EU: Fiscal and Banking Integration – Cyprus Bailout

The Finance Chiefs of Germany, France, Italy and Spain have taken to the stage to discuss new plans for short-term and long-term management of fiscal and banking integration, coming after Cyprus becomes the fifth member of the common currency to request a bailout.

Cyprus Joins Spain, Italy, Ireland, Portugal and Greece under EU Umbrella

The finance ministers are meeting today to discuss closer union as laid out by a proposal from European Council President Herman Van Rompuy.  The document proposed greater fiscal union, which could lead to common debt being issued by the Eurozone countries.  There would also be banking union, with a single European banking regulator and a unified deposit guarantee scheme.  Among other proposals were limits on the amount of debt individual countries can take on, annual national budgets can be vetoed if they are likely to mean a county exceeding its debt limits, the possibility of the Eurozone borrowing money collectively could be looked into, a European treasury office to be set up to control a central budget and keep an eye on national ones, common policies on employment regulations and levels of taxation, joint decision-making with national parliaments to give it democratic legitimacy.  Though this seems to provide a groundwork for the progression of the Euro, many of the proposals are merely revisiting previous agreed upon regulations in the Stability and Growth Pact. These regulations failed in the past because of a coordinated supranational entity and a lack of enforcement.  The failure of the SGP came because Germany and France, the countries responsible for the EU and the creation of the pact, violated its restrictions on debt.  The Court of Justice (European Court of Justice) is an example of a supranational entity created to observe and ensure that EU laws, treaties and institutions are adhered to.  Through the infringement procedure, the ECJ is able to place a fixed or periodic financial penalty.  Nevertheless, this institution was not given the proper amount of authority into national areas of its members, thus making it unable to observe the political and fiscal matters of those countries that are now on the brink of default.  So saying, the current list of proposals are nothing entirely new but debates circulating about a joint finance ministry may provide the supranational entity needed to enforce and regulate the further integration needed for the progression of the EU.  In regards to steps towards effective integration, the European treasury would now be able to force Eurozone countries to make changes to their budgets to keep their deficit down, which previously was never enforced and merely left to the individual member states.

“Under these rules, the issuance of government debt beyond the level agreed upon in common would have to be justified and receive prior approval.  Subsequently, the Euro area level would be in a position to require changes to budgetary envelopes if they are in violation of fiscal rules, keeping in mind the need to ensure social fairness.” – Herman Van Rompuy, European Council President

One of the catching points for forward movement by the EU is the divide surrounding join borrowing, something that has kept Germany and France from being the dynamic partnership that so many previously assumed them to be.  It has generally been true that the EU’s movement has been driven forward when France and Germany are in step.  However, they are not in unison anymore.  There is a deep philosophical political divide between them, most evidently exemplified by the dissolution of ‘Mercozy” through the election of the socialist Hollande in France.  The divide of the EU on joint borrowing  is embodied by the concept of Eurobonds, which would be a way to allow countries that are currently unable to borrow money commercially to borrow at low-interest rates.  Some countries, largest of whom is Germany,have resisted this step unless there is much closer fiscal union.  The reason for that is that Eurobonds would have much the same effect as the original introduction of the Euro, which is that they would allow many government access to cheaper loans and therefore, without European supranational control over budgets, some countries would again take on unsustainable levels of debt.  So saying, the Eurozone’s third smallest economy, Cyprus, has become another member to apply for rescue loans.  The country is said to possibly need up to 10 billion Euros, more than half its 17.3 billion annual output.  This comes after Spain formally requested up to 100 billion Euros in rescue loans to recapitalize its banks weighed down by bad loans from a burst real estate bubble.  Both Spain and Cyprus are trying to avoid political humiliation and loss of sovereignty involved in a full state bailout program like those granted to Greece, Ireland and Portugal.  The approaching Brussels summit is expected to agree on a growth package pushed by France, worth around 130 billion Euros in infrastructure bonds, reallocated regional aid funds and European Investment Bank loans.  Spain, along with Italy, is likely to press at the summit for more urgent actions to lower borrowing costs and have proposed measures to reduce the difference in borrowing costs between Eurozone countries.

