Opinion

The Great Debate

from Ian Bremmer:

The G7 and the limits of Russia’s ‘political isolation’

 

On Wednesday, President Barack Obama delivered the major address of his weeklong trip to Europe, focusing on the Russian incursions into Ukraine and the coordinated Western retaliation. “Together, we have isolated Russia politically, suspending it from the G8 nations,” Obama said. For annexing Crimea, Russia was punished with temporary exile from this coalition of advanced industrial democracies, a group of Western countries that collectively act on their shared values.

There is just one problem: Russia never shared these values, and the G7 has neither represented global interests nor driven the international agenda for quite some time.

There are a few reasons why that’s the case. Even among countries with similar values and political systems, it can be difficult to align interests, as we’ve seen with the varied Western response to Crimea. Second, as new players have emerged in recent decades, the global power balance has shifted, leaving the G7 representative of a smaller piece of the pie. Any organization that does not include China, for example, is not truly global.

Where we see global political coordination, it is largely ineffectual. Take the March 27 United Nations General Assembly resolution, a vote on the legitimacy of the Crimean referendum. At first glance, the result looks like an international rebuke of Russia’s behavior. One hundred countries voted in favor of Ukraine’s denouncement of Russia’s annexation of Crimea. Only 11 countries voted against the resolution, including Russia, with its only support coming from neighbors it can bully (Armenia, Belarus) and rogue states with grudges against the established order (Cuba, North Korea, Syria, Venezuela).

But this rare example of global coordination comes with many asterisks. Powerful emerging players like China, Brazil and India were among the 58 countries that abstained from the vote, and many more of the 193-country assembly did not participate at all. Russia was not mentioned by name in the resolution. And the vote comes with no enforcement power or actionable outcome. It is purely symbolic, and not even legally binding like United Nations Security Council resolutions -- where Russia enjoys veto power.

The year ahead in the euro zone: Lower risks, same problems

Financial conditions in the euro zone have significantly improved since the summer, when euro zone risks peaked because of German policymakers’ open consideration of a Greek exit, and the sovereign spreads of Italy and Spain reached new heights. The day before European Central Bank President Mario Draghi’s famous speech in London in which he announced that the ECB would do “whatever it takes” to save the euro, bond yields in Spain and Italy were at 7.75 percent and 6.75 percent, respectively, and rising. When the ECB announced its outright monetary transactions (OMT) bond-buying program, the euro zone was at risk of a collapse.

Since then, risks have abated significantly, thanks to a number of factors:

    The ECB’s OMT has been incredibly successful in reducing the risks of breakup, redenomination and a liquidity/rollover crisis in the public debt markets of Spain and Italy. Although the ECB has yet to spend a single additional euro to buy the bonds of Spain and Italy, both short-term and longer-term sovereign spreads against German bonds have fallen substantially. Following a number of political and legal hurdles, the successful operational start of the European Stability Mechanism (ESM) rescue fund provides the euro zone with another €500 billion of official resources to backstop banks and sovereigns in the euro zone periphery, on top of the leftover funds of its predecessor, the European Financial Stability Facility (EFSF). Realizing that a monetary union is not viable without deeper integration, euro zone leaders have proposed a banking union, a fiscal union, an economic union and, eventually, a political union. The last is necessary to resolve any issue of democratic legitimacy that might result from national states transferring power from national governments to EU- or euro zone-wide institutions. This transfer of power also would have to involve the creation of such institutions to ensure solidarity and risk-sharing are developed in the banking, fiscal and economic unions. The open talk in the summer by some German authorities about an exit option for Greece has turned into a tentative willingness to prevent and postpone such an exit. There are several reasons for this. First, Greece has done some austerity and reforms in spite of a deepening recession, and the current coalition is holding up. Second, an orderly exit of Greece is impossible until Spain and Italy are successfully isolated. Such an exit would lead to massive contagion, which would hurt not only the euro zone periphery but also the core, given extensive trade and financial links. Third, an economic disaster in Greece would be damaging to the CDU Party’s chances of winning the German elections. Thus, even when Greece inevitably underperforms on its policy commitments, Germany and the troika (the IMF, EU and ECB) will hold their noses and keep the funds flowing as long as the current coalition holds up.

