Sunday, July 5, 2015

Possible scenarios for Greece and the Eurozone

In my reading, the message that the Greek people is sending to the Europeans is the following: We want to end insecurity one way or another. Either take your decision and kick us out, or if you don't, start making real investments for growth in Greece. But whatever you do, give us a long-term perspective so that we can start working on this. Now you might question if a clear decision, one way or another, will really end insecurity, but in my mind the sovereign has spoken: Stop kicking the can down the road.

All decisions will take time, because several Eurozone governments need to get new negotiating mandates from their Parliaments. That means, if the ECB does not extend the lifeline for Greek banks beyond the next few days, negotiations need not even begin.

Europa carrying the Euro - Statue outside the European Parliament   
- CC BY-NC Sean_Marshall

If the Greek banks survive the next few days and weeks, in my view there are several medium-term scenarios from the viewpoint of the Europeans:

Scenario 1) Announcement of a haircut for Greece, probably over time and conditional on real structural reforms. This would be the responsible choice and Cyprus has shown leadership already, but this means a loss of face for those politicians who promised their electorates full repayment. They will need to suggest the haircut to their electorates and Parliaments in a way that doesn't lead to massive resentment. But the truth is: If the creditors do not agree to a partial voluntary haircut, a full unwanted haircut will come along with a Grexit. But even if our politicians have the courage to voice this message, Scenario 1) still carries an incalculable risk about Portugal, Spain and Italy. They might ask for a haircut themselves, and a European debt conference would have to be called. Would this be the end for the Eurozone?

Scenario 2) Stopping all discussions and all financing immediately, kicking Greece out and redoubling support for the "good" reformers Italy, Spain and Portugal while sending humanitarian aid to Greece. Message: Greece didn't play by the rules, and we prefer a strong Eurozone without Greece to a weak Eurozone with Greece. This would lead to a total haircut for Greece but at the cost of a Grexit and probably massive humanitarian hardships. This is what the populists in the Northern European countries have asked for all the time - but I doubt the Eurozone governments want to take responsibility for such an irreversible decision.

Scenario 3) A solution somewhere between Scenarios 1) and 2) which allows Greece to stay in the Eurozone. But I suspect that any deal must include some sort of a haircut or else Tsipras will not agree. Are the creditors willing to agree to a haircut?

Scenario 4) Kicking the can down the road again, bleeding Greece out: starting negotiations but without coming to an agreement, stopping ECB emergency loans and waiting until the Greek banks run out of money and disaster runs its course. This would lead to a Grexit as in Scenario 2, except that the Europeans can deflect the blame ("we tried all we could, but the Greek government didn't agree").

Wednesday, June 24, 2015

Towards a new EU trade policy

The European Commission organised an "EU trade policy day" on 23 June to talk about the future of EU trade policy with business representatives, NGOs and think tanks. With the input from the conference, the Commission will now work out a new EU trade policy that it wants to present in autumn.

The EU might be a rather toothless tiger in defence policy, but its trade policy is an area from which it gets power in the world and legitimacy at home. If cleverly done, trade policy increases people's income and creates good jobs in the EU and abroad. If done poorly, the same policy can lead to widespread labour rights abuses, environmental degradation and destruction of companies. Therefore, the review of the Commission deserves to be looked at in detail.

Predictably, participants at the conference heard that most economic growth no longer takes place in the EU. Good trade policy must give EU companies safe access to the growth engines in the world like China or India. As new middle classes develop in the world, the EU should get ready to supply these middle classes before others will do it. That's what some people say.

But at the same time, it became clear that trade policy is no longer just about market access and reducing tariffs. Today's trade policy must also have good answers on labour rights, environmental protection, intellectual property, regulatory cooperation between trade partners, democratic participation and distribution of wealth. Today's  citizens want to know how their products or services have been produced. Does the low price stem from competitive business structures or low environmental and labour standards? The desire for information has led to a proliferation of private standards for fair trade, sustainable fishing or sustainable forestry. At the conference, some Members of the European Parliament then made it clear that the Parliament also wants to see a much stronger focus on fair trade in the upcoming "new generation" trade agreements (EU-Canada, TTIP, Trade in Services, EU-Japan, EU-Mexico, etc.). 

That is interesting: If this is really supposed to work, it means future trade agreements must have good structures to guarantee their monitoring and enforcement. Where one trade partner does not meet labour or environmental standards, the other trade partner may be allowed to retaliate. This also means that the "new generation" trade agreements could turn into a struggle of values, in particular if negotiations with China or India should come off the ground. Past efforts to bring them within a "Western" trade value system have not always worked so well. Will the EU be strong enough to assert its values against the lure of accessing these big markets?

