tag:theconversation.com,2011:/id/topics/eurozone-crisis-11464/articlesEurozone crisis – The Conversation2024-03-04T13:36:15Ztag:theconversation.com,2011:article/2231512024-03-04T13:36:15Z2024-03-04T13:36:15ZA far-right political group is gaining popularity in Germany – but so, too, are protests against it<figure><img src="https://images.theconversation.com/files/578973/original/file-20240229-18-u1ukal.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">People in Hamburg, Germany, protest against right-wing extremism and the AfD party on Feb. 25, 2024. </span> <span class="attribution"><a class="source" href="https://www.gettyimages.com/detail/news-photo/at-a-demonstration-against-right-wing-extremism-on-february-news-photo/2033875417?adppopup=true">Hami Roshan/Middle East Images/AFP via Getty Images</a></span></figcaption></figure><p>Hundreds of thousands of people have been <a href="https://www.euronews.com/2024/02/19/we-are-the-firewall-thousands-protest-against-far-right-in-german-city-wolfsburg">protesting across cities in Germany</a> since early 2024, standing up against the Alternative for Germany party, a relatively new, far-right, nationalist party that is known as the AfD. </p>
<p>What has driven so many Germans to suddenly protest against a small, extremist political party?</p>
<p>The protesters in Germany are directly responding to the <a href="https://www.reuters.com/world/europe/turning-back-clock-germanys-afd-economy-2024-02-01/">AfD’s radical policy</a> positions and the fact that it is currently in second place <a href="https://www.politico.eu/europe-poll-of-polls/germany/">in the polls</a> for the upcoming federal election, which will take place on or before Oct. 26, 2025. </p>
<p>While the AfD did not win any parliament seats in its first federal election in 2013, the group’s popularity <a href="https://www.politico.eu/article/german-election-far-right-afd-loses-nationally-but-wins-in-east/">has been rising</a>. The AfD held about 13% of the seats in parliament from 2017 through 2021 and was the third-largest party in parliament. Since 2021, it has held about <a href="https://www.bundestag.de/en/parliament/plenary/distributionofseats">11% of the seats</a>. </p>
<p>After the next federal election, the AfD could become the second-largest party. While this limited power would not let it enact any extreme policies that could potentially reduce freedom and respect for civil liberties in Germany, the AfD could use its position in parliament to disrupt the policymaking process, criticize establishment parties and attract new voters for future elections.</p>
<h2>What is the AfD and why is it so controversial?</h2>
<p>Several politicians and journalists formed the AfD in direct response to the <a href="https://www.brookings.edu/articles/the-eurozone-crisis-and-implications-for-the-united-states/">Eurozone crisis</a> of the 2010s. </p>
<p>That crisis was triggered by several European governments in the European Union, including Greece, Portugal and Ireland, that developed large budget deficits.</p>
<p>The European Union’s 27 member countries promise to be <a href="https://www.reuters.com/markets/europe/main-elements-fiscal-reforms-agreed-by-eu-governments-2023-12-20/">fiscally responsible</a>. Otherwise, poor public management in one country could trigger an economic crisis throughout the entire European Union.</p>
<p>This is what happened during the Eurozone crisis. Poor public management in some member-states led to a European-wide crisis. </p>
<p>To mitigate the crisis, other European governments had to bail out other governments. The AfD’s founding members were <a href="https://www.reuters.com/world/europe/turning-back-clock-germanys-afd-economy-2024-02-01">outraged that Germany</a>, as a leading member of the European Union, would become in part responsible for financially rescuing them. </p>
<p>Over time, the AfD has not only become increasingly skeptical of the European Union, but it has also become very clearly <a href="https://www.bbc.com/news/world-europe-37274201">anti-immigration</a>. Compared to other countries in Europe, Germany has a relatively large immigrant population. As of March 2023, about <a href="https://apnews.com/article/germany-migration-immigration-9948d6e87835242f9f7867d7ef817287">23% of the people</a> who live in Germany either are immigrants or their parents are or were. Germany is also the <a href="https://www.unhcr.org/us/countries/germany">largest host country</a> for refugees in Europe.</p>
<p>The true extent of AfD’s anti-immigration policies came to light in January 2024, when a German <a href="https://correctiv.org/en/top-stories/2024/01/15/secret-plan-against-germany/">investigative news report</a> revealed that high-ranking AfD members attended a secret meeting with neo-Nazi activists to discuss a “<a href="https://www.theguardian.com/world/2024/jan/10/politicians-from-germany-afd-met-extremist-group-to-discuss-deportation-masterplan">master plan</a>.” </p>
<p>According to this plan, the German government would deport immigrants en masse to their countries of origin. This plan also included deporting <a href="https://www.thenation.com/article/world/germany-afd-secret-meeting-deportation/">non-German-born citizens</a> of Germany. </p>
<p>The meeting was especially controversial because a few members of the Christian Democratic Union, one of Germany’s long-standing conservative parties, were also in attendance. </p>
<p>Once the investigative report became public, the AfD publicly <a href="https://apnews.com/article/germany-far-right-deportations-parliament-7a29129a6f50853791004d21ffea2a92">distanced itself</a> from the meeting and the plan. </p>
<p>Yet, it has been hard for the party leaders to convince the public that they do not support the supposed mass deportation policy, in part because high-ranking AfD members have suggested <a href="https://www.bbc.com/news/world-europe-67948861">such policies</a> in the past. </p>
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<a href="https://images.theconversation.com/files/578974/original/file-20240229-24-3k65fj.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="A white, bald middle aged man points his finger and stands at a podium that has the words 'AfD' and German writing on it." src="https://images.theconversation.com/files/578974/original/file-20240229-24-3k65fj.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/578974/original/file-20240229-24-3k65fj.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=428&fit=crop&dpr=1 600w, https://images.theconversation.com/files/578974/original/file-20240229-24-3k65fj.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=428&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/578974/original/file-20240229-24-3k65fj.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=428&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/578974/original/file-20240229-24-3k65fj.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=537&fit=crop&dpr=1 754w, https://images.theconversation.com/files/578974/original/file-20240229-24-3k65fj.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=537&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/578974/original/file-20240229-24-3k65fj.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=537&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
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<span class="caption">Markus Frohmaier, a leader of the AfD political group in Germany, speaks to party members at a conference on Feb. 24, 2024.</span>
<span class="attribution"><a class="source" href="https://www.gettyimages.com/detail/news-photo/february-2024-baden-württemberg-rottweil-markus-frohnmaier-news-photo/2028779666?adppopup=true">Christoph Schmidt/picture alliance via Getty Images</a></span>
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<h2>Germans’ response to the AfD</h2>
<p>Once news of the mass deportation meeting circulated in mid-January, hundreds of thousands of people throughout Germany <a href="https://www.npr.org/2024/01/21/1225882007/tens-of-thousands-protest-in-germany-against-the-rise-of-the-far-right">began to protest</a> against the AfD and its anti-immigration policies. </p>
<p>Many of the protesters are also protesting to defend democracy and human rights in Germany. </p>
<p>Protesters have compared the AfD’s growing prominence to that of the Nazi party. They have been carrying signs that say the “<a href="https://www.reuters.com/world/europe/nazis-no-thank-you-germans-take-streets-call-afd-ban-2024-01-17/">AfD is so 1933</a>,” “<a href="https://www.haaretz.com/world-news/europe/2024-01-22/ty-article-magazine/.premium/will-germanys-far-right-party-be-banned-after-bombshell-fascist-mass-deportation-plan/0000018d-3112-d268-addd-3b7b21960000">No Nazis</a>” and “<a href="https://www.reuters.com/world/europe/support-germanys-far-right-afd-reaches-six-month-low-after-protests-2024-01-30/">Deport the AfD</a> Now.” </p>
<p>They believe the only way to prevent the rise of a far-right party again in Germany is to protest the far-right movement before it becomes too popular.</p>
<p>Symbolically, the protesters are protesting under the slogan “<a href="https://apnews.com/article/germany-afd-far-right-protests-bundestag-berlin-90d8497434a424ded198ce3d6d5fabb9">We are the firewall</a>” to illustrate how they are protecting Germany from the rise of far-right nationalists once again.</p>
<p>Some are also pushing for the German government to ban the AfD. Yet, while Germany has <a href="https://www.pbs.org/wgbh/frontline/article/germanys-laws-antisemitic-hate-speech-nazi-propaganda-holocaust-denial/">laws against extremist groups</a> that were developed after World War II, it is unclear whether such laws should be used to ban the party, as some observers <a href="https://www.theguardian.com/commentisfree/2024/feb/08/germany-ban-far-right-afd-panel">caution that banning</a> the AfD might backfire and make it more popular.</p>
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<a href="https://images.theconversation.com/files/579046/original/file-20240229-26-b9o5ls.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="A large crowd of people stand close together with umbrellas and hold signs. One of them says 'No tolerance for intolerance.'" src="https://images.theconversation.com/files/579046/original/file-20240229-26-b9o5ls.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/579046/original/file-20240229-26-b9o5ls.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=400&fit=crop&dpr=1 600w, https://images.theconversation.com/files/579046/original/file-20240229-26-b9o5ls.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=400&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/579046/original/file-20240229-26-b9o5ls.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=400&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/579046/original/file-20240229-26-b9o5ls.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=503&fit=crop&dpr=1 754w, https://images.theconversation.com/files/579046/original/file-20240229-26-b9o5ls.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=503&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/579046/original/file-20240229-26-b9o5ls.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=503&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
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<span class="caption">Demonstrators in Hamburg protest right-wing extremism and the AfD on Feb. 25, 2024.</span>
<span class="attribution"><a class="source" href="https://www.gettyimages.com/detail/news-photo/at-a-demonstration-against-right-wing-extremism-on-february-news-photo/2033875510?adppopup=true">Hami Roshan/Middle East Images/AFP via Getty Images</a></span>
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<h2>What the AfD can still accomplish</h2>
<p>While the AfD is currently posing an electoral threat to more mainstream parties in Germany, it is unlikely that it will take control over the German government any time soon. </p>
<p>Germany is a multiparty system; no single party can control German politics at any given time. Parties must share power when governing the country.</p>
<p>It is unlikely that any of the current establishment parties will work with the AfD to govern Germany, primarily because the AfD supports policies that are <a href="https://www.dw.com/en/german-election-what-do-the-terms-right-and-left-mean-if-both-cdu-and-spd-are-in-the-center/a-37601594">so far removed</a> from what typical German parties would find acceptable. </p>
<p>Additionally, the Christian Democratic Union is currently the most popular party, according to opinion polls. CDU members have previously emphasized that they <a href="https://www.dw.com/en/germany-cdu-leader-rules-out-cooperation-with-far-right-afd/a-66642647">will not cooperate</a> with the AfD in any circumstance. </p>
<p>And other <a href="https://www.pbs.org/newshour/world/centrists-alarmed-as-poll-shows-growing-support-for-german-far-right-party">establishment parties</a> and <a href="https://www.dw.com/en/frank-walter-steinmeier/t-17345761">politicians have also</a> distanced themselves from the AfD.</p>
<p>Yet, while the AfD may not be able to make sweeping policy changes in the short run, it does pose an electoral threat to the establishment parties in Germany. As such, other German parties may start to alter their own policy platforms to appease some potential AfD voters. </p>
<p>The Christian Democratic Union is already proposing to send asylum seekers to other countries while their <a href="https://www.politico.eu/article/germany-conservatives-angela-merkel-migration/">applications are being processed</a>. However, their ability to make this policy change is unlikely, as it would require changes to European Union law.</p>
<p>In the long run, if the AfD is able to continue to grow in popularity at the local level, this may help it grow its voter base and become more successful in federal elections. </p>
<p>The AfD is more popular in states in <a href="https://theconversation.com/german-election-continuing-popularity-of-far-right-afd-has-roots-in-east-west-divide-167844">eastern Germany</a>, especially among voters who feel disenchanted with the reunification of communist East Germany and West Germany in 1990, and disenchanted with the drawbacks of Germany being a leading member of the European Union. </p>
<p>Some people fear that if the AfD continues to grow, it could undermine democracy in Germany, much like far-right populist parties have recently done in other <a href="https://www.americanprogress.org/article/hungarys-democratic-backsliding-threatens-the-trans-atlantic-security-orde">democracies in Europe</a> and <a href="https://time.com/6245795/brazil-bolsonaro-lula-trump-insurrection/">in the rest of the world</a>.</p>
<p>And as democracy continues to decline in Europe and globally, protections for civil liberties and political rights will continue to <a href="https://freedomhouse.org/article/new-report-global-freedom-declines-17th-consecutive-year-may-be-approaching-turning-point">decline as well</a>.</p><img src="https://counter.theconversation.com/content/223151/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Julie VanDusky does not work for, consult, own shares in or receive funding from any company or organization that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>Hundreds of thousands of people in Germany are taking to the streets to push back against the far-right, nationalist policies of the AfD, which currently holds 11% of the seats in parliament.Julie VanDusky, Assistant Professor of Political Science, Boise State UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1421912020-07-09T12:12:31Z2020-07-09T12:12:31ZCoronavirus recovery – lessons from the eurozone crisis<figure><img src="https://images.theconversation.com/files/346576/original/file-20200709-58-2lj8xp.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">
</span> <span class="attribution"><a class="source" href="https://www.shutterstock.com/image-photo/frankfurt-germany-december-29-2013-euro-545449783">MikeDotta / Shutterstock.com</a></span></figcaption></figure><p>As governments around the world grapple with the public health and economic effects of the COVID-19 pandemic, there are striking similarities with the eurozone crisis that followed the 2008 financial crisis. Having researched this crisis, it is clear to us that there are some important lessons to apply to today’s recovery. The early signs indicate that the EU is responding much more effectively to this crisis than it did in 2008.</p>
<p>Many European governments are increasing their spending to compensate for the economic losses of lockdowns, as they initially did in the wake of the 2008 financial crisis. This is necessary when an economy contracts but relies on a rise in public debt – and the figures are much higher this time around. According <a href="https://www.imf.org/en/Publications/WEO/Issues/2020/06/24/WEOUpdateJune2020">to IMF forecasts</a>, by the end of the year public debt will reach almost 100% of GDP in the eurozone on average. Italy, Greece, France, Spain and Portugal will exceed this. </p>
<p>We know from 2008 that a problem associated with rising debt is that investors can sell the bonds of a given country to buy those of a more credible country denominated in the same currency. Prolonged uncertainty over whether or not the European Central Bank would bail out struggling members (Greece, Ireland) led to the skyrocketing of borrowing costs in these member states and their rapid decline in others (Germany, France). This resulted in a liquidity crisis in the EU’s peripheral states. It wasn’t until the ECB president, Mario Draghi, made it clear in 2012 that the bank would do whatever it took to preserve the euro that crisis was averted.</p>
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<p><strong><em><a href="https://theconversation.com/uk/topics/the-anthill-podcast-27460">This article is part of our Recovery series – click here for more.</a></em></strong></p>
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<p>This time round the European Central Bank has acted a lot more quickly, which has kept borrowing costs low for all eurozone countries. In March, the ECB created a <a href="https://www.ecb.europa.eu/press/pr/date/2020/html/ecb.pr200318_1%7E3949d6f266.en.html">Pandemic Emergency Purchase Programme</a>, a temporary €750 billion scheme (£670 billion) involving both government and private debt. And another €750 billion fund <a href="https://www.ft.com/content/326aa210-09b0-4db7-b0e5-3026375ca4e8">has been proposed</a> to bankroll recovery efforts going forward.</p>
<p>The big difference this time compared to 2008 is that the Franco-German engine of the EU has led calls for financial assistance. But there remain the “<a href="https://www.ft.com/content/7c47fa9d-6d54-4bde-a1da-2c407a52e471">frugal four</a>” (Austria, Denmark, the Netherlands and Sweden) that oppose the idea of transfers and prefer an emergency fund financed mainly by loans. A decision will be attempted at the upcoming EU summit on July 17-18.</p>
<h2>Conditions of support</h2>
<p>One of the thorny issues, as with a decade ago, will be the conditions attached to EU support. The eurozone crisis was <a href="https://www.tandfonline.com/doi/abs/10.1080/07036337.2014.990137">portrayed as a morality tale</a> that pitted supposedly northern European values of hard work, prudent savings, moderate consumption and fiscal stability against perceived southern vices of low competitiveness, undeserved spending, inflated wages and profligacy. Financial support came with strict conditions, which took the form of austerity policies. This meant a reduction in public spending, wage cuts for government workers and tax rises.</p>
<p>Today this narrative has lost some of its strength. The north-south divide observed in 2009 is less clear since Germany seems to have changed camps. The last crisis also showed that austerity was not helpful in stopping the increase in public debt. GDP growth stalled and unemployment ballooned.</p>
<p>Above all, it is much harder (and obviously even more unfair) to blame individual countries for a pandemic. Although the crisis will be felt worse in the weakest countries that are still recovering from the previous crisis, the cause of coronavirus is the same for all member states. </p>
<p>Nonetheless, the details of how the EU’s recovery fund will be given to member states is up for debate. This includes whether or not the money will be given as loans or grants, what the terms of repayment will be and how it should be spent.</p>
<h2>Bailout negotiating tactics</h2>
<p>The new funds may not be enough to meet member state needs – and for governments to borrow extra it will be crucial to reassure investors that they will be reimbursed. Interest rates are still low, but – if investors panic or if the ECB cannot prevent this panic – then things could change. Then governments may be obliged to accept certain conditions, austerity for example, to remain credible in international markets. </p>
<p>But there is room for manoeuvre. In our forthcoming book we show that, when there was trust between the lenders and the bailed-out governments, conditions were not dictated. The EU and IMF lenders, collectively known as the troika, were open to solutions proposed by member states, as long as they reached certain objectives. </p>
<p>Thus, when for example, Portugal negotiated its bailout, it could insert specific policies or revisions and fought for others to be dropped. After the bailout negotiations, some governments such as Greece, Ireland and Cyprus successfully resisted the implementation of some policies they disliked; and lenders were sometimes willing to turn a blind eye and let this go unsanctioned. </p>
<p>So an important lesson for today is that conditions of lending will only be met if both sides agree to them. The preferences of different member states must also be taken into account. </p>
<p>Ultimately, the eurozone crisis showed that it was delayed collective action by the EU that empowered financial markets to exploit differences between the bond prices in different member states. The response to coronavirus so far suggests that the EU’s decision makers are aware of this. But the challenge for the 27-member bloc remains to act collectively, in agreement and for the good of all states.</p><img src="https://counter.theconversation.com/content/142191/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Stella Ladi received funding from the Portuguese Foundation for Science and Technology. She is affiliated with Panteion University, Athens. </span></em></p><p class="fine-print"><em><span>Angie Gago received funding from the Grant “Democracy in times of crisis: Power and Discourse in a three-level game”, funded by the Portuguese Foundation for Science and Technology, FCT, (Grant nr PTDC/IVC-CPO/2247/2014).</span></em></p><p class="fine-print"><em><span>Catherine Moury received funding from the Grant “Democracy in times of crisis: Power and Discourse in a three-level game”, funded by the Portuguese Foundation for Science and Technology, FCT, (Grant nr PTDC/IVC-CPO/2247/2014).</span></em></p><p class="fine-print"><em><span>Daniel Cardoso received funding from the Grant “Democracy in times of crisis: Power and Discourse in a three-level game”, funded by the Portuguese Foundation for Science and Technology, FCT, (Grant nr PTDC/IVC-CPO/2247/2014).</span></em></p>The early signs indicate that the EU is responding much more effectively than it did in 2008.Stella Ladi, Senior Lecturer in Public Management, Queen Mary University of LondonAngie Gago, Postdoctoral Researcher, Université de LausanneCatherine Moury, Associate Professor of Political Science, Universidade Nova de LisboaDaniel Cardoso, Assistant Professor, Autonomous University of LisbonLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1422032020-07-08T11:52:37Z2020-07-08T11:52:37ZLessons from the 2008 financial crisis for our coronavirus recovery today – Recovery podcast series part six<figure><img src="https://images.theconversation.com/files/346336/original/file-20200708-31-o478pd.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">Markets panicked following the collapse of investment bank, Lehman Brothers, in 2008.</span> <span class="attribution"><a class="source" href="https://www.shutterstock.com/image-illustration/stock-market-concept-crash-324802937">Shutterstock.com</a></span></figcaption></figure><p>In this sixth and final episode of <a href="https://theconversation.com/uk/topics/recovery-series-87523">Recovery</a>, a series from <a href="https://theconversation.com/uk/topics/the-anthill-podcast-27460">The Anthill Podcast</a> exploring how the world rebuilt after historic crises, we look at the 2008 global financial crisis. The recovery over the last decade has been slow and painful, and offers important lessons for the coronavirus recovery ahead.</p>
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<p>The 2008 financial crisis resulted in the worst global recession since the second world war. The collapse of US investment bank Lehman Brothers in September 2008 caused a meltdown of the global financial system. Money markets froze and there was a major credit crunch as the ability to borrow money suddenly dried up. </p>
<p>But the crisis had multiple, underlying causes. It followed years of excessive risk taking by bankers and lax government regulation. This had fuelled a US housing market bubble and glut of other dodgy investments. When Lehman went bankrupt, taking US$700 billion in liabilities with it, markets panicked. </p>
<p>To stop the contagion and make sure other major financial institutions didn’t collapse, governments stepped in to shore up the system by bailing out the banks. Anastasia Nesvetailova, professor of international political economy at City, University of London, explains what these bailouts involved and why they were so necessary. </p>
<p>The government response to the crisis had some unintended consequences, she says. Low interest rates and easy access to capital made those who were already wealthy even wealthier, drove up asset prices (like property) and failed to stimulate the economy in a way that benefited everyone. </p>
<p>The recovery was also very uneven geographically. Aidan Regan, associate professor at University College Dublin, tells us how the crisis spread across the eurozone and why some countries rebounded a lot more quickly than others. </p>
<p>The austerity policies that many governments adopted following the 2008 financial crisis also come under the spotlight. Nesvetailova and Regan explain why the decision to cut public spending hampered economic growth in the UK and across Europe. </p>
<p>Plus, we explore how emerging markets were affected by the 2008 financial crisis. Carolina Alves, fellow in economics at the University of Cambridge, outlines how some emerging markets were shielded from elements of the crisis but also left vulnerable to the large reduction in finance that followed. </p>
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<p><em>This episode was produced by Gemma Ware and Annabel Bligh with sound design by Eloise Stevens.</em></p><img src="https://counter.theconversation.com/content/142203/count.gif" alt="The Conversation" width="1" height="1" />
PODCAST: Part six of The Anthill Podcast’s Recovery series looks at the 2008 financial crisis and Great Recession that followed.Annabel Bligh, Business & Economy Editor and Podcast Producer, The Conversation UKGemma Ware, Head of AudioLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1270872019-11-18T10:53:48Z2019-11-18T10:53:48ZChina’s relationships with Greece and Italy are deepening – EU is reaping exactly what it sowed<p>The eurozone has emerged from its debt crisis of 2010-18 intact, but at a very high cost to the periphery. Greece’s exit from its <a href="https://theconversation.com/greece-exits-its-third-bailout-but-eurozone-still-has-much-to-learn-from-the-crisis-101709">third bailout</a> in August 2018, the swan song of the crisis, is perceived as successful only from a purely accounting perspective. Of the approximately €290 billion (£248 billion) lent to the country overall by the IMF, European Commission and European Central Bank, <a href="https://ec.europa.eu/commission/presscorner/detail/en/IP_15_5373">less than</a> 12% was spent on investment. </p>
