Archives for posts with tag: EU

Well, it’s been a while! In my defense, I’ve moved across the world since I last wrote here, and I now have to contend with some very loud birds as I write this. But I have good reason to write now; so much has transpired since I last wrote. You’ll have to forgive me for the length of this blog post, if you read it in it’s entirety you’ll have digested over 3000 words, there’s just so much to write about. With a remarkable confluence of political transitions taking place across the globe, there seems now, even more-so than in 2012, a real opportunity that the world will look very different 12 months from now. From the reelection of Barack Obama to Xi Jinping’s ascent to top spot within the Communist Party of China, many regions appear poised for change and uncertainty. From Israel to Myanmar there has been no shortage of speculation and intrigue regarding what the future will bring. But while there have been notable transitions across the world, some regions seem to have experienced less upheaval than others… so far.

Europe

Twelve months ago the world was fixated on the volatility of the European debt crisis and what might happen if an anti-austerity party won in Greece. This did not come to fruition, and while the anti-austerity party Syriza became the official opposition, they remain far from power in Greece. With relatively mundane results in the other European elections (Czechs and Slovenes both elected remarkably boring presidents) you might wonder if Europe really belongs in a blog about political upheaval in 2013. The good news is that very soon that will change, thanks to a combination of factors in Italy’s general election on February 24th.

Italy Prime Minister Silvio Berlusconi makes a face as he attends a meeting in Rome

After resigning in 2011, few could have imagined that the scandal-ridden media mogul would return to politics, but underage prostitute scandals notwithstanding, Berlusconi will contest yet another election. He will lead the People of Freedom party against the social-democrat PD, which is leading in polls at the moment; but in an added twist he will be competing with two other unlikely figures for the job.

When Mario Monti was asked to form a technocratic government in the wake of Berlusconi’s resignation he was not expected to contest the election after his government implemented economic reforms, but on December 28th he announced he would run for Prime Minister under the “With Monti for Italy” party. While Monti’s entrance into politics may have been surprising, his background is very different from the leader of Five Star Movement. Beppe Grillo entered politics as a comedian and blogger, and has taken Italian politics by storm; at one point his party scored as high as 20% in national opinion polls, though its popularity has since waned. The Five Star Movement can be defined broadly as an anti-austerity party, though some of Grillo’s other policy prescriptions include more direct democracy and free internet. While few expect either Monti or Grillo to garner enough support for the top spot, their impact on the election could be vast.

Public polling has consistently placed the center-left Democratic Party (PD) in first place, but the latest polls hinted at the possibility of a hung parliament in the Senate, where seats are allocated on a regional basis. This would force Pier Barsani (leader of the PD) to form a coalition, either with Mario Monti or even Beppe Grillo, though this is unlikely. You might wonder why the election in Italy is getting so much attention when so many different political transitions have taken place. Italy sits in a unique place within the EU: while it has come under scrutiny for its large debt (only the US and Japan have more) and its sluggish economy (only Zimbabwe and Haiti grew more slowly from 2000 to 2010) it also commands the largest share of the Eurozone economy outside of Germany and France. It also holds the distinct role of being the largest Eurozone member that is currently undergoing harsh austerity, which is being administered by an unelected, technocratic government. France has already replaced the center-right government of Nicolas Sarkozy with Socialist Francois Hollande, in part because of his promise to transition Eurozone policy away from austerity. If a center-left government emerges in Italy, it might just be enough to move EU policymakers away from austerity, or at least away from its current manifestation. Lastly, Italy’s election matters because it precedes an election in Germany in September, where Angela Merkel’s center-right coalition has faced recent difficulties.

Middle East/North Africa

When revolutions swept the Arab world in 2011, it seemed like the greatest emotion expressed in the crowds was relief and optimism; since then, ambiguity has shrouded interpretations of events. Tunisian protesters clash with riot police during demonstration after death of Tunisian opposition leader Belaid, outside Interior ministry in Tunis

This picture was taken in Tunisia on Feb. 6th of this year (source: Reuters/Anis Mili). The killing of left-wing opposition leader Chokri Belaid has sparked the largest demonstrations in Tunisia since the government of Ben Ali was overthrown two years ago. The Islamist-dominated government has dissolved parliament in response to this, and is calling for fresh elections in the wake of the unrest. Elections that took place in Tunisia and in Egypt after their respective revolutions saw Islamist parties win the largest share of the vote. While the outcome of the election was not disputed (unlike Iran in 2009) within those countries or by observers, the conduct of the resultant governments has been very critical. Mohamed Morsi, the president of Egypt and member of the Muslim Brotherhood has seen his first term riddled with controversy ranging from his handling of the drafting of a new constitution, to recent violence between police and demonstrators. Instead of focusing on these internal debates taking place in Egypt and other MENA countries, I’d like to talk about the regional implications of recent political transitions.

Two countries that dominate media coverage of the Middle East and I think warrant special attention for their regional impact are Israel and Iran. Both countries have an awkward (to put it nicely) relationship with many of their neighbors, and both essentially exist on the opposite sides of a diplomatic arrangement with the US. Iran has counted on support from Hezbollah in Lebanon, the Assad regime in Syria, and Shi’a leaders in Iraq, surprisingly.

I mention Iraq as a surprise because this wasn’t always the case; before the US invasion in 2003 Saddam-governed Iraq was actually a fierce opponent of the Islamic Republic in Iran. From 1980-88 they fought a protracted war that cost half a million lives, both Saddam Hussein and the Ayatollah sought to overthrow the regime in the other country. After the first Gulf War, the US engaged in a policy of “dual containment” that attempted to limit the influence of both regimes simultaneously. While this strategy was broadly viewed as “stupid” and had limited success containing either regime, the effects of the US occupation in 2003 had a more dramatic impact on regional influence. Nouri al-Maliki, the current prime minister of Iraq, is Shi’a Muslim (the main religion of Iran) and has close ties to the Islamic Republic in Iran, he actually lived there in exile for most of the 1980s. With the elections in 2005, Iraq has become one of Iran’s closest regional allies and has even helped sustain the Assad regime in Syria, another close ally to Iran.