“The euro crisis is in some war mind-boggingly simple to solve…because it isn’t economics, it’s politics.  If Angela Merkel and her colleagues stood there together with the rest of the Euro area…and if they behaved as a true union, this crisis would be finished this weekend.” – Jim O’Neill, Chairman of Goldman Sachs Asset Management

Germany however, is remaining rigid on its stance that it should not finance  a country that indulged in excessive spending.  Because of her rigid stance, Merkel has been target of much criticism and some have suggest that Germany be the country that exists the Eurozone.  The support given is that Germany embodies the problem of the EU, the inability to balance polar opposites on the economic scale.  The periphery countries of the EU are the ones in debt and the ones facing default.  Not only is Germany’s economy inherently strong as a result of the high productivity of its workforce, its exports have added competitiveness because the Euro is undervalued as far as Germany is concerned.  As long as the rest of the Eurozone countries are locked in the Euro with Germany, the only way for them to become more competitive is through austerity measures that cut government spending, reduce welfare budgets, cut wages and raise unemployment.  These are the steps that have been taken for the past 2 years of the fiscal crisis and the aim has been to achieve export-led growth, like Germany.  As long as Germany remains in the Eurozone however, its hypercompetitive stance will make redundant the measures being taken , as the periphery countries will not be able to compete against the power house.  Nevertheless, the support for Germany’s exit may seem well based but its fails to address the fact that Germany is the only country keeping the Euro afloat, funding all bailout measures and without Germany and its seemingly endless pocketbook, the rest of the Eurozone would fall calamitously into a series of defaults and downgrades for years to come.  This would ruin the regional fiscal infrastructure, ruin the global markets, and dissolve international trade with many of the nations dependent on foreign investment.  In short, if Germany were to exit the Eurozone the other nations would be detrimentally affected, regardless the possibility to revert to Eurobonds.

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EU: What the Future Holds for Europe – Greek Elections

Greek voters are returning to the polls on Sunday, leaving hanging in the balance the future of the country’s membership in the Euro and heightening general uncertainty about the future of the EU as a whole.

The EU Has Reached A Tipping Point

In 1952, German Chancellor Konrad Adenauer and French Prime Minister Robert Schuman introduced the beginnings of European integration, uniting the coal and steel industries of France, West Germany and the Benelux countries.  Over the next 50 years, the integration process would come to include a club of 27 states, becoming the European Union, which now stands at a possible breaking point.  Since its creation, the European Union has both expanded in number and deepened in purpose.  Initially a common market with subsidies to farmers, the EU has evolved into a community with coordinated foreign aid and trade policies, open borders among members, a common social policy and a powerful European Court.  Nevertheless, the problems of monetary union began in 1992 with the Maastricht Treaty which began the process of monetary union and was intended to begin economic convergence among member states.  The second part, economic convergence, was and is today the hurdle facing the members states of the EU.  The Stability and Growth Pact, introduced by France and Germany, was meant to harmonize interest rates, inflation and government deficits; yet, there were no enforcement measures and the sponsors of the pact, France and Germany, were the first among the states to breach the regulations on deficit as they both exceeded deficits of 3% of GDP.  So saying, how Europe handles the unbalanced economies of its members and its headlong expansion will decide whether the Eurozone recovers from its contagion or slowly disintegrates.

“Today we open the path towards a better tomorrow, with our people united, dignified and proud.  To a Greece where there’s social justice and progress – an equal member of a Europe that’s changing.  Today the people of Greece spake.  Tomorrow a new era begins for Greece.” – Alexis Tsipras, leader of the Syriza party

The first challenges to overcome is the Greek’s second attempt at a decisive electoral process, coming after an indecisive round in May resulting in the rise of polar opposites in the party system.   If a working majority emerges under the leadership of the New Democracy Party, Greece has a likely chance of following through its austerity measures, despite animosity and criticism therein involved.  These measures would perpetuate Greek membership in the EU, appease its troika (European Commission, International Monetary Fund and European Central Bank).  Even if this pro-bailout government is formed, the political paralysis of Greece has already put it behind on its obligations to privatize state industries and improve tax receipts.    If this weekend’s election extends the paralysis begun by May’s vote, the uncertainty whether Greece can remain in the Eurozone will intensify, resulting in another volatile yo-yo of international markets.  Moreover, the uncertainty in Greece would also intensify the pressure on Spain and Italy.  The combined economies of Ireland, Portugal and Greece – three countries that have been bailed out – are smaller than half of Spain, which the Eurozone could not afford to have fail, becoming a ‘too big to bail, too big to fail’ member.  The EU’s willingness to help bailout Spain’s massively indebted baking system has already surpassed the amount of 100 billion euros.  Spain’s financial future is highly questionable as Moody has cut Spanish sovereign debt to just a notch above junk status, on par with Azerbaijan.  Unemployment has also reach record highs, with youth under 25 years of age at 50% unemployment, and house prices are also collapsing.   Nevertheless, another possibility in the Greek elections is that the left-wing Syriza party emerges with a majority, and with its commitment to depart from current bailout agreements like the austerity measures, Greece could very well anticipate a ‘disorderly exit’ from the Eurozone.