<p>The remainder has been used to service Greece’s <a href="https://countryeconomy.com/national-debt/greece">spiralling national debt</a>, and even then, repayments are only covered up to 2022. Thanks to the government spending cuts implemented from 2010-18 in return for these loans, unemployment is still running at <a href="https://tradingeconomics.com/greece/unemployment-rate">17%</a>. </p>
<p>What timing for the Chinese president, Xi Jingping, <a href="https://www.dw.com/en/chinas-xi-jinping-visits-greece-eyeing-deeper-economic-ties/a-51196119">to make</a> his first official visit to Athens, intensifying a friendship between the two countries that has been <a href="https://www.mfa.gr/en/blog/greece-bilateral-relations/china/">developing</a> for more than a decade. Earlier this year, Greece <a href="https://jamestown.org/program/the-161-becomes-the-171-greece-joins-chinas-dwindling-cooperation-framework-in-central-and-eastern-europe/">already</a> became a member of China’s <a href="http://beltandroadcenter.org/2017/11/07/the-presentation-of-the-16-1-cooperation/">17+1 initiative</a>, which aims to deepen cooperation between Beijing and 17 states in central and eastern Europe and the Balkans. </p>
<p>The initiative is part of China’s One Belt One Road project to develop connectivity and trade in Eurasia and beyond, to which the Greeks <a href="https://www.scmp.com/news/china/diplomacy/article/3017754/why-greeces-new-government-likely-stay-close-china">committed</a> as far back as 2009 – the first developed economy and NATO member to do so. Greece has also unnerved its Western allies in the past couple of years by <a href="https://www.aljazeera.com/news/2019/11/greece-china-hail-strategic-partnership-eu-191111170150762.html">obstructing</a> EU plans to condemn China over issues like human rights and the law of the sea. </p>
<p>To mark Xi Jinping’s visit to Athens, <a href="https://www.bloomberg.com/news/articles/2019-11-11/greece-china-sign-16-deals-in-sectors-including-energy">16 new</a> bilateral <a href="https://www.theguardian.com/world/2019/nov/12/xi-jinping-comes-to-greeks-bearings-gifts">agreements</a> were announced. They build on previous Chinese investments into Greek shipping, while <a href="https://greekcitytimes.com/2019/11/12/greece-china-sign-16-bilateral-agreements-president-jinpings-visit-athens/">also covering</a> sectors as diverse as education and agriculture. This comes just two months after the Chinese president made a <a href="https://www.euronews.com/2019/03/24/china-and-italy-sign-silk-road-project">similar trip</a> to Italy. That, too, saw the announcement of trade deals covering various sectors worth multiple billions of euros. The Italians also became the first major Western power to endorse One Belt One Road. </p>
<h2>The Chinese alternative</h2>
<p>The timing of these Italian and Greek announcements is not a coincidence. Italy, like Greece, is saddled with high debts and is bearing the brunt of the EU external migration crisis. Both countries had been calling on the EU for pan-European investment programmes for the past three years, but were rejected outright by core eurozone members like Germany, the Netherlands and Finland. </p>
<p>Greece and Italy are attempting the fine balancing act of dealing with China without undermining the EU’s overarching external trade policy, but the EU and Americans are still <a href="https://www.theguardian.com/commentisfree/2019/nov/16/europe-squeezed-hungry-china-surly-us-merkel-trump">uneasy</a>. The EU in particular is <a href="https://ec.europa.eu/commission/sites/beta-political/files/communication-eu-china-a-strategic-outlook.pdf">worried about</a> China promoting its alternative model of governance without democracy. </p>
<p>In the case of the Greek announcement, one major concern is China’s involvement in the port of Piraeus via its state-owned China Ocean Shipping Corporation (COSCO). Though COSCO <a href="https://foreignpolicy.com/2018/02/02/why-is-china-buying-up-europes-ports/">has taken stakes</a> in at least 15 European ports in recent years, including the likes of Rotterdam, Antwerp and Marseilles, the port of Piraeus is a particularly eye-catching commitment. </p>
<p>The Chinese became the port’s majority owner in 2016, and had already committed €800m towards upgrading its facilities. Now there will be <a href="https://www.dw.com/en/chinas-xi-jinping-visits-greece-eyeing-deeper-economic-ties/a-51196119">a further</a> €600m investment. This <a href="https://uk.reuters.com/article/uk-greece-china/china-greece-agree-to-push-ahead-with-coscos-piraeus-port-investment-idUKKBN1XL1LD">aims to</a> turn Piraeus into the biggest commercial port in Europe, while raising COSCO’s stake from 51% to 67% by 2022. The Chinese see Piraeus as a gateway to EU markets, with a <a href="https://www.reuters.com/article/us-greece-china/china-greece-agree-to-push-ahead-with-coscos-piraeus-port-investment-idUSKBN1XL1KC">strategic role</a> in Asia-European-African trade routes thanks to its close proximity to the Suez Canal. </p>
<p>Greece’s participation in China’s 17+1 initiative is also viewed by the West as particularly significant. Greece is the biggest of the five eurozone members to have joined – the others are Slovenia, Estonia, Lithuania and Latvia. Membership is part of Greece’s broader plan to realise international trade agreements via new trade routes. The move seems to have <a href="https://jamestown.org/program/the-161-becomes-the-171-greece-joins-chinas-dwindling-cooperation-framework-in-central-and-eastern-europe/">rejuvenated</a> an initiative which has been limited to upgrading infrastructure and had stalled since 2016. </p>
<p>While Greece initially joined 17+1 under its hard-left Syriza government, the fact that the new conservative government is prepared to upgrade strategic relations with China demonstrates that the relationship can survive political change in Athens. Xi Jinping’s visit came just a week after prime minister Kyriakos Mitsotakis <a href="https://www.dw.com/en/greece-china-aim-to-deepen-ties/a-51099654">visited</a> Shanghai, after China made Greece the official guest country of the 2019 China International Import Expo. </p>
<h2>The way ahead</h2>
<p>In truth, it looks somewhat late for the EU to be concerned about these moves by Greece and Italy. They are the direct result of the strict bailouts and the eurozone’s refusal to invest seriously in either country. Other eurozone reforms that might help these countries – a <a href="https://voxeu.org/article/unemployment-benefit-scheme-eurozone">eurozone fiscal union</a> with an unemployment insurance programme; a <a href="https://link.springer.com/chapter/10.1057/9781137530943_3">eurozone banking union</a> with a pan-European deposits guarantee scheme; a single <a href="https://www.debatingeurope.eu/2016/06/23/does-europe-need-a-common-immigration-policy/">European immigration policy</a> – are also long overdue. </p>
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<a href="https://images.theconversation.com/files/301975/original/file-20191115-66932-18ywt1e.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/301975/original/file-20191115-66932-18ywt1e.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=237&fit=clip" srcset="https://images.theconversation.com/files/301975/original/file-20191115-66932-18ywt1e.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=738&fit=crop&dpr=1 600w, https://images.theconversation.com/files/301975/original/file-20191115-66932-18ywt1e.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=738&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/301975/original/file-20191115-66932-18ywt1e.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=738&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/301975/original/file-20191115-66932-18ywt1e.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=928&fit=crop&dpr=1 754w, https://images.theconversation.com/files/301975/original/file-20191115-66932-18ywt1e.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=928&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/301975/original/file-20191115-66932-18ywt1e.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=928&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
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<span class="caption">Shipping out?</span>
<span class="attribution"><a class="source" href="https://www.shutterstock.com/image-illustration/two-freight-container-italy-greece-flag-1538710319">Lightboxx</a></span>
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<p>To make matters worse, eurozone growth rates have <a href="https://www.theguardian.com/business/2019/oct/24/germany-eurozone-stagnation-economy-output-recession">slowed considerably</a> – led by Germany, the supposed powerhouse. France <a href="https://www.focus-economics.com/countries/france">seems to be</a> the only member yet to feel the impact of US tariffs, the Brexit process and the slowdown in the Chinese economy. The gloom is being exacerbated by the likes of the new fragmented European parliament and <a href="https://www.risk.net/comment/6964041/credit-data-italian-banks-find-themselves-at-a-crossroads">fragile Italian banks</a>. </p>
<p>This all means that there is less room for manoeuvre than there might have been two or three years ago. So while the West may wish that its Mediterranean allies were not looking eastwards, it is going to be difficult to put this particular genie back inside its bottle. The growing sense in Rome and Athens that they have been abandoned by their allies will be difficult to reverse.</p><img src="https://counter.theconversation.com/content/127087/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Dimitrios Syrrakos does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>Where else were all those hard-headed refusals to make things easier for the eurozone strugglers going to lead?Dimitrios Syrrakos, Deputy Head - Department of Economics, Policy and International Business, Manchester Metropolitan University, Manchester Metropolitan UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1159492019-04-28T20:21:39Z2019-04-28T20:21:39ZDebate: Beware, the European Union can dis-integrate<figure><img src="https://images.theconversation.com/files/270743/original/file-20190424-121220-1qksg3r.jpg?ixlib=rb-1.1.0&rect=0%2C154%2C1500%2C1021&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">Signing the Treaty of Rome in 1957.</span> <span class="attribution"><a class="source" href="https://en.wikipedia.org/wiki/Treaty_of_Rome#/media/File:Treaty_of_Rome.jpg">Wikipedia</a></span></figcaption></figure><p>For a long time, scholars of European political integration were almost unanimous in their belief that this process could not be reversed. For decades, there was hardly any reason to think otherwise. More and more countries joined the EU. New treaties expanded the scope of the EU’s competences into numerous new issue-areas. Its agencies grew gradually more powerful compared to those of member states.</p>
<p>Some even argued that crises, when they occurred, prompted closer integration, according to the EU founder Jean Monnet’s adage that Europe would be “forged in crises” and be the sum of the solutions adopted to manage them.</p>
<p>However, the quadruple crisis (Eurozone, Ukraine, refugees, Brexit) that has tormented the EU during the last decade is deeper than any of its forerunners – by its duration, its multidimensionality, by the magnitude of the stakes involved and by the mass politicisation of European integration it has provoked.</p>
<p>Faced with this uniquely severe crisis, the EU has not proved as resilient as in the past. True, the Eurozone has emerged politically more integrated from its crisis, and the pre-existing level of integration in foreign and security policy also survived the Ukraine crisis. In the refugee crisis, however, the EU has suffered some – limited – political disintegration, with various member states defying EU decisions and ECJ rulings concerning refugee reallocation or Commission appeals that they should dismantle re-installed border controls.</p>
<p>Above all, for the first time an EU member state is on the verge of seceding, and not just any. The United Kingdom is the EU’s third most populous member, second-biggest economy, a net contributor to the budget and one of only two members with a significant military capacity, its own nuclear weapons and a permanent seat on the United Nations Security Council.</p>
<p>The (as yet provisional) outcome of the quadruple crisis thus shows us that the EU can indeed <em>dis</em>-integrate politically.</p>
<h2>Driven by elites, not markets</h2>
<p>The confidence of most scholars that European political integration cannot be reversed is rooted primarily in the conviction that this process is fuelled – in a fundamentally market-driven process – by growing levels of socio-economic interdependence between member states.</p>
<p>This belief is erroneous, however. European political integration is much less a response to market pressures than it is a project driven by political elites motivated mainly by long-term geopolitical considerations concerning European security and peace.</p>
<p>Two other factors explain why Europe has integrated politically far more closely than any other region or continent.</p>
<ul>
<li><p>Post-World War II (Western) Europe has been dominated politically by internationalist, “pro-European” political forces of the moderate Right, the Centre and the moderate Left (Christian and Social Democrats and Liberals). The EU was built on this political bedrock.</p></li>
<li><p>Political integration and responses to crises have been forged largely by uniquely close and intensive Franco-German cooperation – for which there is no equivalent elsewhere. The Franco-German “tandem” served as the functional equivalent of a hegemonic power that the international political economist <a href="https://en.wikipedia.org/wiki/Charles_P._Kindleberger">Charles Kindleberger</a> once argued was a necessary (but not sufficient) condition of a maintenance of a stable international system.</p></li>
</ul>
<p>A hegemonic power in Kindleberger’s conception exercises a predominant influence over how systems respond to crises, assumes a disproportionate share of the cost of crisis policies and mobilizes support for them among other members.</p>
<h2>Nationalism and the risk of deadlock</h2>
<p>Neither of the two fundamentally political factors that buttressed European integration is present today to the same extent as in the past. The Eurozone and refugee crises gave an enormous boost to “anti-European” movements that have won political office in several member states and look likely to win an unprecedentedly large proportion of seats in the European Parliamentary elections next month.</p>
<p>In a political system that operates largely on the basis of consensus, growing national-populist representation in the EU’s decision-making organs portends a growing threat of political deadlock.</p>
<figure class="align-center ">
<img alt="" src="https://images.theconversation.com/files/270744/original/file-20190424-121233-5yvxp8.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/270744/original/file-20190424-121233-5yvxp8.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=405&fit=crop&dpr=1 600w, https://images.theconversation.com/files/270744/original/file-20190424-121233-5yvxp8.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=405&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/270744/original/file-20190424-121233-5yvxp8.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=405&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/270744/original/file-20190424-121233-5yvxp8.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=509&fit=crop&dpr=1 754w, https://images.theconversation.com/files/270744/original/file-20190424-121233-5yvxp8.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=509&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/270744/original/file-20190424-121233-5yvxp8.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=509&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
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<span class="caption">France’s president Emmanuel Macron (left) with Germany’s chancellor Angela Merkel during an European Summit aimed at discussing the Brexit deal, the long-term budget and the single market on December 13, 2018 in Brussels.</span>
<span class="attribution"><span class="source">Emmanuel Dunand/AFP</span></span>
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</figure>
<p>Meanwhile, during the last decade the Franco-German alliance at the EU’s heart weakened. Since the EU’s inception, when France was “number one” among the member states, the balance of power between Paris and Bonn/Berlin has been reversed. Economic weakness and domestic political polarization over EU issues reduced French influence during the quadruple crisis, leaving Germany to play the role of a hegemon increasingly alone.</p>
<p>As argued in my new book, <a href="http://cadmus.eui.eu/handle/1814/60897"><em>European Disintegration? The Politics of Crisis in the European Union</em></a> (Red Globe Press, 2019), the extent to which the EU has <em>dis</em>-integrated during the quadruple crisis has been largely determined by the extent to which Germany played the role of a stabilizing hegemonic power.</p>
<h2>As Germany goes…</h2>
<p>In the Ukraine crisis, in which Germany played this role fully, no political disintegration occurred. In the refugee crisis, in which it played this role only to a limited extent, some political disintegration took place. In the Brexit crisis, in which it did not play this role at all, the most striking case of disintegration occurred.</p>
<p>The case of Eurozone is anomalous in as far as it survived its crisis despite the German government insisting on a highly asymmetrical distribution of crisis costs. But this is because there was a powerful supranational agency, the European Central Bank, which had the powers to substitute for a hegemonic member state and in 2012 played a decisive role in saving the Eurozone from collapse.</p>
<p>Germany’s uneven and mixed record in managing the EU’s quadruple crisis suggests that it is unable or unwilling to play the role of Europe’s hegemonic power, at least not sufficiently to preclude political <em>dis</em>-integration.</p>
<p>It is unable because it is not big enough relative to other member states to assume a big enough proportion of the costs to resolve crises durably. It is increasingly unwilling in the sense that, competing for voter support, political parties do not want Germany to assume these costs for fear of a domestic political backlash. This fear has of course been accentuated by the breakthrough of a Eurosceptic party, the AfD, in the 2017 federal elections.</p>
<p>If, as history and comparative analysis suggest, stabilizing hegemonic leadership is critical to keeping European political integration on the rails, it remains difficult to see how or by whom this can be provided other than by the usual – French and German – suspects.</p>
<p>The 2017 elections in both countries created a window of opportunity for a renaissance of the Franco-German tandem. France chose its most fervently pro-European president since the creation of the Fifth Republic, while in Berlin, of all feasible political constellations, the resurrection of the Grand Coalition probably represented the one most conducive to forging closer political integration.</p>
<h2>Looking forward</h2>
<p>Two years on, it looks doubtful whether this window will be exploited. The Berlin coalition’s reaction to President Macron’s proposals for closer European integration has been lukewarm at best. None of its constituent parties sees any domestic political benefits in championing this kind of agenda.</p>
<figure class="align-right ">
<img alt="" src="https://images.theconversation.com/files/270731/original/file-20190424-121245-ppbrlr.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=237&fit=clip" srcset="https://images.theconversation.com/files/270731/original/file-20190424-121245-ppbrlr.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=917&fit=crop&dpr=1 600w, https://images.theconversation.com/files/270731/original/file-20190424-121245-ppbrlr.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=917&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/270731/original/file-20190424-121245-ppbrlr.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=917&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/270731/original/file-20190424-121245-ppbrlr.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=1152&fit=crop&dpr=1 754w, https://images.theconversation.com/files/270731/original/file-20190424-121245-ppbrlr.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=1152&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/270731/original/file-20190424-121245-ppbrlr.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=1152&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption"></span>
<span class="attribution"><span class="source">Red Globe Press, 2019</span></span>
</figcaption>
</figure>
<p>In France, with the explosive rise of the <a href="https://theconversation.com/why-frances-gilets-jaunes-protesters-are-so-angry-108100">“gilet jaune” movement</a>, Macron’s economic reform agenda and authority are highly contested, raising the question of whether he can revive France’s economic fortunes – which he must for France to regain a role comparable to Germany’s in the EU – or win the next presidential election in 2022.</p>
<p>Absent strong Franco-German leadership, new crises – which are bound to occur – will likely bring about more disintegration than the quadruple crisis during the last decade.</p>
<p>However, after Brexit, no other member state is likely to try to leave the EU in the way that the UK has done. Rather, as member states prove unable to agree how to manage future crises, they will pursue unilateral policies by default and comply less and less with EU rules and regulations when they have been agreed. In this scenario, the EU would not collapse dramatically in a “big bang”, but rather – slowly, even invisibly – wither and die by a thousand cuts.</p><img src="https://counter.theconversation.com/content/115949/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Douglas Webber is the author of "European Disintegration? The Politics of Crisis in the European Union" and Professor of Political Science at INSEAD.</span></em></p>In the past decade the EU has been struck by a series of crises that have proven that it is far more vulnerable than previously imagined.Douglas Webber, Robert Schuman fellow, European University Institute, and Professor of Political Science, INSEADLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1078542018-12-05T12:41:05Z2018-12-05T12:41:05ZWhat moves markets more, Twitter or traditional news?<figure><img src="https://images.theconversation.com/files/248138/original/file-20181130-194935-e0e6gh.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">Tweet power. </span> <span class="attribution"><a class="source" href="https://www.shutterstock.com/image-photo/chiang-maithailand-february-272017-female-holding-588413579?src=g7Kt2cS0mn2U4iCfD8Pk1Q-1-80">nopporn</a></span></figcaption></figure><p>Can a single tweet make a country’s currency depreciate by 16%? Apparently it did on August 10, when Donald Trump <a href="https://twitter.com/realDonaldTrump/status/1027899286586109955">tweeted</a> that US tariffs on Turkish steel and aluminium would rise sharply. Amid 36,100 retweets, and <a href="https://www.france24.com/en/20180810-turkey-curency-lira-plunge-erdogan-trump-twitter-tariffs">calls by</a> Turkish President Recep Tayyip Erdoğan for his people to dump foreign assets, the Turkish lira <a href="https://www.bloomberg.com/quote/TRY:CUR">plunged</a>. </p>
<p>It’s not just the president of the United States that has such Twitter power. Around the same time, Elon Musk’s <a href="https://techcrunch.com/2018/08/07/elon-musk-tesla-private-tweet/">infamous tweet</a> about taking Tesla private raised shares in the motor company by 11% – later earning him a US$20m (£16m) <a href="https://www.dw.com/en/elon-musk-to-resign-as-tesla-chairman-pay-20-million-fine-over-fraud-charges/a-45692172">fine</a> from the US Securities Exchange Commission for misleading investors. And these are only two of <a href="https://www.ogilvy.com/feed/11-tweets-that-turned-the-stock-market-upside-down/">numerous examples</a> of such market shifts. There is a <a href="https://academic.oup.com/rfs/advance-article-abstract/doi/10.1093/rfs/hhy083/5061375?redirectedFrom=fulltext">growing</a> body of academic literature <a href="https://onlinelibrary.wiley.com/doi/abs/10.1111/j.1468-036X.2013.12007.x">documenting</a> these occurrences. </p>
<p>This shouldn’t come as a surprise. Twitter has long been essential for economic commentators, policymakers and their faithful followers. While the network’s overall user numbers have been <a href="https://www.statista.com/statistics/282087/number-of-monthly-active-twitter-users/">fairly static</a> in the low 300 millions, certain leading Twitter accounts are becoming increasingly influential. To give one example, the 2008 Nobel Economics laureate, Paul Krugman, had around 1m followers in early 2013, but <a href="https://twitter.com/paulkrugman">now has</a> around 4.5m. Meanwhile <a href="https://twitter.com/realDonaldTrump">Trump now has</a> 55.8m followers, and <a href="https://twitter.com/BarackObama">Barack Obama</a> 103m. </p>
<figure class="align-right zoomable">
<a href="https://images.theconversation.com/files/248140/original/file-20181130-194922-fr9ov.png?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/248140/original/file-20181130-194922-fr9ov.png?ixlib=rb-1.1.0&q=45&auto=format&w=237&fit=clip" srcset="https://images.theconversation.com/files/248140/original/file-20181130-194922-fr9ov.png?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=614&fit=crop&dpr=1 600w, https://images.theconversation.com/files/248140/original/file-20181130-194922-fr9ov.png?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=614&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/248140/original/file-20181130-194922-fr9ov.png?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=614&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/248140/original/file-20181130-194922-fr9ov.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=771&fit=crop&dpr=1 754w, https://images.theconversation.com/files/248140/original/file-20181130-194922-fr9ov.png?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=771&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/248140/original/file-20181130-194922-fr9ov.png?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=771&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption">Economist Paul Krugman.</span>
<span class="attribution"><span class="source">Wikimedia</span></span>
</figcaption>
</figure>
<p>But how do tweets compare to traditional news outlets when it comes to moving markets? We have just published a <a href="https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3291978">new paper</a> that attempts to provide an answer. We focused on announcements relating to the Greek debt crisis between 2012 and 2016, looking at their effect on the sovereign bond market. We chose to focus on the Greek crisis because it was of global interest; went on for a reasonable duration; and could be easily tracked because the word “Grexit” tended to appear in each announcement regardless of the language in which it was written. </p>
