of Ukraine’s Transcarpathian region and the program for the development of kindergartens in the Carpathian region”.

Ukraine demanded an explanation. A note of protest was delivered to the Hungarian Charge d’Affaires in Ukraine, and the Foreign ministers of Ukraine and Hungary had a telephone conversation on the problem. Hungary continues to ignore the requirements of Kiev.

Ukraine fears further disintegration processes

At the same time, in Kiev there is no understanding  of the fact that combining the ideology of nationalism with the country’s national diversity and European integration is hardly possible.

Ukrainian experts note the growth of separatism in the Transcarpathian region, as well as the “strange behavior” of the governor, who plays on the side of Hungary. They also complain that “pro-Ukrainian ideology”(?) is not being сonsolidated in Transcarpathia, and this region is not controlled and monitored by  the Ministry of information. In a word, the state is losing control over the territory, which it neither develops nor controls. Such behavior of the governor and the region’s residents may indicate that the state is not sufficiently present in the lives of residents of Transcarpathia, and this a financial and humanitarian drawback they compensate with the help of Hungary, – experts believe.

Apparently, Ukraine is unable to reach an agreement with Hungary as relations are tense. In response to the Ukrainian law on education, adopted in the fall of 2017, which infringes the rights of national minorities, Budapest blocked another, the third, Ukraine-NATO meeting. Ukraine witnessed this embarrassing  situation  in April 2018.  At the same time elections were held in Hungary, in  which Viktor Orban’s party won a majority in the parliament. Such a tough stance of Budapest in relation to the Ukrainian educational policy Kiev considered to be just a sign of electoral populism. However, this was a mistake.

Viktor Orban’s victory in spring 2018 was convincing, and a convincing victory means obvious support of his migration policies as well as his support  for compatriots abroad. The party of Orban – Fides – not only won a majority but a constitutional majority – 133 of the 199 seats  in the National Assembly of Hungary.

There is no doubt  that Hungary has become Ukraine’s another serious opponent in the process of its European integration. And it is unlikely that either  country  will take a step back: there will be presidential elections in Ukraine soon, and in Hungary, the victory won by Orban, apparently, confirms the  approval of his independent  foreign  policy  by  the citizens.  So the conflict is likely to develop.

First published in our partner International Affairs

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