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Vienna Process for the Greening of Eurasia

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On the historic date of March 08th – International Women’s Day, a large number of international affairs specialists gathered for the second consecutive summit in Vienna, Austria. This leg of the Vienna Process titled: “Europe – Future – Neighborhood at 75: Disruptions Recalibration Continuity”. The conference, jointly organized by the Modern Diplomacy, IFIMES and their partners, with the support of the Diplomatic Academy of Vienna, was aimed at discussing the future of Europe and its neighbourhood in the wake of its old and new challenges.[1]  

Along with the two acting State Presidents, the event was endorsed by the keynote of the EU Commissioner for European Neighbourhood and Enlargement, Excellency Olivér Várhelyi. Besides discussing the strategic neighbourhood and the Union’s approach to it, underlaying leitmotif was deliverability of the Union’s ambitious New Green Deal for Europe. Numerous panellists (nearly all of the Conference’s Panel II and III) warned that there will be no success in the EU Green Deal without balanced and politically unbiased approach to Energy, Infrastructure and Transport. Senior researcher and geoeconomics specialist from Ukraine, Maria Smotrytska, elaborated on the topic of greening, as follows:

Today the whole world is aware of the global problem of climate warming. Due to the increase in the concentration of greenhouse gases and harmful emissions into the atmosphere, this problem is getting worse every year. And the main question is how we can answer the fundamental challenge of global warming. The core issue is decarbonisation, but to ensure the economic growth in countries around the world, the link between the development of transportation and solution of the problem of global warming should be considered as the main.

The most inhabitant part of the world and the largest landmass of the Globe is Eurasia. Thus it is the biggest producer of CO2 and, hence, the most polluted part of the world. But we cannot leave it as it is right now. Also important to understand that the biggest countries-producers (Far East) and countries-consumers (West Europe) are located on the edge of the Eurasia. These countries drive world’s economies and may play crucial role in improving ecology and environmental standards.

Transportation logistics between Far East and Western Europe is vital for world’s economic development, but today we do not have reliable technologies and transport lines. Due to this it is necessary to think on few aspects, which may determine the development of environmental friendly economies in future :

  • reliable transportation (safe and environmentally friendly) ;
  • cheapest modes and transshipment lines ;
  • fastest modes of transportation

 The most reliable mode of the transportation is railway. It has certain advantages (compared to air and maritime transport) in the following areas: regularity (rhythmicity), reliability (guaranteed on-schedule delivery and cargo preservation) and the ability to deliver the cargo to any destination.

When comparing cargo transportation from the Far East to West Europe by sea and by rail, the delivery time is often the key argument in favor of the railway. At the same time, the amount of 14 – 15 days is often mentioned. In practice, it takes longer: 35 – 50 days by sea, 28 – 32 days by rail, 6 days by plane and 4 days by roads (See Figure 1). This difference in numbers is caused by the need to form a train, delays at some stations, etc.

Underlining the reliability of the railway transshipment lines in terms of  friendly environmental standards it is assumed that carrying a TEU between the Far East and West Europe using diesel trains would result in emissions of around 0.7 tonnes of greenhouse gas emission. However, the emissions from electric trains could be lower, possibly even falling to zero if they were powered entirely by renewable sources. This suggests that, by using railway mode, the Eurasian transshipment lines are likely to be beneficial to the environment.

While in theory, the implementation of railway electrification and the use of renewable energy sources can reduce greenhouse gas emissions, perhaps even to zero, in practice this process can take decades that our planet is unlikely to have.

This fact makes us think about other possible modes of transportation that are both “convenient” (speed, regularity and accuracy of delivery), and beneficial to the environment.

The cheapest mode of transportation is by the sea, but it also has some pros and cons. Thus, the warm waters (red) shipping line from Far East to the port of Rotterdam in Netherlands today has great logistics prospects. Currently, 80% of cargo from Far East to Europe goes through the Atlantic ocean to the ports of Northern Europe. The warm waters shipping line through the Arabian sea and the Suez canal to the Balkans reduces the transport time by 7 – 10 days: this is so far the shortest sea route from Far East to Europe. Thus, the cheapest in the cost, this transshipment line is not beneficial in terms of second criteria – time-frame (See Figure 1).