“This is the financial equivalent of the Cuban Missile crisis.  And the missile is really a bank run, which ultimately even the Germans can’t be completely immune to.  Not that there will ever be a run on Germany banks, but the effects of a bank run across Southern Europe are going to be felt by the economy.” – Niall Ferguson, Harvard historian

So saying, the future of Europe is at a crossroads, with only a few future scenarios on the horizon.  The first and worst scenario is a disorderly collapse of the Eurozone, starting in Greece but spreading to Spain and Italy.  This scenario would be likely with anything less than a clear victory, the Greek state could fail to meet its troika obligations and would not receive any further bailouts, essentially imploding upon itself.  According to the Greek economic minister, Greece only has enough money to run effectively until July 15.  If this case were to emerge, Germany has stated that it would put fiscal rectitude ahead of its pan-European principles.  Without Germany’s bankroll to help support many of the peripheral member states, the scenario could result in the Eurozone being reduced to a Franco-German core, with the Benelux states attached.  For the rest of Europe and its economy, the consequences would be calamitous; with governments defaulting on debt, a prolonged recession would be a certainty all across the European continent.  The second course is that Europe stumbles through whilst still attempting to achieve banking and fiscal integration.  Given that 80% of Greeks want to stay in the Eurozone, a Greece-troika compromise is not so unlikely and would also bring the country back from the edge of default.  A full recovery would be years away but the country would no longer be the spark to ignite the powder keg of defaults as seen in the first scenario.   The new European Stability Mechanism, due to come into effect next month as a permanent rescue fund, would help recapitalize banks and help cool yields on vulnerable sovereign debt.  With 500 billion euros at its disposal, the ESM would help the EU progress towards Chancellor Merkel’s growth agenda.  Germany aims to move towards a banking union that would insure deposits, progress toward common tax policies, the decline of government debt and the emergency of the Eurozone from its recession, all of which would help ease the pressure on governments struggling to find a common ground.  Though an imposing task, the struggled of the agenda are in Germany’s best interest because 60% of their exports stay inside Europe and without those trading partners, the German economy would be severely impacted.  The final future scenario for the EU is a move towards much closer integration, the fulfillment of the economic convergence promised in 1992.  The new French President Hollande has made this his montra, seeking to stimulate growth and imagination and creativity to deepen financial union, such as a joint fun to pay down debt.  Though it would seem to be a more secure and ideal scenario, the prospect will not gain support from a European public no longer convinced of the benefits of a deeper integration, nor of a German state unwilling to allow more countries to sign onto their bankroll.

“Germany’s strength is not unlimited.  The way out of the crisis can only be successful if all countries are capable of recognising the reality and realistically accessing their strengths.” – Angela Merkel, German Chancellor

In retrospect, the EU was intended to create a fiscal union of members that would be able to avoid repeating mistakes made in the 1930s, yet it seems that the cliff facing them now is illustrating that they have not been able to avoid those mistakes.  Unless the EU community is able to recognize the choices that have been and those that must be made now for the security of the union, and not of individual members,  the EU will most likely cease to exist or be severely reduced in membership and fiscal integrity.  They must enter a much larger form of integration, both political and economic, committing to a more federal system.

Syria: Houla Massacre – The International Puzzle Box

The perpetuating Syrian conflict has become a diplomatic crisis due to its recent intensification resulting in the deaths of 100 dissidents in the town of Houla and once again isolating opposing members of the United Nations Security Council on methods of response.

Syria’s Conflict Continues to Polarize the International Community

The international response to the Syrian civil war has been a blitzkrieg of failed resolutions, condemning statements, economic sanctions, and failed observer missions, all of which have been knee-jerk reactions to the inability of the international community to authorize a join resolution of all UNSC member nations to respond with military force.  Despite the evident slaughter of men, women and children in Houla, both Russia and China reiterated their opposition to military intervention in Syria.  Their resolve is also paralleled by the remaining presence of Syrian diplomats in their countries, a juxtaposition to the position of 9 other Western nations that have expelled Syrian diplomats from their embassies.  Along with Japan, the US, Australia, Britain, Canada, France, Germany, Italy, the Netherlands and Spain have all retroactively announce the expulsion of Syrian diplomats in protest of the massacre in Houla.  Nevertheless, the show of force in the Western hemisphere amounts to nothing because of the rigid positions of China and Russia.  Russian Deputy Foreign Minister Gennady Gatilov stated that Moscow will veto any Council resolution that authorizes foreign military interference in Syria.  Similarly, in Beijing, foreign ministry spokesman Liu Weimin said China opposes regime change by force in Syria. The massacre, another death toll to be added to the genocide, is another reflection of the failure of the Annan ceasefire deal.  Annan’s plan had called on the Syrian government to withdraw heavy weapons from civilian areas and abide by a truce with rebels.  President Assad had promised to abide by the regulations if the rebels were to cease their weapon smuggling and lay down their arms, a clause that clearly represented a security dilemma as the rebels would then be helpless.  Although many attacks have been carried out since the plan was laid out a month ago, the Houla massacre represents the peak of slaughter in the deteriorating county of Syria.  According to Herve Ladsous, pro-Assad gunmen known as the shabiha executed civilians and others were killed by artillery and tank fire, all of which was clearly the responsibility of the Syrian government.  So saying, the polarized positions of Russia and China have kept the full power and authority of the UN at bay, whilst allowing executions and genocide of thousands to continue under Assad.

