Wednesday 13 June 2012

War by other means: The emerging economic and political divergence at the centre of Europe

Christopher Wood

Two leaders, two agendas: Angela Merkel and Francois Hollande were keen to talk of continuing their commitment to European cooperation after the French Presidential Inauguration, yet it is unclear if national concerns can be overcome. AFP, Odd Andersen.

THE BRANDENBURG GATE– an iconic monument in the heart of Berlin, a five-minute walk away from the Reichstag that sits directly on the intersection of the Tiergarten and the historic core of the German capital. Crowning its neo-classical architecture is a reminder of one of Europe’s most bitter rivalries amidst its long and war-torn annals of history – cast in a resplendent and vast bronze statue, the goddess Victory stands astride a four-horsed chariot, her gaze fixed permanently across Pariser Platz square upon the building that contains the French Embassy. 

The relationship between the two most powerful economic entities in Europe, despite being beset by prolonged periods of mutual animosity and outright warfare, has been central to European politics. Today’s ‘special relationship’ is a product of over 70 years of Franco-German cooperation that has evolved from Cold-War realpolitik to the shared European vision that we see today. 

After ten years of monetary union under the Euro single currency, dark clouds are gathering over Europe. Greece has been toiling under the burden of drastic austerity imposed by the European Central Bank and its German financiers for over a year with little success. The financial health of vast swathes of Southern Europe is increasingly being questioned by credit rating agencies and creditor nations. Barely a month into office, the newly-elected French President has issued a rallying call for a fresh approach to the European fiscal malaise in the form of growth-inducing stimulus – in doing so, Francois Hollande has compromised the stoic German commitment to enforcing structural reform and debt servicing. Are we witnessing the end of the Franco-German consensus that has been so central to the European project?
Revolutionary France? Not quite.

Gone are the days of ‘Merkozy’ – the seemingly symbiotic relationship between the previous French President and Chancellor Merkel of Germany was often derided in the face of German economic vitality and largesse in comparison to that of France, and Mr. Hollande appears keen to dispel any aspersions of ‘junior partner’ in his relationship with the German Chancellor. In a move that has seemingly undercut a year of European unanimity in support of the German insistence for austerity, Hollande has been swift in establishing a uniquely French vision for solving the current financial crisis. 

Growth, he believes, is key, and he has made it clear that he is willing for France to use government spending to stimulate its economy. France’s already-burgeoning public sector looks set to be the biggest beneficiary of his pro-growth election pledges. The creation of some 60,000 new teaching positions and new investment in schools alongside a four-figure annual increase in the number of newly-recruited police officers took centre stage in his Presidential campaign, and it is hard to see any movement to renege on these commitments. Government spending also seems to be Hollande’s answer to one of the pervasive ills of the Mediterranean economies – in a bid to deal with widespread youth unemployment, Hollande has promised the creation of some 150,000 public sector jobs targeted at graduates and school-leavers. 

These are vast commitments for any deficit-laden nation to be undertaking at this time, and Hollande’s proposed increases in French national expenditure are not solely limited to direct public sector employment. Tax breaks for small and medium enterprises, coupled with the creation of a ‘public investment bank’ for the provision of cheap government loans to small successful companies and start-ups looking to expand, hints at protectionist measures designed to nurture home-grown talent. The fact that manufacturing businesses choosing to locate their businesses to France have also been promised favourable public financing and tax incentives suggests that Hollande is willing to sanction competitive measures against other European economies to foster French economic growth. 

Such policies are moderate, if not conservative, in nature and extent. Had they been suggested as little as three or four years ago, they probably would have failed to lift a single eyebrow. What is more, Hollande has also committed himself to matching or bettering his predecessors record on public sector efficiency savings, as well as balancing government expenditure and revenue by 2017. What must be considered, however, is the timing and context of such commitments. By making it clear that government intervention through direct spending and tax incentives can rejuvenate the French economy, he is setting a dangerous precedent for economic competition between countries within the Eurozone, many of whom can ill afford to engage in fiscal stimulus and the subsidisation of industry.

Who’s leading who?