Iran’s relationship with the other Arab regimes has been far less fruitful. Egypt and Iran have had icy relations since the revolution in 1979. Most notably, the Islamic Republic named a street in honor of the man (Khalid Islambouli) who assassinated Egyptian president Anwar Sadat. A precursor to this diplomatic freeze was Egypt’s peace treaty with Israel in 1978, as Iran viewed (and continues to view) Israel as its greatest enemy. The ascent of the Muslim Brotherhood in Egypt has helped improve relations, but the two countries remain far from rapprochement thus far. Perhaps the biggest illustration of these complicated new relations came with Ahmadinejad’s visit to Cairo on Feb 5th.

While Ahmadinejad was given a warm reception by President Morsi, he was grilled by other political and religious figures, most notably for Iran’s continued support of the Assad regime in Syria. In many ways the paths of these two countries were destined to be complicated, by both history and their sectarian importance. One of the tenser moments during the visit occurred when the leader of al-Ahzar (one of the most respected Sunni institutions in the world) grilled Ahmadinejad over everything from Syria to the belittlement of Islam’s first caliphate. Egypt is the most populous Arab country, and in a way it represents the broader Sunni-Arab aspirations in the region. Iran has a similar population, and it’s religious institutions in Qom are viewed with comparable regard to al-Ahzar for Shi’a Muslims across the world. This theological rift turns political when it comes to Syria, where the two countries continue to be at odds over the future of the Assad regime. I don’t want to oversimplify matters excessively: the Muslim Brotherhood’s relations with some Sunni regimes in the Gulf have been frosty at times.

Under this backdrop, the Israelis voted on Jan. 22nd, with most expecting Benjamin Netanyahu’s new Likud-Beiteinu bloc would sweep to victory, however things were not that simple.

Yesh Atid Party's Yair Lapid Awaits Israel's General Election Results(source: Ilia Yefimovich/Getty Images)

The man pictured above is Yair Lapid, a TV presenter-turned politician who now leads the second largest party in Israel, Yesh-Atid (translated: There is a Future). While Yesh Atid was expected to win about 10 seats, he nearly doubled this total with 19. Most of Mr Lapid’s platform was very centrist, with broadly popular ideas like reducing corruption and reforming education getting mention. More controversially he also proposed ending the exemption on Haredi (ultra-Orthodox Jews) from military service and negotiating with the Palestinians with the goal of creating a two-state solution. This latter declaration is significant because even after tacitly accepting a two-state solution, Netanyahu has done very little to indicate that he takes the idea seriously. Even after reaffirming his commitment to two-state solution, he said that the Palestinian Authority needed to drop any preconditions on talks, even as his government moves ahead with the controversial E1 settlement plan.

Lapid has also differentiated himself from Netanyahu on Iran, saying the Likud leader has been too confrontational towards the Obama administration regarding Iran, saying “[Netanyahu] thinks he can drag America to do what it doesn’t want to do. He is leading Israel to war too soon, before it’s necessary.” While it is less clear what meaningful differences they have w-r-t Syria, the biggest question right now is what government, if any, can emerge from this fragmented election:

_65464209_israel_election_results02_464gr

(Source: BBC) Coalition talks are expected to be very acrimonious as they have to first be led by Netanyahu (who won the most seats) who has been weakened by this electoral result. His list lost 11 seats and he is coming under scrutiny for his role in a variety of troubling and quite funny scandals. Whatever the outcome, the region faces a range of crises, from Syria’s civil war to the economic malaise that affects so many countries in the Middle East; now, more than ever, is a time for effective leadership in the region.

Asia

Perhaps more than any political transitions that have taken place this year (including the US election) changing of guard in China, Japan, and South Korea. Xi Jinping, Shinzo Abe, Park Geun-hye have all been elected to lead their countries in a time when East Asia represents an increasingly important economic area:

gdp share asia usa 2000 2012 (source)

Unfortunately this increased economic importance is being supplemented with increasing hostility between the respective governments, with the Senkaku/Diaoyu dispute receiving a great deal of media coverage. While the dispute has been simmering for over a century, things came to a head when in September Japan decided to nationalize part of the island chain, setting off a diplomatic row with China that has caused alarm across the globe. While Japan’s purchase of the disputed islands from a private owner may seem like an obviously provocative act (it certainly was by China), the action was actually intended, however clumsily, to deescalate tensions. This is because the bellicose mayor of Tokyo, Shintaro Ishihara had stated his intention to buy the islands; Japan’s government feared he would use his ownership to provoke China publicly. Things have escalated quickly since then, with anti-Japans protests and boycotts enveloping China. Perhaps most disconcerting has been an allegation by Japan that China had targeted one of its vessels near the islands with it’s fire-control radar.

Senkaku islands (Source: The Guardian)

History has played an increasingly important and often detrimental role in island disputes in East Asia; the Senkaku/Diaoyu dispute is only the most recent example. Last summer a series of symbolic gestures were taken by the South Korean government to underscore its control of the Dokdo/Takeshima Islands, whose control is disputed with Japan. What came next surprised many when South Korean President Lee Myung-bak said that were emperor of Japan to visit Korea he would demand an apology for Japan’s crimes in WWII. Lee is no longer in office, his party instead nominated Park Geun-hye to run in the 2012 Presidential election, which she won narrowly. She campaigned on a platform of economic liberalization but at deftly supported reforming the state’s relationship with the Chaeobol (powerful family-owned businesses). Perhaps more than her policies, she has been scrutinized for her own history: she is the daughter of the late dictator Park Chung-hee, a controversial figure in South Korea. She, like her predecessor has demanded that Japan apologize for its crimes in WWII, though her own nationalism is now being matched by a flamboyant counterpart in Japan.

Shinzo Abe was elected Prime Minister of Japan on a platform of expansionary economic policies (which have many left-wing champions) and a nationalist foreign policy. In October Abe visited the controversial Yasukuni Shrine, where some Class-A war criminals are enshrined; in the past he has suggested Japan should review its apology for using comfort women in WWII. Though he shelved this latter plan, his other, less symbolic proposal could signal bigger, more worrying development for neighboring countries. Shinzo Abe has suggested his government will review its interpretation of the Article 9 of the Japanese Constitution which under it’s current interpretation prohibits an act of war by the state. This has been justified as enabling Japan to engage in “global security operations” as well as allowing its military to engage in joint military operations with its allies, such as a strike on North Korea. It seems clear that while this might be accepted in Seoul and Washington, it will raise eyebrows in Japan’s biggest neighbor.