Given these developments, the risk of a Greek exit in 2013 has been significantly reduced, even if the risk of an eventual Greek exit from the euro zone is still high, close to 50 percent by my estimation. Meanwhile, the narrowing of Spanish and Italian sovereign spreads has significantly diminished the risk that either country will fully lose market access and be forced to undergo a full troika bailout like Greece, Portugal and Ireland. Both Spain and Italy may in 2013 opt for a memorandum of understanding (MoU) that opens the taps of ESM and OMT support, but such official financing would inspire confidence as it would not be associated with rising, unsustainable spreads and a loss of market access.

While there is a much lower likelihood of disorderly events in the euro zone, there are still significant obstacles to deeper integration, as well as country-specific economic and political vulnerabilities. The biggest obstacle to the formation of a banking, fiscal, economic and political union is that Germany is pushing back against the time line for action, with the initial skirmish on ECB supervision of euro zone banks. This backpedaling reflects deep German skepticism on whether the resolution of the euro zone crisis requires a move toward greater union. Without a more credible commitment to austerity and reforms from euro zone periphery countries, lurching forward would imply that risk-sharing will turn into a large, long-term transfer union, which is unacceptable to Germany and the core. Thus, Germany will do whatever is necessary to delay the integration process, at least until after elections in fall 2013.

Assessing the resiliency of Hillary Clinton

As Hillary Rodham Clinton finished her last few weeks on the job, after a month of convalescence, how can we assess the secretary of state’s contributions?

The question is worth asking simply because of the job’s importance and its significance for U.S. national security. It is also relevant given Clinton’s unprecedented role in our national life over the last two decades.

She is probably the most politically powerful woman in U.S. history — at least in terms of positions held. She has come closer to being elected president than any other woman. She may well try again, and her record as secretary may be the best way to judge her candidacy for the highest job in the land. So how has she done?

So what is Romney’s foreign policy?

Republican presidential nominee Mitt Romney gave his “Mantle of Leadership” speech Monday – his third major attempt in a year to outline his views on foreign policy.

In a speech filled with rhetoric rather than substance, and with repeated and false accusations about President Barack Obama’s national security record, Romney once again talked about how he would “strengthen our partnerships” – and once again failed to explain how he would manage relations with our friends in Europe, with whom we work closely on every major global challenge.

One central thesis in Romney’s speech, and in his criticism of the administration overall, has been that under Obama the U.S. has abandoned its allies. In addition to providing no evidence to support this claim, Romney barely mentioned the closest U.S. allies: our North Atlantic Treaty Organization partners. In fact, this neglect has been a consistent theme throughout Romney’s campaign.

This economy could be as good as it gets

A familiar refrain that was popular in the early 1990s is making a comeback during the great recession of 2008-2009, which has rocked the economy and labor market for more than five years: Is it possible that the children of this generation will not be as well-off as their parents? The labor market has been hobbled. The duration of unemployment has reached unprecedented levels, and it is now the case that unemployed workers in certain age groups face the prospect of never being employed again. If all of this sounds grim (and it is), consider the possibility that this may be as good as it gets.

It is true that the depth of the recession and the current sluggish recovery are much different than anything we have seen since the Great Depression. But rather than look at the current recession in comparison with previous U.S. recessions, consider its comparison with Europe. The events in Europe that sent crippling shockwaves through much of the world might be of such a magnitude that the current speed of the recovery is fast enough. The current downturn is unusual because it was triggered by a large common shock, rather than the idiosyncratic components that usually put individual countries into a recession. We don’t have a lot of experience with such shocks, so it may be useful to look across countries to see how others have fared.

The U.S. economy accounts for about 22 percent of world GDP; the European Union is about 25 percent. The figure below from Europeansnapshot.com compares the 2008 recession and recovery in the U.S. with those in the major economies of Europe. First note that the size of the contraction was much steeper in Germany, the UK and Italy, whose economies fell roughly 6 percent from their peak. In the U.S. it was more like 4 percent. But note as well that the recovery in the U.S. has been steady compared with these countries. All except Germany appear to be headed back into recession.