Chancellor Merkel and the German paymasters behind Eurozone bailout at the German Bundesbanke stand stoically by the view that only through restructuring and liberalising can failing national economies have any hope of increasing their national competitiveness and addressing their balance of payments deficits. The fact is, the German programme for recovery along the lines of deep public sector cuts and pro-market liberalisation has uniquely failed in inspiring growth, or even engendering support in the nations that are at the centre of the Eurozone crisis. The problem remains that further austerity lacks appeal for voters within these nations who have grown accustomed to generous social security, and wealthy corporations and individuals who revel in lax tax practices. Implementing an adapted German model of manufactures-led growth through internationally competitive private enterprise has little chance of success in nations without a strong manufacturing base, or the finances to develop one.

Hollande has upset the balance of political power within the Eurozone through this pro-stimulus rhetoric simply by presenting a course of action that the likes of Greece, Spain and Portugal can realistically pursue. The status quo that existed previously was a unanimous, but implausible, commitment to austerity that essentially has failed to yield results. Hollande has established himself as the preeminent spokesperson for fiscal stimulus, and the voters and incumbent governments of the wavering and vulnerable Southern and Mediterranean nations - Greece, Spain, Portugal and Italy – are inevitably asking themselves whether austerity can deliver.

The painful truth is that none of these nations, save perhaps Italy, are in any position to start throwing money around in an attempt to encourage economic growth. In all of these countries, a wasteful and inefficient government expenditure is a major cause of their financial woes, and pumping more money into the economy without sweeping reform and widespread belt-tightening would only serve to further bloat lagging economies. Not only that, interest rates for further government borrowing in these nations are creeping ever-higher – a state of affairs that makes government spending prohibitively expensive, if not severely damaging. Austerity needs to be enforced, and any prospective stimulus package needs to yield quick results to end the prolonged and damaging speculation over Europe’s growth outlook.
Government Bonds, 10 year yields: Y-axis figures are the levels of interest paid by the respective governments to bond holders. General trends: German downward momentum, French currently double that of Germany, Spain levelling at about 5 times that of Germany and Greek interest on government bonds at an unsustainable 30%. (Source: Trading Economics).
Holding out for a hero

It is clear that whilst government spending may be capable of vitalising the French and perhaps Italian economies from lacklustre and sluggish performance, it is hardly a viable solution to the European debt crisis. There may, however, be a way for the flagging economies of Europe to realise their newfound hopes of spending their way back into prosperity, should they continue to cut the fat in their own economies and invest wisely. The issuance of ‘Eurobonds’ and the creation of a Europe-wide debt pool would allow the stronger economic performance of the Northern nations to effectively subsidise the borrowing rates for those economies wilting under the burden of hostile lending markets – lower interest on government lending for these nations would allow them to pursue stimulus packages, at the cost of exposing the Northern economies to increased risk, and thus upping the price they pay to borrow.

The prospect of Eurobonds raises the prickly question of further European federalisation, and has only served to further divide the French and German leadership, with Hollande in favour of the programme that could see Europe take a large step towards the realisation of a European super-state. A growing and vocal German public resentment at paying for other nations to spend ineffectively, plus the prospect of losing Germany’s incredibly strong borrowing position, pits Chancellor Merkel in opposition to further economic integration. It may be a bitter tonic that the Germans have to swallow in order to save the Eurozone – should the Euro fail upon a Greek exit due to a lack of any cohesive plan for recovery and growth, Germany will pay a very high price indeed along with the rest of Europe for their current economic hubris.

Monday 11 June 2012

Because an Economic Crisis is not Enough

Erik Edman

A Frontex policing unit on patrol. Frontex, the EU border control agency, is assisting Greek authorities by providing manpower and special equipment for policing the problematic border. Aegean Times.

