Posted by Andrew Zvirzdin in
International Economics on Monday, February 8. 2010
There is a significant amount of hand-wringing going on in the US that the Euro is fraying on the edges. Some pundits have even coined a rather derogatory acronym for Euro-countries in economic distress: the PIGS (Portugal, Italy or Ireland, Greece, Spain). The acronym bunches together four countries with very different backgrounds but one shared fact: they all face serious budget shortfalls.
The grouping of these countries, largely by investment banks, may simplify investment and policymaking decisions to an unfortunate level. Italy for one does not want to be part of the group, and the Italian bank UniCredit has waged an effective campaign to change the "I" in PIGS to Ireland. But Ireland too has begun to restore both consumer confidence and budget stability thanks to aggressive action by the central government. Commentators seem to keep the "I" because that is the crucial vowel that holds the acronym together.
Portugal, Spain, and Greece are also all facing very different challenges. Portugal has a sizable but manageable budget deficit, while Spain is struggling with a burst housing bubble a la Florida. Greece remains the real country of concern; but then again, Greece has roughly the same debt levels as Germany, so what is all the fuss about?
The classification overlooks the more important--and legally binding---organizations already in existence, namely the EU and the Eurozone. Talk of the dissolution of the Euro is premature but rampant: the New York Times has published no less than three articles on the subject in the last two days alone (here, here, and here). At the end of the day, policymakers in Europe and the US have to honestly ask themselves: is leaving the Euro really an option? The case of Iceland clearly demonstrates what happens to small countries with large debt obligations in tumultuous times and it is not pretty.
The discussion of categorization reminds me of the BRIC acronym held in high regard by investors prior to 2008. Brazil, Russia, India, and China were touted as the hallmarks of the developing world at the time, and investments in all four countries were seen to be equally appeasing. Two years, a war in Georgia, and a global economic crisis later, the BRICs no longer look so homogeneous. I suspect the same will soon be true for the PIGS.
How should we classify countries economically? Is there any value in grouping problem areas? Just as a reference, I did a quick look at state budgets in the US and found five states with budget deficits greater than 10% in 2009: Arizona, California, Nevada, New Jersey, Rhode Island. Do you think CARINN could catch?
Posted by Joerg Wolf in
European Issues, Transatlantic Relations on Wednesday, February 3. 2010
Reuters reported yesterday:
The European Union and the United States are likely to scrap plans to hold a summit in Madrid in May because U.S. President Barack Obama has decided not to attend, EU diplomats said on Tuesday.
Oh, that will make many in Europe's political class angry. Summits are so important to them, especially the "family photo" is considered of vital importance to national security.
An unsentimental President Obama has already lost patience with a Europe lacking coherence and purpose, opined Nick Witney and Jeremy Shapiro with the European Council on Foreign Relations and the Brookings Institution respectively in November 2009. Apparently, last year's EU-US summit in Prague, "at which President Obama was subjected to 27 interventions from the EU's assembled heads of state and government was an eye-opener for his administration."
Witney and Shapiro argued in Towards a post-American Europe: A Power Audit of EU-US Relations:
The US needs strong partners in a world that it no longer dominates. It knows it can turn to China on the economy and Russia on nuclear disarmament. In comparison, Washington is disappointed with Europe and sees EU member states as infantile: responsibility shirking and attention seeking.
The US would prefer a more united EU, but expects so little that it cannot bring itself to greatly care. When the EU is hard-headed, as with trade negotiations, the US listens. When it is not, Europeans are asking to be divided and ruled.
Will Europeans soon miss President George W. Bush?