<h2>Our research</h2>
<p>As you can imagine, this was a big undertaking. We collected every mention of “Grexit” on Twitter in our sample and assigned to each day a value equal to the total number of the mentions on that day. This amounted to 1.3m mentions coming from 195 countries in 14 different languages. We then repeated this exercise with the traditional news media, collecting more than 62,000 mentions of “Grexit” from 3,700 different newspapers, magazines, broadcasters and wire services from 83 countries in 18 languages. </p>
<p>Making allowances for the fact that we had many more tweets than traditional news stories, we then looked at how these two types of news stories affected the gap (or spread) between Greek bond yields and German bond yields – traditionally German bonds are always used for comparison as the least risky sovereign bonds on the market. To work out the effect of these stories, we had to filter out the effect on bond yields of things like economic data or the latest pronouncements from financial institutions about Greek debt default risks or contagion or whatever.</p>
<p>We also had to exclude situations where information that originated on Twitter was influencing the traditional media and vice versa – for example, a tweet being followed up by newspapers, or a TV interview being retweeted. In either case, we ascribed the market influence to the original source of the story. (Incidentally, we found that Twitter was influencing the traditional media much more than the other way around.)</p>
<p>Working on the basis that original tweets and traditional news stories <a href="https://academic.oup.com/oep/article-abstract/67/2/406/2362293?redirectedFrom=fulltext">essentially produce</a> activity for 20 days, we were able to come up with averages for the effect of each story. We found that for every 1% increase in the volume of Grexit tweets on a given day, the Greek-German spread widened by 0.67% over the next 20 days; whereas a 1% increase in Grexit mentions in traditional media widened the spread by 0.58% over the same period. </p>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/248139/original/file-20181130-194953-1au7yt9.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/248139/original/file-20181130-194953-1au7yt9.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/248139/original/file-20181130-194953-1au7yt9.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=338&fit=crop&dpr=1 600w, https://images.theconversation.com/files/248139/original/file-20181130-194953-1au7yt9.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=338&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/248139/original/file-20181130-194953-1au7yt9.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=338&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/248139/original/file-20181130-194953-1au7yt9.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=425&fit=crop&dpr=1 754w, https://images.theconversation.com/files/248139/original/file-20181130-194953-1au7yt9.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=425&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/248139/original/file-20181130-194953-1au7yt9.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=425&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption">Greek fallout.</span>
<span class="attribution"><a class="source" href="https://www.shutterstock.com/image-illustration/greece-high-resolution-crisis-concept-190868051?src=U_nQ4huwA4InjXbKiqhJAQ-1-31">xstock</a></span>
</figcaption>
</figure>
<p>Because the Greek crisis was taking place in parallel with debt crises across the eurozone periphery, we also looked at to what extent tweets and traditional news stories about Grexit affected spreads between German bond yields and those of Portugal, Spain, Italy and Ireland. The one major effect was on Portuguese-German spreads, where the same 1% increase in tweet volumes moved the spread by 0.39% over 20 days. Interestingly, there was no comparable effect from stories that originated in the traditional news. </p>
<h2>Next steps</h2>
<p>Though we only looked at the effect of one longstanding news story on one part of the market, it is, to our knowledge, the first time anyone has tried to compare to what extent traditional and social media move markets. Given that our research period ended in 2016, it may well be that the disproportionate power of Twitter has since increased. </p>
<p>We also need to bear in mind that Greece is a relatively small country – much smaller, say, than Italy, which is currently on a <a href="https://www.bbc.co.uk/news/world-europe-46343033">collision course</a> with the EU over its budget. Given the ability of tweets about Grexit to raise fears of contagion to Portugal, it might be that tweets about the Italy/EU spat could produce bigger shockwaves. </p>
<p>Either way, an important question is whether Twitter’s market power is a problem. When you consider how instantaneously social media information is spread, Twitter is contributing to the efficient functioning of financial markets. On the other hand, there is the potential for misinformation: much <a href="https://ideas.repec.org/p/swn/wpaper/2018-30.html">has been written</a>, for example, about automated “bot” accounts pumping out messages that can affect markets. </p>
<p>At present, however, <a href="https://theconversation.com/good-luck-banning-fake-news-heres-why-its-unlikely-to-happen-89940">social media regulation</a> is light to non-existent. Some countries, <a href="https://theconversation.com/regulate-social-media-its-a-bit-more-complicated-than-that-103797">including the UK</a>, are looking at introducing tighter rules around what can be said on platforms such as Twitter. It is not made easier by differing views around the world – sentiment towards government intervention <a href="http://www.digitalnewsreport.org/">is stronger</a> in Europe than in the US, for example. In the absence of coordinated government action, intervention at national level might not be very effective. As people realise just how powerful Twitter has become in relation to traditional news media, it will be interesting to see how this debate develops.</p><img src="https://counter.theconversation.com/content/107854/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>The authors do not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and have disclosed no relevant affiliations beyond their academic appointment.</span></em></p>New research into the Greek crisis from 2012-16 compared how tweets and traditional news affected bond yields among countries in the eurozone peripheries.Costas Milas, Professor of Finance, University of LiverpoolTheodore Panagiotidis, Associate Professor in Economics, University of MacedoniaTheologos Dergiades, Lecturer in Economics, University of MacedoniaLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1017092018-08-20T10:43:57Z2018-08-20T10:43:57ZGreece exits its third bailout – but eurozone still has much to learn from the crisis<figure><img src="https://images.theconversation.com/files/232653/original/file-20180820-30605-w1thdc.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">Greece nearly crashed out of the eurozone in 2015.</span> <span class="attribution"><span class="source">Bill Anastasiou / Shutterstock.com</span></span></figcaption></figure><p>After nine years of unprecedented peacetime economic hardship, Greece <a href="https://www.bbc.co.uk/news/world-europe-45207092">exits its IMF bailout programme</a> on August 20. So ends a series of three bailouts organised by the so-called troika of the IMF, European Central Bank and European Commission. A total of €336 billion was lent to Greece in the wake of the financial crisis, to stop it defaulting on its national debt, with approximately €300 billion used so far. </p>
<p>What’s more, over 90% of the funds were not directed toward investment projects, but went on <a href="https://www.palgrave.com/de/book/9783319522913">servicing Greece’s national debt</a>. And the financial aid was provided on the basis of severe cuts to spending – a harsh regime of austerity. </p>
<p>It had tragic results. A quarter of Greece’s 2009 economic output has been wiped out, 20% of its workforce is out of work, and youth unemployment is at about 40%. At the <a href="https://theconversation.com/syriza-surges-ahead-of-january-election-as-greek-voters-reject-austerity-35829">height of the crisis</a>, in 2014-15, unemployment reached a staggering 27%, with youth unemployment exceeding 50%.</p>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/232456/original/file-20180817-165967-c6a2mt.png?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/232456/original/file-20180817-165967-c6a2mt.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/232456/original/file-20180817-165967-c6a2mt.png?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=436&fit=crop&dpr=1 600w, https://images.theconversation.com/files/232456/original/file-20180817-165967-c6a2mt.png?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=436&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/232456/original/file-20180817-165967-c6a2mt.png?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=436&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/232456/original/file-20180817-165967-c6a2mt.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=548&fit=crop&dpr=1 754w, https://images.theconversation.com/files/232456/original/file-20180817-165967-c6a2mt.png?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=548&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/232456/original/file-20180817-165967-c6a2mt.png?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=548&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption">IMF analysis shows how Greece’s depression has been as bad as the Great Depression and has lasted longer.</span>
<span class="attribution"><a class="source" href="http://www.imf.org/en/Publications/CR/Issues/2018/07/31/Greece-2018-Article-IV-Consultation-and-Proposal-for-Post-Program-Monitoring-Press-Release-46138">IMF</a></span>
</figcaption>
</figure>
<p>The strict nature, implementation and dramatic social costs of the EU bailouts prompt questions about their effectiveness – and whether they should be used in the future. Greece suffered the most. But bailouts, with strict conditions and severe consequences were meted out to Ireland, Portugal, Spain and Cyprus. The exact nature of the bailouts differed in each country, but they all shared the same draconian nature and rationale.</p>
<p>The IMF, which helped with Greece’s bailout loans, has <a href="http://www.imf.org/external/pubs/ft/scr/2013/cr13156.pdf">since admitted</a> that it underestimated the negative effects that austerity would have and the scale of the recession that would ensue. But this is <a href="https://www.palgrave.com/de/book/9783319522913">not enough</a>.</p>
<h2>Blame game</h2>
<p>The repercussions of the bailouts raise a core question. Whether the eurozone debt crisis was caused by the fiscal profligacy of the countries that were crisis-stricken and needed bailing out? Or whether it was down to deeper issues with the eurozone system as a whole?</p>
<p>There is no concrete answer to this fundamental question. Many observers focus on the aspects of the crisis that fit their particular narrative. For example, there is no doubt Greece and Portugal had overspent for decades before 2010. But politicians in the eurozone’s north <a href="https://www.reuters.com/article/us-eurozone-greece-schaeuble/dont-blame-others-for-your-problems-germanys-schaeuble-tells-greece-idUSKBN1CT2YX">focused</a> entirely on fiscal profligacy when assessing the causes of overspending. </p>
<p>Other factors – such as consistently higher military expenditure than the EU average in Greece; the country’s unique geography, which includes 2,000 islands of which 200 are inhabited; the lack of an industrial base, and a political system based on a clientele relationship between the state and its citizens – were completely ignored. For politicians in the fiscally prudent north of the eurozone, tax avoidance and overspending was more than enough to justify the bailouts. </p>
<p>But fiscal laxity was far from the norm in Spain and Ireland. Both countries had very low debt-to-GDP ratios up to 2008 (considerably lower than the EU Maastricht Treaty’s 60% limit) and yet they were subjected to the same draconian bailout provisions. </p>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/232647/original/file-20180820-30587-1grqa2r.png?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/232647/original/file-20180820-30587-1grqa2r.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/232647/original/file-20180820-30587-1grqa2r.png?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=354&fit=crop&dpr=1 600w, https://images.theconversation.com/files/232647/original/file-20180820-30587-1grqa2r.png?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=354&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/232647/original/file-20180820-30587-1grqa2r.png?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=354&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/232647/original/file-20180820-30587-1grqa2r.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=445&fit=crop&dpr=1 754w, https://images.theconversation.com/files/232647/original/file-20180820-30587-1grqa2r.png?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=445&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/232647/original/file-20180820-30587-1grqa2r.png?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=445&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption"></span>
<span class="attribution"><a class="source" href="https://www.google.co.uk/publicdata/explore?ds=ds22a34krhq5p_&met_y=gd_pc_gdp&hl=en&dl=en#!ctype=l&strail=false&bcs=d&nselm=h&met_y=gd_pc_gdp&scale_y=lin&ind_y=false&rdim=country_group&idim=country_group:eu&idim=country:el:es:ie&ifdim=country_group&hl=en_US&dl=en&ind=false">Google public data</a></span>
</figcaption>
</figure>
<p>Some <a href="https://www.tau.ac.il/%7Eyashiv/Wyplosz%20The%20Eurozone%20Crisis.pdf">critics</a> of the bailout perceive the crisis to be primarily institutional and so oppose the punishing measures that came with them across the board. They claim that had the European Central Bank acted decisively in 2010 by introducing <a href="https://theconversation.com/eurozone-qe-creates-breathing-space-heres-what-governments-must-do-now-70355">quantitative easing</a>, the extent of the required cuts would have been significantly reduced, thanks to the extra liquidity.</p>
<p>And despite Greece’s obvious need for extra liquidity from 2010-15, it was the only eurozone country to be excluded from the European Central Bank’s quantitative easing policy from 2015-18. The ECB’s intervention in 2010 could have mitigated the effects of the cuts and ultimately made the recession less severe, as was the case in Ireland and Portugal.</p>
<h2>The way forward</h2>
<p>Somehow, the eurozone has survived the experience of the bailouts and remains intact. But the lack of consensus over the causes of the crisis makes it difficult for the eurozone to move forward in the best way possible.</p>
<p>Alongside a central fiscal authority to oversee the budgets of all eurozone countries (in effect, a eurozone finance ministry that would take considerable time and effort to establish as it would have to aggregate national preferences over taxation and spending), the eurozone urgently needs a complete banking union to prevent future crises. This would involve a pan-eurozone deposit guarantee scheme. Had such a scheme existed in 2008, depositors would not have had the incentive to move their assets from one eurozone country to another when the crisis hit, thereby exacerbating it. </p>
<p>Attempts to create such a union over the last five years <a href="https://www.ft.com/content/003af25a-396e-11e8-8b98-2f31af407cc8">have stalled</a>. Eurozone countries like Germany, the Netherlands, Austria and Finland want depositors to participate in bank bailouts, as in the case of Cyprus in 2013, as a means of preventing the need to nationalise banks and their liabilities. The authorities in these countries fear that it would be their taxpayers that would be called upon to bail out banks in southern eurozone countries, in particular Italy <a href="https://theconversation.com/italy-and-the-euro-sergio-mattarella-has-opened-a-window-of-opportunity-to-save-the-single-currency-97428">where economic crisis looms</a>. </p>
<p>This is a perfectly rationale argument. But so is the southern eurozone authorities’ point, that it is very difficult to maintain sufficient liquidity in their banking sectors in the absence of such a banking union, as the mere suspicion of financial difficulty or political instability could precipitate abrupt and massive flows of capital out of their countries. Hence the current deadlock. </p>
<p>Yet a banking union is the best way to boost confidence in the eurozone and make it less prone to economic shocks that it may find difficult to withstand, let alone to absorb. Greece has taught us this much.</p><img src="https://counter.theconversation.com/content/101709/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Dimitrios Syrrakos does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>The strict nature, implementation and dramatic social costs of the EU bailouts prompt questions about their effectiveness.Dimitrios Syrrakos, Deputy Head - Department of Economics, Policy and International Business, Manchester Metropolitan University, Manchester Metropolitan UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/975162018-05-31T21:44:18Z2018-05-31T21:44:18ZWhat’s behind Italy’s crisis and why it matters: 4 questions answered<figure><img src="https://images.theconversation.com/files/221264/original/file-20180531-69508-baopl1.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">Giuseppe Conte is Italy's newest prime minister. </span> <span class="attribution"><span class="source">AP Photo/Gregorio Borgia</span></span></figcaption></figure><p><em>Editor’s note: Italy <a href="https://www.wsj.com/articles/italian-political-parties-5-star-and-league-strike-deal-on-coalition-government-1527788151">managed to form a government</a> after briefly <a href="https://www.cnbc.com/2018/05/31/italys-political-turmoil-could-mark-the-end-of-the-eu-roiling-markets.html">slipping</a> into political crisis, which sent <a href="https://www.wsj.com/articles/italy-sparks-global-fear-of-fresh-euro-crisis-1527596280">markets around the world</a> into a panic as investors fretted about the fate of the European Union. The crisis began on May 27 when the political party that won the most seats in March elections initially failed to form a government.</em> </p>
<p><em>Economist <a href="https://scholar.google.com/citations?user=02AMk1kAAAAJ&hl=en&oi=ao">Bruno Pellegrino</a>, who has previously written on Italy’s economy, explains what’s going on and why it matters.</em> </p>
<h2>1. What’s driving the political chaos?</h2>
<p>The <a href="https://www.bloomberg.com/news/articles/2018-02-22/why-italy-s-march-4-election-is-one-worth-watching-quicktake">March 4 election</a> dramatically tilted the balance of power in the country.</p>
<p>It was a true political earthquake: The Italian electorate <a href="https://www.cnn.com/2018/03/05/europe/italy-elections-intl/index.htm">resoundingly rejected</a> the political establishment that has held power since the mid-90s in favor of populism, as happened in the 2016 U.S. presidential election. The biggest issues were growing concerns over the euro and immigration. That’s in part because Italy is a major hub for migrants from Africa, an issue that has been a <a href="http://thehill.com/opinion/immigration/375610-the-migrant-crisis-is-still-a-growing-burden-for-europe">major challenge for the EU</a>.</p>
<p>Behind these problems, however, lies an economy that has <a href="https://theconversation.com/italys-economy-has-cronyism-disease-but-will-its-next-government-treat-it-92807">barely grown</a> in decades. A <a href="https://www.thelocal.it/20170718/italy-european-union-most-highest-percentage-neet-unemployed-young-people-millennials">third of 20- to 34-year-olds</a> are unemployed, and <a href="https://www.bloomberg.com/news/articles/2017-11-09/italian-debt-load-up-this-year-above-130-in-2018-eu-says">Italy’s debt is at over 130 percent of GDP</a>, which is extraordinarily high.</p>
<p>The big winners of the election were the populist Five Star Movement and the nationalist Northern League. Neither party had previously held significant power. Five Star, <a href="https://www.washingtonpost.com/world/italian-populists-declare-new-epoch-after-election-victory/2018/03/05/12885254-2096-11e8-946c-9420060cb7bd_story.html">which alone snared</a> a third of the vote, has been in opposition since forming in 2009. And the anti-immigrant Northern League was mostly just a minority shareholder in the <a href="https://www.thelocal.it/20180302/italy-centre-right-coalition-in-rare-public-display-of-unity">center-right coalition</a>. </p>
<p>Although none of the three major coalitions managed to win an outright majority, Five Star and the Northern League were allowed to try to form a government. Italian president, Sergio Mattarella, has the power to reject cabinet appointees and opted to veto proposed Finance Minister Paolo Savona, prompting the crisis. </p>
<h2>2. Why did Mattarella torpedo the would-be government?</h2>
<p>Savona, a professor who <a href="https://www.washingtonpost.com/world/italian-populists-declare-new-epoch-after-election-victory/2018/03/05/12885254-2096-11e8-946c-9420060cb7bd_story.html">called</a> Italy’s adoption of the euro a “historic error,” is seen as sympathetic to the idea of leaving the common currency.</p>
<p>In explaining his veto decision, Mattarella argued such a move <a href="https://www.thelocal.it/20180529/italy-president-sergio-matterella-statement-english">was not brought up during the electoral campaign</a>. Moreover, the <a href="https://www.thelocal.it/20180516/italy-leak-league-five-star-movement-plans-for-italy">draft</a> of a “government contract” between the Five Star Movement and the Northern League was leaked to the press. The document proposed canceling some of the Italian debt currently held by the European Central Bank, which shook financial markets because it’s basically telling banks and other lenders that they might not get their money back.</p>
<p>As a result, some commentators began <a href="https://piie.com/blogs/realtime-economic-issues-watch/how-worried-should-we-be-about-italian-debt-crisis">sounding the alarm</a> over a potential debt crisis for Italy – which would also reignite the sovereign debt crisis that has <a href="https://www.investopedia.com/terms/e/european-sovereign-debt-crisis.asp">rattled Europe</a> since 2008. </p>
<p>While I believe it was inopportune and extremely premature to talk about a debt crisis before the new government was even formed, that was enough to send the yield on Italian bonds skyrocketing to a four-year high.</p>
<p><iframe id="DozAz" class="tc-infographic-datawrapper" src="https://datawrapper.dwcdn.net/DozAz/2/" height="400px" width="100%" style="border: none" frameborder="0"></iframe></p>
<p>Mattarella has come <a href="https://www.bloomberg.com/view/articles/2018-05-29/italy-s-president-just-undermined-the-euro">under a lot of fire for this decision</a>, but it is probably unfair to blame him for trying to prevent a debt crisis. He found himself in a “damned if you do, damned if you don’t” type of situation.</p>
<h2>3. What’s at stake?</h2>
<p>The political situation basically pits democracy against debt. </p>
<p>The president denied the two parties that got the most votes a chance to lead on their own terms. At the same time, talk of leaving the euro and canceling debt puts Italy’s position as a reliable debtor into question, which could have severe repercussions. </p>
<p>Italy bond price developments in the final days of the talks clearly indicate that investors are uncomfortable holding Italy’s debt while a government is in power with an agenda of renegotiating Italy’s debt, leaving the euro or both. Hence, Italy faces the bleak dilemma of either becoming insolvent or giving up democratic representation. That’s the conundrum President Mattarella had to face.</p>
<p>To complicate things further, there are few safety nets available for Italy: It holds the <a href="https://voxeu.org/article/diagnosing-italian-disease">most public debt in the eurozone</a> – and the third-most in the world, behind the U.S. and Japan. If Italy finds itself unable to refinance its debt, a rescue would require a coordinated effort of the International Monetary Fund, the EU and possibly Europe’s central bank. That would probably come with harsh conditions.</p>
<h2>4. What’s next?</h2>
<p>Events are unfolding rapidly. </p>
<p>After the veto, Mattarella gave a former IMF official and euro-supporter a mandate to form a temporary government – which was <a href="https://www.wsj.com/articles/italian-populists-revive-coalition-talks-to-form-government-1527762166">resisted</a> by virtually all political parties. But now leaders from Five Star and North League <a href="https://www.wsj.com/articles/italian-political-parties-5-star-and-league-strike-deal-on-coalition-government-1527788151">are again set to lead a coalition government</a>, with the little-known lawyer and academic Giuseppe Conte at its helm, after backing down and agreeing to a more euro-friendly choice for the Finance Ministry.</p>
<p>The new government faces an extremely arduous task. Italy desperately needs a government that can devise an ambitious long-term strategy to tackle its large public debt, sluggish productivity growth and high youth unemployment.</p><img src="https://counter.theconversation.com/content/97516/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Bruno Pellegrino receives funding from the Price Center for Entrepreneurship and the Center for Global Management at UCLA Anderson.</span></em></p>An economist answers four important questions on what’s behind the political turmoil in Italy and what’s at stake for Europe and the world.Bruno Pellegrino, PhD Candidate in Business Economics, University of California, Los AngelesLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/975352018-05-31T19:50:49Z2018-05-31T19:50:49ZVital Signs: Italy is broke, and the markets have lost all faith in its elected politicians<p>We are now in another <a href="https://theconversation.com/italy-and-the-euro-sergio-mattarella-has-opened-a-window-of-opportunity-to-save-the-single-currency-97428">full-scale European crisis</a>.</p>
<p>The results of Italy’s <a href="https://en.wikipedia.org/wiki/Italian_general_election,_2018">general election on March 4</a> were problematic. Roughly one-fifth of Italians voted for the populist <a href="https://theconversation.com/italy-how-matteo-salvini-sacrificed-bid-for-northern-autonomy-to-save-the-league-97392">Northern League party of Matteo Salvini</a>, and one-third backed the <a href="https://theconversation.com/after-brexit-keep-a-close-watch-on-italy-and-its-five-star-movement-61589">Five Star Movement</a>, a eurosceptic, anti-establishment party founded by standup comedian Beppe Grillo.</p>
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<a href="https://theconversation.com/after-brexit-keep-a-close-watch-on-italy-and-its-five-star-movement-61589">After Brexit, keep a close watch on Italy and its Five Star Movement</a>