“We took this action to expel Syrian diplomats in response to the massacre in the village of Houla – absolutely indefensible, vile, despicable massacre against innocent children, women, show at point-blank range by regime thuds, the shabiha, aided and abetted by the Iranians, who were actually bragging about it over the weekend.” – Victoria Nuland, State Department spokeswoman.

In response to the climatic events, the European Union is likely to press the Human Rights Council to recommend the UNSC refer the case of Syria to the International Criminal Court.  Nevertheless, because China and Russia have the power to veto any UN sanctions against Syria, the widespread outrage is unlikely to translate into tough action on the Syrian government.  The dilemma emerging is that members of the international community want different things and do not share the same principles, though mass slaughter being wrong would be one to share.  Russia, China and many 3rd world nations are not victim to the same outrage and gun-ho attitudes of many Western nations.  The repression of a totalitarian regime is not so hard a concept for many to grasp, most especially considering that many nations were victim to repression from Western imperialism.  Despite the demise of the old Soviet empire, the of Putin still represents the hardness of the past.  Though it may be referred to as ugly and not nice, the regimes of the East stand because of their heavy-handedness, as being implemented by Assad to a much greater extent.  Moreover, the repression enforced in Russia during the first round of elections, considered to be rigged, represents elements of the Stalin-esque era.  Combined with the installment of loyal office-holders in the regime by Putin, the rigidity of the country to liberalization is evident.  So saying, Syria also represents to Russia its last stronghold in the Middle East and is also part of a lucrative bilateral trade agreement, thus making Russia very reluctant to lose such an ally.  In the US, the position of Russia and the massacre in Syria has entered the presidential race, with Republic candidate Romney calling Russia’s position heartless and ugly.  Romney has further called for a firmer and more assertive position by the US.  Nevertheless, as with all presidential statement, it is easy to blame and insult but hard to actually come up with an effective strategy or replacement.  The tools with which to approach Russia are not as clear and concise as the GOP candidate presumes.  Many have called for the isolation of Russia through moral and verbal attacks, something that will have as much of an effect as the Anna peace plan in Syria.

“We hold the Syrian government responsible for this slaughter of innocent lives.  This massacre is the most unambiguous indictment to date of the Syrian government’s flagrant violations of its United Nations Security Council obligations.” – Victoria Nuland, State Department spokeswoman

The ties between Russia and China are not easily isolated and cut, and thus attacking Russia with morality questions will undoubtedly lead to more rigidity and opposition by the Russian regime to any Western resolution towards Syria.  Moreover, the cohesive West is not as cemented in its mission towards Syria either.  Israel, a strong US ally in the Middle east, does not want to have  strong Syria nearby and welcomes the thought domestic divide and a weakened enemy.  Israel is surrounded by enemies and the likely repeal of its nonaggression treaty with Egypt, due to its rising Islamist party, will represent another enemy and tense relation for Israel.  Israel is also presented with the encroaching threat of a nuclear Iran, another powder keg tied to the Syrian conflict.  Iran is a strong ally to Assad and is responsible for providing much of Syria’s arms trade and troops, such as the trained shabiha thugs.  If the West were to intervene in Syria, not only would this divide the hemisphere of the West and East into extreme poles, but Iran will most likely drop nuclear talks that are set to resume and thus continue its uranium enrichment, possibly resulting in a volatile nuclear power in heart of the Middle East.  So saying, the cultural and religious divides of the Middle East present an unconquerable task of overcoming or appeasing.  Israel’s existence is already reason enough for many nations to start war, but if Turkey were to involve itself militarily on the behalf of the West, the divides between the Kurdish, Shi’ite and Sunni populations would ignite into a much larger international crisis.

“I made it clear that it is not an open-ended process and that time is coming, sooner rather than later, when the international community will need to make an assessment as to how things are going and what further actions or activities may be necessary.” – Kofi Annan, UN special envoy

In retrospect, the situation for the international community is a looming diplomatic and humanitarian crisis which is only perpetuated by their indecisiveness and polarized members.  The Western nations are attempting to involve themselves in the internal dynamics of domestic politics of a country miles away and in the throes of a civil war, a task nigh impossible without considering the opposition they face from their own member nations.

Iran: Nuclear Talks and the Russo-American Dilemma

The tense relations between Russia and the US, between President Barack Obama and Russian President Vladimir Putin, brings rise to concerns over ongoing Iran nuclear talks, set to resume in Baghdad on May 23.