Related posts on Atlantic Review:
Merkel got back-rubs from Bush, but she gets only a cold shoulder from Obama
President Obama and Europe
"Europeans Mourn End of Bush's Presidency"
Bush's Farewell Tour: Looking Ahead and Missing the Favorite "Punching Bag"
Posted by Joerg Wolf in
German Politics, Transatlantic Relations on Friday, January 29. 2010
I have interviewed the Director of the Heinrich Boell Foundation's Kabul office about yesterday's London Conference. Dr. Scheller states that along side security, the international community also needs to strengthen Afghan civil society and that Iraq does not serve as a model for Afghanistan. See video below. More information on Atlantic Community and at the website of the Boell Foundation, which is independent, but philosophically close to the German Green Party, which explains the background colors... The voters of the Green Party are more supportive of continued engagement in Afghanistan than the voters of Germany's other main parties.
On Monday I have conducted another interview: UNHCR: Tweets from the Edge: I was talking to Claudia Gonzalez, who was leading Public Relations and Special Projects at the Office of the United Nations High Commissioner for Refugees. She was using Social Media to give refugees give voice, allowing people around the world to engage in a conversation about how to improve the lives of those most affected by wars and conflict.
Posted by Andrew Zvirzdin in
International Economics on Friday, January 29. 2010
The health care debate in the United States has recently spurred a tangential conversation among pundits: Is America's or Europe's economy better? The controversy was initiated by Jim Manzi who recently wrote that Europe's bloated welfare state has destroyed its competitive advantage:
From 1980 through today, America's share of global output has been constant at about 21%. Europe's share, meanwhile, has been collapsing in the face of global competition - going from a little less than 40% of global production in the 1970s to about 25% today. Opting for social democracy instead of innovative capitalism, Europe has ceded this share to China (predominantly), India, and the rest of the developing world.
Paul Krugman has responded in kind, arguing:
The story you hear all the time - of a stagnant economy in which high taxes and generous social benefits have undermined incentives, stalling growth and innovation - bears little resemblance to the surprisingly positive facts. The real lesson from Europe is actually the opposite of what conservatives claim: Europe is an economic success, and that success shows that social democracy works.
Economists and journalists have been busy debating the question. Greg Mankiw cites GDP figures to question Europe's wealth, Mark Perry compares European countries to US states, Noah Millman asks why we are asking this question, and Clive Crook says the question is unanswerable.
The debate over the economic prowess of the US and Europe recurs at regular intervals. But it rarely leaves us with any new information. To some extent, the debate sounds like two teenage students trying to prove which one is at the top of the class. At the end of the day, the economies of European countries and the United States are closely intertwined, as the recent financial crisis has demonstrated. Unfortunately, the debate over the "right" economic system may cloud the bigger opportunity: how will Europe and the United States lead the global economy in coming decades?
What do you think? Who has the better economic model? Is that the right question to be asking?
Posted by Kyle Atwell in
Transatlantic Relations on Monday, January 18. 2010
“Thanks to Poland, the alliance will defend the Baltics”, reports the Economist:
IN A crunch, would NATO stand by its weakest members—the Baltic states of Estonia, Latvia and Lithuania? After five years of dithering, the answer now seems to be yes, with a decision in principle by the alliance to develop formal contingency plans to defend them.
…
Speaking in Prague in April 2009, President Barack Obama publicly demanded that NATO develop plans for all of its members, which put the Baltic case squarely on the alliance’s agenda. But in the months that followed, inattention and disorganisation in his administration brought no visible follow-up. Instead, snubs and missteps, particularly on the missile defence plans, deepened gloom about how seriously America took the safety concerns of its allies in Europe’s ex-communist east. An open letter by security bigwigs from Poland, the Czech Republic, the Baltic states and other countries publicly bemoaned the decline in transatlantic relations.
...
Now that seems to have changed. Formal approval is still pending and the countries concerned have been urged to keep it under wraps. But sources close to the talks say the deal is done: the Baltic states will get their plans, probably approved by NATO’s military side rather than its political wing. They will be presented as an annex to existing plans regarding Poland, but with an added regional dimension.