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<p>Salvini has <a href="https://www.businessthink.unsw.edu.au/Opinion/Pages/QuItaly-is-now-a-real-possibility.aspx">responded</a> to the refugee crisis by saying that Italy needs “a mass cleaning – home by home, street by street, neighbourhood by neighbourhood”. Grillo, meanwhile, has championed the idea of celebrating “<a href="https://www.newyorker.com/magazine/2008/02/04/beppes-inferno">V-Days</a>” – short for the Italian <em>vaffanculo</em> (the various English translations all begin with an expletive and end with either “off” or “you”) – taking aim at the political elite as part of an eccentric grab bag of largely anti-capitalist policy ideals.</p>
<p>Setting aside the bizarre prospect of a coalition between the far right and the loopy left, as a prospective government the pair do not bode well for Italy or Europe. Although officially disavowing any move to exit the Eurozone, they almost surely would have sought to do so. That would have triggered an automatic exit from the European Union, perhaps inevitably nicknamed “<a href="https://www.smh.com.au/business/markets/remember-grexit-it-feels-like-2012-again-as-quitaly-roils-markets-20180530-p4zic5.html">Quitaly</a>”.</p>
<p>Italy, and the European experiment with it, might have bled out slowly.</p>
<p>But when Italian President Sergio Mattarella <a href="https://www.theguardian.com/world/2018/may/27/italys-pm-designate-giuseppe-conte-fails-to-form-populist-government">refused</a> to allow the putative coalition to form government in its currently proposed form, all hell broke loose.</p>
<p>With a second election now on the cards, the spread on two-year Italian bonds quickly jumped to around 300 basis points over German bonds. That’s the market suggesting a staggering risk of default.</p>
<p>Yesterday Mattarella tried to calm things down by suggesting that he could appoint an interim technocratic government, giving Salvini and Five Star’s current leader, Luigi Di Maio, more time to produce a list of ministers that he could live with.</p>
<p>That’s probably the right thing to do, but it’s tough to get the toothpaste back in the tube. The markets are spooked. It will take a lot more than the prospect of securing a coalition government between two lunatic-fringe parties bent on getting Italy out of the euro to calm things down.</p>
<h2>Greece is the word</h2>
<p>Italy is Europe’s third-largest economy and it has <a href="https://tradingeconomics.com/italy/government-debt-to-gdp">public debt of €2.3 trillion</a>. A bank run on the Italian economy, similar to what <a href="https://www.theguardian.com/business/live/2015/jun/28/greek-crisis-ecb-emergency-liquidity-referendum-bailout-live">happened in Greece in 2015</a>, would be a cataclysm that would likely be impossible to stop without Italy exiting the euro.</p>
<p>The seeds of Italian populism were fairly predictable in the wake of the great recession. <a href="https://tradingeconomics.com/italy/unemployment-rate">Italy’s unemployment rate doubled to more than 12% and is still at 10.9%</a>. Youth unemployment peaked at a 42.7% in 2014 and remains around 35%. GDP fell by more than 7% per year at an annualised rate and only turned positive in 2014. Real GDP is still below its 2007 level. Italy’s current GDP growth of 1.5% is the lowest in the Eurozone.</p>
<p>The question is what to do about it. Radical spending promises that can’t possibly be fulfilled without totally blowing the government’s books are not the answer. Having them delivered by an unstable government comprised of a loose coalition of warring tribes is less encouraging still.</p>
<p>On the other hand, fresh elections will just spook the markets even more.</p>
<p>Right now, Mattarella’s proposed technocratic government looks like the least worst option. There is an open question about how long it should govern for, but a reasonable starting point would be three years. That might give it time to get the Italian economic ship back upright. Enough time to take some tough decisions. This, of course, simply cannot be guaranteed under the constitution, so all Mattarella can do is install it and hope that the prospect of stability becomes self-reinforcing.</p>
<p>That is the kind of government that former Greek finance minister <a href="https://theconversation.com/yanis-varoufakis-from-accidental-economist-to-finance-minister-36827">Yanis Varoufakis</a> would hate, given his fierce resistance to the austerity imposed on Greece by its creditors. And I’m sure it will take about five seconds for me to be labelled a Washington Consensus, IMF-loving neoliberal for suggesting it. It would certainly attract plenty of criticism in Italy, given the strong anti-establishment sentiment that created this crisis in the first place. </p>
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<a href="https://theconversation.com/italy-and-the-euro-sergio-mattarella-has-opened-a-window-of-opportunity-to-save-the-single-currency-97428">Italy and the euro: Sergio Mattarella has opened a window of opportunity to save the single currency</a>
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<p>But, to use the language of bankruptcy, the bottom line is that Italy is in political and economic <a href="http://www.uscourts.gov/services-forms/bankruptcy/bankruptcy-basics/chapter-11-bankruptcy-basics">Chapter 11</a>. It is broke. It’s not technically insolvent just yet. But it will be, as they say in debt contracts, “but for the passage of time”.</p>
<p>It’s time to bring in the receivers to restructure. There needs to be serious microeconomic and labour-market reform, of the kind Emmanuel Macron is trying to implement in France. There also needs to be some attempt to get the debt under control. Lowering the interest rate through increased confidence would be a good start.</p>
<p>This would also help the rest of Europe. Perhaps there is some hope that German Chancellor Angela Merkel would be grateful, and thus more amenable to assistance measures for Italy. She certainly could not be less well disposed to help out than at present.</p><img src="https://counter.theconversation.com/content/97535/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Richard Holden does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>Italy’s economy is verging on bankrupt and its election results have dealt a hammer blow to the prospects of fixing things. The best option, financially at least, may be to put someone else at the helm.Richard Holden, Professor of Economics and PLuS Alliance Fellow, UNSW SydneyLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/974282018-05-30T10:31:06Z2018-05-30T10:31:06ZItaly and the euro: Sergio Mattarella has opened a window of opportunity to save the single currency<p>Crisis looms large over the eurozone yet again. And this time it’s swirling around Italy. If <a href="https://www.palgrave.com/gb/book/9783319622224">Cyprus was a tropical storm</a> for the euro in 2013 and <a href="https://theconversation.com/how-greeces-liquidity-problem-could-cause-an-unplanned-grexit-41691">Greece a hurricane in 2015</a> what will Italy turn out to be in 2018? </p>
<p>Italy’s public debt is <a href="https://www.bloomberg.com/news/articles/2017-11-09/italian-debt-load-up-this-year-above-130-in-2018-eu-says">132% of GDP</a>. This is the second highest in the euro area (Greece is still out in front with 180.8%). In absolute terms, however, Italy’s public debt at €2.3 trillion dwarfs Greece’s €320 billion. Meanwhile, the eurozone’s third largest economy contains a rising tide of populist, anti-EU sentiment.</p>
<p>It is therefore not surprising that Italy is now the biggest ever threat for the euro. As Greece showed, a sovereign debt crisis can quickly transform itself <a href="https://theconversation.com/euro-nightmare-unfolds-queues-at-banks-in-greece-as-capital-controls-follow-ecb-funding-cap-43984">into a banking crisis</a>, as depositors flock to take their money out.</p>
<p>Part of the problem is that the Five Star Movement and the League – the big winners in the March election who were <a href="https://theconversation.com/italys-new-government-why-a-political-novice-is-a-strategic-choice-for-prime-minister-97196">set to form a coalition government</a> – made electoral pledges so wild that to call them populist is to put it mildly. Among these was taking Italy out of the eurozone and cancelling €341 billion Italian debt held by the European Central Bank (ECB).</p>
<p>Although their <a href="https://www.ft.com/content/e0cd0f22-5a7c-11e8-bdb7-f6677d2e1ce8">draft programme</a> for government had removed all direct references to a eurozone exit, it included enough anti-euro rhetoric and such drastic reforms to the eurozone’s architecture and economic policies that it sent shivers across the continent. What’s more, the coalition’s spending commitments are around €100 billion or 6% of Italy’s GDP, potentially making a bad public debt situation worse and conflicting with EU budgetary rules. </p>
<p>The two parties also want to “radically revise” the EU’s banking rules that protect public finances from failing banks and seek to compensate retail investors for any losses already incurred. Such a prospect could prove destabilising not just for Italy but also for Spain, Cyprus and Slovenia – where creditors <a href="https://voxeu.org/article/bank-bail-ins-lessons-cypriot-crisis">were “bailed-in”</a> (the opposite of a bail out). It would, in effect, undo all the progress towards a banking union in the eurozone and mean returning to the days when taxpayers footed the bill for bank failures. </p>
<p>The two parties even appeared to have had <a href="https://www.bloomberg.com/news/articles/2018-05-29/league-five-star-had-euro-exit-plan-italy-s-democrats-say">a Plan B</a> in case Europe didn’t accept their demands. They were prepared for a “secret” exit from the euro over a weekend, accompanied by the cancellation of all Italian debt held by the ECB. No referendum was planned as this would cause financial havoc. </p>
<p>If Italy were to leave the euro, the ECB would have to write down its holdings of Italian public debt and all central banks across the eurozone would make massive losses. The respective governments – funded by the taxpayers – would have to foot the bill. That would be bad enough, even before considering whether the euro could survive an Italian exit and all the knock-on effects that would ensue. </p>
<p>The icing on the cake, which has led to the country’s latest political impasse, was the nomination of Paolo Sanova, a well-known eurosceptic, as finance minister. This explosive proposition was <a href="http://www.bbc.co.uk/news/world-europe-44277888">rejected by Sergio Mattarella</a>, Italy’s president, who has vetoed the coalition’s proposed government, wisely claiming it would have destabilised the country. He has installed Carlo Cottarelli, a former IMF official, as interim prime minister, instead. </p>
<h2>A poisoned chalice</h2>
<p>Had Italy’s president gone along with the Five Star Movement-League proposal, the crisis would have escalated very quickly. Markets and bank depositors were unlikely to wait until the “secret” weekend when Italy exits the euro. A bank run would have ensued almost immediately and that could have caused a new and unprecedented challenge for the ECB. </p>
<p>In the cases of Greece and Cyprus, the ECB supported their respective banking systems while political negotiations were ongoing and had a reasonable prospect of agreement. Even so, such support was never automatic. When negotiations stalled, it was frozen or restricted, resulting in extended bank holidays and capital controls. </p>
<p>In Italy’s case, the decision whether to provide such support would be much more of a poisoned chalice. Throwing good money after bad to support banks in a country whose government is threatening to abandon the euro could be seen as financially and legally reckless, if not politically suicidal. </p>
<p>Providing a lifeline to a government that is so hostile to the euro would have caused a furore in Germany where the ECB is already seen as too soft on the periphery, in general, and Italy in particular. Yet not supporting banks in Italy would lead to an immediate shut down of the banking system and an even bigger economic and political crisis, which could prove to be the final blow to the euro.</p>
<h2>Window of hope</h2>
<p>Unsurprisingly, Mattarella’s decision was welcomed with relief in both France and Germany, although Chancellor Angela Merkel was <a href="https://www.reuters.com/article/us-italy-politics-germany/merkel-tells-italy-euro-zone-rules-must-frame-economic-discussions-idUSKCN1IT1FG">quick to stress</a> that she would be willing to work with any coalition government that respected eurozone roles. </p>
<p>But the interim technocratic government is only a very short-term fix that may not even last until the end of summer, if it fails to get a vote of confidence in parliament. As the president’s actions are already inflaming anti-EU sentiment in Italy, a new election could well deliver an even more populist outcome. Financial markets are certainly becoming spooked and that can force an even earlier election.</p>
<p>Some commentators, including former Greek finance minister <a href="https://www.theguardian.com/commentisfree/2018/may/28/italy-eurosceptic-far-right-technocrat-matarella-racist-populist">Yanis Varoufakis</a>, are suggesting that the only way for the euro to withstand an Italian tsunami is for Berlin to show more flexibility. But if Berlin were to give in to the demands of one populist government, that could signal the beginning of the end for the euro, as it would be a gift to populist parties in other member states. In turn, that’s likely to lead to a rise of the far right in Germany – surely the beginning of the end of Europe as a project for peace.</p>
<p>I’m not saying the eurozone is perfect or that Italy should not receive any form of help. Far from it. But the interim government provides a small window of opportunity to fast track eurozone reforms. These need to be based on sound economic logic and pragmatic politics, rather than populist notions that are often poorly disguised ways to shift the burden of one country’s past excesses to others. </p>
<p>Time is limited, but there are already several sensible proposals around, including the one for a <a href="https://www.imf.org/en/Publications/Staff-Discussion-Notes/Issues/2018/03/22/A-Central-Fiscal-Stabilization-Capacity-for-the-Euro-Area-45741">rainy day fund by the IMF</a>, a proposal for a new debt instrument by the European Commission and <a href="https://www.ft.com/content/10069151-0736-3072-b185-c4c635e59174">reform ideas</a> from top French and German economists. </p>
<p>This is the only way forward if the European project is to survive the new threat from Italy. Although the German government <a href="https://global.handelsblatt.com/finance/imf-lagarde-rainy-day-fund-euro-zone-904034">isn’t thrilled</a> by these proposals, it may now be the last opportunity to save the eurozone. Unless its benefits are seen to be more widely shared, the euro’s days are numbered.</p><img src="https://counter.theconversation.com/content/97428/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Panicos O Demetriades does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>If you thought the risk of Grexit was bad, you’ve got a shock coming in the shape of Italy.Panicos O Demetriades, Professor of Financial Economics, University of LeicesterLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/950162018-05-08T11:15:48Z2018-05-08T11:15:48ZGermany’s deep-rooted obsession with saving – a brief history<figure><img src="https://images.theconversation.com/files/218101/original/file-20180508-34009-dcwt4w.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">
</span> <span class="attribution"><a class="source" href="https://www.shutterstock.com">shutterstock.com</a></span></figcaption></figure><p>A small exhibition <a href="https://www.dhm.de/en/ausstellungen/saving.html">recently opened</a> in the German Historical Museum in Berlin all about Germany’s love of saving money. It might have had a mundane sounding title, “Saving – History of a German Virtue”, but it provides an interesting insight into what is a deep-rooted national obsession. </p>
<p>As well as an opportunity for self-reflection for visiting Germans, the exhibition also provides a window into the historical roots of German morality when it comes to being financially prudent and the country’s attitude towards European policies and its partners. </p>
<p>Saving has a long history in German society. The first savings bank opened in 1778 in Hamburg. By 1836, there were more than 300 of these savings banks operating in the then German Confederation, allowing Germans to save their hard earned income for some interest. </p>
<p>There is <a href="https://www.dhm.de/fileadmin/medien/relaunch/ausstellunngen/Sparen/SH_DHM_Sparen_Flyer_4cSC_A6_180312_web.pdf">plenty of evidence</a> in the exhibition that the concept of saving was established as a virtue from this period, through the Weimar Republic, which followed World War I, then in the Nazi era and after World War II on both sides of the Berlin Wall. Saving became an essential part of the country’s tax planning, welfare provision and social policies.</p>
<p>The legacy of this virtue has made Germans the top savers in the world. Households consistently saved more than 8% of their disposable income over the last two of decades, <a href="https://data.oecd.org/chart/5am1">according to OECD data</a>. The last time UK households came close to the German savings rate was in 1995. Two decades later, in 2015, German savers keep an equivalent of 9.96% of their disposable income in the country’s 400 savings banks, while the British were merely at 0.16%. </p>
<p>Looking at total savings of households, companies and the government (gross domestic savings) in these two countries, the gap is equally large. In 2015, German’s gross domestic savings were at 27.2% while in the UK figure shows merely 15.3%</p>
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<p>Germans not only save more than their UK counterparts, but the deep rooted national habit has more implications than those numbers would reveal.</p>
<p>Understanding the German obsession with savings is important when one wants to understand German attitudes towards domestic and European policies. For example, since 2012 the main European Central Bank interest rate has been below 1%, and in March 2016 <a href="https://www.ecb.europa.eu/stats/policy_and_exchange_rates/key_ecb_interest_rates/html/index.en.html">was reduced to 0%</a>. The reason for these low interest rates, along with large programmes of quantitative easing, was to stabilise the European banking sector <a href="https://theconversation.com/explainer-what-is-the-ecb-bazooka-and-will-it-spur-a-eurozone-recovery-56302">and to encourage lending, spending and economic recovery</a>. </p>
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<p>The move was widely praised by various governments. But in Germany, it was criticised by the country’s saving public who feared the low interest rates would destroy their wealth <a href="https://www.ecb.europa.eu/press/key/date/2017/html/ecb.sp171009_1.en.html">and ruin their retirement plans</a>. As the conservative German newspaper, <a href="http://www.faz.net/aktuell/finanzen/finanzmarkt/zinsen-was-die-ezb-wirklich-fuer-die-sparer-tut-15482224.html">FAZ, put it</a>: “there is something ritualistic about cursing the Italian president of the ECB for keeping interest rates low, depriving savers of their well-deserved interest.”</p>
<h2>At the state level</h2>
<p>The virtue of saving in Germany is not limited to households or companies, but to state finances too. A good state does not live beyond its means and saves money where it can. The state, seen as the virtuous and prudent <a href="https://www.economist.com/news/europe/21595503-views-economics-euro-and-much-else-draw-cultural-archetype-hail-swabian">Swabian housewife</a>, is at the centre of the German pro-austerity narrative, which has not only affected domestic but <a href="https://mainlymacro.blogspot.co.uk/2016/09/explaining-macroeconomics-to-swabian.html">most of all European policies</a>. </p>
<p>In the aftermath of the European sovereign debt crisis the implementation of austerity policies in the southern periphery, specifically Greece, was justified with the necessity to reduce spending and increase savings. It is no surprise that Germany was one of the leading advocates of these fiscal policies. To the German psyche, austerity was the necessary antidote to a country that had lived recklessly beyond its means up until 2008. </p>
<p>To <a href="https://www.ft.com/content/97b826e2-d7ab-11e0-a06b-00144feabdc0">quote</a> former Germany’s finance minister at the time, Wolfgang Schäuble: </p>
<blockquote>
<p>It is an undisputable fact that excessive state spending has led to unsustainable levels of debt and deficits that now threaten our economic welfare … Governments in and beyond the eurozone need not just to commit to fiscal consolidation and improved competitiveness – they need to start delivering on these now.</p>
</blockquote>
<p>Schäuble was seen as a stickler for rules. So much so that he became <a href="http://www.bbc.co.uk/news/world-europe-33511387">a hate figure in Greece</a> for emphasising austerity policies. </p>
<p>But, with the history and importance of saving in Germany in mind, it is unlikely that Olaf Scholz, Schäuble’s successor as finance minister, or the country he represents, will change its mind on this any time soon. </p>
<hr>
<p><em>Correction: the interest rate graph in this article was updated on May 10 2018 to correct an inaccuracy in the interpolation.</em></p><img src="https://counter.theconversation.com/content/95016/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Imko Meyenburg does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>The importance of saving is so deep rooted in Germany that an exhibition recently opened to commemorate it.Imko Meyenburg, Lecturer in Economics and International Business, Anglia Ruskin UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/806582017-08-03T21:09:30Z2017-08-03T21:09:30ZHow Greece could escape debtors’ prison – if Europe opens the door<figure><img src="https://images.theconversation.com/files/180918/original/file-20170803-17289-k8cmre.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">European Council President Donald Tusk and Greek Prime Minister Alexis Tsipras address the press. </span> <span class="attribution"><span class="source">AP Photo/Thanassis Stavrakis</span></span></figcaption></figure><p>Greece has acted out a European tragedy for more than seven years. But some signs suggest Greece may finally, in the <a href="https://www.nytimes.com/2017/07/24/business/dealbook/greece-debt-bonds.html">words of its economy minister</a>, be on the way to becoming a “normal country” again. </p>
<p>Greece’s creditors <a href="https://www.theguardian.com/world/2017/jun/16/creditors-agree-terms-to-disburse-greeces-85bn-bailout-funds">have disbursed</a> another chunk of funds as part of Greece’s current, €86 billion (US$100 billion) bailout, and the country recently <a href="https://www.omfif.org/analysis/commentary/2017/july/greek-bond-issue-is-mixed-blessing/">tested the bond markets</a> for the first time in three years, planning to borrow more from private investors soon. <a href="https://www.nytimes.com/2017/07/24/business/dealbook/greece-debt-bonds.html">Some now believe</a> Greece may soon follow fellow bailed-out countries <a href="http://business.financialpost.com/investing/global-investor/how-ireland-pulled-off-an-economic-miracle-that-rivals-china-india/wcm/33bcb34c-35df-4817-954f-1e887fb24c0b">Ireland</a> and <a href="https://www.ft.com/content/ea7f2a22-4219-11e7-82b6-896b95f30f58">Portugal</a> in their revivals. </p>
<p>But despite the <a href="http://www.tornosnews.gr/en/greek-news/politics/26354-french-ambassador-in-athens-chantepy-optimism-returns-to-greece.html">wave of optimism</a>, Greece’s staggering amount of debt looms menacingly over the country’s economy and future. And the International Monetary Fund (IMF), while endorsing Athens’ reform program, is urging its fellow creditors to offer Greece much <a href="http://www.imf.org/en/News/Articles/2017/07/20/pr17294-greece-imf-executive-board-approves-in-principle-stand-by-arrangement">greater debt relief</a>. </p>
<p>In my recent book, “<a href="https://global.oup.com/academic/product/tangled-governance-9780198801801?cc=us&lang=en&">Tangled Governance</a>,” I examined the financial rescue programs for euro area countries, including three for Greece, and the conflicts over them. My own research supports the view that Greece needs to finally be released from debtors’ prison but for political reasons more than the financial arithmetic at the core of the institutions’ debt analyses. </p>
<p>And there’s a way to do that which makes the pain bearable for everyone and opens a path back to normalcy. </p>
<figure class="align-center ">
<img alt="" src="https://images.theconversation.com/files/180921/original/file-20170803-17911-1n1ys8u.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/180921/original/file-20170803-17911-1n1ys8u.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=400&fit=crop&dpr=1 600w, https://images.theconversation.com/files/180921/original/file-20170803-17911-1n1ys8u.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=400&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/180921/original/file-20170803-17911-1n1ys8u.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=400&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/180921/original/file-20170803-17911-1n1ys8u.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=503&fit=crop&dpr=1 754w, https://images.theconversation.com/files/180921/original/file-20170803-17911-1n1ys8u.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=503&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/180921/original/file-20170803-17911-1n1ys8u.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=503&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">Protesting hospital staff sit in front of a wall they built in front of the Greek Finance Ministry with a banner depicting their leaders wearing ties that read ‘Ministry of broken promises’ and ‘We drown in debt and bailouts.’</span>
<span class="attribution"><span class="source">AP Photo/Petros Giannakouris</span></span>
</figcaption>
</figure>
<h2>A great depression</h2>
<p>Over the last seven years, we have witnessed many 11th-hour crisis meetings and last-minute rescues that, after much brinkmanship and grinding of teeth, each time seemed to narrowly avert the Greece’s ejection from the euro area. </p>
<p>You’d be forgiven for becoming numb to the continual travails of a modestly sized country in the southeastern corner of Europe. That would be a mistake: Greece’s tenuous position in the euro area weakens long-term confidence in European integration. Moreover, as a key NATO ally, located in a strategic corner of a volatile region, its economic and political stability are essential to European security. </p>
<p>To stabilize its finances and avoid expulsion from the euro area, Greece <a href="https://ec.europa.eu/info/sites/info/files/compliance_report-to_ewg_2017_06_21.pdf">has undertaken a wrenching series</a> of government layoffs, budget and pension cuts, and tax reforms, among other measures, at the insistence of the IMF, European Commission (EC) and European Central Bank, which together make up the so-called troika of public lenders to the beleaguered country. </p>
<p>So far, the troika has lent Greece about <a href="https://www.esm.europa.eu/assistance/greece">€265 billion</a> in three separate bailouts, with the latest one set to expire next summer. Separately, Greece managed to restructure its private sector debt in 2012, reducing the amount it owed investors by about 53 percent.</p>
<p></p><hr><p></p>
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<p></p><hr><p></p>