Iranian Nuclear Talks will Require Closer Russo-American Ties

Russian President Vladimir Putin has unveiled a government dominated by loyalists, leaving hopes for reform slim and entrenching Kremlin’s over the economy’s commanding heights.  Along with Putin’s opting out of the G8 Summit, the tense relations between Russia and the US are worrisome for many due to the importance of a strong front being presented by Putin and Obama against nuclear proliferation in Iran.  With President Obama facing his reelection year, talks between the two nation’s will be scarce and wide-spaced, leaving little room for political gobbledygook, stressing substantial progress on relations that have already been strained by the Syrian civil war.  With Russia and America as the two former superpowers responsible for decades of nuclear standoff, they have also assumed the roles concerning nuclear development and proliferation.  America’s pursuit of hegemony has resulted in a staunch policy condemning countries seeking nuclear programs, demanding countries to disarm despite America’s own unwillingness to denuclearize.  So saying, President Obama’s position on an Iranian nuclear program is clear.  Obama has repudiated any intention of adopting deterrence of a nuclear Iran as an acceptable policy option.  Thus, such rigidity could result in an Iranian agreement to live up any resolve to acquire nuclear weapons; President Obama could retreat from his previously assumed rigidity; or there could be war.

“Iran is not after nuclear weapons because the Islamic Republic, logically, religiously and theoretically, considers the possession of nuclear weapons a grave sin and believes the proliferation of such weapons is senseless, destructive and dangerous.” – Ali Khamenei, Iran’s supreme leader

War seems to be a drastic conclusion to draw, as all state leaders are assumed to be rational independent thinkers, yet Iran’s history does not suggest appeasement to be high on the agenda.  Nevertheless, Iran has shown signs of a renewed unwillingness to take seriously these talks between itself and the P5+1 (Britain, China, France, Russia, America and Germany).  Iran’s supreme leader Ali Khamenei has stated that the pursuit of nuclear weapons is considered a grace sin and believes the proliferation of such weapons is senseless, destructive and dangerous.  The supreme leader has also stated his ultimate goal is to make the state of Israel disappear, as well as to the combat the ‘Great Devil’ represented by the American nation.  The transitions from repressive isolation to willing nuclear talks stems largely from international sanctions imposed on the country in recent years, slowly constricting the economy over the past year.  With both the EU and the USA embargoing Iranian oil shipments, Iran’s oil sits in storage tanks.  Iran’s oil sector accounted for 60% of total government revenue, thus the vulnerability of the regime’s strength to said sanctions is apparent.  A dollar decline in the price of crude oil could reduce the government revenue by as much as $1 billion.  So saying, Iran’s intentions may be to purely seem wiling and cooperative so as to relieve itself from such crippling fiscal constraints.  So saying, most of the countries within the P5+1 remain highly skeptical of Iran’s true intentions and purposes.  Many believe that Iran is using the talks as a stalling tactics so as to buy time to produce the kind of highly enriched uranium necessary for bombs.  The tension of such a situation is very evident considering the danger this would present to America’s prime Middle Eastern ally, Israel, who has already stated its intention to use military force to ensure its security.

“I don’t think there is any question that the impact of this pressure played a role in Iran’s decision to come to the table.  The value of their currency, the rial, has dropped like a rock.” – David Cohen, Undersecretary of Treasury

Iran will seek bargaining leverage in the talks, seeking to drive a wedge between an already strenuous connected group of state leaders.  Iran will see to generate further tensions among its negotiating adversaries while maintaining a tight diplomatic unity of its own.  For this reason, the Russo-American relations must grow into a more coherent P5+1 force with which to deal with the Iranian situation.  With Sarkozy out, Francois Hollande is likely to be more accommodating then the hard-line Sarkozy.  Germany and Britain will rally around US but will do little in ways to provide leadership because of the hegemony represented by Russia and US in this area.  China has become more isolated in recent years, more fixated on its economic interests and need for oil, hence the growing tensions over the Spratly islands. So saying, Russia is the last significant player in the equation. Russia has grown skeptical of American diplomacy but many theorists suggest that it has grown concerned about a possible nuclear-armed Iran, thus more wiling to act accordingly.  With US and Russian relations frayed in the past because of American dominance and unstated aims in Libya, later exasperated by the Syrian civil war, the diplomatic ties between Russia and America will be easily torn asunder by Iranian leaders if not properly dealt with.

EU: Troubles with the Political Currency – Troubled from Creation

As Greece leaders meet to avert new elections, fears have been reinforced that the country is firmly on the path to bankruptcy and an exit from the Euro, a political currency that may see its own end soon.

The Euro Faces “Make it” or “Break it” Point.