Another waters shipping line (cold waters – blue line), which emerged as a result of the rapid melting of the North polar icecap, opens the prospects of shortened transport waterways in the ice-free areas. There are basically three possible routes, each of significance :

  • The Northwest Passage, connecting the American Continent and Far East Asia;
  • The Northern Sea Route, offering a shorter way from West Europe to Far East along the Russian Arctic coastline ; and
  • The Arctic Bridge, connecting Canada and Russia (See Figure 2).

Geographically the position of the North waterways is very beneficial since they are cutting the distance between the edges of two continents, making it shorter by about 40% in comparison to the traditional, warm seas transport routes via the Suez or Panama Canal. The Arctic Bridge for now is a seasonal route. Nevertheless, the observation shows that it might be in reach earlier than expected due to climate change.

Thus, in terms of logistics, the cold waters shipping line (blue) will allow to deliver cargo to West Europe by sea faster than the 48 days (that it takes on average) to travel from the Northern ports of Far East to Rotterdam via the Suez canal, considering that the passage of a cargo ship along the North sea route is 2.8 thousand miles shorter than the route through Suez canal (See Figure 1).

The criteria of reliability also plays a positive role. In regards with the environmental issue, this means that, if maritime services lose their most time-sensitive cargo to rail, they might in practice sail their ships slower, extending transit times but reducing fuel costs and hence prices, and decreasing greenhouse gas emissions.

In addition to the time-frame criteria, a cold water shipping line is beneficial in terms of capacity. It is usually characterized as the shortest sea route between West Europe and Far East, the safest (e.g. the problem of Somali pirates) and has no restrictions on the size of the ship, unlike the route through the Suez canal. Current data makes it clear that the cold water transshipment line will allow to deliver cargo to Europe faster by sea, reducing the route by 20 – 30%, and hence being more environmentally friendly (by using less fuel and decreasing CO2 emission) and saving human resources. Nevertheless to capitalize on that opportunity requires much work in terms of improved navigation procedure and installation of safety-related infrastructure.

For now it can be seen that there are two possibilities for developing transport systems and economies in accordance with green standards :

  • Transcontinental railroad system (which requires huge amount of investments);
  • Optimization of the cheapest mode of transportation (maritime warm waters transshipment lines).

But while thinking on the best ways of the decarbonizing of transport connections, all the existing risks should be taken into account. The current warm waters transshipment lines present certain dangers, being high congested and unsafe (both for trade security and environment), and hence rather vulnerable. Due to this fact, it is crucial to consider other alternatives of connecting the biggest countries-producers (Far East) and countries-consumers (West Europe).

While summing up the data on the logistics, it may be seen, that Blue shipping line along with Green one (See Figure 1) will dramatically reduce the time between the most-producing countries of G-7 and advanced OECD markets. But to reach consensus in timing, price and environmentally friendly standards the growing push to decarbonize economies, implement the green construction methods should be done. Unfortunately this approach may take decades to be adopted, which our planet may not have. And understanding of this fact should underlie the development to all the countries of the Globe without exceptions.


[1] This highly anticipated conference gathered over twenty high ranking speakers from three continents, and the viewers from Australia to Canada and from Chile to Far East. The day was filled by three panels focusing on the rethinking and revisiting Europe and its three equally important neighbourhoods: Euro-Med, Eastern and trans-Atlantic (or as the Romano Prodi’s EU Commission coined it back in 2000s – “from Morocco to Russia – everything but the institutions”); the socio-political and economic greening; as well as the legacy of WWII, Nuremberg Trials and Code, the European Human Rights Charter and their relevance in the 21st century.

Figure 1. Transshipment lines from Far East to Western Europe

Source : EDB, 2019

Figure 2. Northern shipping. Major transport routes through the Arctic

Source: Centre Port Canada, 2008.

Chloé Bernadaux is an International Security specialist (Sciences Po Paris), prolifically writing on the neighbourhood policy, Euro-MED relations, and disarmament affairs. She is the IFIMES newly appointed representative in Paris (UNESCO).