A proposal to create Baltic contingency plans has been shot down before, according to Baltic Reports:
General James Craddock, NATO’s supreme commander at the time, asked the alliance for approval of a contingency plan for the Baltics in October 2008. However Germany and France opposed the measure, fearing it would unnecessarily agitate Russia, and the issue as been debated in secret within the alliance since.
It should be interesting to see how this develops. Formal contingencies established or not, my feeling has always been that if any NATO member is attacked, the Alliance will invoke Article V, the mutual defense clause. Article V is the core foundation of the Alliance -- if NATO failed to defend one of it’s members, that would shatter the Alliance. Perhaps this perspective is too idealistic though?
Posted by Kyle Atwell in
Transatlantic Relations, US Foreign Policy on Sunday, January 10. 2010
A report released by the staff of Senator Richard Lugar (R-IN) has sparked controversy from Russia and Georgia. Titled “Striking the Balance: U.S. Policy and Stability in Georgia,” (PDF) the report argues NATO Allies need a coordinated policy toward Georgia, and suggests it should include a resumption of arms sales that halted following the 2008 Georgia-Russia war:
The United States and NATO allies must reconcile a policy that leaves a dedicated NATO partner unable to provide for its basic defense requirements. These efforts will be most effective if they are undertaken on a multilateral basis. The Alliance must come to grips with the reality that Georgia will require coordinated security support from America and European nations for some years to come.
…
Particularly in the realm of security assistance, such coordination is critical. While Georgia finds itself under a de facto arms embargo, other NATO allies are pursuing record military deals with the Russian Federation. Georgia has become an exceptional contributor to international security through its contributions to missions in Iraq and Afghanistan. A strategy to enable Georgia to similarly provide for its own territorial defense will require close cooperation with NATO allies to preserve stability in the region.
Following the war between Georgia and Russia, both Europe and the United States have largely stopped selling lethal military equipment to Georgia. The United States has nonetheless continued training Georgian forces for operations in Afghanistan and Iraq under a program titled the “International Military Education and Training Program” (IMET), and funding appears to have increased for this training. Relatively speaking, military equipment sales to Georgia were much higher than training funding up to 2008, but have dropped to zero in 2009 (see charts based on data from the Lugar report).
Georgia has embraced the report while Russia and the breakaway territories of South Ossetia and Abkhazia argue arms sales to Georgia could lead to another outbreak of violence in the region.
Continue reading "Senate Report: NATO Countries Should Resume Arms Sales to Georgia"
Posted by Andrew Zvirzdin in
International Economics on Thursday, January 7. 2010
Ah yes, it is that wonderful time of year. Fresh snow, college football bowl games in the US, a new year...and uncertainty surrounding European energy security. Some things never seem to change.
This year adds a few new wrinkles to the annual, "Will Europe Freeze?" month however. For the first time in years, the center of energy disruption does not appear to be the Ukrainian border. Ukraine has paid in full and on time for its use of Russian gas during 2009, and both Russia and Ukraine appear determined to avoid a gas war during an election year. So this year, the energy disputes have shifted north.
First, Belarus and Russia remained locked in heated (excuse the pun) negotiations about oil supply prices between the two countries. Russia has already cut oil supplies to Belarus once this week and many analysts expect further restrictions in the weeks to come. The clash feels all too familiar: Russia, frustrated with its neighbor's overtures to the West decides to throw its weight around in the energy sector to bring it to heel. Of course, the blame also resides with Belarus which has for years subsidized its economy through cheap energy from Russia. If the country truly wants to play on the international arena, it must now be prepared to pay market prices for its resources.
Second, Lithuania has been compelled to shut down its aging nuclear power plant on New Year's Eve, leaving it completely dependent on Russia for its energy supply. The closure was required by the European Union, but leaves Lithuanians feeling very nervous. Russia has already played its energy card in the Baltic, shutting down its oil pipeline to Lithuania in 2007. Energy supply form other EU countries remains extremely weak, and a dramatic increase in energy prices is very likely for this Baltic country already struggling through an extremely difficult recession.