The radical left-wing coalition leader, Alexis Tsipras, has declined an invitation by the Greek president to try to form an emergency government.  Italy faces greater debt and contraction under strict austerity constraints under Euro regulations.  Ireland faces a May 21 referendum asking the public to approve an EU treaty that aims to control nations’ annual deficits and longer-term debts, but the treaty ignores the competing need to stimulate growth and is now facing an increasingly euroskeptical populace.  Combined with Hollande’s far-left victory as France’s president and the ultra-left rise in Greece’s parliamentary elections, the events could force the European supranational entity to shift in favor of less austerity measures and greater investment in growth.  Even if the fiscal treaty is ratified by the minimum 12 nations required, it is likely to be an economic dead letter before it comes into force next year.  Its key goal is to bring deficit limits under the threat of ECB fines.  Once again, the main proponent is Chancellor Merkel and her CDU party.  Nevertheless, Merkel’s previously sound support structure seems to be cracking as the CDU party faced a heavy state election defeat in Germany’s most populous region.  With Britain disconnected from the EU and the major founders of the currency in turmoil, the future of the political currency seems rather bleak.  The EU powers that be, predominantly in Germany, remain in public denial about the real underlying reasons for the Eurozone crisis: the fault design of the Euro common currency, with no central coordination of debt funding.  The only solutions will require Chancellor Merkel and her uneasy electorate to accept the need for national debts to become European property, further imposition of supranational regulations into the independent banks and sovereign governments.

“We have to stay in the Euro.  I’ve lived the poverty of the Drachma and don’t want to go back.  Never! God help us.  They must cooperate or we’ll be destroyed, it will be chaos.  For once, they must care about us and not their chair.” – Maria Kampitsi, 70-year old Greek pensioner

In the 1990s, the continent’s political leaders believed that the division of a continent that so often torn by war were of the past, and that a single currency would bind the continent into a union.  Today, with Greek on the brink of bankruptcy – and Ireland, Italy and France deep in debt – Europe’s fiscal experiment faces extinction.  The problems of the past have come surging back, but even though talk about what’s wrong with the Euro focuses on complex matters such as national debt ratios, labor market reforms and pension protections, one fundamental problem is, comically, blaming Adolf Hitler.  After the fall of the Berlin Wall, a newly unified Germany was bent on leaving behind its recent division and the dark days of two World Wars.  Germany had to make sure the rest of Europe was aware of its peaceful intentions, thus it seemed agreeable to bind its own success with those of its neighbors.  Germany and France, the drivers of the Euro projects, pushed to be as inclusive as possible despite the evident risks.  Now, Germany recent leadership in strict fiscal measures and regulations has revived thoughts of Germany’s intentions of domination.  Nevertheless, the regulations initially installed by the supranational body were as strict, if not stricter, than what is being demanded now. The rules then, were strict and clear but were not adhered to.  The requirement was that no Nation must carry debt greater than 60% of their gross domestic product.  Now, Greece’s deb ratio is 165%, Italy’s is 120% and Ireland’s is 107%.  Even the powerhouses of France and Germany are above 80%.

“The first cut has released all the old demons.  We’re back to calling the Greeks lacy, the Italians shady, the British disconnected, and the German bent on domination.  It didn’t take long, did it?” – Richard Whitman, University of Kent in England

Coincidentally, the general entrance of Greece into the EU was based on falsified reports that spoke of its adherence to the fiscal requirements, meanwhile Greece’s economic situation then was already violating the GDP ratio.  It was also widely known that the Greek government had a reputation for not collecting taxes – $65 billion in back taxes are outstanding – and overall, Europeans regarded its economy as a mess.  Nonetheless, Greece was the birthplace of democracy, home to the Acropolis, the cradle of European civilization.  Greece’s entrance was sentimental and symbolic at best.  Greece is and was an extreme example of the problems facing the EU, but in general, the problem lies rooted in the fact that while sharing a single currency, individual nations would continue to handle their own tax and pension programs.  Thus, local issues superseded those of the Euro zone needs.  Like the decision concerning Greece’s entrance, many were largely political.  In 1998, Dutch officials warned Germany of the consequences of Italy’s entrance without further fiscal measures for regulation.  The officials were not willing to have Italy enter the union  To the Germans, no Rome equated to no Paris, which was not possible.  Another problem of the single currency is the polarity represented by the different economies.  The European Central Bank was established to regulate the common currency, to ensure that the currency could serve a booming Germany economy and a tanking Greek one.  It has to keep interest rates low to spur borrowing and growth in the south, while keeping rates high enough to avoid inflation in the north.