As alluded to earlier, the recent hostility between Japan and China has received most of the coverage in this region recently. In many ways the anxiety over the confrontation between Japan and China comes from the the transformation in roles the two countries have had economically:

gdp share e asia 1997 2012

Only fifteen years ago Japan laid claim to the largest economy in East Asia and despite it’s economic headwinds (the 90s were considered Japan’s “lost decade”) few anticipated the quickness with which China would overtake it. For perspective, in 1990 when Japan was considered the chief economic rival of the US, its GDP was $3.018 trillion compared to China’s $355 billion it’s growth rate was for that year was 5.57% compared with China’s 3.8%. Japan’s economic performance was so strong that it captured the fear and imagination of the American public, with popular books and films depicting a Japanese takeover of American businesses. But after 1990 events took a dramatic turn in East Asia; China (and to a lesser extent S. Korea) has overtaken Japan in GDP every year since:

gdp growth e asia

Presiding over this record-breaking growth has been a series of modernizing figures in the Communist Party of China starting with President Jiang Zemin and Premier Zhu Rongji. Their role in directing China’s State Capitalist model cannot be understated, with their successors Hu Jintao and Wen Jiabao largely following the same path. With the exception of a brief period of slower growth in 2012 the Chinese economy has looked unstoppable, but this has not stymied the internal debate about the future of China’s economy. Lost in the controversy over Bo Xilai’s role in the murder of Neil Heywood was a vigorous debate about the direction of China’s economy. Bo’s governance of the Chongqing Province was seen as a good model by observers in China and abroad. The model was characterized by its high levels of foreign investment as well as large state-sponsored projects, and succeeded in producing levels of growth that beat the national average while he was premier there. Due to his dramatic downfall, his ideas will have to be debated by Xi Jinping and Li Keqiang, who will formally be declared President and Premier of China March this year. They will preside over not only the largest economy in East Asia, but also the largest military as well:

military spending 1990 2011

(you should really get this if you want to know more about global military spending) The Senkaku/Diaoyu Island dispute comes at a time of unprecedented disparity in military spending between the two countries, unfortunately it is being coupled with unprecedented nationalism on both sides. What is particularly worrying is how lightly both sides seem to be taking the risks of escalation, especially considering the US declaring itself treaty-bound to defend Japan’s control over the Senkakus. One can only hope that the negative externalities that are at stake will compel both sides to deescalate the dispute. This is important not only because of the risks of conflict, but because of the urgent need for cooperation among the three East Asian powers. North Korea’s nuclear test just last week and it’s threat to conduct more is perhaps the best current example of this need. The world’s most important economic region needs pragmatic leadership now more than ever, it is truly disappointing to see nationalism cloud what was otherwise considered such a promising future for the region.

city_lights_asia_720

In all of the examples of political transition I have mentioned here there seem to be forces that both promote the status quo as well as forces agitating for change. In this blog I focused on the forces agitating for change, in part because I find this more compelling. You might have noticed that there were many notable omissions from this blog, I certainly do not wish to underestimate the importance of these political transitions. From Myanmar’s democratic reforms to Enrique Peña Nieto returning Mexico’s presidency to the PRI are just as important to the future as Japan’s recent elections. I will not, however, apologize for omitting the recent election in the United States. Due to my own interest/connection to US politics, I followed the election very closely. If you did not and would enjoy some analysis, I suggest you look somewhere else for relevant coverage: here are a few of my personal favorites.

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It only takes a cursory glance at the global press to see how the recent European elections have been viewed:

I don’t really have to translate der Spiegel to get the message across but it says: Why Greece must now leave the Euro.

Wow. So France elected a “dangerous” Socialist and Greece is going to leave the Euro. Not only that, the markets apparently believe that the sky is falling as well: (links here)

To summarize broadly the narrative that has come out of the press in the past week: European voters have rejected austerity, now the end (of the Euro) is near.

I want to go beyond that narrative though, there’s much more behind this “democracy interferes with a solution to the European crisis” than is being reported.

So lets start with the election of Socialist François Hollande. The Economist is a publication I hold dear most of the time; usually their articles promote a mostly centrist, albeit pro-globalization view. But there are so many problems with the Op-Ed piece on Hollande that I struggle to find merit in any of it. They malign him for not seeking to trim the size of the French state, while admitting that he seeks a balanced budget. And while they say that he “gets one big thing right” with his criticism of German-let austerity they posit that he isn’t doing it for the right reasons, as if intentions make a difference in modern electoral politics. (I’ll go into more detail on the German austerity program but to avoid being redundant here’s a relink a blog I wrote about it earlier). So The Economist was alarmed by the prospect of Hollande winning, what about the markets?

As you can see yields on French 10-year government bonds initially dropped before rising later in the trading week. But even at its current peak French bonds are still more highly valued than they were for most of the end of Nicolas Sarkozy’s term, a less “dangerous” candidate.

But while Hollande’s ascension might have drawn criticism of The Economist, Greece’s electoral result was far less conclusive. While people viewed the Socialists rise with ambivalence, almost everyone has taken the Greek result as a sign of the volatility. From the BBC:

New Democracy was awarded 50 additional seats for coming in first place, but no party won even 20% of the popular vote in this election. It should also be noted that only PASOK and New Democracy supported continuing the bailout-induced austerity program. After four separate attempts to form a coalition, the parties gave up and planned a new election on June 17th. Current polls have the left wing anti-austerity party Syriza coming in first place with 22% of the vote.

While the potential for a Greek government that opposes austerity has rattled the markets, people should be equally concerned over what the response could be from Germany. Angela Merkel telephoned the interim leader of Greece and was reported to have suggested Greece should hold a referendum on its Euro membership, though Germany denies this was proposed. Greece would not be alone in seeing voters reject austerity: Italian local elections also saw supporters of austerity get voted out. And while not facing an election, Spain’s prime minister Mariano Rajoy said that the country would breach the deficit targets imposed by the so-called Fiscal Pact led by Germany.

I’d like to expand the often cited “fiscal pact” for a moment here. The EU treaty now called the fiscal pact was signed at the beginning of March 2011, it stipulates that signing nations must not run a budget deficit of more than 3% of GDP or they will be fined. The fiscal pact has been maligned by many (Joseph Stiglitz even called it a suicide pact) but the treaty was enacted in order to fix a real problem inside the Eurozone.