Blame the Greeks
Europe appears to be a continent at war with itself. Krugman famously referred to the population as “Those Revolting Europeans”, and for a good reason. In France, Italy, Spain and Greece, people are rising up in protest to the rules laid out by others to regulate their countries’ affairs. But surely the European Union is an organisation of cooperation? Are the regulations set up by the EU really foreign intervention? Are we not in this together? 
Since economic crises and political anarchy are becoming clichés, let us take a new case study into consideration: the European Immigration policy. In order not to stray too far from the mainstream of political discussions however, let us apply our argument to debt-ridden Greece.
 The small country is the entry-point of 80% of Europe’s illegal immigrants. Greece receives, on average, 250 illegal immigrants every day, and in 2011 local authorities registered a total of 55,000 people who had crossed the border illegally. Why can’t the Greeks pull themselves together?
The E(x)ternal Rivals
The majority of immigrants enter Greece by crossing the river Evros, which acts as a natural border between Greece and Turkey. Turkey itself faces huge immigration problems, with people flocking in from Afghanistan, Iran, Pakistan and, as of late, Syria. As Turkey’s political gaze turns ever eastwards, and with its decreasing interest in impressing its European neighbours for a possible EU membership, the Turkish military (which according to the country’s laws is in charge of border control) is becoming more and more willing to turn a blind eye to the dark shadows struggling against the river at night. They are even less willing to cooperate with the Greeks for possible extraditions of illegal immigrants back to Turkey. Out of the 55,000 immigrants arrested crossing the Greco-Turkish border, Turkey agreed to receive 770 back, even though there is a relevant treaty in place between the two countries. “Turkey is not complying” says the Greek police commissioner for Orestiada, a northern region of the country.
Greece has been receiving strong criticism from its European partners for not doing enough to contain the issue. In 2011, the Greek government proposed the construction of a fence spanning the 206 kilometre border with Turkey. The plan was internationally condemned and replaced by a far smaller 12.5 kilometre fence, built near Nea Vyssa, where the river turns into the Turkish mainland. Although the EU has approved of the project, it has refused to fund it, and so Greece has resolved to pay the 3 million euros needed for the construction from its own government budget. What government budget, you ask. I am not sure.
Illegal immigrants tell stories of how they paid people smugglers from as far off as Pakistan and Somalia, to lead them to Europe where they hope to make an honest living. “We are not thieves or robbers”, said Islam, a young immigrant from Algeria, “life is too hard back home. We work too long for too little.” Once their odyssey leads them to the border, they are ushered onto plastic dinghies and are instructed to rip them using knifes once they reach the opposite side of the river. That way, they are told, the Greek authorities cannot send them back. In many cases, the small boats capsize and people are drowned, either by being pinned to the riverbed by the strong current, or simply because they cannot swim.
Is the EU working as hard as Greece?
As a response to the upsurge of illegal immigration, the EU has deployed ‘Frontex’ in Greece; Europe’s border control unit. Armed with state-of-the-art equipment, Frontex officers assist their Greek colleagues in finding and transporting illegal immigrants to detention centres from where they are usually released, with a 30-day deadline to leave the country. These detention centres have been condemned by the European Court of Human Rights for keeping people in “vile and inhumane” conditions. Ironically, however, Frontex (an EU organisation) brings thousands of immigrants to the detention centres every year. Once again we are faced with European hypocrisy.
Greece is a country facing disintegration. This, of course, should not be used as an excuse for mistreating human beings. Given its weak condition and geographical positioning, it makes for a natural target for people smugglers and hopeful immigrants looking for a brighter future in the promised land of Europe. If Greece is to stay within the EU and therefore act as a border defender for the Union, then the Union should recognise the problematic situation the country finds itself in. Money is non-existent, neighbours are uncooperative, and Europe is complaining. The number of immigrants Greece has to face would be staggering for any of its stable European counterparts, let alone a nation in serious financial and political trouble.
Let’s Face It
European demography is aging. New pairs of hands are needed to take on jobs Europeans shun, and support the continent’s societies, let alone enriching them. Europe is in definite need of workers. The EU appears to have recognised this, as is evident from the EU Immigration portal, the Single Permit Directive and the Long-Term Residence Directive, all of which are aimed at making immigration into Europe easier and more organised. These moves hope to limit the need for people to cross European borders illegally. Although admirable, the EU must recognise that illegal immigration will not simply end because legal immigration is made easier. European outposts such as Greece still need strengthening.

Wednesday 6 June 2012

Bienvenue Hollande…Bienvenue Turkey?