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The Monetary Policy of Pakistan: SBP Maintains the Policy Rate

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The State Bank of Pakistan (SBP) announced its bi-monthly monetary policy yesterday, 27th July 2021. Pakistan’s Central bank retained the benchmark interest rate at 7% after reviewing the national economy in midst of a fourth wave of the coronavirus surging throughout the country. The policy rate is a huge factor that relents the growth and inflationary pressures in an economy. The rate was majorly retained due to the growing consumer and business confidence as the global economy rebounds from the coronavirus. The State Bank had slashed the interest rate by 625 basis points to 7% back in the March-June 2020 in the wake of the covid pandemic wreaking havoc on the struggling industries of Pakistan. In a poll conducted earlier, about 89% of the participants expected this outcome of the session. It was a leap of confidence from the last poll conducted in May when 73% of the participants expected the State Bank to hold the discount rate at this level.

The State Bank Governor, Dr. Raza Baqir, emphasized that the Monetary Policy Committee (MPC) has resorted to holding the 7% discount rate to allow the economy to recover properly. He added that the central bank would not hike the interest rate until the demand shows noticeable growth and becomes sustainable. He echoed the sage economists by reminding them that the State Bank wants to relay a breather to Pakistan’s economy before pushing the brakes. The MPC further asserted that the Real Discount Rate (adjusted for inflation) currently stands at -3% which has significantly cushioned the economy and encouraged smaller industries to grow despite the throes of the pandemic.

Dr. Raza Baqir further went on to discuss the current account deficit staged last month. He added that the 11-month streak of the current account surplus was cut short largely due to the loan payments made in June. The MPC further explained that multiple factors including an impending expiration of the federal budget, concurrent payments due to lenders, and import of vaccines, weighed heavily down on the national exchequer. He further iterated that the State Bank expects a rise in exports along with a sustained recovery in the remittance flow till the end of 2021 to once again upend the current account into surplus. Dr. Raza Baqir assured that the current level of the current account deficit (standing at 3% of the GDP) is stable. The MPC reminded that majority of the developing countries stand with a current account deficit due to growth prospects and import dependency. The claims were backed as Dr. Raza Baqir voiced his optimism regarding the GDP growth extending from 3.9% to 5% by the end of FY21-22. 

Regarding currency depreciation, Dr. Baqir added that the downfall is largely associated with the strengthening greenback in the global market coupled with high volatility in the oil market which disgruntled almost every oil-importing country, including Pakistan. He further remarked, however, that as the global economy is vying stability, the situation would brighten up in the forthcoming months. Mr. Baqir emphasized that the current account deficit stands at the lowest level in the last decade while the remittances have grown by 25% relative to yesteryear. Combined with proceeds from the recently floated Eurobonds and financial assistance from international lenders including the IMF and the World Bank, both the currency and the deficit would eventually recover as the global market corrects in the following months.

Lastly, the Governor State Bank addressed the rampant inflation in the economy. He stated that despite a hyperinflation scenario that clocked 8.9% inflation last month, the discount rates are deliberately kept below. Mr. Baqir added that the inflation rate was largely within the limits of 7-9% inflation gauged by the State Bank earlier this year. However, he further added that the State Bank is making efforts to curb the unrelenting inflation. He remarked that as the peak summer demand is closing with July, the one-way pressure on the rupee would subsequently plummet and would allow relief in prices.

The MPC has retained the discount rate at 7% for the fifth consecutive time. The policy shows that despite a rebound in growth and prosperity, the threat of the delta variant still looms. Karachi, Pakistan’s busiest metropolis and commercial hub, has recently witnessed a considerable surge in infections. The positivity ratio clocked 26% in Karachi as the national figure inched towards 7% positivity. The worrisome situation warrants the decision of the State Bank of Pakistan. Dr. Raza Baqir concluded the session by assuring that despite raging inflation, the State Bank would not resort to a rate hike until the economy fully returns to the pre-pandemic levels of employment and production. He further assuaged the concerns by signifying the future hike in the policy rate would be gradual in nature, contrast to the 2019 hike that shuffled the markets beyond expectation.

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Reforms Key to Romania’s Resilient Recovery

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Over the past decade, Romania has achieved a remarkable track record of high economic growth, sustained poverty reduction, and rising household incomes. An EU member since 2007, the country’s economic growth was one of the highest in the EU during the period 2010-2020.