The Commission will now draft its new trade strategy and share it with the general public in autumn. It will be interesting to see where the Commission puts its priorities. Then we will see if the EU is ready to negotiate and enforce more value-based trade partnerships, or whether classical market access logic will prevail.

Monday, June 15, 2015

The finale for Greece and the EU

The #Grexit debate has reached its peak. The next two weeks will decide if Greece stays in the euro or not. This is the biggest crisis that the EU has faced in a long time and probably its biggest crisis ever.

It is becoming clear that the Greek government will probably force the other Eurozone countries to choose A or B: Continue lending money to Greece without conditionality, or bear responsibility for Greece's exit from the euro. Whichever way you turn it, there are only bad solutions left.

Solution A: Keep on lending money to Greece without conditionality
  • No substantial improvement for the Greek people in the near future
  • More money needs to be transferred to Greece without guarantee that this money will be paid back
  • Negotiations for a third bailout package may need to start so that Greece can pay back the remaining outstanding debt
  • Public opinion in many other Eurozone countries will turn downright hostile toward the EU, right-wing parties will become more powerful. In the worst case, people will be so disappointed and disgusted by this European Union that we will see the breakup of the European project.

Solution B: Exit of Greece from the Eurozone
  • All funds given to Greece are lost
  • Massive economic and social problems for the Greek people, for example because the price of imported medicine will sharply increase as the drachma devalues
  • Massive financial loss for the French and Italian governments which together own 38% of the Greek government debt
  • Possible knock-on effects in Portugal, Italy, Spain which may strive for an exit from the Eurozone themselves to avoid further painful restructuring of their economies
  • Massive speculation against the stability of the euro which in the worst case may lead to the collapse of the Eurozone

This is a huge challenge for our politicians and for European solidarity as a whole.  Nobody wants the European project to break apart, but whichever scenarios is chosen, it will create massive losers.

Europe's politicians are just as fed up with this entire situation as the European people, but it is now absolutely fundamental that our politicians keep a cool head. Otherwise, we may look back to the next two weeks as the beginning of the end of the European project.

Monday, May 25, 2015

Naomi Klein's new book: Change energy policies now or the planet boils over!

I’ve just finished reading a powerful and sometimes quite personal book called “This changes everything” by investigative journalist Naomi Klein

The book has a clear and simple message: Climate change cannot be fought through market mechanisms. Environmental policy is in direct competition with energy and industry policy; if we want to keep our planet from boiling over, environmental policy needs to go first. 

Klein shows that all attempts by governments to incentivise good behaviour by the industry through carrots and sticks are failing. As long as pollution is economically viable, emissions increase further. The half-hearted policies by our governments, if they remain the same, will heat our planet by much more than 2°C. Klein says that our governments wasted precious years doing nothing and must now immediately pass courageous legislation to drive down absolute emissions. Market solutions are no longer sufficient if climate change is to be stopped.

Below, I have collected some of the main arguments of the book. The Canadian journalist is also working on a documentary to be released in autumn 2015 (see preview embedded at the bottom of this post). 