Henry Norman

Could Turkish membership of the EU now be on the horizon given the arrival of Hollande? Mustafa, Ozer/AFP/Getty Images.
Following the election of Francǫis Hollande to the French presidency, Europe will not only see a change to its growth strategy but possibly a fundamental addition to its current membership. Turkey, Europe's would be gateway to the Middle East, can now rest assured of a possible return to talks amongst the power brokers of the EU. If we momentarily cast aside the Armenian question when it comes to Franco-Turkish relations and instead focus upon the pressing issues of the day, it is clear that Hollande believes the issue of Turkey’s membership deserves serious consideration. This in contrast to Sarkozy's point blanked refusal to debate the issue.

Indeed, it is not the case that Turkey's membership rests solely in the hands of the French; Germany too has some way to move on the issue. Angela Merkel, although an opponent of Turkish membership, appointed Guido Westerwelle as foreign minister and who publicly stated that there is a need to 'overcome this frozen situation.' A far cry from just sweeping the issue under the carpet.

Of course, we are currently witnessing incredibly volatile times in the EU. One could be forgiven for thinking that the last thing European leaders want to consider now is expansion of the union. Flippantly one could argue that Europe can not even manage its already existing members! Indeed, it would be erroneous to assert that Turkey's path to European membership would be an entirely smooth affair. Martin Schulz, President of the European Parliament, commented that Turkey's EU membership would 'take a very long time and would be a difficult one.' 

We are not just talking about the need to overcome Turkey’s obvious human rights violations or its failure to recognise Cyprian sovereignty. These are issues that stand a better chance of being overcome by demonstrating to Turkey that their membership is indeed possible. As is with the case with Serbia, let the normative power of Europe just do its work. Europe however, is suffering a disenfranchisement amongst its peoples; a road ahead that no one is sure where it will exactly take them. One can foresee how Turkey's 99.8 per cent Muslim population will cause problems, not to mention that it does not exclusively lie on the European continent. 

Although nothing to do with Turkey, one need only look to the recent murmurings that the UK Labour party will promise a referendum on EU membership at the 2015 general election to see the uncertainty of the union. Party politics it may just be, but astonishing it remains that the Labour party, of all parties, would even consider such a move. Europe as fodder for the political parties of Britain may result in short-term gains but such moves lack the foresight of a possible lucrative future for the EU and Britain- especially if Turkey is allowed to join the mix. 

Admittedly David Cameron has publicly endorsed Turkey's candidature realising the benefits of Turkey's membership. Whilst it will result in marginal economic gains for the EU, in terms of regional security, Europe stands to gain most. Turkey's location next to Iran would allow the union geographically strategic borders. One could argue that this is exactly what Europe currently needs. In other words, the EU would come to really be depended upon. No longer would Herman Van Rompuy and Cathy Ashton just look like mere token symbols of a demi-power at the bargaining tables. 

I would hasten to add that it is all too easy to get carried away with the optimism created by the Hollande campaign; Turkey is not exactly at the top of the agenda. But as Egemen Bağış, the Turkish minister for EU affairs, astutely commented, ’Turkey is changing, the EU is changing and the new Europe cannot be without Turkey.' Whilst the latter part of that statement can be fiercely debated, no one can or should doubt that Turkey and the EU are both in states of metamorphosis. The Turkish economy may currently be experiencing a slow down (in part due to the faltering EU being its largest export market) but this should not prevent any movement on the issue. It is important to remember that Turkey’s membership should be seen as a long-term not short-term solution to the unions’ ills. 

This is exactly what British policy makers, present and future, should keep in mind. Hollande has realised that when it comes to the EU economy, growth is just as important, as are the current processes of budgetary consolidation. Moreover, our cousins on the continent are beginning to realise the potential that can result from Turkish membership. Whilst it is the case that the major UK political parties remain in favour of Turkish candidature, their current pandering to anti-European rhetoric risks overlooking the 'new' Europe that may result after the current calamity passes over. Surely it cannot be the case that Britain's future lies outside of a union strategically strengthened by the presence of Turkey and a union whose role can only gain in significance in the years to come. It is like leaving a bad party early, only to find out that it got a whole lot better later.