Like the rest of the world, however, Romania has been profoundly impacted by the COVID-19 pandemic. In 2020, the economy contracted by 3.9 percent and the unemployment rate reached 5.5 percent in July before dropping slightly to 5.3 percent in December. Trade and services decreased by 4.7 percent, while sectors such as tourism and hospitality were severely affected. Hard won gains in poverty reduction were temporarily reversed and social and economic inequality increased.

The Romanian government acted swiftly in response to the crisis, providing a fiscal stimulus of 4.4 percent of GDP in 2020 to help keep the economy moving. Economic activity was also supported by a resilient private sector. Today, Romania’s economy is showing good signs of recovery and is projected to grow at around 7 percent in 2021, making it one of the few EU economies expected to reach pre-pandemic growth levels this year. This is very promising.

Yet the road ahead remains highly uncertain, and Romania faces several important challenges.

The pandemic has exposed the vulnerability of Romania’s institutions to adverse shocks, exacerbated existing fiscal pressures, and widened gaps in healthcare, education, employment, and social protection.

Poverty increased significantly among the population in 2020, especially among vulnerable communities such as the Roma, and remains elevated in 2021 due to the triple-hit of the ongoing pandemic, poor agricultural yields, and declining remittance incomes.

Frontline workers, low-skilled and temporary workers, the self-employed, women, youth, and small businesses have all been disproportionately impacted by the crisis, including through lost salaries, jobs, and opportunities.

The pandemic has also highlighted deep-rooted inequalities. Jobs in the informal sector and critical income via remittances from abroad have been severely limited for communities that depend on them most, especially the Roma, the country’s most vulnerable group.

How can Romania address these challenges and ensure a green, resilient, and inclusive recovery for all?

Reforms in several key areas can pave the way forward.

First, tax policy and administration require further progress. If Romania is to spend more on pensions, education, or health, it must boost revenue collection. Currently, Romania collects less than 27 percent of GDP in budget revenue, which is the second lowest share in the EU. Measures to increase revenues and efficiency could include improving tax revenue collection, including through digitalization of tax administration and removal of tax exemptions, for example.

Second, public expenditure priorities require adjustment. With the third lowest public spending per GDP among EU countries, Romania already has limited space to cut expenditures, but could focus on making them more efficient, while addressing pressures stemming from its large public sector wage bill. Public employment and wages, for instance, would benefit from a review of wage structures and linking pay with performance.

Third, ensuring sustainability of the country’s pension fund is a high priority. The deficit of the pension fund is currently around 2 percent of GDP, which is subsidized from the state budget. The fund would therefore benefit from closer examination of the pension indexation formula, the number of years of contribution, and the role of special pensions.

Fourth is reform and restructuring of State-Owned Enterprises, which play a significant role in Romania’s economy. SOEs account for about 4.5 percent of employment and are dominant in vital sectors such as transport and energy. Immediate steps could include improving corporate governance of SOEs and careful analysis of the selection and reward of SOE executives and non-executive bodies, which must be done objectively to ensure that management acts in the best interest of companies.

Finally, enhancing social protection must be central to the government’s efforts to boost effectiveness of the public sector and deliver better services for citizens. Better targeted social assistance will be more effective in reaching and supporting vulnerable households and individuals. Strategic investments in infrastructure, people’s skills development, and public services can also help close the large gaps that exist across regions.

None of this will be possible without sustained commitment and dedicated resources. Fortunately, Romania will be able to access significant EU funds through its National Recovery and Resilience Plan, which will enable greater investment in large and important sectors such as transportation, infrastructure to support greater deployment of renewable energy, education, and healthcare.

Achieving a resilient post-pandemic recovery will also mean advancing in critical areas like green transition and digital transformation – major new opportunities to generate substantial returns on investment for Romania’s economy.

I recently returned from my first official trip to Romania where I met with country and government leaders, civil society representatives, academia, and members of the local community. We discussed a wide range of topics including reforms, fiscal consolidation, social inclusion, renewably energy, and disaster risk management. I was highly impressed by their determination to see Romania emerge even stronger from the pandemic. I believe it is possible. To this end, I reiterated the World Bank’s continued support to all Romanians for a safe, bright, and prosperous future.

