Commentary on global affairs and where they may be headed

Posts tagged ‘IMF’

Europe: more than fraying at the edges

The EU is teetering on the brink of Grexit as the two sides continue to play a momentous game of chicken.

On Sunday, Greeks will be voting in their referendum on whether or not to accept the conditions the EU and IMF have put on giving the country another bailout – and the polls are so finely balanced it’s too close to call.

Germany’s Chancellor Merkel has said no one should tell the Greeks how to vote, but then went on to make clear a “no” means Greece leaving the Euro, so no pressure there then.

Greece’s anti-austerity government on the other hand is pushing for that “no” arguing it will strengthen their negotiating hand. Prime Minister Tsipras seems to be banking on fear of the unpredictable effects of Grexit to force the rest of the Eurozone back to the table.

There has been much talk of Europe fraying at the edges if Greece is forced out of the Euro with some even suggesting Athens will be end up leaving the EU altogether.

But that risks understating the depth of the crisis facing the Union.

What is happening with Greece is a symptom of something that’s eating away at the EU’s very foundations and the glue that binds the 28 nations together is in danger of dissolving.

You have to go back and ask yourself why Europeans created their unique organisation in the first place.

Before 1945, the people of the continent had spent centuries killing each other in the name of king, then country and – in some cases – both and that’s not to mention the wars of religion.

After the devastation and slaughter of World War Two, European leaders – especially in France and Germany – finally woke up to the fact that there must be a better of doing things and started building what has now become the European Union by creating a common market for coal and steel which quickly became the European Economic Community.

In so doing they were appealing to enlightened economic self-interest, but behind the project there was a more altruistic impulse too – to end the threat of war between Europeans by appealing to a sense of solidarity. The idea that what Europeans have in common is much more important than what divides them.

And like Araldite, the glue holding the EU together needs two elements to make a strong bond – that combination of enlightened self-interest and solidarity.

It’s this that has brought many benefits like the ability to live and work anywhere in the EU, something I took advantage of in the early 80s when I left recession-hit Britain to work in Italy – how things have changed, as you see when ordering your cappuccino or latte in a London coffee bar.

But the Europe-wide economic crisis of recent years has chipped away at the sense of solidarity underpinning the EU.

The Greek debt saga has both exposed and fuelled this.

Basically, the German government is unwilling to ask its taxpayers to write off the loans they’ve made to Greece to keep it afloat while it tries to find a way to pay its debts, a form of solidarity that’s called fiscal transfer in economist-speak.

And you can understand why Germans wouldn’t want to do this. After all, Greece has been living beyond its means for years and when borrowing became easier after it joined the Euro because of lower interest rates, Athens continued splurging.

On the other hand, German and other banks were happy to lend to Greece knowing it had a dodgy credit history. This is a country that’s struggled to remain solvent ever since independence in 1832.

It’s also important to point out that the Greek bailout in 2010 was also a bail out for those banks as EU governments, the European Central Bank and the International Monetary Fund basically took on the Greek debt.

But this is a complex argument the German government for one is unwilling to make to its people, so they haven’t and instead blamed it all on profligate Greeks. So it’s not just the usual suspects of the nationalist and populist right like UKIP and Front National who are responsible.

Yet EU solidarity is not just being undermined by the Greek debt crisis

The influx of thousands of migrants crossing the Mediterranean from North Africa is also playing its part.

They are making for the nearest EU countries, mainly Italy and – by unfortunate coincidence – Greece, and they are struggling to cope with the numbers. The European Commission came up with a plan for all 28 countries to relieve the burden on Rome and Athens. After acrimonious talks, where calls for solidarity and responsibility were bandied about, most countries agreed to take a share of asylum-seekers, but some, including Britain, Denmark and Hungary, refused to play ball.

According to some in the room, Italy’s Prime Minister Renzi didn’t mince his words exclaiming at one point: “If this is your idea of Europe, you can keep it. Either there is solidarity, or you don’t waste our time”.

Which kind of sums it up.

If Europeans don’t rediscover the balance between self-interest and solidarity soon, the EU faces an existential threat at its core, which will make external challenges like a resurgent Russia and spill over from chaos in the Arab world look like local difficulties.