<p>Despite all this, Greece still owes a total of about €320 billion in debt, and its economy <a href="https://www.nytimes.com/interactive/2015/07/09/business/international/is-greece-worse-off-than-the-us-during-the-great-depression.html?_r=0">has suffered the equivalent</a> of the Great Depression in the United States in the 1930s, having shrunk by a fourth. Unemployment is running at nearly 25 percent, and youth poverty, which soared during the crisis, <a href="http://www.oecd.org/eco/surveys/economic-survey-greece.htm">remains near 36 percent</a>.</p>
<p>But now that the latest disbursement of funds has been agreed to, does that mean the worst is behind Greece?</p>
<h2>Moment of truth</h2>
<p>Sadly, no one should be confident that Greece’s recovery will become self-sustaining. It is particularly vulnerable to another European recession, whenever that might come. And with the end of the current bailout on the horizon, its creditors are sharply divided about what to do next. </p>
<p>For the moment, they’re waiting for <a href="https://www.reuters.com/article/us-germany-election-pollsters-idUSKBN1AH4DP">Germany’s national elections</a> in September to come and go so that domestic politics don’t get in the way. Debt relief before then could have been costly at the polls for the governing coalition. But once talks resume this fall, they are certain to be contentious. </p>
<p>The euro members, which have put up the lion’s share of the loans so far, remain deeply reluctant to offer Greece more than minimal debt relief. The IMF, on the other hand, <a href="https://www.imf.org/en/Publications/CR/Issues/2017/02/07/Greece-2017-Article-IV-Consultation-Press-Release-Staff-Report-and-Statement-by-the-44630">has argued forcefully</a> that Greece’s debt won’t become sustainable without substantial relief. It suggests doing that by keeping interest rates at today’s lows, extending grace periods and allowing Greece to defer paying back its loans until decades past the current due date of 2060. </p>
<p>Part of the problem is that the European creditors <a href="https://ec.europa.eu/info/sites/info/files/compliance_report-to_ewg_2017_06_21.pdf">are holding onto a rather rosy scenario</a> of how much Greece’s economy can be expected to grow beyond the near-term recovery and thus generate enough tax revenue to pay off its debt in the long term. The European Commission expects Greece to grow 1.5 percent every year, on average, until 2030 and 1.25 percent thereafter.</p>
<p>The IMF, on the other hand, <a href="http://www.imf.org/en/Publications/CR/Issues/2017/07/20/Greece-Request-for-Stand-By-Arrangement-Press-Release-Staff-Report-and-Statement-by-the-45110">projects growth</a> of just 1 percent a year beginning in 2022. </p>
<p></p><hr><p></p>
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<p></p><hr><p></p>
<p>While the difference may seem small, the cumulative effect on Greece’s ability to pay back its debt is decisive. The larger the economy, the smaller the relative size of the debt and interest payments, and the easier it will be to run budget surpluses to repay debt. If the EC is wrong, Greece will have a very hard time meeting its debt payments in two or three decades without major relief.</p>
<p>Ultimately, however, the ability and willingness of Greece to service its debt rests on political considerations, not economic ones, just as does the question of debt relief. </p>
<p>It looks like European creditors want to use the debt burden to keep Greece on a very short leash to prevent backsliding on economic reforms, albeit ones that are essential for the country to get back on its feet. </p>
<figure class="align-center ">
<img alt="" src="https://images.theconversation.com/files/180927/original/file-20170803-17289-i8s0no.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/180927/original/file-20170803-17289-i8s0no.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=400&fit=crop&dpr=1 600w, https://images.theconversation.com/files/180927/original/file-20170803-17289-i8s0no.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=400&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/180927/original/file-20170803-17289-i8s0no.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=400&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/180927/original/file-20170803-17289-i8s0no.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=503&fit=crop&dpr=1 754w, https://images.theconversation.com/files/180927/original/file-20170803-17289-i8s0no.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=503&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/180927/original/file-20170803-17289-i8s0no.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=503&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">Retirees wait for a bank branch to open to receive their monthly pension payments.</span>
<span class="attribution"><span class="source">AP Photo/Thanassis Stavrakis</span></span>
</figcaption>
</figure>
<h2>A way out of the impasse</h2>
<p>As a long-term strategy, however, using debt as leverage over reform is doomed and will prevent Greece from a full recovery. There are two principal reasons for this: </p>
<ol>
<li><p>Private investors will tend to avoid committing to projects in Greece as long as its debt remains so high that periodic renegotiation is likely.</p></li>
<li><p>More importantly, European decision-making throughout the euro crisis <a href="http://bruegel.org/wp-content/uploads/2017/06/Henning-Presentation-FINAL.pdf">amply demonstrates</a> that Greece’s creditors are hamstrung by their own domestic politics. That prevents them from pursuing the optimal course of action, even when the admittedly formidable political barriers in Greece have been overcome, and has contributed to many delays. </p></li>
</ol>
<p>A way out of this impasse, however, is to make the size of Greece’s debt payments <a href="https://www.imf.org/en/About/Key-Issues/state-contingent-debt-instruments">contingent on growth outcomes</a>. If Greece rebounds quickly and maintains high growth, debt relief can remain relatively modest. If Greece grows more slowly, as the IMF and others predict, then payments on the debt can be reduced and deferred automatically – without requiring creditors to come together and overcome domestic political hurdles every time.</p>
<p>Eurozone finance ministers <a href="http://www.consilium.europa.eu/en/press/press-releases/2017/06/15-eurogroup-statement-greece/?utm_source=dsms-auto&utm_medium=email&utm_campaign=Eurogroup+statement+on+Greece">recently floated</a> this as a possibility for Greece. Given the political constraints of the key players, as my analysis of the crisis suggests, it’s the best way forward, and proponents should fight for its robust adoption so that Greece’s debt payments are significantly reduced if growth proves to be weak. </p>
<p>If Greece’s European creditors truly believe that their neighbor’s prospects are as rosy as they say – rather than a ploy to avoid granting relief now – then they should have little problem signing on to the new mechanism. </p>
<p>This will also give investors confidence that Greece in fact is returning to “normal” and they can commit to projects in the country. Finally, this will align the interests of everyone with those of the long-suffering Greek people.</p><img src="https://counter.theconversation.com/content/80658/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>C. Randall Henning receives funding from the Centre for International Governance Innovation (CIGI). </span></em></p>Europe is experiencing a wave of optimism that its seven-year Greek drama may be finally coming to a close. Only one way to do that: Share Greece’s pain.C. Randall Henning, Professor of International Economic Relations, American University School of International ServiceLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/751092017-03-24T09:59:01Z2017-03-24T09:59:01ZAmerica can’t be first without Europe<p>On March 25, European Union leaders celebrate the 60th anniversary of their founding treaty, a central pillar of the structure set up in the aftermath of World War II to solidify peace, prosperity and partnership in Europe.</p>
<p>Over the last 60 years, the EU (and its predecessors) has served as an essential U.S. partner: for example, by enhancing economic opportunity for U.S. companies in Europe and <a href="https://2001-2009.state.gov/p/eur/rls/fs/48475.htm">increasingly supplying vital foreign assistance</a> and diplomatic support to help solve international problems. Indeed, if the EU did not already exist, the United States would be looking to invent something like it to help preserve peace and generate prosperity on a continent that suffered through two devastating world wars.</p>
<p>More recently, however, the EU has faced a variety of existential threats as the <a href="https://theconversation.com/15-economic-milestones-which-have-led-to-the-current-eurozone-crisis-53503">euro crisis</a> rattled its members’ financial well-being, economic growth slowed, <a href="https://theconversation.com/what-explains-britains-brexit-shocker-61620">U.K. voters opted</a> to leave the union and “<a href="http://www.newsweek.com/donald-trump-eu-wonderful-european-union-brexit-euroskeptic-560200">euroskeptics</a>” in countries like <a href="https://theconversation.com/how-marine-le-pen-could-become-the-next-french-president-68765">France</a> and the Netherlands use criticism of Brussels to contest elections. And even in the U.S., <a href="http://www.the-american-interest.com/2016/06/15/brexit-good-for-the-united-states/">some reacted to Brexit</a> with cheers.</p>
<p>The bottom line – based on our many year of experience as diplomats, policymakers and researchers on transatlantic issues – is that the U.S. needs a strong economic and political partnership with Europe to advance its own economic well-being and address vexing international and regional issues. Such a partnership would be <a href="https://www.cambridge.org/core/journals/international-organization/article/div-classtitlewhat-single-voice-european-institutions-and-euus-trade-negotiationsdiv/13091C901403ADB37A006BA31F51C913">enormously more difficult</a> to maintain without the EU’s single voice, something Washington would be wise to remember.</p>
<h2>Ensuring peace and prosperity</h2>
<p>As it happens, the EU <a href="https://www.amazon.com/Recovery-Europe-Richard-Mayne/dp/B00D1FGXPW">might not even exist</a> today if it wasn’t for the United States and its efforts to rebuild Europe – via the Marshall Plan – and stop the spread of Communism following World War II. </p>
<p>Seventy years ago, U.S. Secretary of State George Marshall, U.S. President Harry Truman and members of Congress – Republicans and Democrats alike – <a href="https://www.brookings.edu/wp-content/uploads/2016/10/table-of-contents_-the-marshall-plan-and-the-shaping-of-american-strategy.pdf">agreed</a> that the way to ensure peace and prosperity in Europe was for Europeans to develop interdependent, competitive economies. What we now know as the European Union emerged from these American efforts.</p>
<p>And it has worked. The EU – whether through the <a href="http://www.consilium.europa.eu/en/european-council/">European Council</a> of heads of state, the <a href="https://ec.europa.eu">European Commission</a> or the <a href="http://www.europarl.europa.eu/portal">European Parliament</a> – has helped underpin prosperity and economic competition among democratic nations on the continent. </p>
<p>The EU’s <a href="http://onlinelibrary.wiley.com/doi/10.1111/jcms.12175/abstract">single market in particular has led to unprecedented wealth</a>, as it established rules and norms for doing business across the member states. The EU has also served as the vehicle for embracing Central Europe into that market and community of members after the fall of the Iron Curtain and still remains a pole of attraction for others hoping to join the EU. </p>
<p>Since the signing of the <a href="http://eur-lex.europa.eu/legal-content/EN/TXT/?uri=uriserv%3Axy0023">Treaty of Rome</a>, the <a href="https://www.weforum.org/agenda/2015/10/is-europe-outperforming-the-us/">EU has grown</a> from six countries with 186 million citizens to 28 countries with 515 million citizens and a GDP seven times larger than in 1957. The <a href="http://www.businessinsider.com/charts-eu-economy-is-bigger-than-the-us-2015-6">combined EU economy</a>, in fact, is larger than that of the United States, making it the <a href="https://www.thebalance.com/world-s-largest-economy-3306044">second-biggest</a> in the world behind China.</p>
<h2>The economic ties that bind</h2>
<p>Even from an “<a href="https://theconversation.com/trumps-america-first-echoes-from-1940s-59579">America first</a>” perspective, it is important to recognize how much value has been created by the European Union’s single market and other initiatives that have made Europe’s economy more integrated and open to U.S. businesses. </p>
<p>For example, today the transatlantic economy <a href="https://transatlanticrelations.org/publication/transatlantic-economy-2017/">generates US$5.5 trillion</a> in total commercial sales a year and employs up to 15 million workers on both sides of the Atlantic. Combined, they represent the largest and wealthiest market in the world, driven by investment in both directions. </p>
<p>Roughly 60 percent of America’s total foreign assets are in Europe. Sales in Europe by EU units of U.S. companies topped $3.1 trillion in 2015, and their assets in the region are valued at an estimated $15.7 trillion. Europe accounted for over 70 percent of the $3.1 trillion invested in the U.S. in 2015, while European assets in the U.S. are estimated to be worth $8.4 trillion. Trade in goods across the Atlantic has almost doubled since 2000, totaling $686 billion in 2016, and 45 states export more to Europe than to China. </p>
<p>With a deeply integrated economic relationship of this size and nature, the U.S. should take steps to increase the ease of mutually beneficial economic activities, and urge the EU to take <a href="http://www.atlanticcouncil.org/publications/reports/charting-the-future-now">steps needed to spark economic growth</a>. </p>
<p>If the Trump administration wants to address the U.S. trade deficit with the EU, for example, let’s negotiate a new economic agreement that takes better advantage of the massive transatlantic market place described above. The U.S. and the EU were trying to forge such an agreement via the <a href="https://theconversation.com/why-ttip-will-live-on-but-not-for-the-eu-61718">Transatlantic Trade and Investment Partnership</a> before the U.S. elections. While that <a href="http://www.politico.eu/article/trumps-pick-for-trade-envoy-open-to-continued-eu-trade-talks/">agreement remains on hold</a>, we believe a strong trade deal between the partners could open up job opportunities for new generations on both sides of the Atlantic.</p>
<h2>Tackling troubles together</h2>
<p>EU is also a partner for the United States in tackling international problems and vital as a source of funds to meet humanitarian and development needs <a href="https://euaidexplorer.ec.europa.eu/DevelopmentAtlas.do">in almost every corner of the world</a>. This role is even more important if the <a href="http://www.cnn.com/2017/02/28/politics/trump-budget-foreign-aid/">U.S. wants to reduce</a> its own aid spending. </p>
<p>The EU and its members <a href="http://www.oecd.org/dac/stats/statisticsonresourceflowstodevelopingcountries.htm">together provided</a> over $87 billion in official development assistance in 2015. That is 55.7 percent of the global total. The comparable number for the United States is <a href="https://euaidexplorer.ec.europa.eu/AidOverview.do">just $31 billion, or 23.6 percent</a>.</p>
<p>On the diplomatic front, it is true, the complicated institutional makeup of the EU often means slow decision-making, and it becomes very hard when competencies and authorities at the EU conflict with those of the member states: for example, in fighting terrorism or dealing with refugees. The EU has taken major strides to improve this, such as by establishing a high representative to speak for members in a range of regional situations. The EU has been <a href="http://onlinelibrary.wiley.com/doi/10.1111/jcms.12175/abstract">an active partner</a> on Ukraine, Iran, the Middle East and Afghanistan, for example.</p>
<p>Despite the remaining shortcomings, in other words, the EU is <a href="http://www.ecfr.eu/scorecard/2016">still a much stronger foreign policy partner</a> for the U.S. today than in the past. If the EU were not there to contribute significant resources to help deal with major humanitarian crises, handle the fallout of conflicts and terror and bolster the prospects for peace and stability in countries like Ukraine, a much greater burden would fall on the United States.</p>
<h2>Winning with a strong Europe</h2>
<p>The EU currently <a href="http://www.atlanticcouncil.org/images/publications/Charting_the_Future_Now_0316.pdf">faces serious challenges</a>: low economic growth, massive immigration flows, euro-skepticism among its citizens and a complicated structure necessary to fashion decisions among 28 member states. </p>
<p>The U.K. vote to leave the EU in June, which <a href="http://transatlanticrelations.org/wp-content/uploads/2017/03/TE2017_Chapter1.pdf">will surely leave the British poorer</a> economically, only adds to the aging union’s woes as the two sides negotiate their future relationship. </p>
<p>Russia, meanwhile, is <a href="https://theconversation.com/war-of-words-how-europe-is-fighting-back-against-russian-disinformation-65444">trying to divide and weaken Europe</a>. And some in the U.S. are likely tempted to leave Europe to the Europeans and to tend to our own concerns.</p>
<p>The United States, however, remains an integral part of the European equation through bilateral ties, NATO and relations with the EU. We have learned, often to our sorrow, that whenever we ignore European problems, we end up paying a higher price later, as was the case when we pulled inward in the decade before World War II.</p>
<p>American interest in a strong EU, then, derives from a steely-eyed appreciation of fundamental U.S. national interests: a Europe that is at peace and open to U.S. goods, ideas and cooperation.</p>
<p>While the U.S. would be wise to let Europeans sort out their political differences and options for integration, America will pay enormously if the process of European cooperation or prosperity goes badly off track. We should be clear-eyed about potential costs and work to deepen transatlantic cooperation.</p>
<p>The U.S. will not be better off with a divided and weak Europe. We win with a strong European partner.</p><img src="https://counter.theconversation.com/content/75109/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Earl Anthony Wayne advises HSBC's Mexico and Latin American operations on combating illicit finance and is paid for that advisory work. He is a public policy fellow at the Woodrow Wilson International Center for Scholars, a non-resident Fellow at the Atlantic Council, and a senior non-resident advisor at the Center for Strategic and International Studies. </span></em></p><p class="fine-print"><em><span>Daniel S. Hamilton served for 15 years as Executive Director of the American Consortium for EU Studies, has been a consultant to Microsoft, the Business Roundtable and Transatlantic Business Dialogue, and a member of advisory boards and committees for the Robert Bosch Foundation, Alexander von Humboldt Foundation, the Heinrich Böll Foundation, the German Institute for International Security Affairs (SWP), and the Körber Foundation. In 2008 he served as the first Robert Bosch Foundation Senior Diplomatic Fellow in the German Foreign Office.</span></em></p>The Treaty of Rome, which eventually led to the European Union, is turning 60 at a time when many inside and outside Europe are questioning the union’s value. For the U.S., much is at stake.Earl Anthony Wayne, Visiting Professor of International Affairs, Hamilton CollegeDaniel S. Hamilton, Austrian Marshall Plan Foundation Professor, Johns Hopkins University School of Advanced International Studies, Johns Hopkins UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/730912017-02-16T14:06:48Z2017-02-16T14:06:48ZLiving through the Greek crisis: an anthropologist reports from Thessaly<figure><img src="https://images.theconversation.com/files/157122/original/image-20170216-12960-1x7m1so.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">
</span> <span class="attribution"><a class="source" href="https://www.flickr.com/photos/raffaxxi/10706888945/in/photolist-hj8B4x-2VUZLe-2VV1sD-4Pgqy1-4f2eZY-CavZ8-4WBfX6-4WFwr7-4WFxq3-9PJfs8-9PM7wq-4WBfDD-4WBg4M-4WFwuC-4WFwP1-4WFxvG-9PM7Ys-icXYKh-icY2CE-icXSTs-icYpoJ-icYwp7-icXyFf-icXTBv-icYDK1-icYkvo-icXGz1-icXPmf-icXRk6-icZaED-icYfok-icXjiX-icYbzB-icYN8v-icYWKR-icXRk5-icYAYh-icXYLD-icYH6r-icXVzY-icXW3U-icYxMu-icYMEC-icYGHf-icYUFk-icYrjY-4PbWZt-91vsRR-8ZBDJd-4Pgieh">Raffaele</a>, <a class="license" href="http://creativecommons.org/licenses/by-nc-nd/4.0/">CC BY-NC-ND</a></span></figcaption></figure><p>The prospect of another Greek crisis <a href="http://nationalinterest.org/feature/can-the-eu-stop-yet-another-greek-debt-crisis-19426">could be back on the cards</a> if things do not go to plan at an upcoming meeting of European finance ministers on February 20. With a €10.3 billion loan repayment due in July, the meeting is seen as critical for once again preventing the possibility of a Greek default and potential exit from the eurozone. </p>
<p>But while the international media returns its lens to Greece, it’s worth considering that for people in Greece the crisis has never subsided. In fact, the consequences of austerity are getting more painful by the day. My work in the central mainland captures local experiences of this national and international crisis.</p>
<p>Since 2003, I have conducted field research in Trikala, a town of 80,000 inhabitants located on the agricultural plains of Thessaly in mainland Greece. Famous for the great landed estates of the Ottoman era, the region was incorporated into the modern Greek state in 1881 and is still known <a href="http://eu.wiley.com/WileyCDA/WileyTitle/productCd-140518681X.html">as the country’s “bread basket”</a>. </p>
<figure class="align-right ">
<img alt="" src="https://images.theconversation.com/files/157117/original/image-20170216-12960-u3xguz.JPG?ixlib=rb-1.1.0&q=45&auto=format&w=237&fit=clip" srcset="https://images.theconversation.com/files/157117/original/image-20170216-12960-u3xguz.JPG?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=800&fit=crop&dpr=1 600w, https://images.theconversation.com/files/157117/original/image-20170216-12960-u3xguz.JPG?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=800&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/157117/original/image-20170216-12960-u3xguz.JPG?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=800&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/157117/original/image-20170216-12960-u3xguz.JPG?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=1005&fit=crop&dpr=1 754w, https://images.theconversation.com/files/157117/original/image-20170216-12960-u3xguz.JPG?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=1005&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/157117/original/image-20170216-12960-u3xguz.JPG?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=1005&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">Trikala Old Town.</span>
<span class="attribution"><span class="source">Daniel M Knight</span>, <a class="license" href="http://creativecommons.org/licenses/by-nd/4.0/">CC BY-ND</a></span>
</figcaption>
</figure>
<p>Before the financial crisis struck, you could breathe the overwhelming air of prosperity on the bustling streets of Trikala. The expanding construction industry, a buoyant public sector, and secure agricultural markets supported by EU initiatives and eurozone membership represented 30 years of almost uninterrupted socioeconomic prosperity. Nobody could have imagined the horrendous consequences of the full-blown economic meltdown that would explode onto the scene in 2009.</p>
<p>It was in October 2009, in the context of global economic recession, that the government “discovered” unsustainable levels of debt and an insurmountable budget deficit. Since then, Greece has received €326 billion of bailout money from the European Central Bank, European Commission and the International Monetary Fund <a href="https://theconversation.com/a-tragedy-in-three-parts-how-the-greek-debt-crisis-unfolded-44680">in return for stringent austerity measures</a>. </p>
<h2>An everyday crisis</h2>
<p>Athens-centric media coverage has portrayed the consequences of austerity primarily through images of <a href="https://theconversation.com/life-under-austerity-shows-why-syriza-is-fighting-it-so-hard-42953">mass protests</a>, the rise of the far-right <a href="https://theconversation.com/how-greece-crisis-sparked-a-new-era-of-extremist-politics-44193">Golden Dawn party</a>, and the struggle to accommodate refugees <a href="https://theconversation.com/how-a-double-migrant-crisis-is-halting-greeces-recovery-57137">fleeing conflicts in the Middle East</a>. Athens is the centre of political and economic power and home to approximately half of Greece’s population so this focus on the metropolis is understandable. </p>
<p>But it means that the <a href="https://www.routledge.com/Ethnographies-of-Austerity-Temporality-crisis-and-affect-in-southern/Knight-Stewart/p/book/9781138204577">subtleties of living with crisis everyday</a> have been overlooked in favour of dramatic headlines. In Trikala, people grapple with the everyday tasks of heating their homes, putting food on the table, supporting their families, and maintaining social status. They poignantly discuss their fears of history repeating itself, of neo-colonialism, occupation, and poisoned futures.</p>
<p>Witnessing an array of new taxes, pension cuts and soaring unemployment, the dozens of people I’ve interviewed often delve straight into the vaults of history to make sense of <a href="http://www.palgrave.com/gb/book/9781137501486">life in austerity Greece</a>. The fear of returning to times of hunger, as experienced in the Great Famine during World War II, for example, is common. And an EU scheme aimed at decreasing national debt by placing solar panels on agricultural land is locally perceived as a return to an era of German or Ottoman occupation. </p>
<p>I am regularly told that “history is repeating itself”, “time is standing still”, and “we are being thrown back to previous times of suffering and poverty”. This all adds to the sense of temporal vertigo experienced in Trikala today – confusion as to where and when people belong on the timeline of social progress that was once promised <a href="http://www.lse.ac.uk/europeanInstitute/research/hellenicObservatory/pdf/DiscussionPapers/KamarasDiscussionPaper4.pdf">as a birthright in neoliberal Europe</a>. People describe feeling “dizzy” and “nauseous” with the crisis.</p>
<h2>Feelings of occupation</h2>
<p>The way that energy policy has been managed since the economic crisis is a key area that people feel particularly vexed about. Since 2011, solar energy has been heralded by the Greek government and the European Union as a <a href="http://aq.gwu.edu/v90-1-articles.html">means to repay national debt</a>. From home installations to developments on agricultural land and large solar parks, a solar program has been rolled out across the region.</p>
<p>But, despite its significant uptake, the energy produced rarely services the local community. Instead it is used in Greek urban centres, with long-term plans to export to Germany. This means it is little more than a new extractive economy.</p>
<figure class="align-center ">