“Act and learn” versus “debate and wait”

By Mohamed El-Erian and Michael Spence
The opinions expressed are their own.

In formulating policy, the process and the mindset can have a significant impact on the success or failure of outcomes. How you do it can be as or more important than what you do.

In today’s western economies, this observation may go a long way in explaining why policy outcomes have consistently fallen short of what policymakers themselves have expected, let alone what is needed to address important and growing economic challenges.

Signs of disappointing policy outcomes are, unfortunately, all around us. Over the last two years, American policymakers have failed miserably to lower persistently high unemployment despite a series of stimulus measures, fiscal and monetary, conventional and unconventional. In Europe, the debt crisis has spread despite numerous summits, declarations, policy actions and political changes.

It’s time for a wider European policy debate

AUSTRALIA/By Mohamed El-Erian
The opinions expressed are the author’s own.

It is safe to say that there is broad agreement on what is most desirable for solving the Irish crisis — namely a mix of domestic policies and external financing finely calibrated to enable the country to grow strongly, create jobs, stabilize the banks, and overcome large and mounting indebtedness.

Unfortunately, what is most desirable is not feasible given the path Europe is embarked on; and, to make things even more complicated, what appears feasible to Europe is not necessarily desirable. As a result, Ireland finds itself stuck in an unstable muddled-middle. It can’t get ahead of the crisis; it is far from a first best solution; and it confronts choices that are painful to implement and uncertain in outcome.

What is evolving in Ireland today resembles what was done in Greece six months ago. Expect the Irish government to commit to even greater budgetary austerity, its European neighbors and the IMF to provide massive funding, and the banks to receive liquidity, capital injections and other unconventional forms of support.

from MacroScope:

Will China make the world green?

Workers remove mine slag at an aluminium plant in Zibo, Shandong province December 6, 2008. REUTERS/Stringer

Joschka Fischer was never one to mince words when he was Germany's foreign minister in the late '90s and early noughts. So it is not overly surprising that he has painted a picture in a new post of a world with only two powers -- the United States and China -- and an ineffective and divided Europe on the sidelines.

More controversial, however, is his view that China will not only grow into the world's most important market over the coming years, but will determine what the world produces and consumes -- and that that will be green.

Fischer, who was leader of  Germany's Green Party, reckons that due to its sheer size and needed GDP growth, China will have to pursue a green economy. Without that, he writes in his Project Syndicate post, China will quickly reach limits to growth with disastrous ecological and, as a result, political consequences.

Islamophobia and a German central banker

How do you reconcile the traditions of many Muslim immigrants with the freedoms and values of 21st century Western Europe?

It’s a question that has led to periodic outbursts of vigorous debate from France to Holland and Switzerland. In Germany, the discussion has been relatively subdued. Until now.

Why? A passage in a book considered so unsettling that its author, Thilo Sarrazin, was forced to resign from the board of Germany’s central bank this month, provides part of the answer.

Sunny side up: why eggs are safer in Europe

egg aisleThe following is a guest post by Bonnie Azab Powell, co-founder of the food-politics blog The Ethicurean who started the Bay Area’s first Community-Supported Agriculture program for meat, BAMCSA, in 2006. She now manages the CSA programs for Clark Summit and Soul Food farms. She eats two runny eggs nearly every day. The opinions expressed are her own.

Reading about the recall of 550 million possibly salmonella-tainted U.S. eggs, laid and packed in just a handful of massive Iowa factories made me think about the egg aisle of a Sainsbury’s supermarket I visited in England, near Brighton, two years ago.

I was so struck by the store signage, which read not only “Organic” and “Free Range” — familiar terms — but also “Barn” and “Caged,” that I took several pictures with my iPhone. My English host practically had to drag me away from reading all the explanatory text included on the cartons: barn eggs are “laid by hens free to nest, perch, and roam in spacious barns,” while “Woodland organic free-range” eggs are “from hens free to roam in a natural environment with trees.”

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