Finally, the UK is approaching capacity limits as it struggles with an extremely cold winter. The Wall Street Journal is reporting today that Britain only has gas storage capacity equivalent to 4% of annual consumption, compared with over 100% storage in the US and 19% in Germany. And National Grid warned this week that supply will be tight in coming weeks.
None of the preceding events really come as a surprise. Despite that, Europe has again been caught off guard. The Spanish Presidency is trying to salvage a July Commission proposal regarding gas security and supply but countries continue to insist the Commission is overstepping its authority. And efforts to encourage greater infrastructure developments within Europe remain merely efforts. So what will it take to really see the development of a true European energy policy? In the US, it took two oil embargoes before the country started developing strategic reserves. And the price of oil reached $160 a barrel before consumer's behavior started to change.
Readers Pat and Pamela both suggested that the Atlantic Review analyze Russian and European energy policy in the upcoming year. This will certainly be an important topic, particularly in the first few months. But at first glance, little has changed. The Russian energy policy of 2010 seems identical to that of preceding years: throw its weight around in the natural resource arena to extract concessions in the political realm. And there still is no real European energy policy to discuss. Europe continues to shiver and simply hope the heat stays on.
Posted by Joerg Wolf in
In-House News, Transatlantic Relations on Sunday, January 3. 2010
Happy New Year! Dear readers, here's your chance to influence this blog's focus in 2010: What international security and economic issues do you consider most important for North America and Europe this year? What should we focus on? Please brainstorm and discuss in the comments section. And also please let us know what topics you are tired of. What should we write less about. Thank you! All the best for the new decade!
Posted by Joerg Wolf in
In-House News, Transatlantic Relations on Sunday, January 3. 2010
A new decade has started and it's high time to update our blogroll. Many previously good blogs are now inactive or boring. What blogs do you read on international politics in general and transatlantic relations in particular? Which European or North American bloggers analyze best the most important issues? Whose posts shall we feature and discuss here on Atlantic Review? I appreciate your recommendations!!! Don't limit yourself to bloggers. Feel free to include columnists, think tankers etc. Anybody who is worth reading concerning transatlantic issues. Thank you!
Posted by Joerg Wolf in
Transatlantic Relations, US Domestic and Cultural Issues on Thursday, December 31. 2009
The 9/11 attacks and the failed Christmas Day airplane bombing have two things in common: US agencies had enough information about the terrorists and could have intervened if they had properly analyzed and shared the information that they had, but instead another systemic failure - as President Obama called it - has occurred. Like with United 93 in 2001 it was again the passengers, in particular the Dutchman Jasper Schuringa, who subdued the Nigerian terrorist.
Yep, it was a European. And it is documented well. It is, however, not well documented what exactly happened on United 93. Nevertheless a movie was made that defames the German passenger Christian Adams as the "stereotypically weak-kneed Euro-pacifist," even though no information suggests that he acted that way. Hollywood should apologize by making a good movie about Flight 253 with a Dutch hero.
And while we are at it: The Dutch are also taller than Americans, probably because of better health care and more comprehensive welfare systems. So, perhaps Obama's health care reform will prevent further terrorist attacks ;-) Nah, I hope the systemic problems will be fixed. And to be fair: The system, including the much criticized No-Fly List, has probably prevented a few attacks, but such success can't be quantified and does not make headlines.
Endnote: Thanks to Robert Farley for the related post "But Bob Kaplan Said that Europeans Have Lost Their Will to Live!"