 

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On global leadership – or the lack thereof

The world’s major powers are failing when it comes to providing global leadership.

That was the refrain running through this week’s annual Chatham House London Conference where the US, China, Russia and the UK came in for varying degrees of criticism from panellists and participants.

To the apparent surprise and irritation of some Americans present, there were constant references to the 2003 US invasion of Iraq and how damaging it had been, not just to the Iraqi victims, but also to the global order and the legitimacy of the US as a global leader.

I was not sure why this should have come as a surprise at a conference dedicated to discussing the crisis in global order and challenges to a rules-based international system, but there you are.

Many Americans may want to draw a line under it and move on, but despite the twelve years that have passed since the invasion, the consequences are still unfolding. Other countries committing acts of aggression use it to justify their own actions and in the region itself the political and military challenge of ISIS amply demonstrates how it remains at the root of contemporary events.

There was also criticism of the Obama Administration for overcompensating for Iraq and failing to provide leadership when it is needed– leading some to complain Washington can’t win and to cite the “damned if you, damned if you don’t” syndrome.

Russia also came in for castigation with Moscow characterised as having gone rogue in the international system. American and European participants made constant passing references to “Russian aggression” and there was no doubt whose side they are on in the Ukraine conflict.

The criticism of Britain was of a gentler sort with many wondering whether London is disengaging from the world as it debates its future in – or out of – the European Union and cuts its defence budget to such an extent the US government, in the words of the British Foreign Secretary, Philip Hammond, has started openly lobbying London to boost its military spending.

Then there is China. The Chinese panellists were pushed on several occasions by Japanese and other participants to justify Beijing’s assertiveness in the South China Sea where tensions have risen in recent weeks following the US decision to challenge China’s territorial claims by sailing and flying close to the artificial islands China has been constructing in disputed waters.

What stood out was the way the Chinese responded.

Ambassador Wu Jianmin robustly defended his country’s conduct in the South China Sea by pointing out freedom of navigation is essential for China as well as other countries given how much if its trade passes through it. He said the installations being created would also serve a humanitarian purpose for disaster relief operations and pointed out that other countries had started building artificial islands before China without attracting any criticism, so, he asked, why is Beijing being singled out.

But Ambassador Wu was also on a mission to explain what his government calls its “win-win” approach to international relations. He pointed to the newly established and China-led Asian Infrastructure Investment Bank, AIIB, which the US unsuccessfully tried to persuade its allies not to join, as an example of this approach. He emphasised how Chinese investment abroad benefits both China and countries where it is investing. And indeed a World Bank official, Dr Vera Songwe, endorsed this argument by pointing to Africa where Chinese infrastructure investment has helped the continent grow and become more integrated into the global economy.

Responding to complaints that China’s extraordinary economic growth and its re-emergence as a great power had taken advantage of the rules-based international system put in place by the US in the wake of the Second World War – the term “free-rider” was used – Professor Wu Xinbo argued that China is now providing international public goods, such as the AIIB.

He was sitting next to Professor Joe Nye who was arguing the US will remain the predominant power in the world for the foreseeable future and will not be overtaken by China, and at one point it seemed the two were almost competing to show which country does the most for the international community.

A far cry from Deng Xiaoping’s foreign policy maxim of “keep a low profile and try to accomplish something”.

We have also come a long way from a decade ago when the then US Deputy Secretary of State, Robert Zoellick, called on China – in somewhat patronising language – to be a “responsible stakeholder” in the international system.

The consensus among conference participants seemed to be that despite current turbulence in the South China Sea, Beijing does not want to undermine the established global order, but it does want to be accorded its due weight in that order.

This means the US and the Europeans will have to accede to such things as greater Chinese clout in international bodies such as the IMF. If they don’t, the former Australian Prime Minister, Kevin Rudd pointed out, China’s creation of the AIIB shows Beijing will go round the system if it thinks it is being blocked.

So paradoxically, if the rules-based system with the UN and the growing canon of international conventions and law at its heart is to be maintained and strengthened, the leadership required of the US at this point is to truly accept it is no longer the paramount leader.

The key to a stable world is for the West to make good on its rhetoric and make room at the top table for China – and other emerging powers such as India and Brazil – or we could well be in for a bleak beggar-thy-neighbour future.

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