  • The total coal, gas and oil reserves already indexed for exploitation by companies today equal about 2,795 Gigatons of CO2 emissions. However, studies today can say quite exactly how much more CO2 can be burned until 2050 to keep global warming below 2°C: not more than 565 Gigatons, only one fifth of the total resources already on the books. If governments were serious about curbing climate change, extraction of these resources should be heavily restricted; investment in fossil fuel companies should as a consequence become uninteresting. However, in March 2014 ExxonMobil informed its investors that current climate policies makes them “confident that none of [their] hydrocarbon reserves are now or will become ‘stranded’” (i.e. unusable). 
  • Fossil fuel companies hate renewable energy because it is a decentralised, locally- and people-owned form of energy. Meanwhile, fossil fuels rely on a centralised resource-extraction system that allows a few companies to make millions of dollars in profits. 
  • Fossil fuel companies and their employees follow a locust-principle: exploit and move on. None of the employees in the oil sector want to grow old in the places where they work. All want to get filthy-rich and take early retirement in a clean place far away. Meanwhile, locals in the regions under threat do not want to see their homes destroyed because of short-term profiteering. They want solutions which will preserve the local environment and lifestyle. 
  • 97% of the world’s climate scientists including the World Bank and the International Energy Association agree that climate change is man-made and that it will have unprecedented and dangerous consequences for the next generations. If no far-reaching changes are made, the scientists agree, we are headed for disaster. 
  • Right-wing politicians and businessmen in the US try to frame climate change as a hoax that the left employs to argue for more regulatory power of the state, less free markets and more redistribution of wealth. The right wingers perfectly understand the “dangerous” implications of strong carbon legislation. That’s why they spend millions of dollars to discredit the science and to kill climate legislation plans before they can get dangerous. 
  •  Some businesspeople and scientists think that human activity doesn’t need to change. Everything can be solved by shooting chemicals into the sky that will block sunlight. However, it is proven that using them will cause serious draughts and food crises in some parts of the world. And using them instead of reducing carbon will lock us into using them forever. 
  • It is not enough to encourage renewable energy – at the same time, fossil energy has to discouraged with increasing severity. Since this was not done in Germany, coal in that country has become a big competitor for renewable energy. To discourage fossil fuels, governments can for example introduce higher fossil fuel taxes that can be used to subsidies renewable energies. 
  • Bridge technologies only work if they do not become competitors to renewable energy. By exploiting bridge technologies like shale gas and tar sands, energy companies continue to make billions from fossil fuels without any restrictions. 
  • Much of the necessary climate saving depends on countries like China and India. However, the West carries a massive historical climate debt for 140 years of pollution. Even today, the West continues to outsource its pollution to the developing world. As a result of both, Western states must provide much of the financial resources to save the climate. 
  • Indigenous people in several North and Latin American countries are becoming pivotal actors in the fight against carbon extraction because they can lay ancient claims to the land in which oil and gas are buried. 
  • In many parts of the world, more and more determined “Blockadia” protests have sprung up. In these protests, citizens of all generations defend their regions against the profit-and-destroy mentality of the fossil fuel companies. Many governments including Canada’s, Greece’s, France’s and Nigeria’s are bitterly opposed to the protests and try to protect the extractionists. But it looks more and more that they are losing the fight against the citizen protests. 
The book makes it clear beyond any doubt that governments need to act now and impose binding limits on carbon extraction. No more market solutions, carbon-trading schemes and pollution offsets. The shift to renewable energy needs to be financed by taxing fossil fuel companies (and their customers). Obviously, this will redistribute a lot of cost to all of us energy consumers. 

Klein makes no secret about the challenges. No politician wants to destroy the jobs that rely indirectly on oil and industrial production by skyrocketing the oil price. Klein answers half of the question by pointing to the potential of new green jobs. But for the rest, she is clearly putting the reader in front of the choice: Either our politicians start today to eliminate fossil fuels, at the cost of job losses and re-education, or we will have unprecedented devastation and life insecurity for the next generations. We need to choose what we want.

Sunday, January 11, 2015

Freedom to criticize? Yes, but let's not forget that others can criticize us too

After the attack on Charlie Hebdo and the “I am Charlie” manifestations, somebody shared an interesting video on Youtube. The video was made by the ARAM Production house and explains that freedom of speech and Islam both contribute to a peaceful world – as long as they are not abused. 

Video by ARAM Production - English with Chinese subtitles 

While condemning any attacks in the name of Islam, the video also says that freedom of speech is not a blank check. It is important to remind this fact given all the people waving “I am Charlie” posters today. Freedom of speech also carries a responsibility. 

In this context, it is quite interesting to take a look at the discussions in China about the Charlie Hebdo attack. Some Chinese commentators take offense when Europeans and Americans declare our Western concept of freedom of speech as a universal value (see tweet below for example. In their view, it shows a degree of Western arrogance that the Chinese have long despised. Put bluntly, in our self-centered look at the world we fail to notice that there are other philosophies in this world that deserve to be listened to. And we should not exclude by default that other philosophies may offer things to this world that are superior to our own thinking. 

 In a more general manner, these Chinese commentators take offense that the debate in Europe is so disproportionately focused on bad things that happen to Europe because of influences from outside. What the Chinese would like us to do is take a more critical look at the negative influence that we and our so-called universal values have exported from European soil to the rest of the world. The Chinese have not forgotten the atrocities that we have committed in China and in the world in the last 200 years. And when we remember that these atrocities have given us wealth and development while locking the rest of the world into underdevelopment, we can never stop apologizing. The negative side of our Western influence on the world has so far been excluded from the European debate - and it should not be so. 
You could say that the Chinese are free to criticize us in as many articles as they like, the same as we criticize human rights and environmental mismanagement in China. But that would be to judge by Western values and mistake the Chinese philosophy. Yes, they did resort to criticism once by calling the UK “merely a country of old Europe with a few decent football teams” and it spurred a lot of offended talk in the British press. But in general, open criticism is not common to China. In return, if we praise our philosophy for its freedom to criticize, Chinese commentators expect us to also apply that criticism to ourselves. 