Unlike the United States, where both our currency (monetary policy) and the national budget (fiscal policy) is set by the federal government, the EU only has direct control over the currency (the Euro). This causes many complications, of these the most well understood has been a competitiveness problem in certain European countries. Countries like Italy and Spain gave up a competitive advantage when they joined the Euro by giving up their cheaper local currencies. A way of offsetting this was to lower the borrowing costs for new members to help eliminate the competitiveness problem without devaluing the Euro currency itself. The problem now is that 10 years after the creation of the Euro, the competitiveness gap still exists.

This is not unique to Europe; in the US we also have a competitiveness gap between US states. Poorer US states like Kentucky, Mississippi, and West Virginia take in much more than they pay into the IRS, while states like California get considerably less back. This translates into long term transfers of wealth from competitive parts of the country to less competitive ones; Europe lacks this redistributive mechanism. At the same time, because the federal government issues bonds on behalf of all 50 states, the fiscal insolvency of one state (say California) is not exposed to the wrath of the markets. In other words, the risk between US states is mutualized by the federal government. Europe currently lacks both of these tools to stymie the crisis.

This brings us back to issue of democracy and the European economic crisis. While some countries have voted in opposition to the austerity drive, German voters have their own reservations on many proposed solutions to the crisis. According to a poll in November 2011, 79% of Germans oppose a European Bond that would combine sovereign debt from Germany with other Euro members. Germans are similarly opposed to any inflation outside of what they view as acceptable. A poll from an insurance company (R+V) asked Germans what their most pressing fear was: last year inflation topped the list with 63% of respondents listing it. These views have been reflected by German policymakers  as Finance Minister Wolfgang Schaeuble denied that Greek bailouts would result in any transfer union in Europe. German opposition to inflationary policy at the ECB has also been pronounced. While some of this stubbornness has changed over time, policymakers still have an obligation to follow the wishes of their citizens or face potential defeat in elections.

Right now the “strategy” to resolve the Eurozone competitiveness problem involves cutting deficits across the EU and relying on “internal devaluation” caused by austerity and falling prices in the most troubled economies (Greece, Ireland, Portugal, Spain, Italy). Unfortunately this process takes a very long time and has put many of the troubled economies into recession. This process is also complicated by German opposition to inflation, as higher inflation in Germany would help make the troubled periphery more competitive.

In the end, the problems affecting the Eurozone will probably require a combination of both austerity measures over time in some countries as well as some form of debt mutualization and fiscal transfers to less competitive countries. This is, of course, just to stymie the medium to long term imbalances facing the Eurozone. In the short term the EU has very dire questions to answer: is the current strategy sustainable, can the Eurozone survive a Greek exit, would it be worth it to tolerate countries rejecting austerity if the alternative was a disorderly departure from the single currency? Above all, can the Euro survive the challenge democracy presents to resolving its many problems?

When I took my first class on International Relations in college I was especially excited to participate in a exercise at the end of the term: everyone in class would get into groups and simulate a regional conflict with individuals acting as certain countries. I got Turkey, and it was my job to negotiate Georgian membership in NATO. The group included someone playing Georgia, the US, Iran, and Russia was supposed to have a representative but she was sick that day. It ended with me (Turkey) yelling at Iran’s sassy representative until the United States mopped things up and signed a treaty. In reality Turkey and Iran have had several shouting matches throughout history, dating back to the Ottoman and Safavid empires.

We were allowed to bicker in part because the professor was distracted by 30 other students at the time but also because certain facts about the group presented themselves. Iran and Turkey are similarly sized countries with populations of about 75 million each, with economies sized by the IMF at $930.236bn and $1,054.560 respectively. Before the US got involved, neither me (playing Turkey) nor Iran’s representative had enough of a relative advantage to sway Georgia; it took a superpower to alter the dynamics of the group. International politics aren’t usually that simple, but the exercise has always intrigued me. I’ve wondered since then what patterns you could find by taking a simple measurement of a country’s relative power (like wealth) and looked a differences within real international working groups.

In this blog I want to look at relative power and measure it within various international organizations. But before I go any further I want to make one point clear: I am not attempting to predict actual influence in international organizations, I am merely measuring theoretical influence in these organizations and leaving it up to the viewer to draw whatever conclusions from this. Having said that, I’ve found several articles about recent events that relate to the power-dynamics in these organizations. For most of these graphs I will be using Gross Domestic Product based on Purchasing Power Parity as a basis for potential influence in groups. I collected the statistics from the IMF (here) and all but a few exceptions are from 2011.

For my first group I would like to present the Arab League, with the Gulf Cooperation Council as a subgroup:

(note: the Palestinian Authority and Somalia were omitted as they lacked recent statistics, Yemen and Libya’s numbers are from 2010)

I think this graph is especially important as recent uprisings in the Middle East have captured the attention of the world. Like so many things in the region, the uprisings must be viewed in a context includes more than just relative GDP, but this graph offers some perspective on recent events. Just as Tunisia had seen its president abdicate power and Cairo’s Tahrir Square was swelling with protestors, the Gulf Cooperation Council (led by Saudi Arabia) invited the Morocco and Jordan to join the oil producing group.  The move was widely interpreted as an effort to stymie the revolution retain Saudi Arabia’s influence in the Arab League. Even without adding Jordan and Morocco the combined wealth of the Gulf Cooperation Council makes up 46% of the Arab League, it would have a majority of the League’s wealth were it to include the two monarchies.

Palestine is a perennial feature of Arab League summits, so it should come as no surprise Arab states frequently vie for influence over the politics of the territory. Egypt has repeatedly tried to broker unity within the Palestinian government; Saudi Arabia has tried to take the initiative on Arab leadership in the Israel-Palestine conflict. Personally, I think it’s no coincidence that the two largest economies in the Arab League have both taken such a critical role in the Israel-Palestine conflict. While Arab League efforts to resolve the Israel-Palestine have stagnated recently, the situation in Syria has been very much on the agenda.