<img alt="" src="https://images.theconversation.com/files/157113/original/image-20170216-12960-36m8tn.JPG?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/157113/original/image-20170216-12960-36m8tn.JPG?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=450&fit=crop&dpr=1 600w, https://images.theconversation.com/files/157113/original/image-20170216-12960-36m8tn.JPG?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=450&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/157113/original/image-20170216-12960-36m8tn.JPG?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=450&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/157113/original/image-20170216-12960-36m8tn.JPG?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=566&fit=crop&dpr=1 754w, https://images.theconversation.com/files/157113/original/image-20170216-12960-36m8tn.JPG?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=566&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/157113/original/image-20170216-12960-36m8tn.JPG?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=566&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">Solar panels are a sign of the economic dysfunction.</span>
<span class="attribution"><span class="source">Daniel M Knight</span>, <a class="license" href="http://creativecommons.org/licenses/by-nd/4.0/">CC BY-ND</a></span>
</figcaption>
</figure>
<p>Because people could no longer afford high petrol prices to fuel their central heating systems and there is no mains gas in the town, the winters of 2012–2016 witnessed a return en-masse to wood-burning open fires and stoves last popular during the 1970s. Thick smog now engulfs Greek towns in this region, as people burn whatever they can, including old varnished furniture, shoes and clothes, and unsuitable firewood. Open fires have turned into a national health and environmental hazard, resulting in repeated government appeals for people to revert to petrol heating. </p>
<p>Thus, two starkly different energy sources – high-tech solar panels and open wood-burning fires – have become highly visible symbols of the economic crisis. One is associated with clean, green energy, futuristic sustainability, ultra-modernity, and international political energy consensus. The other conjures images of pre-modern unsustainability, pollution, poverty, and a return to peasantry status. Both are symptomatic of how people negotiate the fiscal austerity measures, arousing notions <a href="http://onlinelibrary.wiley.com/doi/10.1111/1467-9655.12287/abstract">of neo-colonialism and occupation</a>.</p>
<h2>What future?</h2>
<p>One question I am often asked by locals is: “When will it end?” It is difficult for people to see beyond ever-increasing taxes, pay cuts and government failures. Exhaustion after seven years of crisis, apparently without respite anytime soon, has defeated their ability to imagine a better future. Feelings of resignation and helplessness are expressed by both younger and older generations. But while the older ones know they will not be around to live the post-crisis future, exhausted young people are full of distrust, contempt and apathy. </p>
<p>Successive governments have promised growth and emergence from crisis – promises that have turned out to be hollow. My friend Stella, a shopkeeper and mother of two teenage boys in Trikala, sums up the mood: “Bureaucrats and politicians in Berlin and Brussels will decide whether I have a future or not. They will decide if I live or die.” That’s what is on the cards at the meeting of European finance ministers, not simply a matter of negotiating debt repayments – their decisions will bring us one step closer to knowing where the future lies.</p><img src="https://counter.theconversation.com/content/73091/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Daniel M. Knight receives funding from the Leverhulme Trust. He is affiliated with the Hellenic Observatory at the London School of Economics and is co-editor of History and Anthropology journal.</span></em></p>Before the financial crisis struck, you could breathe the overwhelming air of prosperity on the bustling streets of Trikala.Daniel M. Knight, Lecturer in Social Anthropology, University of St AndrewsLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/707292017-01-05T11:42:31Z2017-01-05T11:42:31ZShareholder elite’s takeover of society is laid bare by new book<figure><img src="https://images.theconversation.com/files/151759/original/image-20170104-18679-9pyq3i.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">Rock and roll. </span> <span class="attribution"><a class="source" href="https://www.shutterstock.com/pic-541540822/stock-photo-employment-inequality-concept-as-a-group-of-people-running-away-from-a-rolling-boulder-with-businesspeople-on-top-as-a-metaphor-for-oppressive-human-resource-pressure-with-3d-illustration.html?src=1pegZV807wp1B_T5WYDC4w-1-36">Lightspring</a></span></figcaption></figure><p>An interesting new book on how to improve the Scottish economy has a twist between its covers: it isn’t really about economics and the story it tells is not particularly unique to Scotland. </p>
<p><a href="http://www.luath.co.uk/tackling-timorous-economics.html">Tackling Timorous Economics</a> is more about how the political and economic system in developed economies has become broken and how we might fix it. It should therefore be of interest well beyond Scotland’s borders. And it will challenge you to reflect on your own views on big issues like inequality and economic policy.</p>
<figure class="align-right zoomable">
<a href="https://images.theconversation.com/files/151766/original/image-20170104-18679-7dlxwe.png?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/151766/original/image-20170104-18679-7dlxwe.png?ixlib=rb-1.1.0&q=45&auto=format&w=237&fit=clip" srcset="https://images.theconversation.com/files/151766/original/image-20170104-18679-7dlxwe.png?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=923&fit=crop&dpr=1 600w, https://images.theconversation.com/files/151766/original/image-20170104-18679-7dlxwe.png?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=923&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/151766/original/image-20170104-18679-7dlxwe.png?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=923&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/151766/original/image-20170104-18679-7dlxwe.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=1160&fit=crop&dpr=1 754w, https://images.theconversation.com/files/151766/original/image-20170104-18679-7dlxwe.png?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=1160&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/151766/original/image-20170104-18679-7dlxwe.png?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=1160&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption">The big issue.</span>
<span class="attribution"><a class="source" href="https://www.shutterstock.com/pic-376544848/stock-vector-funny-politician-set-two-vector-illustration.html?src=MJmKfL5TX1bEDe5MNNB51A-1-76">Luath Press</a></span>
</figcaption>
</figure>
<p>Written by the Scottish Nationalist MP <a href="https://www.parliament.uk/biographies/commons/George-Kerevan/4416">George Kerevan</a>, <a href="http://policy-practice.oxfam.org.uk/blog/author/katherine-trebeck">Katherine Trebeck</a> of Oxfam and <a href="http://justbanking.org.uk/stephen-boyd/">Stephen Boyd</a> of the Scottish Trades Union Congress, the book’s central thrust is that society is about more than just GDP. The authors argue there is too much economic growth, and that this is having hidden consequences for the environment, our well-being and our relationships with one another. </p>
<h2>Shareholder Britain</h2>
<p>They level the blame largely on the “financialisation” of the UK economy – the move in recent decades from manufacturing towards financial services and from investment in productive capital towards aspirational consumption. The contention is that while capitalism has been successful in generating ever-expanding consumption possibilities and the capital to produce them, this has got out of balance with the underlying “real” economy: we’re consuming way more than we actually manufacture. </p>
<p>Shareholders have consequently become ever wealthier while workers put in longer hours for continually declining real wages. Society’s power structure has tilted more and more in favour of this shareholding elite, leaving casualised workers increasingly alienated from real decision making. Or, as the authors put it, “employees are treated like just-in-time inventory”. </p>
<p>The widening levels of inequality are, the authors claim, explained not by a failure of redistribution – we are redistributing, but not sufficiently to offset the increasing proportion of income going to the top. The middle is being squeezed from the top, in other words, not those on welfare at the bottom. They also give evidence that the usual suspects – skill-biased technical change and trade – are not responsible either. </p>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/151760/original/image-20170104-18641-zapfu4.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/151760/original/image-20170104-18641-zapfu4.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/151760/original/image-20170104-18641-zapfu4.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=443&fit=crop&dpr=1 600w, https://images.theconversation.com/files/151760/original/image-20170104-18641-zapfu4.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=443&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/151760/original/image-20170104-18641-zapfu4.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=443&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/151760/original/image-20170104-18641-zapfu4.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=557&fit=crop&dpr=1 754w, https://images.theconversation.com/files/151760/original/image-20170104-18641-zapfu4.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=557&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/151760/original/image-20170104-18641-zapfu4.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=557&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption">Who runs the country?</span>
<span class="attribution"><a class="source" href="https://www.shutterstock.com/pic-323919134/stock-vector-angry-mob-marching-with-political-protest-sign-vector-illustration-occupy-movement-we-are-the-99-capitalism-inequity-change-resistance.html?src=1pegZV807wp1B_T5WYDC4w-1-33">Durantelallera</a></span>
</figcaption>
</figure>
<p>The book touches on the financial crisis and eurozone crisis. It contrasts the misery of austerity, especially as inflicted on <a href="https://theconversation.com/greece-economy-rallies-while-germany-stutters-but-restraint-still-required-68868">Greece</a>, with the consequential deflation only narrowly averted by liberal doses of <a href="https://theconversation.com/eurozone-qe-creates-breathing-space-heres-what-governments-must-do-now-70355">quantitative easing</a> (QE). The authors make the point that QE is nevertheless part of the problem – it further benefits financial capital by channelling more money into it, while eroding pension provision by driving the yields in sovereign bonds to historic lows. </p>
<p>On the other hand, the authors relegate Brexit to an addendum written after the main text. It would have been interesting to hear their perspectives on the undercurrents behind the result – the dissatisfaction with the ruling elite and fears over immigration that appear to chime with much of their thesis. (The single market and free movement of labour are not mentioned in the book at all.)</p>
<h2>The fix</h2>
<p>The book’s solution to the problems it identifies focuses mainly on tax policy. It proposes a tripartite approach that taxes the profits derived from capital, the gains from trade in capital, and the wealth from owning capital. In other words a very <a href="http://cas2.umkc.edu/economics/people/facultypages/kregel/courses/econ645/winter2011/generaltheory.pdf">Keynesian policy</a> to raid unproductive capital and invest it in health, education and manufacturing; and alleviate the burden from income tax, which in turn would help stimulate demand. </p>
<p>This would be supported by removing the misleadingly named national insurance – which they deem a regressive tax on hiring and taking a job – and by levying what are known as <a href="http://journals.sagepub.com/doi/pdf/10.1177/002795017105600104">selective employment taxes</a> on certain professions such as finance to assist key sectors like the care sector. </p>
<p>The authors do acknowledge that increasing capital gains tax would be hugely unpopular with homeowners, and the chances of achieving a global wealth tax are extremely slim. So despite their tripartite approach to capital, imposing more taxes on profits may be the only part that chimes with public sentiment. </p>
<p>Even then, increasing corporation tax would run counter to the current orthodoxy; while another proposal to increase council tax, particularly on higher bands, would likely be political suicide. It would be a very brave politician that embraced such policies – the need to get elected makes them short-termist timorous beasties by nature. </p>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/151763/original/image-20170104-18679-l1a1ip.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/151763/original/image-20170104-18679-l1a1ip.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/151763/original/image-20170104-18679-l1a1ip.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=416&fit=crop&dpr=1 600w, https://images.theconversation.com/files/151763/original/image-20170104-18679-l1a1ip.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=416&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/151763/original/image-20170104-18679-l1a1ip.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=416&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/151763/original/image-20170104-18679-l1a1ip.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=522&fit=crop&dpr=1 754w, https://images.theconversation.com/files/151763/original/image-20170104-18679-l1a1ip.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=522&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/151763/original/image-20170104-18679-l1a1ip.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=522&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption">No brainer.</span>
<span class="attribution"><a class="source" href="https://www.shutterstock.com/pic-376544848/stock-vector-funny-politician-set-two-vector-illustration.html?src=MJmKfL5TX1bEDe5MNNB51A-1-76">furryclown</a></span>
</figcaption>
</figure>
<p>Having said that, there is much common sense on offer in this book – even if you don’t share the authors’ starting point or all the policy prescriptions. This would include the need to promote manufacturing investment; to incentivise long-term investment over short-term gains; the damaging combination of austerity and quantitative easing; and the imbalance of control and influence in favour of shareholders while employees work too long for too little. </p>
<p>Politicians could do much worse than raising taxation on profits, removing national insurance and developing incentives for productive investment. The same could be said of investing more in health and education and reducing austerity, and striking a better balance between shareholders and workers. I agree these would be steps towards a better future, both in Scotland and many other developed counties, too.</p><img src="https://counter.theconversation.com/content/70729/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>W David McCausland does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>George Kerevan, Stephen Boyd and Katherine Trebeck see a world where employees are treated like just-in-time inventory.W David McCausland, Professor of Economics, University of AberdeenLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/644652016-09-09T13:23:16Z2016-09-09T13:23:16ZLessons from Argentina for Europe’s newly-impoverished middle class<p>Leading economic think-tank the institute of Fiscal Studies has warned that “<a href="https://www.ifs.org.uk/publications/8373">middle-income families are the new poor</a>” – a damning indictment of the way poverty in Britain has spread far beyond groups that are traditionally considered poor. It’s the same story across much of Europe and is a product of the austerity agenda that has <a href="https://www.theguardian.com/world/2013/oct/10/austerity-europe-debt-red-cross">squeezed the middle class since the financial crisis</a>.</p>
<p>The statistics in the European Union are depressing. Official figures <a href="http://ec.europa.eu/eurostat/documents/2995521/7034688/3-16102015-CP-EN.pdf">report</a> that 24% of its non-poor population (122m citizens) are currently at risk of descending into poverty or social exclusion. This means that they were either at risk of income poverty (their disposable income was below their national at-risk-of-poverty threshold), severely materially deprived and/or living in households with low work rates.</p>
<p>In Greece, Spain, Portugal and other countries that have been especially affected by debt crises and <a href="https://www.theguardian.com/world/2013/oct/10/austerity-europe-debt-red-cross">ensuing austerity policies,</a> millions of medium to high-skilled workers, professionals, middle-managers, public sector workers, university graduates and small business owners face hardship. </p>
<p>These white-collar workers are a new problem <a href="http://www.telegraph.co.uk/finance/jobs/7250896/White-collar-unemployed-failed-by-job-centres-in-recession-Government-admits.html">for governments and welfare agencies to deal with</a> and they are often ill-equipped to support them. Their superior levels of education and professional experience and networks should bestow them with significant advantages in the labour market. </p>
<p>But public sector redundancies, a growth in precarious patterns of work, <a href="https://www.jacobinmag.com/2015/09/merkel-austerity-globalization-eu-poverty/">increased global competition for labour</a>, rising indebtedness and spiralling housing and childcare costs have all contributed to falling living standards. And the ranks of a “<a href="http://onlinelibrary.wiley.com/doi/10.1111/1467-954X.12403/abstract">new urban poor</a>” in Europe are swelling.</p>
<h2>Standing on the precipice</h2>
<p>Getting this group back on their feet is vitally important – for the citizens in question, but also for the economy as a whole. While it presents a new problem for Europe, there are some lessons to be learned from Argentina, <a href="https://lasa.international.pitt.edu/LARR/prot/fulltext/vol49no1/49-1_178-202_ozarow.pdf">which experienced a similar problem a decade ago</a>. </p>
<p>Like many of these European states, Argentina is a liberal democracy with a market system, a welfare state tradition and G20 membership. It has also historically had a large middle class, comparable in size and political influence to that of many European societies. </p>
<p>Following its 2001-02 sovereign debt crisis – the most severe in global history prior to Greece’s – 7m of Argentina’s highly-educated citizens were thrown into poverty. Despite a decade of unprecedented macroeconomic growth when the country became the <a href="http://cepr.net/publications/reports/the-argentine-success-story-and-its-implications">fastest-growing economy in the Western hemisphere</a>, and <a href="http://laborsta.ilo.org/">2m jobs were created</a>, a third of them struggled to recover and remain unemployed or in low-paid, dead-end jobs.</p>
<h2>Poisoned chalice</h2>
<p>The plight of those affected can partly be explained by structural factors such as the economy’s failure to create sufficient quality employment or by age discrimination – but their experiences suggest that a more obscure explanation was at play. Paradoxically, many struggled to transform their abundance of educational, professional, physical and cultural assets into real-life benefits. </p>
<p>Indeed, in some cases it was these very resources that proved to be a poisoned chalice and prevented their recoveries. Unlike the long-term poor, many of these middle-class citizens were traumatised and completely disorientated by their sudden social descent, with no experience to draw from about how to deal with it.</p>
<p>Others remained in denial, seeking to maintain luxury spending patterns and ostentatious consumption. Though they could not afford it, keeping up the pretence that “all was well” to peers was judged the priority. Yet maintaining membership of their golf club, for example, while sacrificing basic necessities such as meals, utility bills or health insurance was worse for their health and finances in the longer-term. Ironically it was their access to affluent family members or close friends to borrow money that facilitated these counter-productive strategies.</p>
<h2>The struggle to change</h2>
<p>My research into the thinking of many of Argentina’s jobless professionals showed that they <a href="https://soundcloud.com/danielozarow/what-future-for-greeces-middle-class-lessons-from-argentinas-2001-debt-crisis">often endured long periods of unemployment</a>. Many refused to take low-paid or less prestigious jobs because they represented a degradation in their employment status. They would look for work in the wrong places, focusing their job searches on answering adverts in only highbrow newspapers and trade journals. </p>
<p>In contrast they expressed great reluctance to use their networks to ask around for job opportunities (“personal referrals” is actually how employers <a href="http://web.jobvite.com/rs/jobvite/images/2014%20Job%20Seeker%20Survey.pdf">most commonly recruit high-quality employees</a>), for fear that the shameful reality of their unemployment would be unmasked. One unemployed accountant told me a heartbreaking story of how he would dress up in his suit and tie each morning and wander the streets all day before returning home to avoid admitting his predicament to his wife.</p>
<p>Due to the profound association that some placed between their professional and personal identity, some point-blank refused to retrain in a different occupation, even after several years had passed without work and there was obviously no longer a demand for their profession. One person told me: “I have been a fashion designer all my life; I am not going to change now.”</p>
<p>Others could have sold their home to resolve their material hardships. But this was deemed taboo, even when several bedrooms lay unoccupied. Participants preferred to live as paupers rather than forfeit what they viewed as a symbolic marker of their membership of the middle class.</p>
<p>Those that did qualify for welfare support (and overcame the self-imposed stigma of applying for it) often fell into a “well-being trap”. At the first sign of material improvement they would hurriedly remove themselves from the scheme (because of their sense of stigma) before they had regained financial independence. Consequently they underwent a perpetual cycle of moving in and out of subsistence.</p>
<p>These and other <a href="https://www.jstor.org/stable/25472440">scarring effects of unemployment</a> contributed towards a downward spiral for many professionals and stunted the country’s economic recovery and growth.</p>
<p>Of course, Europe is not Argentina. It is made up of multiple countries, many of which have more robust social security systems. But the struggle is increasingly real for many middle-income families. They have not enjoyed the same recovery as top-line growth figures suggest and have been at sharp end of austerity policies. The lessons from Argentina are therefore worth paying attention to.</p><img src="https://counter.theconversation.com/content/64465/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Daniel Ozarow is part of the International EU-Latin American Network for Comparative Analysis of Social Inequalities (INCASI), which has received funding from the European Union’s Horizon 2020 research and innovation programme. This article reflects the author’s view only.</span></em></p>The ranks of a ‘new urban poor’ in Europe are swelling.Daniel Ozarow, Visiting Researcher at the Social Debt Observatory, Catholic University of Argentina and Senior Lecturer, Middlesex UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/610472016-07-20T09:52:21Z2016-07-20T09:52:21ZHow poverty has radically shifted across Europe in the last decade<p>Brexit caps off a turbulent decade for the EU. Many in the eurozone will be hoping that it does not cause further economic turmoil, as it is becoming increasingly clear that the financial crisis of 2008-09 led to a substantial increase in poverty across the continent. </p>
<p>Not only did poverty intensify within those nations that were hardest hit during the crisis and required bailouts, but there has also been a dramatic change in the geography and types of poverty in Europe over the last decade.</p>
<p>So intense has been the crisis in Greece that, by 2013, it experienced a higher level of poverty than any other EU member state. Indeed, in my <a href="http://www.ejss.eu/pdf_file/ITS/EJSS_18_01_0002.pdf">recent research</a>, I’ve found that the impoverishment of Greece, Italy, Cyprus, Spain and Portugal has been so severe that these southern European countries, taken together, had higher levels of poverty and deprivation than many of the former Communist nations that joined the European Union in 2004. Specifically, they have been greater than the average of Slovenia, Slovakia, Czech Republic, Poland and Hungary.</p>
<p>Poverty takes many different forms. The EU aims to lift 20m people out of poverty and social exclusion, based on three official measures: relative income poverty (when a person’s income falls far below what is needed to achieve an average standard of living in their country); material deprivation (when people lack a set of basic necessities); and living in a workless household. </p>
<p>To take into account the complexity of poverty, I included four more measures in my research: when people reported that they could make ends meet only with great difficulty; when they experienced neighbourhood problems such as crime or vandalism; poor health; and unmet medical or dental needs.</p>
<p>Bringing together these seven dimensions of poverty, I analysed how they changed over four time periods: 2005, 2008, 2011 and 2013. So, before, during and after the financial crisis, and the ensuing recession.</p>
<h2>Surprising findings</h2>
<p>Significant changes in the geography of poverty and deprivation in Europe can be seen. The pre-crisis period between 2005 and 2008 was associated with substantial reductions in poverty across Europe. Some of the poorest nations, including Poland and Latvia, saw the largest decrease. These pre-crisis years represented a period of catch-up for some of the poorest member states.</p>
<p>In the initial phase of the Great Recession that followed the financial crisis (2008-11), poverty increased almost everywhere. The largest increases were in Greece, Latvia, Lithuania and Ireland. But in the second phase of the crisis (2011-13), the picture is less consistent. In ten EU member states there were modest reductions in poverty, suggesting perhaps that the crisis had come to an end. In Greece, Portugal, Spain, however, poverty continued to rise sharply and similarly, though not quite as much, in Cyprus.</p>
<p>Many of the nations with the sharpest rises in poverty during the Great Recession – Greece, Cyprus, Portugal and Ireland – are nations that required bailouts from the EU and IMF. The fact that these “bailout nations” were at the sharp end of the crisis may come as no surprise, given the austerity that was demanded of them as a condition of accessing loans from the EU-IMF.</p>
<p>But two findings are nonetheless striking: </p>
<ol>
<li><p>The disappointing performance of the southern European nations predates the crisis itself. These nations largely failed to benefit from the reductions in poverty and deprivation that were experienced elsewhere in the pre-crisis years. </p></li>