Bottom line: While we should uphold our freedom to criticise others, we should never forget that others also hold criticism against us. If we are taking freedom of speech seriously, that criticism maybe deserves a bit more attention in our media in the future.

Monday, November 11, 2013

No investor-state litigation clause in EU-US trade agreement!

American and European negotiators have met for the second round of bilateral talks for the Transatlantic Trade and Investment Partnership (TTIP) on Monday. In different negotiating groups such as "market access", "public procurement" and "regulatory aspects", EU and US officials are working to simplify business rules for both sides of the Atlantic. 

In one of the groups, negotiators are trying to establish a mechanism for investor-state dispute settlement (ISDS). This would allow an American investor to claim damages from the EU in front of an international court if the EU was to modify its public policy in a way that would spoil the investor's profits. Canada is feeling the heat of such a dispute since a group of investors has sued the region of Quebec under NAFTA for its ban on fracking. Argentina had to pay US investors hundreds of million dollars for their losses after it had to devalue its currency in 2001.

If US and EU negotiators agree to put an ISDS clause into the TTIP, this could curb the EU's and the member states' regulatory powers. A British fracking ban could for example cost the EU millions of Euros if it spoils a planned investment by US investors. In the same way, if a European country was to introduce an eco-tax or a financial transactions tax (FTT), this could also lead to compensation for American investors. 

EU and US negotiations keep affirming that both entities have a well-developed legal system and the need for ISDS should never arise. But once the system is in place, it can be freely used by every investor who wants to. It is a system that can become very dangerous for the shaping of democratic politics.

For this reason, there should be no ISDS clause in the TTIP.

Thursday, October 17, 2013

MEPs ask for an end to Brussels-Strasbourg travelling circus

Members of the Constitutional Committee of the European Parliament on Monday took a first step to end the travelling circus of the Parliament between Brussels and Strasbourg.

In a report (see the draft report here) that was adopted by 20 to 4 votes, the committee urges to give the Parliament the say over its location, its calendar and the modalities of its meetings. 

"We want to have one seat, so that we can save money and carbon dioxide," commented the co-rapporteur of the resolution, British MEP Ashley Fox, in a press conference on Tuesday. At a time where European citizens are asked to make cuts, an estimated 200 million EUR is spent by taxpayers every year to fund the monthly travel of 766 MEPs, their assistants and Parliament staff from Brussels to Strasbourg and back. The MEPs of the Constitutional committee find this an unnecessary waste of money and carbon dioxide.

"This report is a small revolution, but it will be the beginning of a bigger revolution," the second co-rapporteur Gerald Häfner (Germany) added. "We want to take our own decision about where to have the Parliament's seat, but we are hostages of the European Council, the member states and their governments." The seat of the Parliament is written into the EU treaties, and a treaty change requires unanimity by all 28 EU member states. The French government has indicated many times that it will not agree to abolish the EP seat in Strasbourg.

Many people have tried to end the monthly travelling circus before, but always in vain. Fox and Häfner believe that this time will be different. "This is a new thing," said Häfner, "because the Parliament has never before asked for a treaty change that would allow it to decide itself where and when to hold its meetings." 

Fox and Häfner are certain that by now there is a majority in the European Parliament in favour of a single seat, a majority that runs through all the political groups. It appears that quite a few European governments are also in favour of putting an end to the travelling circus but they would not like to directly pronounce themselves in favour of either Strasbourg or Brussels. To bring the report through Parliament, the two rapporteurs have therefore decided not to mention either Brussels or Strasbourg. "We don't take a stance about where the single seat should be," said Fox. 

Nonetheless, there was a bit of opposition to the single seat report. When it was voted on Monday, a number of French MEPs not belonging to the Constitutional committee tried to highjack the decision. They had added 87 amendments to dilute the impact of the report (most of which were rejected) and attempted to cast votes in the committee even though they were not member of it. The committee had to pause several times until the final vote could take place.

The report will now be voted by the plenary on 11 November vote and Ashley Fox believes that only few MEPs will be brave enough to put down their name for a two-seat solution. If the report is adopted, the Parliament would wait until after the elections in May 2014 and then formally submit the report to Council. The Council would then be forced to debate the question of the single seat and take a vote on it.

The next European convention to review the EU treaties, probably in 2015, would then debate the Parliament's request to decide itself on its location, said Häfner. And an agreement would have to be found to compensate the country which would lose its European institutions, added Fox.