While conflict and upheaval has often characterized the Middle East, Latin America has seen a recent flourishing of democracy and regional integration. For this region I would like to present two graphs representing different regional organizations:

UNASUR (The Union of South American Nations) is the main body for regional integration in South America, but its significance to greater Latin America was enough to move Mexico and Panama to observe the treaty signing that created the institution. It’s not hard to see how relative power in this institution could easily mirror the simulation I participated in in class. In 2010 a dispute between Colombia and Venezuela gave the new organization a role in resolving a long-brewing confrontation. Like Turkey and Iran, Colombia and Venezuela are neighbors with somewhat similar means ($467bn GDP for Colombia versus $370bn Venezuela) but very different ideology/foreign relations. Colombian president Álvaro Uribe, having just signed an agreement with the US to build a new base there, accused Venezuelan president Hugo Chávez of giving FARC material support. Pressure from UNASUR helped to prevent war and in August the two countries resumed diplomatic relations.

While UNASUR represents a successful  South American effort towards integration, the wider Latin America has seen varied progress towards the goal of integration.

As the Arab League seeks to integrate the Arab World, CELAC (The Community of Latin American and Caribbean States) seeks to integrate Latin America. Both groups therefore exclude obvious regional powers: the Arab League is often maligned for excluding Israel and Iran, while CELAC was created (intentionally) to promote Latin American integration without US, Canadian, or European involvement. A potential obstacle to CELAC’s success is that unlike UNASUR, Brazil faces a rival in Mexico. While Brazil is a decorated member of the BRIC (a bloc of emerging economies) and has a much larger population (190 million vs. 112 million) Mexico grew at a quicker pace in the last two quarters. Perhaps in relation to this recent shift, Brazil and Mexico are now in trade dispute with one another. Guido Mantega, Brazil’s finance minister, has recently suggested that the trade group Mercosur (part of UNASUR) increase its tariffs with outside countries, including Mexico. This doesn’t have to spell doom for the dream of Latin American integration, but it does reveal a potential rivalry that could threaten wider regional integration.

CELAC has been championed by leftist leaders in the region like Bolivia’s Evo Morales and  Hugo Chávez as an alternative to the Organization of American States, since it lacks the US and Canada. At a summit last year two declarations were adopted by the organization that reflected this reality; Argentina’s claim to the British-controlled Falkland Islands (called the Malvinas in Argentina) was supported and the US embargo on Cuba was criticized. While these declarations were adopted by all CELAC members, the body went short of calling for any direct action on the issues. Journalist Andrew Cawthorne posits that pro-US members like Mexico, Chile and Colombia have prevented CELAC from adopting more radical action against Western interests in the region. This scenario is an example of how organizations can easily lose the capacity to act unilaterally when political and economic divisions are present. The combined GDP share of Mexico, Chile and Colombia represents 35% of CELAC.

Sometimes regional groups can be so effective that they’re summits become used to coordinate bigger goals than their membership suggests. This was the case with ASEAN (Association of Southeast Asian Nations), a group founded in 1967 to represent Asian countries sandwiched between giants like China and India to the north and Australia to the south.

Security and economic integration are both included in ASEAN’s charter, but the group’s effectiveness has been varied between the two mandates. Cambodia and Thailand have had an ongoing border dispute that has persisted despite an ASEAN brokered agreement that includes Indonesian monitors in the area. But while ASEAN’s effectiveness at settling regional conflicts has been varied, it’s economic importance cannot be understated. The group plans to implement a Free Trade Agreement in 2015, which has smaller countries like Timor-Leste eager to join quickly.

ASEAN attracting small regional nations may not seem like a big deal, but certainly role in the response to the 1997 Asian financial crisis was. The financial crisis devastated much of Asia and the IMF’s response was highly criticized by many inside Asia and beyond. In 2000, finance minsters from ASEAN member-states plus China, Japan, and South Korea met at and produced what is now called the Chiang Mai Initiative. What started out as a currency-swap agreement has evolved (at least conceptually) into a regional bailout fund, with a role akin to the IMF itself. The initiative is managed at a summit connected to the annual ASEAN meetup, with the expanded group called ASEAN+3. Now, with a bailout fund of $240 billion, ASEAN+3 is a critical piece of Asian integration. What does a graph of this expanded group look like?

As evidenced by this graph, ASEAN has an outsized influence on the region it now helps to integrate.

When it comes to challenges facing a regional organization, the AU (African Union) has to be far in the lead. of the 20 countries with the lowest Human Development Index ranking 19 are members of the AU (source). With recent coups in Madagascar and Mali and Zimbabwe in perpetual crisis, the AU exists in a region that needs security and economic cooperation desperately.

(note: South Sudan, Western Sahara, and Somalia lacked current info, also not included due to GDP being under 15bn: Benin, Malawi, Rwanda, Niger, Guinea, Mauritania, Togo, Swaziland, Zimbabwe, Sierra Leone, Eritrea, Gambia, Lesotho, Central African Republic, Burundi, Djibouti, Seychelles, Cape Verde, Guinea-Bissau, Liberia, Comoros, São Tomé and Príncipe)

The AU faces several internal conflicts: the Arab north is sometimes ambivalent about the role in the AU, something brought under the spotlight when Jacob Zuma and other leaders tried to broker an AU peace plan in Libya. The AU opposed any foreign military intervention, even as Qaddafi’s troops threatened to massacre Benghazi. With a somewhat disengaged Arab north, the largest countries that back the AU enthusiastically are Nigeria and South Africa, whose support is often critical for AU resolutions.

Despite being a diverse organization with large regional/ethnic divides the AU has acted decisively on occasion. Led by Nigeria’s ambassador B. Paul Lolo the AU suspended Mali swiftly after an illegal coup took place. But sometimes the perverse influence of geopolitics has been maligned in the AU. Notably, Mugabe’s Zanu-PF government in Zimbabwe was accused of being “sheltered” by a sympathetic administration in South Africa during the worst political violence in 2008. Whether or not the AU suffers from the problems associated with power dynamics, its success is critical for the region, and perhaps the world.

With the recent election drama in France and Greece it would feel remiss to leave out the European Union in this blog.

(note: underlined countries do not use the Euro currency)

I’ll leave coverage of the eurozone sovereign debt crisis out of this as I have covered it in several other posts (and I plan on writing more shortly), but I’ll highlight a few broad observations about the EU’s politics. The UK is the largest non-Euro member-state and is often seen as the most eurosceptic member. This has distanced its role in enhancing the powers of the EU and has sometimes seen it act as a check on Franco-German aims to do so. One of the biggest recent events to upset this equilibrium has been the election of French Socialist François Hollande. German chancellor Angela Merkel actively supported his rival, incumbent Nicolas Sarkozy during the election, and many now ponder what impact the election will have on Franco-German relations. I’ll write more on this later in a dedicated EU/EuroApocalypse post.