<li><p>The rise in poverty in Greece has been so great that it has leapfrogged the newer EU member states and now heads the leader-board of poverty and deprivation. </p></li>
</ol>
<p>The graph below gives an illustration of how multidimensional poverty levels have changed from 2005 to 2013 for each EU member state (Greece is EL). The poverty levels are based on the simultaneous experience of three or more of the seven dimensions discussed earlier.</p>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/130449/original/image-20160713-12353-1syp13m.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/130449/original/image-20160713-12353-1syp13m.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/130449/original/image-20160713-12353-1syp13m.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=407&fit=crop&dpr=1 600w, https://images.theconversation.com/files/130449/original/image-20160713-12353-1syp13m.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=407&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/130449/original/image-20160713-12353-1syp13m.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=407&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/130449/original/image-20160713-12353-1syp13m.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=511&fit=crop&dpr=1 754w, https://images.theconversation.com/files/130449/original/image-20160713-12353-1syp13m.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=511&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/130449/original/image-20160713-12353-1syp13m.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=511&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption"></span>
<span class="attribution"><span class="source">Rod Hick</span></span>
</figcaption>
</figure>
<p>There have also been changes in which EU member state has the greatest number of people experiencing these multiple forms of poverty.</p>
<p>A decade ago, Poland had a greater number of people experiencing multidimensional poverty than any other EU member state. This reflected the lower standard of living in the member states that joined the EU as part of its 2004 enlargement, and the large population size of Poland. </p>
<p>By 2013, however, the combined effect of a partial catch up by the newer member states and disastrous poverty performance of southern Europe meant that Italy now has a greater number of people experiencing multidimensional poverty than any other country in Europe.</p>
<p>The rise in poverty at Europe’s periphery thus reflects not only a deterioration of pre-crisis standards of living within some nations. It shows the more radical shift in the geography of poverty in Europe over the last decade, increasingly concentrated in the south of the continent. This is something the European Union must pay heed to, as it aims to help lift 20m people out of poverty across the continent.</p><img src="https://counter.theconversation.com/content/61047/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Rod Hick does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>New research shows how the financial crisis led to a dramatic shift in poverty across Europe.Rod Hick, Lecturer in Social Policy, Cardiff UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/623292016-07-12T15:45:49Z2016-07-12T15:45:49ZHow Brexit opened up the Pandora’s box of Italy’s banking malaise<p>Brexit has triggered a financial chain reaction that has also exposed the problems of the Italian banking system. The UK’s decision to leave the EU made investors fearful that the union would face a new crisis or even break up. This led to a swift withdrawal of their funds from the most fragile sections of Europe’s financial markets.</p>
<p>Italian banks are one of these areas. The graph below shows the steep fall of Italy’s FTSE Italia All-Share banks index following the UK’s referendum result.</p>
<figure class="align-center ">
<img alt="" src="https://images.theconversation.com/files/130078/original/image-20160711-9292-19fbbaf.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/130078/original/image-20160711-9292-19fbbaf.png?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=318&fit=crop&dpr=1 600w, https://images.theconversation.com/files/130078/original/image-20160711-9292-19fbbaf.png?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=318&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/130078/original/image-20160711-9292-19fbbaf.png?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=318&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/130078/original/image-20160711-9292-19fbbaf.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=399&fit=crop&dpr=1 754w, https://images.theconversation.com/files/130078/original/image-20160711-9292-19fbbaf.png?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=399&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/130078/original/image-20160711-9292-19fbbaf.png?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=399&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption"></span>
</figcaption>
</figure>
<p>The main problem with Italy’s banks is that they are swamped with what are known as non-performing loans (NPLs). These are loans on which debtors have not made scheduled payments for at least 90 days.</p>
<p>In other words, Italian banks are not getting back some of the money they have lent out. According to data from the <a href="https://www.bancaditalia.it/pubblicazioni/rapporto-stabilita/2016-1/en-FSR-1-2016.pdf?language_id=1">Bank of Italy</a>, NPLs of Italian banks amounted to €360 billion in 2015, or 18.1% of all loans they made (see graph below). Of these loans, €210 billion are really bad and no longer collectable. The remaining €150 billion are of slightly higher quality. </p>
<p>Italian banks are incredibly exposed to NPLs. They equal almost a quarter of Italy’s GDP and a third of the total <a href="http://www.wsj.com/articles/imf-urges-urgent-action-on-europes-bad-loans-1443103382">NPL exposure of EU members</a>. Practically speaking, NPLs are a big drag on the ability of Italian banks to finance <a href="http://www.oecd.org/eco/surveys/Overview_Italy_2015_ENG.pdf">investments and growth</a> in the real economy. Accordingly, it is <a href="https://www.theguardian.com/world/2016/may/10/battle-prop-up-italy-banks-eu-brexit-grexit-bad-loans">a major threat</a> to the stability of the entire EU.</p>
<figure class="align-center ">
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<p>The NPL problem has its origins in the seven-year <a href="https://www.bancaditalia.it/pubblicazioni/rapporto-stabilita/2016-1/en-FSR-1-2016.pdf?language_id=1">recession</a> that followed the 2008 global financial crisis and the ensuing European sovereign debt crisis. The reason is simple: if the economy does not go well, companies and households struggle to repay their debt to the banks. </p>
<p>However, another cause of the NPL problem is the fact that Italian bank managers also made bad investment decisions, often allocating loans on the basis of <a href="http://www.ilfattoquotidiano.it/2013/10/28/sofferenze-bancarie-sono-causate-dai-prestiti-facili-ad-amici-e-furbetti/757379/">favouritism</a>. Hence, it would not be an exaggeration to say that an <a href="http://www.ilsole24ore.com/art/commenti-e-idee/2016-07-02/salvare-banche-far-ripartire-l-economia-195902.shtml?uuid=AD6txCn">independent inquiry</a> on the issue should be established, a sort of NPL audit which should be open to independent experts and civil society.</p>
<h2>Government incapacity</h2>
<p>Another cause of the NPL crisis is the Italian government’s inability to solve the issue, <a href="http://bruegel.org/2016/02/hard-times-for-italian-banks/">as other European countries have</a>. Germany and France for example intervened directly with state funds to provide new capital to their banks, thanks also to relatively more solid public finances. </p>
<p>Ireland and Spain have instead used <a href="http://www.mckinsey.com/industries/financial-services/our-insights/understanding-the-bad-bank">bad banks</a> co-funded by both state and private investors. These so-called bad banks use these funds to buy other financial institutions’ bad loans. They focus on managing the non-performing assets, for instance by trying to recover the money from borrowers. The other institutions, relieved of their bad debts, can instead healthily resume their normal activities of lending and borrowing. Direct state bail-out and bad banks are not mutually exclusive solutions. In fact, they are often used together. </p>
<p>In the case of Italy, the government could not intervene directly with public money. Italy’s huge <a href="http://www.tandfonline.com/doi/abs/10.1080/13563467.2015.1079168?journalCode=cnpe20">public debt</a> does not give fiscal space for substantial public funds going to struggling banks. Some exceptions were made for several banks including <a href="http://www.bloomberg.com/news/articles/2013-10-24/monte-paschi-born-out-of-black-death-struggles-to-survive">Banca Monte dei Paschi di Siena</a> in the period 2008-12.</p>
<p>More importantly, by the time the Italian government decided it would do something about <a href="https://next.ft.com/content/33c4c632-9100-11e5-bd82-c1fb87bef7af">four small troubled banks</a> in 2015, new <a href="https://www.pwc.com/im/en/publications/assets/pwc_eu_bank_recovery_and_resolution_directive_triumph_or_tragedy.pdf">EU rules</a>, including a <a href="http://lexicon.ft.com/Term?term=bail_in">bail-in</a>, were already on their way to being fully implemented. These dictate that when a bank is in crisis, its creditors – bondholders and depositors together with shareholders – would bear the burden by having part of the debt they are owed written off. This was so that governments could avoid rescuing banks using taxpayer money.</p>
<p>To cut a long story short: Italy’s banks are in a dire enough situation to require direct state intervention, but this cannot be done under current EU banking regulation. As a result, the Italian government is negotiating with the European Commission to develop alternative and more <a href="http://bruegel.org/2016/02/hard-times-for-italian-banks/">complex solutions</a> which avoid relying on taxpayer money. Unfortunately, these would merely keep the banks alive, but do not thoroughly restructure their governance and business strategies so that they could start <a href="http://www.ilsole24ore.com/art/commenti-e-idee/2016-07-02/salvare-banche-far-ripartire-l-economia-195902.shtml?uuid=AD6txCn">lending again</a>.</p>
<p>At this point, the most <a href="http://www.italy24.ilsole24ore.com/art/business-and-economy/2016-06-28/analisi-131922.php?uuid=ADp6iZk">appropriate solution</a> would be to inject public capital into the banking system under strict conditions which impose a more effective governance and business strategy on the bailed-out banks. The <a href="http://www.nytimes.com/2008/09/23/business/worldbusiness/23krona.html">Swedish case</a> in 1992 shows that banks can be held responsible and the government can become an owner. What is more, the Swedish government was also able to make a profit once it sold the shares of the banks later on.</p>
<p>Direct state intervention would prevent <a href="https://next.ft.com/content/54cda5e4-a6ac-11e5-955c-1e1d6de94879">small investors</a> from having their savings wiped out. These retail investors hold <a href="http://bruegel.org/2016/02/hard-times-for-italian-banks/">a third</a> of all bonds issued by Italian banks, but are not always fully aware <a href="http://www.corriere.it/politica/16_maggio_11/banca-etruria-indagine-si-consob-c22ebd2e-16e8-11e6-a3a2-ca09c5452a5d.shtml">of the risks</a> their bank managers exposed them to. More generally, direct state intervention would help kickstart <a href="https://next.ft.com/content/621298c2-c2d2-3c14-976b-1e30e2d10815">economic growth</a> in a country that so desperately needs it.</p><img src="https://counter.theconversation.com/content/62329/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Andrea Lagna does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>The Italian banking system is on the verge of a crisis. Direct state intervention is needed to solve the problem.Andrea Lagna, Lecturer in International Business, Strategy and Innovation, Loughborough UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/618852016-07-12T02:23:09Z2016-07-12T02:23:09ZFrom Grexit to Brexit, why EU’s mess of rules designed to prevent crisis is causing it<figure><img src="https://images.theconversation.com/files/130110/original/image-20160711-9307-g3ao17.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">The EU is fraying thanks to its puzzle of fiscal governance policies.</span> <span class="attribution"><span class="source">EU UK flag via www.shutterstock.com</span></span></figcaption></figure><p>The European Union, still nursing wounds from its crisis over the euro and “Grexit,” is facing a much more severe threat that strikes at the very heart of the EU’s legitimacy. And the problem concerns the very measures put in place to resolve the earlier crisis, which nearly led to a Greece exit from the eurozone. </p>
<p>That threat concerns the EU’s legitimacy and is putting the bloc under tremendous pressure. It took on new urgency last month when <a href="http://www.theguardian.com/politics/eu-referendum">the U.K. voted to exit the union</a>, adding to the rising chorus across the continent demanding similar in or out referendums. </p>
<p>Those in favor of “Brexit” made <a href="http://www.euractiv.com/section/uk-europe/news/brexit-campaign-begins-boris-johnson-compares-eu-to-prison/">a big part of their campaign</a> how “unelected” bureaucrats in Brussels infringed on their sovereignty, with many celebrating the victory as the U.K.’s “<a href="http://www.theguardian.com/politics/2016/jun/24/britain-votes-for-brexit-eu-referendum-david-cameron">independence day</a>.” </p>
<p>The pressure could intensify in the coming months and years as European economies continue to stagnate and <a href="http://www.bbc.com/news/world-europe-36615879">nationalist politicians</a> in France, the Netherlands and elsewhere grow in popularity and call for their own “Frexits” and “Nexits.” They tend to repeat Brexit campaigners’ claims that the EU has become overly intrusive and is ineffective. </p>
<p>When it comes to fiscal governance, they actually have a point. Fiscal governance is one of the most problematic areas for both the operation and legitimacy of the EU. Particularly troublesome are post-euro-crisis efforts to avoid another one by imposing tight limits on member state budgets and policies – and the haphazard way the EU enforces them. That include this week’s <a href="http://www.channelnewsasia.com/news/business/eurozone-slams-spain/2949410.html">decision</a> to declare Spain and Portugal in breach of fiscal rules after ignoring violations for so long, exposing them to <a href="http://www.ft.com/cms/s/0/568ad062-42cb-11e6-b22f-79eb4891c97d.html">unprecedented fines</a>.</p>
<p>While the focus of our research is on <a href="http://joh.sagepub.com/content/46/2/262.short">how the EU’s policies affect health care</a>, <a href="http://journals.cambridge.org/action/displayAbstract?fromPage=online&aid=10224436&fileId=S0017257X16000026">we’ve also explored the broader impacts</a> of the EU’s fiscal governance mechanisms. We’ve found that there is little reason to think fiscal governance will help spur growth or avoid future crises. In fact, it’s more likely to continue to sow division and lead to more problems in the coming years.</p>
<h2>Foundations of fiscal discipline</h2>
<p>The EU’s efforts to forestall eurozone economic crisis started all the way back in 1992, when the <a href="http://eur-lex.europa.eu/legal-content/EN/TXT/?qid=1412156972092&uri=URISERV:xy0026">Maastricht Treaty</a> laid the foundations for economic and monetary union. </p>
<p>Back then, all <a href="http://ec.europa.eu/economy_finance/explained/economic_and_monetary_union/the_rules_of_emu/index_en.htm">EU members agreed</a> to maintain “sound public finances” (i.e., low deficits and debt). They tried to establish measures to enforce this five years later with the <a href="http://ec.europa.eu/economy_finance/economic_governance/sgp/index_en.htm">Stability and Growth Pact</a>, which imposed fines when certain deficit, debt and other levels were breached. </p>
<p>The euro’s financial crisis, however, revealed that that pact wasn’t enough, since some countries such as Spain had <a href="http://www.tradingeconomics.com/spain/government-debt-to-gdp">healthy public finances</a>, well within EU requirements, <a href="http://personal.lse.ac.uk/hopkin/Chapter%208%20-%20The%20Troubled%20South%20-%20Hopkin%20Finalissimo.pdf">but imbalanced economies</a>. To remedy the problem, in 2011 the EU <a href="http://ec.europa.eu/economy_finance/economic_governance/macroeconomic_imbalance_procedure/index_en.htm">created a new procedure</a> to identify and punish imbalances. </p>
<p>The problem with procedures designed to take effect after there are problems, of course, is that the whole point is to prevent them in the first place. Measures designed primarily to punish are often doomed to failure. It is always easy for politicians to take the risk of (potential) punishment later in return for lower taxes or economic growth today (risking high deficits and problems in the future).</p>
<p><a href="https://books.google.co.uk/books?id=npEXme7MFCwC&dq=harold+james&source=gbs_navlinks_s">Over</a> <a href="https://books.google.co.uk/books?id=s7XmCwAAQBAJ&lpg=PR4&dq=kenneth%20dyson&pg=PR4#v=onepage&q&f=false">the</a> <a href="https://books.google.co.uk/books?id=Y0E2ty5lpLYC&lpg=PP1&dq=dermot%20hodson&pg=PP1#v=onepage&q&f=false">years</a>, EU leaders did create processes to <a href="http://eur-lex.europa.eu/summary/glossary/broad_ec_pol_guidelines.html">monitor</a> and <a href="http://eur-lex.europa.eu/summary/glossary/open_method_coordination.html">intervene</a> in member state policies of all sorts in order to keep them from choosing bad policies. But none of them was quite as intrusive as the <a href="http://ec.europa.eu/europe2020/making-it-happen/index_en.htm">European Semester</a>, also set up in 2011 as an annual review of macroeconomic conditions and fiscal policy. </p>
<p>And by now, you get the drift: rules and regulations on top of more rules and regulations, with a variety of enforcers, political and otherwise. </p>
<p>This mechanism resembles nothing as much as a “<a href="https://www.rubegoldberg.com/about/">Rube Goldberg machine</a>,” referring to the cartoonist famous for inventing hilariously complicated ways to achieve simple goals, such as a dozen improbable steps required to comb hair or cut a loaf of bread. </p>
<p>EU fiscal governance, with its multiple, redundant, interlocking mechanisms all aimed at controlling government budgets, is at best a very complex way to achieve the simple goals of the Stability and Growth Pact. But it is more likely that it will fail to foster stability, promote growth or prevent another financial crisis. </p>
<p>Here are four reasons why.</p>
<h2>Just look back in time</h2>
<p>First, a brief look back at history shows what happened when earlier mechanisms to this were breached. </p>
<p>The record of EU fiscal policies constraining member states since 1992 is very poor. The most dramatic incident was in <a href="http://www.lse.ac.uk/europeanInstitute/Research/SchelkleGovernance.pdf">1995</a> when both France and Germany breached the Stability and Growth Pact and persuaded the other member states to rewrite it with more flexibility. </p>
<p>Less noted but equally interesting was Ireland’s decision to <a href="http://www.eucenter.wisc.edu/OMC/Papers/EconPolCoord/hodsonMaherJEPP2004.pdf">ignore</a> a 2000 sanction. There were no real consequences for Ireland, a far less powerful state than Germany or France. </p>
<p>And it already appears that the new fiscal governance system is being undermined. The Dutch finance minister in June <a href="http://www.ft.com/cms/s/0/24575aee-320d-11e6-ad39-3fee5ffe5b5b.html">complained</a> that the European Council was showing favoritism to big countries when it let Spain, Portugal (not actually a big country) and France have more time to bring their budgets into compliance with the rules. Complex rules are no match for political agreement, it seems. </p>
<p>After the Brexit vote and Spanish elections, and with French elections next year, will member state resistance start to matter less?</p>
<h2>U.S. states and balanced budgets</h2>
<p>Second, the EU was not the first to set up fiscal mechanisms intended to restrain democratic politicians from making unsound policy decisions.</p>
<p><a href="http://www.ncsl.org/research/fiscal-policy/state-balanced-budget-requirements.aspx">Every U.S. state but one</a> (Vermont) has similar rules. Their constitutions have balanced budget amendments that forbid deficit spending. Yet neither courts nor politicians like to enforce them. Courts are reluctant to delve into the details of budgets and often unsure how to enforce their rulings, while politicians often want to run deficits (if nothing else, to keep from cutting services during recessions). The result is budgetary trickery as politicians look for ways to invest without being constrained by balanced budget rules. </p>
<p>Do judges wish to risk their credibility and legitimacy, and spend their time, determining whether an elected government has written a legitimate budget? </p>
<p>Courts in the United States, over almost two centuries of balanced budget rules, <a href="http://eprints.lse.ac.uk/59396/">have not. It is bond markets</a>, rather than judges, that have been policing state deficits. It is unclear that European courts would act differently.</p>
<h2>Economic winds</h2>
<p>Third, the rules assume that bad finances and macroeconomic imbalances are the results of bad policies. </p>
<p>Rather, <a href="http://link.springer.com/article/10.1057/cep.2014.1">research shows</a> that variation in deficits is driven by the economy more than policies. Plainly put, deficits grow when there is less tax revenue and more unemployed people. The mechanisms are “automatic stabilizers” such as unemployment insurance that stabilize economies in downturns through government expenditure.</p>
<p>This is a simple point but one that undermines the whole fiscal governance apparatus. If economic cycles, and the attendant revenue and expenditure changes, drive deficits, then enforcement of fiscal rules just means kicking countries when they are down.</p>
<h2>Inexplicable decisions</h2>
<p>Fourth, the experience so far shows just how political and occasionally inexplicable the decisions can be. </p>
<p>For example, in 2015 <a href="http://ec.europa.eu/europe2020/pdf/csr2015/csr2015_council_france_en.pdf">the French were advised</a> that their limitations on medical school enrollment were a threat to the country’s fiscal future. </p>
<p>Most health economists have <a href="http://link.springer.com/chapter/10.1007/978-1-349-63660-0_10">long agreed</a> that training more doctors raises, rather than lowers, health costs. The potential demand for health care is enormous. More doctors can therefore create work for themselves even if it increases health care costs. </p>
<h2>Limping through crisis</h2>
<p>How, then, has it been that the EU managed to end the rout of its government bond markets and limp along since the debt crisis? </p>
<p>The answer is simple: the European Central Bank’s monetary policy decisions, which <a href="http://voxeu.org/article/how-did-ecb-save-eurozone-without-spending-single-euro">saved the eurozone</a>. The ECB made it clear that speculators would be betting against not a weak member state such as Spain but against the power of a central bank. <a href="http://onlinelibrary.wiley.com/doi/10.1111/jcms.12044/abstract;jsessionid=F0BD22F864D1902324BFB854915D53B6.f01t02?userIsAuthenticated=false&deniedAccessCustomisedMessage=">Markets grew calm</a> only after ECB head Mario Draghi promised the bank would do <a href="https://www.ecb.europa.eu/press/key/date/2012/html/sp120726.en.html">“whatever it takes”</a> to defend the euro. The flapping bits of Rube Goldberg machinery (fiscal governance mechanisms) contributed little or nothing to the result. </p>
<p>It will be hard to rethink this system, entrenched as it is in EU law and an intergovernmental treaty, but the crisis over Brexit might make doing so worthwhile. An intrusive, dysfunctional system of rules that are impractical, intrusive and political hardly helps the EU get through this period of turbulence. </p>
<p>If this is what EU membership means, it is easy to see why some voters want no more of it.</p><img src="https://counter.theconversation.com/content/61885/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>The authors do not work for, consult, own shares in or receive funding from any company or organization that would benefit from this article, and have disclosed no relevant affiliations beyond their academic appointment.</span></em></p>The European Union faces a crisis of legitimacy, and its rules on fiscal governance are at the heart of it.Scott L. Greer, Associate Professor, Global Health Management and Policy, University of MichiganHolly Jarman, Research Assistant Professor, University of MichiganLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/616302016-06-30T00:09:05Z2016-06-30T00:09:05ZOnly serious reform will avoid more exits from the European Union<figure><img src="https://images.theconversation.com/files/128615/original/image-20160629-15266-1pq5jqs.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">A lack of constructive critique of the EU's failings is giving rise to widespread European populism and dissent.</span> <span class="attribution"><span class="source">Reuters/Francois Lenoir</span></span></figcaption></figure><p>Since the announcement of the Brexit result, there has been considerable debate about the rise of populism in both the UK and Europe. The success of Nigel Farage of the UK Independence Party (UKIP) in having a <a href="http://www.smh.com.au/world/nigel-farage-the-brexit-king-of-britain-20160624-gprp5h.html">leading role in the UK referendum</a> – and rejecting European Union membership for the UK – has stunned many observers. For a long time he has spoken of the EU as a failed project, a burning building.</p>
<p>Farage’s euroscepticism, like that of many members of the British Conservative Party, rejects the very idea of the EU. This stance resonated on June 23 with voters who were influenced by simple and questionable slogans about getting money back from Brussels and taking control of borders.</p>
<p>The UK is not the only country in Europe to be gripped by euroscepticism, although it is the only country to have entered into a serious debate about leaving the EU. There are many populist parties across Europe, most of which are eurosceptic in tone and oppositional in rhetoric. They have flourished in an economically weakened EU in the grip of perpetual austerity.</p>
<p>Populist parties across Europe have mobilised support by arguing that immigration and free trade represent a real threat to national economies, borders and security. There has been a resurgence of extreme nationalism and populism since the <a href="https://www.theguardian.com/business/debt-crisis">Eurozone crisis</a> and, more recently, the <a href="http://www.bbc.com/news/world-europe-34131911">refugee crisis</a>. </p>
<p>In some member states such as France, Denmark, Sweden, Hungary and Austria, populist anti-EU parties have made significant electoral gains. Since the Brexit vote, there have been calls for referendums in France, Austria, Finland, the Netherlands and Hungary. These calls will surely encourage EU powerbrokers to adopt a tough position on Brexit negotiations in the knowledge that a soft landing for Britain will have unintended consequences for the rest of the EU.</p>