“The French even under Sarkozy had great reservations about Merkel’s focus on austerity, but they went along with it in hope they could extract  concessions in return.  With Sarkozy gone, Germany will be increasingly isolated.  Germany will eventually weaken its positions” – Simon Tilford, chief economist at the Centre for European Reform in London

In retrospect, the EU is facing a critical challenge to its solidity that is not only represented by the fiscal crisis, but also a growing Euroskeptic populace and a continent-wide political shift towards the ultra-left.  The flexible and ambiguous political decisions  of the past that transformed the European community into a fiscal union must be done away with, and the nations most congregate to form a more perfect union that is monitored on every aspect by some supranational entity.  A total solution would involve a single fiscal policy but that would only constitute one part.  A total solution would have to address the inequities between national economies.

Greece: Left-Wing Party Coalition and Departure from Euro

Following the Greece elections, Greece’s left-wing party Syriza has been given the opportunity to construct a coalition government after the conservative New Democracy party, given the same opportunity, gave up within a few hours.

Tsipras’ Political Base Threatens the Global Financial System

The leader of Greece’s left-wing party Syriza, Alexis Tsipras, seeks to form a new government on the base of rejecting all EU and IMF-backed austerity measures.  Tsipras has 3 days to reach a coalition deal and has told the two major parties to end their support for the austerity measures if they want to take part in the government.  With the election of Hollande in France in favor of conservative Sarkozy, the shift in the  political atmosphere following the Eurozone crisis is becoming evident.   It also bodes ill for the future of the stability of the union as the socialist victories represent a drawback from EU credibility about its ability to manage the supranational federation. Tsipras plan includes cancellation of sever budget-cutting measures forced on the country by international lenders, plans that ensure its survival from budget failure.  This proposal would result in Greece exiting the Eurozone, a reality that has scared investors and markets worldwide and has dropped stocks dramatically.  Though rumors of Greece dropping out of the Euro have been discussed since the beginning of the perpetuating debt crisis, Greece will probably leave the Euro as soon as next month as the government runs out of cash and European institutions fail to lend it more. The critical attitudes of Tsipras have not helped the situation either; rather, Tsipras demanded an examination of Greece’s still massive debt and a moratorium on repayment of the part that is ‘onerous’, statements that drove Greek shares down another 3.6% from the 7% loss of Monday.  Although the public vehemently opposed the conservative party for its pro-austerity basis, it is unlikely Tsipras’ anti-austerity base will form a coalition either.

“The pro-bailout parties no longer have a majority in parliament to vote in a majority in parliament to vote in a destructive measures for the Greek people.  The popular mandate clearly renders the bailout agreement invalid.” – Alexis Tsipras, head of left-wing party Syriza

The Greek government hangs on a precipice, with Tsipras having 3 days to form a government.  Communist Party leader Aleka Papariga refused to meet with him in person, only talking to him on the phone about possible party agreements.  Fotis Kouvelis of the Democratic Left, which splintered from Syriza in 2010, told Tsipras that he needed the support of more than just the left.  Backing the hodgepodge of parties from the Stalinist left to the neo-Nazi right, the public is as divided as the political infrastructure.  Thus, it has become widely expected that in June the final decision will likely fall to a cross-party caretaker government that may be formed in the next few days to lead the country to fresh elections.  The financial chaos has sparked huge social unrest  in Greece and led to a deep mistrust of the parties considered to be the architects of austerity, but not unity is found on the issue of who should replace said parties.  I the country hopes to continue having a running government, it requires billions of Euros in further austerity cuts in June and the country would require a 30 billion Euro installment in EU-IMF funds, funds that would not be received under Tsipras’ plans.  So saying, there does exist a dilemma between the political proposals and practicality of the decisions being made.  In response to the volatility of the continent-wide elections, the European Commission has stated that the country leaders would be expected to abide by the terms of a bailout program mean to avoid a crippling financial meltdown.

“Mr. Tsipras is doing everything to prevent a government being formed.  Nothing can be done if we leave the Euro, because the country’s catastrophe would be certain and unprecedented.  He is asking me to place my signature on the destruction of Greece – and that I will not do.” – Antonis Samaras, head of the winning conservative New Democracy party

In retrospect, the deadline for the formation of a new government is May 17.  The chance to form a coalition will pass in turn to every party, in order of the current election results.  In the event that no party can form a coalition, new elections will be called.  Greece’s potential withdrawal from the Euro could have drastic consequences for the country which would have no chance of fiscal re-cooperation without the life line that has essentially been afforded to it by the EU.  Moreover, its withdrawal would hold consequences for the EU’s credibility and the stability of the Euro, a common currency for the 17 member-states.

Obama: War in Afghanistan Coming to an End

The anniversary of Osama bin Laden’s death was marked with President Obama’s secret flight to Afghanistan to sign a strategic pact with Afghan President Hamid Karzai, declaring a slow but gradual withdrawal of American troops and a promised long-term US role in Afghanistan through aid and advisers.