I want to reiterate a point: as compelling as I find all of this, I have to be intellectually modest here and admit that most of it is conjecture. I’ve found most of the articles supporting this theoretical perspective on group power because I probably have a bias when I read articles about international news. Despite this, I’ve found myself drawn to this interpretation of events; I simply can’t look at news relating to China’s vetos in the UN Security Council, or India’s nuclear trade agreement with the US without seeing this interpretation of events shaping my opinion. In the very least, I hope you’ve found this to be interesting to read about.

If you’re reading this because you found one of my graphs while desperately trawling the web for statistics for an essay, feel free to use them! unless otherwise noted all of my graphs use data from the IMF found here and I’ve taken it on myself to post all of the excel docs below:

arab league GDP pie 2011

ASEAN GDP PPP 2011 pie

ASEAN+3 GDP PPP 2011 pie

AU 2011 BIG LIST

AU 2011 gdp pie

CELAC GDP PPP 2011 pie

EU27 GDP PIE 2011

NATO 2010 military spending

NATO 2011 GDP PIE

UNASUR GDP PPP 2011 pie

After months of mental stagnation I’ve decided to return to the world of blogging with an extra spergy post on the economic policies being considered on both sides of the Atlantic. Before I expand on this subject I want to send a special thanks to economist bloggers Paul Krugman, Brad DeLong, and Matthew Yglesias for inspiring me. I absolutely don’t belong in the same category as them but I feel so much better informed by their blogs. For anyone looking to learn a little bit more about economics or economic theory I highly recommend following these blogs. For additional perspectives from economists you should also consider the blogs referenced in this compelling economist article.

The topic for this post will be the economic policies that are currently being considered in both the European Union and the United States. Before I go further I want to define two terms that I will be using a lot in this post:

Austerity: “In economics, austerity is a policy of deficit-cutting, lower spending, and a reduction in the amount of benefits and public services provided.[1] Austerity policies are often used by governments to reduce their deficit spending[2] while sometimes coupled with increases in taxes to pay back creditors to reduce debt.[3]” (from wikipedia)

Expansionism: “some have linked the term to promoting economic growth (in contrast to no growth / sustainable policies).” (also from wikipedia)

While some time has passed since the debt ceiling standoff and subsequent downgrade by Standard and Poor rocked US markets, the debate remains central to US economic policy. In recent Republican debates austerity has been almost universally endorsed. Governor Rick Perry went  so far as to propose eliminating three government agencies, though which three is still up for debate. This stance on austerity has also been endorsed by Republicans in Congress, with multiple proposals to reduce government spending in the short and medium term.

Across the Atlantic, similar proposals have not only been proposed but have been implemented in several countries that were affected by the Eurozone debt crisis. Germany’s Angela Merkel has been one of the most ardent proponents in the Eurozone for an austerity-centered response to debt crisis. The economist states:

Italy and Greece, under new technocratic governments, may now be more serious about living within their means and reforming their faults. France, which has run budget deficits since 1974, is adopting austerity. Spain has introduced a constitutional debt brake.”

In both Europe and the United States austerity has been proposed as a solution to the risk of bond market action on sovereign bonds. I think it is critical to understand a few key elements of what this “bond market action” implies here. When governments seek to borrow money, they auction sovereign bonds denominated in the currency used by those respective governments. Governments then have to pay back those bonds with interest. This interest is called the “yield” and has an inverse relationship to demand for those bonds. So if a bond is in high demand, the yield will be low, while a bond with low demand will have a higher yield.

Ratings agencies, which represent the interests of bond-buyers will give ratings on sovereign bonds based on how likely they think they will be repaid. Even though a nation’s sovereign debt rating can be related to its yield, the two don’t always correlate to one another.  When the United States lost its AAA rating from Standard and Poor (the other two major ratings agencies kept the AAA for the US) stock markets lost record volume but demand for US sovereign debt actually went up. As I write this the yield on US 10-year bonds stands at 1.89%, while it stood at 3.01% on July 20th, 2011.

While 2% is considered serviceable, higher yields can cripple a country by forcing it stop borrowing altogether. Greek 10-year bonds have yields more than ten times higher than their US or German equivalent:

At present, Greece would have to pay 34% interest on a ten year loan. This has effectively locked Greece out of selling its debt. It would seem natural then, that the countries that are now bailing out Greece would insist that Greece cut government spending sharply and try to raise more taxes to cut its deficit. After all, if Greece were able to finance its spending without having to borrow money, yields wouldn’t matter, at least in the immediate term. Germany, the biggest Eurozone economy, has led the push for austerity in Greece and other Euro countries with dangerously high yields (Italy, Spain, Portugal, Ireland have all faced high yields).

There is a danger to this logic though, that comes with the effects of austerity. In return for the first bailout, Greece agreed to sharply reduce public spending, including cuts in pensions and wages for public sector workers, yet it still fails to meet deficit targets set by the EU. Germany is now proposing that the EU take direct control over Greece’s government spending, something deeply unpopular in Greece (source). The problem that comes from this arrangement is that austerity has not let to growth in Greece’s economy. In fact, since the first bailout in April 2010, Greece has seen its economy contract sharply:

This is as troubling as this looks, it easily could have been predicted. When you lower spending like Greece has done, you are in effect giving public sector workers/pensioners less money to spend, lowering demand. This weakens economic output across all sectors of the economy, as private businesses adjust to lowered demand by laying off workers and producing less. This does more than just damage the livelihoods of Greek citizens, it actually exacerbates the government’s finances. As Greece’s tax base becomes less wealthy, the government must either raise taxes further (which certainly does not stimulate growth) or continue to run a budgetary deficit just to maintain the status quo.

Greece is not alone in its struggle to grow as the effects of austerity bite, other Euro countries that have recently implemented austerity have seen growth slow:

This graph measures annual GDP growth in the Q3 2011, and with the exception of Slovenia, all of the worst performers had to implement some form of austerity in response to high yields/EU intervention.