First appeared in Romanian language in Digi24.ro, via World Bank

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US Economic Turmoil: The Paradox of Recovery and Inflation

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The US economy has been a rollercoaster since the pandemic cinched the world last year. As lockdowns turned into routine and the buzz of a bustling life came to a sudden halt, a problem manifested itself to the US regime. The problem of sustaining economic activity while simultaneously fighting the virus. It was the intent of ‘The American Rescue Plan’ to provide aid to the US citizens, expand healthcare, and help buoy the population as the recession was all but imminent. Now as the global economy starts to rebound in apparent post-pandemic reality, the US regime faces a dilemma. Either tighten the screws on the overheating economy and risk putting an early break on recovery or let the economy expand and face a prospect of unrelenting inflation for years to follow.

The Consumer Price Index, the core measure of inflation, has been off the radar over the past few months. The CPI remained largely over the 4% mark in the second quarter, clocking a colossal figure of 5.4% last month. While the inflation is deemed transitionary, heated by supply bottlenecks coinciding with swelling demand, the pandemic-related causes only explain a partial reality of the blooming clout of prices. Bloomberg data shows that transitory factors pushing the prices haywire account for hotel fares, airline costs, and rentals. Industries facing an offshoot surge in prices include the automobile industry and the Real estate market. However, the main factors driving the prices are shortages of core raw materials like computer chips and timber (essential to the efficient supply functions of the respective industries). Despite accounting for the temporal effect of certain factors, however, the inflation seems hardly controlled; perverse to the position opined by Fed Chair Jerome Powell.

The Fed already insinuated earlier that the economy recovered sooner than originally expected, making it worthwhile to ponder over pulling the plug on the doveish leverage that allowed the economy to persevere through the pandemic. The main cause was the rampant inflation – way off the 2% targetted inflation level. However, the alluded remarks were deftly handled to avoid a panic in an already fragile road to recovery. The economic figures shed some light on the true nature of the US economy which baffled the Fed. The consumer expectations, as per Bloomberg’s data, show that prices are to inflate further by 4.8% over the course of the following 12 months. Moreover, the data shows that the investor sentiment gauged from the bond market rally is also up to 2.5% expected inflation over the corresponding period. Furthermore, a survey from the National Federation of Independent Business (NFIB) suggested that net 47 companies have raised their average prices since May by seven percentage points; the largest surge in four decades. It is all too much to overwhelm any reader that the data shows the economy is reeling with inflation – and the Fed is not clear whether it is transitionary or would outlast the pandemic itself.

Economists, however, have shown faith in the tools and nerves of the Federal Reserve. Even the IMF commended the Fed’s response and tactical strategies implemented to trestle the battered economy. However, much averse to the celebration of a win over the pandemic, the fight is still not through the trough. As the Delta variant continues to amass cases in the United States, the championed vaccinations are being questioned. While it is explicable that the surge is almost distinctly in the unvaccinated or low-vaccinated states, the threat is all that is enough to drive fear and speculation throughout the country. The effects are showing as, despite a lucrative economic rebound, over 9 million positions lay vacant for employment. The prices are billowing yet the growth is stagnating as supply is still lukewarm and people are still wary of returning to work. The job market casts a recession-like scenario while the demand is strong which in turn is driving the wages into the competitive territory. This wage-price spiral would fuel inflation, presumably for years as embedded expectations of employees would be hard to nudge lower. Remember prices and wages are always sticky downwards!

Now the paradox stands. As Congress is allegedly embarking on signing a $4 trillion economic plan, presented by president Joe Bidden, the matters are to turn all the more complex and difficult to follow. While the infrastructure bill would not be a hard press on short-term inflation, the iteration of tax credits and social spending programs would most likely fuel the inflation further. It is true that if the virus resurges, there won’t be any other option to keep the economy afloat. However, a bustling inflationary environment would eventually push the Fed to put the brakes on by either raising the interest rates or by gradually ceasing its Asset Purchase Program. Both the tools, however, would risk a premature contraction which could pull the United States into an economic spiral quite similar to that of the deflating Japanese economy. It is, therefore, a tough stance to take whether a whiff of stagflation today is merely provisional or are these some insidious early signs to be heeded in a deliberate fashion and rectified immediately.

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