Obama Marks the Death of bin Laden with a Surprise Trip to Afghanistan

Beginning on October 7, 2001, a new phase of the War in Afghanistan began through Bush’s commitment of US troops under his National Security Strategy.  The strategy justified the use of US armed forces abroad to ensure US global hegemony, which was to be permanent.  Through this militaristic approach emerged Operation Enduring Freedom, a response to the 9/11 attacks, in which the US entered a decade long war in search of the al-Qaeda terrorist organisation and to remove the Taliban regime from power, a regime that came into power mainly from US arms support and aid during its years of guerrilla warfare against the incursion of the Soviet Union from 1978 to 1989.  Nearly 3,000 US and NATO soldiers have died during the Afghanistan war since the Taliban were ousted in 2001.  More than 130,000 troops from 50 countries serve in Afghanistan, according to the NATO-led International Security and Assistance Force. The US is the largest contributor, providing about 90,000 troops, followed by the UK (9,500), Germany (4,800) and France (3,600). Now, after the successful assassination of Osama bin Laden and the installation of a democratic regime under President Karzai, Obama has signed a pact discussing how the way will end and promised a steady drawdown of US troops.  The Strategic Partnership Agreement (SPA) may provide Afghans with reassurances that they will not be abandoned when most NATO combat troops leave as planned in 2014.  For Obama, the plan serves as an opportunity to conclude a war started by his predecessor, George W. Bush, which has become widely unpopular domestically, a move many political ambition theorists suggest will help consolidate his re-election campaign.

“My fellow Americans, we have traveled through more than a decade under the dark cloud of war.  Yet here, in the pre-dawn darkness of Afghanistan, we can see the light of a new day on the horizon.” – Barack Obama, 44th President of the United States

During his speech at Bagram airbase outside of Kabul, Obama committed to pulling 23,000 troops out of the country by the end of the summer and sticking to the 2014 deadline to turn security fully over to the Afghan government.  Some US forces will remain in a post-war Afghanistan as military advisers, but both US and Afghan officials have yet to decide how many troops will continue supporting the Afghan military, and for how long.  The SPA provides a framework for the US-Afghanistan partnership for the decade after the US and allied troop withdrawal.  Specific levels of US forces and funding are not set in the agreement and will be determined by the US in consultation with allies.  With much in store for the future negotiations, the stability of Afghanistan still hangs on a precipice, clearly exemplified by the suicide bombing in Kabul during President Obama’s speech.  The blast killed 7 people outside a compound known as Green Village, illustrating the fragile state of the country.  Some of the more troubling challenges ahead include corruption in Karzai’s weak government, the unsteadiness of Afghan forces in the face of a resilient Taliban insurgency, and Washington’s strained ties with Pakistan where US officials see selective cooperation in cracking down on militants fueling cross-border violence.

“There will be difficult days ahead, but as we move forward in our transitions, I’m confident that Afghan forces will grow stronger; the Afghan people will take control of their future.” – Barack Obama, 44th President of the United States

President Obama’s speech carries different messages for different audiences, one at home and one away.  The more important audience is American voters fed up with a war that will be in its 12th year on Election Day this fall.  Obama is seeking to portray his foreign policy as record as a success.  His campaign team has made bin Laden’s death a key part of that argument, and the President’s visit to the country where militants hatched the September 11 attacks on the United States reinforces that message.   Nevertheless, the message portrayed to the American people is undermined by the hard evidence coming out of Afghanistan.  Politics aside, Afghanistan will remain the third poorest country in the world.  Skepticism is shared by the European Union who have stated that Western aid that has been poured into Afghanistan will have limited impact as long as governance remained poor and corruption widespread.  Moreover, the truth of the troop withdrawal is that even after the US combat mission is concluded in 2014, thousands of US troops will remain for some years to conduct strikes and otherwise train and advise Afghan forces, and help the Afghans collect and exploit intelligence on insurgents and other military targets.  A new Pentagon report describes the capability of the insurgency to replace battlefield losses and launch high-profile attacks, even as it has lost territory to the Us and Afghan forces.  Evidently, the optimistic message given by Obama is largely campaign-drive but the plan behind the message is what is important, a gradual drawdown process through which the US will hopefully avoid another Iraqesque failure.

“As we emerge from a decade of conflict abroad and economic crisis at home, it’s time to renew America.  This time of war began in Afghanistan, and this is where it will end.” – Barack Obama, 44th President of the United States

In retrospect, the message here is that the US is trying to reassure the American populace of an ending war, as well as reassure Afghan leaders the US would not repeat its mistake from the 1980s.  Then, Washington withdrew support for anti-Soviet militia forces in Afghanistan and set the stage for Taliban rule.  The US has been able to decimate the ranks of the terrorist organization al-Qaeda that had taken root in Afghanistan and now the US has the duty to end the war in Afghanistan responsibly, ensuring the security and stability of the country for years to come.