It is not just the opinion of amateur bloggers (like me) or angry protesters in Greece that austerity alone cannot ensure debt repayment. Standard and Poor recently downgraded 9 Eurozone countries, and in its FAQ explaining the downgrades stated:

… As such, we believe that a reform process based on a pillar of fiscal austerity alone risks becoming self-defeating, as domestic demand falls in line with consumers’ rising concerns about job security and disposable incomes, eroding national tax revenues.”

The German response to the downgrade borders on intransigence:

German chancellor Angela Merkel has called on eurozone governments speedily to implement tough new fiscal rules after Standard & Poor’s downgraded the credit ratings of France and Austria and seven other second-tier sovereigns.”

This is especially swaying because ratings agencies like S&P have no vested interest in placating debtor states, but instead act on behalf of creditors. Fears over German stubbornness over austerity has led to a recent outpouring of criticism from the world’s economic leaders. IMF head Christine Lagarde, US Treasury Secretary Tim Geithner, and Financier George Soros all warned of dangers of austerity at the recent World Economic Forum at Davos. At a separate summit, Nobel prize-winning economist Joseph Stiglitz warned that Germany was pushing Europe towards a suicide pact, saying:

It is like blood-letting, where you took blood out of a patient because the theory was that there were bad humours. and very often, when you took the blood out, the patient got sicker. The response then was more blood-letting until the patient very nearly died. What is happening in Europe is a mutual suicide pact

It’s worth noting that Stiglitz had similarly critical things to say about US austerity, pointing out that the US has shed 700,000 public sector jobs over four years. While European austerity has been rightly criticized for its futility, it must be pointed out that Eurozone countries have faced something that the US has not, high yields. One of the most baffling aspects of the aspects of the recent push for austerity across the Atlantic is that, while the US has lost its AAA rating by S&P, its yields have stayed historically low. While it makes little sense for Greece to endure agonizing economic contraction from austerity, it makes considerably less sense for the United States to follow that path. While borrowing costs for the US government are historically low, unemployment remains stubbornly high.

It should be both shocking and perplexing that in spite of this Republicans in Congress have held up virtually every piece of expansionary legislation recently proposed. Republicans have been so opposed to promoting growth through legislation that they nearly blocked a tax cut designed to boost growth from being renewed until they came under intense political pressure and relented.

On both sides of the Atlantic there has been a drive for austerity that has hitherto done little to calm the markets OR promote growth. And while countries with high yields have faced inevitable pressure to reduce deficits, the real tragedy stems from the lack of leadership from countries with the room for maneuver to lead and coordinate expansionary policies. The political systems in Germany and the United States have both been alarmingly inflexible and wrong-footed in their respective approaches to promoting economic growth and stemming the threat of double dip recession.

A crisis that began in the so-called “peripheral” Mediterranean nation of Greece has become a prolonged disaster, that has enveloped countries that are often seen as the “core” of the Eurozone economy. While in my earlier blog I described the bailouts of Greece, Ireland, and Portugal, many things have changed since then.

The Eurozone has bailed out Greece a second time, and the ECB (European Central Bank) has began purchasing sovereign bonds from Italy and Spain in an attempt to lower yields (interest owed by debtor countries) their debt. This has caused yields to drop on those bonds, though dangers still remain for the Eurozone. Leaders in Europe are now expecting the small Island or Cyprus to need a bailout, in part due to their banks exposure to Greek debt and also from a massive explosion that knocked out power in the island. But Cyprus is less important compared with rumors that emerged early last week: that France could lose its AAA rating and that it’s debt could come scrutiny. While all three major ratings agencies have denied a downgrade, shares in many French banks plummeted on the news. While yields on French debt have been stable, France remains one of the most exposed countries to Greek and other Eurozone debt. As this excellent graph from the BBC shows:

With Greece’s economy continuing to contract in part because of its austerity program, one might ask “what would happen if yields rose on French debt due to exposure in its banking sector and public finance to the Eurozone debt crisis?” I created a graph to illustrate this:

As with the previous blog‘s graph, this shows governments that have been bailed out in red, but now has countries that have been indirectly bailed out (Spain and Italy, via the ECB bond-purchasing scheme) are pink, and countries that might possibly require bailouts in orange.

This creates a much more threatening scenario for the Eurozone as a whole:

This graph shows that were Cyprus and France to both require bailouts, one could only expect non-bailed out states to meaningfully contribute, making potential creditors the minority of the Eurozone for the first time. This possible scenario might have colored Angela Merkel’s statements at today’s joint press conference with French counterpart Nicolas Sarkozy. She turned down the proposition that the Eurozone issue unique “Euro” bonds that would combine bonds with other Euro states, and instead suggested a requirement for eurozone members to balance their budgets should be enshrined in each of their constitutions. Skeptics have argued that austerity could cause too much immediate pain and could lead to new recessions in Eurozone or elsewhere. This comes at a time when the ECB has also been maligned for raising interest rates despite slow economic growth in most of the Eurozone (only Germany and smaller members saw growth of over 3% 2010). Perhaps skeptics should respect that Germany has long been the engine of economic growth in the Eurozone; its exports far outweigh any European competition. But while growth in Germany was robust in 2010, that has all changed. In this last fiscal quarter Germany grew by a mere 0.1%, causing global shares to drop on the news. This news partially vindicates Angela Merkel’s reluctance to expand bailouts in the Eurozone.

This raises a question: can the Euro currency survive in this dangerous climate? I think its still unlikely that the monetary union will collapse in the near term, despite the dire crises that have recently plagued it. One reason for my confidence is the threat it would pose to any member were it to go alone: Greece might be withering under austerity right now, but were it to reintroduce the Drachma and ignore all the debt it currently owes it would still face a primary deficit (the money it spends cannot be covered by the taxes it collects) and offsetting this with printed money could lead to hyperinflation. Meanwhile, Germany’s current stagnation would pale in comparison to damage to exports caused by Germany’s currency appreciating by 28% vs. the dollar, were it to abandon the Euro. With Germany and the debtor states alike bound to the single currency, the most likely option appears to be a grudging acceptance of further fiscal integration of the Eurozone by creditor states and the simultaneous agreement to endure austerity in the zone’s debtor states. The real question is whether this will be enough to save the currency.

UPDATE: to make it clear that the Eurozone is not alone causing financial upheaval I should point out that US is also failing to calm the markets by its own inaction. If the Fed  were to take bold steps towards stimulating the US economy as has been demanded, perhaps the Eurozone debt crisis would be more isolated in its disruption.