I used to be big fan of Kaplan, when he published The Coming Anarchy in the early 90s, but I got more and more disappointed by his writings since the turn of the millenium. I am not sure to which article Farley refers to. It could be this month column Let's Go, Europe about the "neopacifism" in a "debellicized Europe," which can only make a difference in the naval sphere. Or it is his November column The Fall of the Wall, where he argues that "We may have gained victory in the Cold War, but lost Europe to apathy and decadence in the process." Kaplan was so nice and took the 20th anniversary of the first ever peaceful revolution in Germany (our best contribution to the 20th century) as well as the revolutions in the countries of Central and Eastern Europe, which are now part of the EU, as an opportunity for Eurobashing:
What does the European Union truly stand for besides a cradle-to-grave social welfare system? For without something to struggle for, there can be no civil society—only decadence. Thus, with their patriotism dissipated, European governments can no longer ask for sacrifices from their populations when it comes to questions of peace and war.
Of course, Jasper Schuringa's initiative on Flight 253 won't change Kaplan opinion about the decadent, neopacifist, debellized, unpatriotic Europeans.
Posted by Joerg Wolf in
German Politics, US Foreign Policy on Thursday, December 31. 2009
Reposted from December 31, 2007:
It's the same procedure as every year: Millions of Germans watch "Dinner for One" every New Year's Eve since 1972. It is "as big a tradition in Germany as the crystal ball drop is in New York's Times Square," writes Patrick Donahue for Bloomberg. You can watch the 10 minutes British comedy on Youtube. It is so funny, it never got dubbed into German. As Observing Hermann points out: "A bit strange maybe, but aren't most traditions - when they're not yours, I mean?"
Many in the media write every year that this New Year's Eve tradition is strange and that this silly slapstick never got popular in the UK or the US. Of course, I could point out that US upholders of moral standards probably do not like to broadcast all that drinking and the sexual reference in the end. But that is all silly and not important.
The end of a year should be a time for reflection, I believe. It's worthwhile to remember all the unknown people who have done good in the real  world. I try to ignore the many "year in review"-articles that feature silly people that made the headlines. The media does not write much about the many relief workers in war and natural disaster zones around the world. At least not while they are alive. Marla Ruzicka from California got big press coverage after she was killed in a car bomb explosion in Bagdad in April 2005.
December 31 was her birthday. Read last year's Tribute to Marla Ruzicka and other Idealists Risking their Lives out there.
Actually, seriousness and silliness serve both their distinct purposes. It's all about finding the right balance in life between work and entertainment. Marla would definitely agree. And with these superficial words of wisdom 2007 comes to an end. Thank you for reading Atlantic Review. Stay tuned in 2008. All the best for the new year.
Posted by Andrew Zvirzdin in
International Economics on Tuesday, December 22. 2009
"What's Christmas time...but a time for paying bills without money?" - Ebeneezer Scrooge in A Christmas Carol by Charles Dickens
The European Central Bank has no plans to bail out Greece if it encounters difficulty in meeting its debt obligations. According to the Wall Street Journal Bank member Ewald Nowotny said, "One has to be very clear: The ECB has no mandate or intention to take into account the situation of a specific country, especially not with regard to public finances." In other words, "if the poor would rather die, they had better do it, and decrease the surplus population."
The bank's reasoning is understandable: a blanket guarantee to underwrite sovereign debt throughout Europe would create an untenable moral hazard. And the bank likely does not have the legal foundation to "bail out" a sovereign country. But Greece has gone through a spate of bad news: First, Fitch and then S&P downgraded Greece's credit rating to BBB+. Moody remains the only rating agency to give the country an A1 grade, but it has the country on a negative watch. They would certainly have appreciated some good tidings.
Goldman Sachs analyst Erik Nielsen notes how this news creates a strange situation for the bank and for Europe (from Bloomberg News):
This is a bizarre and ultimately untenable situation for the ECB....The unthinkable -- that the ECB would not accept sovereign securities form a member as collateral -- has become a measurable risk, and one exclusively controlled by Moody's....Moody's is now the de facto decision maker on Greek eligibility.
A European institution (the ECB) refuses to entertain the idea of helping Greece, and so everything rests on an American company (Moody's). Merry Christmas Greece? Bah humbug!
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