In a recent turn of events holders of sovereign debt from Italy, Ireland, Portugal and Greece have sold off some of it, which has increased the yield (amount of interest these countries will have to pay) on their debt. Italy now has to pay 5.35% interest on its debt, while Greece, Ireland and Portugal  now must pay 28%, 16.3% and 18.6% respectively. Spain’s debt was not affected by this recent sell-off but has a current yield of 5.65%. This news is particularly alarming because yield rates had began to stabilize before this recent sell-off. More to the point, Italy (and already struggling Spain) are much more important to the economy of the Eurozone than Ireland, Greece, or Portugal.

A look at this graph on google helps to illuminate the size of the problem. I created this pie graph to show the relative size of the Eurozone’s economies also: (red countries have been bailed out already, pink countries have seen their debt yields rise and ratings fall)

😦

News about  university rankings has taken an International Relations twist as the EU has angrily criticized two recent rankings and has allocated funding to create a new system. This was in response to a very low ranking of European universities by the UK publication Times Higher Education, and the Shanghai ranking. Having an emerging superpower like China view Europe’s universities so poorly has led to some European education ministers and university presidents to travel to China and express their concerns and promote their universities. Unlike domestic rankings of US universities (we call them colleges : ) have, these international rankings bring the prestige of a nation’s entire higher education system into scrutiny. It makes sense for countries like Germany and France to fret over these results, as both rankings make their  higher education systems appear to be inferior not just to the US model, but to one of the most eurosceptic members of the EU: Britain. The coalition government in Great Britain has been increasingly critical of European (read EU) integration, and the debt crisis has emboldened them continue to use a separate currency and avoid contributing to Eurozone bailouts (the UK is, by far, the largest EU member-state not to use the Euro). Lets see what these two rankings show:

Of the top 100 from the Times Higher Education, here are some results and analysis: (note: I am lazy so the colors don’t match, sorry)

Immediately it is clear that the EUs higher population and GDP (EU-wide, not Eurozone) does not produce as many top 100 universities compared to the US. But this shows only part of the problem.

Half of Europe’s top 100 universities are in the UK, an impressive feat for a country with a smaller economy and population than Germany. The United Kingdom’s GDP and population figures are very closely matched with France who does terribly on this graph. see my link above for complete results.

Finally, when we include Irish, Canadian, and Australian universities lets see how they perform, as the Anglosphere:

Once you include important universities in Canada, Australia and Ireland it appears that the world’s most desired universities are overwhelmingly English-speaking establishments. Perhaps this ranking system favors that unfairly, it is an independent publication, but it is also a British, independent publication. Russia once had a ranking system that appeared reasonable at first glance, until one found Russia’s own Moscow State University ranked higher than Harvard or Cambridge. Lets see how China’s ARWU or Shanghai Ranking rates the same regions.

The Chinese ranking or ARWU has been out since 2003, but it wasn’t until its recent battering of European universities was combined with the THE ranking for 2010 that Europe responded. Here are the same regions being measured by the 2010 ARWU/Shanghai Ranking: (note: I excluded Moscow State University from Europe because Russia’s relationship with the EU is different than Switzerland or Norway’s)

While Europe clearly does better in the ARWU ranking, the US still dominates the top 100.

Separating Britain from the EU has a similarly bad outcome for Europe, though its not as bad for Europe as the THE rankings showed. To break it down more thoroughly: France has 3 universities compared with Britain’s 11, while Germany has 5, and Switzerland somehow ties with France with 3.

Both the ARWU and THE rankings clearly favor English-speaking universities, with both giving them at least 70% of the top 100 in both cases. The ARWU ranking doesn’t rank Irish universities in its top 100, but does rank Canada and Australia’s universities with 4 and 3 respectively. While one might expect China’s East Asian rivalry with Japan to color the ranking’s view of Japanese universities, this isn’t the case: Japan features 5 universities in the top 100, with no Chinese institutions included. Rounding off the list is Russia’s Moscow State University and Israel’s Hebrew University.

The ARWU has also been criticized for favoring sciences much more than humanities, which might explain why many liberal arts colleges perform badly on this list.

Personally, I think ranking an entire university is an incomplete science at best. It’s easy to rank a university’s prestige, but sometimes that prestige doesn’t reflect a particular program’s strength at a university. For instance, Georgetown and Johns Hopkins both have highly esteemed schools of International Relations and Diplomacy but lack the similar prestige of MIT’s hard science programs, so they lose out in a ranking that favors hard sciences. I’d rather not split hairs ad infinitum over ranking systems and instead focus on the IR implications ofthe recent ranking system debacle.

European integration has been viewed by some of its proponents as a means for Europe to remain relevant in an increasingly multi-lateral world. Don’t just take my word for it, academics have written much about it. French and German politicians and academics have been especially eager to use the EU to promote this goal, and as a consequence, have been equally insecure over its prospects. While the Eurozone’s economy is smaller than the US, the entire EU membership has at least matched it recently. This has led outsiders and Europeans alike to eagerly await an example of European leadership. One of these much anticipated examples ended in spectacular failure at the 2009 Copenhagen Summit on Climate Change.

Europeans anticipated this would be a moment where their divergence with the US on climate change could help to underscore Europe’s relevance as an ec0-friendly alternative to US or Chinese dominance; this made the summit’s outcome exceptionally embarrassing. Prior to the opening of the summit itself was a smaller summit within the summit, where Obama negotiated with China as well as Brazil, India, and South Africa. After the summit appeared to be faltering, it was only efforts by China and the US to reconcile their differences with one another that was able to produce a final draft agreement. This was witnessed at the horror of EU enthusiasts, as it confirmed their worst fears of a world dominated by the G-2 (China and America). The fact that Europe’s failure at the summit may have been planned in advance can only add to the frustrations of European leaders. China’s importance at the summit put European aspirations of global leadership in doubt. The Eurozone debt crisis hasn’t helped matters, with Standard & Poor’s recently downgrading Greece’s sovereign debt to one of its lowest ratings.

It might seem like a poor ranking from two subjective lists shouldn’t bother European politicians and university heads as much as it has, but within the context of an increasingly desperate Eurozone debt crisis and a larger global shift towards the BRIC (the IMF predicts China’s GDP in PPP will overtake the US by 2016) it seems reasonable for such insecurities to exist.