<p>Economic hardship, racism and xenophobia are presenting challenges for social cohesion in many of the EU member states. Many political leaders are rapidly losing the trust of their people as populism hardens contestation into rejection of the EU’s objectives and achievements that have been cultivated through 60 years of European integration. </p>
<p>At the same time the EU is not dealing well with questions about its democratic legitimisation. Citizens currently have few opportunities to engage with the EU. The opportunities that do exist are little known or irrelevant to most people, demonstrating the EU’s shortcomings in communicating with citizens.</p>
<p>The success of an uncompromising euroscepticism, as represented by the Brexit vote, has in effect drowned out the voices of those who are critical of the EU yet who do not wish to leave it. We are talking about popular contestation of the EU by those who wish to change it, not exit. </p>
<p>Albert Hirchman <a href="http://www.hup.harvard.edu/catalog.php?isbn=9780674276604&content=reviews">wrote of the choices of exit, voice or loyalty</a> when dissatisfied with an organisation. The UK choice of exit has been made. There is a second choice: to remain loyal to the EU with all its faults, which is proving to be increasingly difficult. </p>
<p>Is there not a third choice? There is – it is called voice. The voices of contestation do exist – they want a reformed EU, an EU with what is often called a public space or public sphere. </p>
<p>We therefore suggest that there is scope for challenge of the constructive kind – giving voice to objections about the way the EU is managing its affairs and the perceived policy failure of the EU and the nation state. The EU can, and must, be changed from within.</p>
<p>We believe that the EU’s continuing viability is dependent on its ability to transmit its values and to deliver on its essential function as a producer of public goods. Those good were not adequately recognised during the UK referendum campaign. The public goods for which the EU is known include workers’ rights, health and food safety regulations, the right to maternity leave and gender equality, and rights of minorities, among many others. </p>
<p>There is doubt as to the UK’s continuing commitment to some of these rights, freedoms and regulations. There is growing citizen hostility towards elite or “expert” solutions, even if these are beneficial to British or Greek or Spanish regions, for example.</p>
<p>Instead, there is populist appeal to something called “common sense”. This is part of the electoral successes of populist political parties and movements in many EU states, which have successfully tapped into the rhetoric of anti-elitism and dislike of “career” politicians.</p>
<p>This all forms part of the EU’s crisis of legitimacy. The precarious nature of European society in terms of security of employment, work opportunities and class division remains high. Regions and social groups feel alienated from the EU processes of decision-making. </p>
<p>Will European leaders come to an understanding that it is OK, even beneficial, to criticise the EU? Will they admit that the EU has little relevance to many citizens?</p>
<p>It is time to learn from the past. Populism can lead to exclusionism and even fascism. Appeals to a glorious past of British sovereignty will not solve unemployment and problems of poverty and access to just social policy.</p>
<p>The EU promotes itself as a community of values – of solidarity, fairness, justice and equality. But these values are not clearly in evidence to many who wish the EU to be better. What we are seeing a great deal of in the EU are ideological contradictions, with many conservative forces seeking to dismantle it.</p>
<p>We are witnessing a lack of constructive opposition to the problems of EU policymaking; a lack of social consensus. There is widespread dissent with very few opportunities for people to voice their dissent in ways that lead to constructive rather than abrupt or irreversible change. </p>
<p>The time has come for critical friends of the EU to influence decision-making, to contest xenophobic populism and to mount a structured reform of the EU.</p><img src="https://counter.theconversation.com/content/61630/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>The authors do not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and have disclosed no relevant affiliations beyond their academic appointment.</span></em></p>Europe at the moment is divided into two stark responses to the EU – exit or remain. A third, better option would be to stay, but challenge and change it from within.Philomena Murray, Professor, School of Social and Political Sciences and EU Centre on Shared Complex Challenges, The University of MelbourneMichael Longo, Associate Professor in Law, Victoria UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/549122016-03-08T15:18:52Z2016-03-08T15:18:52ZCyprus shows how to do an EU bailout programme well<p>Cyprus will successfully exit its bailout programme <a href="http://www.consilium.europa.eu/en/press/press-releases/2016/03/07-eurogroup-statement-cyprus/">this month</a> after three years. The country has come a long way since 2013 when its banking sector was on the verge of collapse. </p>
<p>The Cypriot economy went through heavy reforms and recovered using just €7.25 billion of its <a href="https://theconversation.com/living-with-a-10-billion-euro-bailout-the-story-from-the-streets-of-cyprus-34625">€10 billion rescue package</a>. The banking sector was stabilised, a budget surplus was achieved (down from a 5.5% deficit in 2013) and the <a href="http://www.independent.co.uk/news/business/news/cyprus-celebrates-its-early-exit-from-eu-bailout-programme-a6918356.html">current account nearly brought into balance</a>. But this is just the beginning.</p>
<p>As Harris Georgiades, the country’s finance minister, has pointed out, the upturn in the economy is <a href="http://www.nomisma.com.cy/el-gr/themata/44/71023?pgn=0#.VsTTu8vcuP9">“a result of the attempts and sacrifices of Cypriots”</a>. They adhered strictly to the austerity measures put in place, got on with life and though there were some protests, they did not strike or react in ways that would delay the reform project. It was implemented as agreed with Cyprus’ international creditors, the IMF, European Commission and European Central Bank.</p>
<p><a href="http://www.maxhnews.com/content/43589">Georgiades has stressed</a>, however, that “it is very important for the country to continue reforms with the same intensity, despite the positive signs in the economy”. So exiting the bailout and the return to markets does not signal the end of the reforms. The challenge of long-term sustainable growth remains and further structural changes are needed to make the economy more competitive, to create jobs and growth. </p>
<h2>Beyond banking</h2>
<p>It is important to understand that banks were not the only ones to blame for the crisis in Cyprus. This is vital to ensure past mistakes are not repeated. The way that public funds were managed before the crisis hit Cyprus was key to the economy’s derailment. Though the country has achieved a surplus, fiscal issues remain. </p>
<p>Although the IMF declared that <a href="http://www.publicfinanceinternational.org/news/2015/06/cyprus-making-good-progress-under-bailout-programme-says-imf">“the public finances have made good progress”</a>, the fact that there is no detailed programme outlining the costs of health, education and the pensions sector for the next few years, generates worries of possible future recession in these sectors. </p>
<p>Also, the political and social context in which the banks operated has not changed significantly. The investigation into loan fraud at the Cooperative Bank <a href="http://in-cyprus.com/co-op-loan-fraud-probe-intensifies/">last year</a> indicates that there is no transparency of the way banks do business. The same goes for the way <a href="http://cyprus-mail.com/2014/10/24/mobsters-financing-political-parties-in-cyprus/">political parties are financed</a>. To prevent and unmask other fraudulent activities, more efficient monitoring is needed for banks and their employees. </p>
<p>Plus trust in the government is low. A <a href="http://www.sigmalive.com/news/local/202858/dimoskopisi-dysarestimenoi-oi-polites-apo-tin-vouli">survey</a> last year found that 80% of citizens are disappointed in their members of parliament. There is a belief that political parties do not behave responsibly in terms of passing legislation. Politics in Cyprus is driven by <a href="http://www.politis-news.com/cgibin/hweb?-A=296485&-V=articles">personal interests or the demands of party politics</a>. This has come at the expense of policy.</p>
<h2>Boosting competition</h2>
<p>Cyprus remains an <a href="http://reports.weforum.org/global-competitiveness-report-2014-2015/rankings/">uncompetitive economy</a>. Despite tourism being one of the focus areas for boosting economic growth, Cyprus is deemed <a href="http://www.kpmg.com/CY/en/Documents/AUGUST-Cyprus-Tourism-Market-Report.pdf">an expensive destination</a> for tourists due to high electricity, telecommunications, transportation and banking costs. </p>
<p>Competitiveness is very low in the production of knowledge and innovation too. Cyprus is at the bottom of the <a href="http://cyprus-mail.com/2015/05/14/bottom-of-the-oecd-education-league-again/">OECD’s secondary education rankings</a>. Poor educational performance does not help in the production of high paid jobs through the development of intelligent skills. This leads to an increase of unemployment of young generation. This is major problem for Cyprus – the <a href="http://ec.europa.eu/eurostat/en/web/products-datasets/-/UNE_RT_M">unemployment rate is 15.6%</a>.</p>
<p>In spite of the reforms that have taken place, government structures <a href="http://www3.weforum.org/docs/gcr/2015-2016/CYP.pdf">remain highly bureaucratic</a> and inefficient. The European Commission has said that reforms to state-owned enterprises like the telecommunications operator, CYTA, and the reform of the health sector have made slow progress.</p>
<h2>Moving on</h2>
<p>During the banking crisis, there was a <a href="https://assets.documentcloud.org/documents/1363436/documents-on-eurozone-banking-crisis.pdf">silence among auditors</a> as they collected large fees and dished out clean bills of health without raising any red flags. To prevent future crises, greater transparency and accountability is needed.</p>
<p>In many ways, this goes without saying. It is the continued reform across the Cypriot economy that is needed. If Cypriots continue to only blame the banks, the problems faced by citizens and potential foreign and local investors will go unsolved. And, should the international financial environment once again worsen, Cyprus will be vulnerable.</p>
<p>The case of Cyprus reflects that the causes of a financial collapse cannot be viewed from only an economic perspective. The social, cultural and political context of the country should be taken into consideration as they influence both crisis and recovery.</p><img src="https://counter.theconversation.com/content/54912/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Christina Ionela Neokleous does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>Cyprus is successfully exiting its bailout at the end of March after three years.Christina Ionela Neokleous, PhD Candidate in Accounting, University of EssexLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/535032016-01-27T03:39:42Z2016-01-27T03:39:42Z15 economic milestones which have led to the current eurozone crisis<figure><img src="https://images.theconversation.com/files/108954/original/image-20160122-413-v5ifmc.jpg?ixlib=rb-1.1.0&rect=172%2C8%2C5203%2C2840&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">
</span> <span class="attribution"><span class="source">Image sourced from www.shutterstock.com</span></span></figcaption></figure><p>Last week the European Central Bank opted to leave interest rates on hold, amid financial market volatility that has fuelled further concern about eurozone growth prospects.</p>
<p>But Professor emeritus at UNSW Australia, Robert Marks argues the seeds of the current eurozone woes were first sown as far back as three decades ago. </p>
<p>Drawing from a <a href="http://www.agsm.edu.au/bobm/papers/marksfinal.pdf">timeline</a> he has been keeping for seven years, Prof Marks nominates 15 important events - including some very current ones - that chart the journey of the eurozone. </p>
<iframe src="https://cdn.knightlab.com/libs/timeline3/latest/embed/index.html?source=1B7d7doR7fcxpmuHu7yqpu-dOhzxzg6SGjoJC1VpT_hM&font=Default&lang=en&initial_zoom=2&height=650" width="100%" height="650" frameborder="0"></iframe><img src="https://counter.theconversation.com/content/53503/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Robert Marks does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>A timeline of 15 important events in the Eurozone’s economic history.Robert Marks, Professor emeritus, UNSW SydneyLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/448322015-10-28T10:08:09Z2015-10-28T10:08:09ZHow texting helped fuel the anti-austerity protests roiling Europe<p>Protests against austerity continue to roil parts of Europe, most recently in Brussels earlier this month when 100,000 people <a href="http://www.independent.co.uk/news/world/europe/anti-austerity-protests-turn-violent-in-belgium-a6685936.html">took to the streets</a> and police deployed water cannons. </p>
<p>This type of public and occasionally violent demonstration has been taking place across Europe since the beginning of the sovereign debt crisis as leaders decided cutting spending was the best way to deal with the region’s mountain of debt. The resulting cuts in benefits and education spending alongside higher taxes and freezes in public sector salaries helped <a href="http://www.spiegel.de/international/europe/anti-austerity-protests-spark-violence-in-european-countries-a-867316.html">galvanize</a> many Europeans onto the streets in protest.</p>
<p>But beyond the immediate impacts of austerity and spiking unemployment rates, what other factors shaped the public’s reaction? And what mobilized people to demonstrate in ever-rising numbers across Europe?</p>
<p>A new study that I published in the <a href="http://ijoc.org/index.php/ijoc/article/view/3020/1484">International Journal of Communication</a> helps identify those factors and signals that they go well beyond the usual suspects of unemployment, earnings and social demographics such as population density.</p>
<p>In fact, my research shows that one of the most basic forms of modern communication and simplest uses of a smartphone, the text message, was crucial to mobilizing anti-austerity efforts across the European Union. Through a combination of statistics and network analysis, my study paints a picture of what drove the protests and who was behind them. </p>
<h2>Predicting protests</h2>
<p>The study began with national-level data on 27 EU member countries (all but Malta). These data were used to look at the relationships between the prevailing economic conditions over the course of the economic crisis, from 2007 through 2012. </p>
<p>The analyses started with simple correlations, which found some relationships between youth unemployment and protest activity that got stronger over time, as well as very weak but positive correlations between protests and the number of texts sent.</p>
<p>Where it started to get much more interesting, though, was when I controlled for the influence other variables were having on protests, such as democracy levels and population density. This was done with what is known as a regression modeling, which is similar to correlations but allows researchers to account for the influence of other variables, including time, on an outcome. Unlike correlations, regressions can get closer to (but still not perfectly identify) causal-type relationships.</p>
<p>What I found in the first regression model was that the volume of text messages sent in all countries was a positive predictor of protest activity, as were youth unemployment rates. What this means is that as the total number of text messages sent went up in one year, protest activity increased in the next year. The same was true for youth unemployment rates. More protests followed rising levels of joblessness among young people.</p>
<h2>Combining youth unemployment and texting</h2>
<p>My statistical analysis showed these relationships were not a result of mere chance. The regression models took into account a range of other related factors that perhaps could have also explained the increases in protest, such as internet diffusion and income levels. But even when taking into account those factors, youth unemployment and texting levels remained significant.</p>
<p>Even more interesting, though, was that youth joblessness showed this same relationship only in an overall model, and not in year-by-year regressions. That is, it showed up only in figures for the entire series of countries and years. Of the seven factors that were modeled, only texting activity remained positive and statistically significant from 2009 onward in explaining protest movement. </p>
<figure class="align-right zoomable">
<a href="https://images.theconversation.com/files/89953/original/image-20150728-7668-1kc5old.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/89953/original/image-20150728-7668-1kc5old.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=237&fit=clip" srcset="https://images.theconversation.com/files/89953/original/image-20150728-7668-1kc5old.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=604&fit=crop&dpr=1 600w, https://images.theconversation.com/files/89953/original/image-20150728-7668-1kc5old.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=604&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/89953/original/image-20150728-7668-1kc5old.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=604&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/89953/original/image-20150728-7668-1kc5old.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=760&fit=crop&dpr=1 754w, https://images.theconversation.com/files/89953/original/image-20150728-7668-1kc5old.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=760&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/89953/original/image-20150728-7668-1kc5old.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=760&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption">The graph shows the average levels of sociopolitical instability, SMS activity, mobile phone adoption, internet diffusion and youth unemployment for EU countries from 2007 to 2012. Mobile and internet figures are per 100 people, SMS activity is scaled by 10 million, youth unemployment is based on rates per 1,000 and sociopolitical instability is transformed by a factor of 100 for comparability.</span>
<span class="attribution"><span class="source">Jacob</span>, <span class="license">Author provided</span></span>
</figcaption>
</figure>
<p>So to try to make the most of all these findings, I then combined the volume of texts with the <a href="https://www.stlouisfed.org/publications/regional-economist/april-2014/youth-unemployment--notably-high-in-southern-europe">youth unemployment rate</a> to determine the collective impact of these two factors at the same time. Looking at what is called an “interaction term” showed that the combination of these two factors had an even stronger relationship to higher levels of protest. </p>
<p>In other words, while rising youth unemployment appeared to be a primary catalyst prompting people to protest, it was the combination of youth unemployment and the increased frequency of texting on mobile phones that was related to demonstrations swelling in both frequency and intensity over this six-year time period. The graph at right shows the convergence of these factors. </p>
<h2>Modeling the communication</h2>
<p>So what were people communicating through their mobile devices? And which mobile phone users were most pivotal to coordinating these anti-austerity protests? </p>
<p>While it wasn’t possible to access the content of all the texts zooming back and forth over this period, for obvious reasons, I was able to examine more than three million public tweets that included relevant keywords such as “austerity,” “euro” and “crisis” – most of which were sent from mobile devices and all during the last two months of 2012. The tweets serve as a useful stand-in for the content and users of texts because tweets are more visible and user names (unlike phone numbers) are publicly accessible.</p>
<p>Using BU’s <a href="http://www.bu.edu/com/bu-tcat/">Twitter Collection and Analysis Toolkit</a> (BU-TCAT), I applied several algorithms to sort the Twitter data to reveal underlying network structures that shaped the flow of information in the online community. One of the resulting graphs visualized the most prominent hashtags used, while another identified the most influential users discussing the euro crisis on Twitter at the time. </p>
<p>The first of these graphs, the figure below, illustrates the mix and interconnection of topics related to the euro crisis. In general, this concept map provides a level of understanding about what was being communicated in this public space and how those conceptual interactions occurred, without specific coordination or hierarchy, by Twitter users. </p>
<figure class="align-right zoomable">
<a href="https://images.theconversation.com/files/89948/original/image-20150728-13725-1qjyamy.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/89948/original/image-20150728-13725-1qjyamy.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=237&fit=clip" srcset="https://images.theconversation.com/files/89948/original/image-20150728-13725-1qjyamy.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=738&fit=crop&dpr=1 600w, https://images.theconversation.com/files/89948/original/image-20150728-13725-1qjyamy.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=738&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/89948/original/image-20150728-13725-1qjyamy.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=738&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/89948/original/image-20150728-13725-1qjyamy.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=928&fit=crop&dpr=1 754w, https://images.theconversation.com/files/89948/original/image-20150728-13725-1qjyamy.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=928&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/89948/original/image-20150728-13725-1qjyamy.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=928&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption">This spatialization image shows the relationships of about three million tweets about the euro crisis in terms of co-occurring hashtags.</span>
<span class="attribution"><span class="source">Jacob Groshek</span>, <span class="license">Author provided</span></span>
</figcaption>
</figure>
<p>When looking at this graph of co-occuring hashtags, to understand its meaning, imagine if you gave 1.5 million people an orange and asked them to describe its features. Eventually certain dominant descriptive keywords and linkages between words would emerge, such as “juicy,” “round,” “sweet,” “orange” and so on. Now, when looking at this co-hashtag graph, imagine that the 1.5 million users that tweeted weren’t given an orange but instead a chance to publicly express their opinions on austerity policies. The most prominent nodes in the co-hashtag graph identify which concepts users applied most to describe their opinions on austerity policies. </p>
<p>You can click <a href="http://www.betweetness.org/eurocrisis_cohash_new/">here</a> to see a dynamic version of the graph with more detail. </p>
<p>A second graph illustrates how there were relatively few connections among the diverse stakeholders operating in a network where users were surprisingly sparsely interconnected with one another. More specifically, what this means is that there were more than three million tweets in this data set from just over 1.5 million users, but that in the period of these two months, there were just 227 links between the 409 most active users.</p>
<p>To clarify further, this data set was summarized into the leading 409 figures that were tweeting about the euro crisis and austerity on Twitter, but there were just 227 instances in which they mentioned one another using the @username reference. You can see a dynamic version of this <a href="http://www.betweetness.org/eurocrisis_users_rev/">here</a>. </p>
<figure class="align-right zoomable">
<a href="https://images.theconversation.com/files/89960/original/image-20150728-7653-1p3e56c.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/89960/original/image-20150728-7653-1p3e56c.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=237&fit=clip" srcset="https://images.theconversation.com/files/89960/original/image-20150728-7653-1p3e56c.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=609&fit=crop&dpr=1 600w, https://images.theconversation.com/files/89960/original/image-20150728-7653-1p3e56c.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=609&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/89960/original/image-20150728-7653-1p3e56c.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=609&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/89960/original/image-20150728-7653-1p3e56c.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=766&fit=crop&dpr=1 754w, https://images.theconversation.com/files/89960/original/image-20150728-7653-1p3e56c.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=766&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/89960/original/image-20150728-7653-1p3e56c.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=766&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption">This spatialization shows the connections among about 1.5 million Twitter users, revealing there were only 227 links among 409 of the most active users.</span>
<span class="attribution"><span class="source">Jacob Groshek</span>, <span class="license">Author provided</span></span>
</figcaption>
</figure>
<p>Clearly, there was a large number of tweets and a broad base of users. Still, this analysis showed that user interaction was irregular, generally uncoordinated and centered around a relatively small number of users. Additional research identified these users as mostly belonging to a community of Spanish journalists, activists and media organizations, along with satirical or pseudo accounts (such as a deceased politician). </p>
<p>This study signals that these ostensibly open spaces for communication often morph into something else. Rather than being a connected group of equal participants, the Twitterverse was full of disconnected posts and users where only a few acted as influential gatekeepers to share content. </p>
<h2>Smartphones and simple tech rules</h2>
<p>Overall, this study found that it was how people used mobile media and not just the pervasiveness of smartphones (which in itself was not statistically significant) or online access more broadly that were pivotal factors in how the public often erupted in protest to austerity measures.</p>
<p>In short, the simplest usage of the smartphone proved the most crucial factor – when combined with youth unemployment – in explaining where and when people went to the streets to oppose austerity measures. </p>
<p>This is unique and different from how protesters in the Arab Spring or other (reportedly) technologically inspired revolutions have been considered. Whereas those protests also engaged mobile phones, texting and social media, they were operating in a different cultural and political climate seeking regime – not policy – change. The results, of course, were also vastly different in that governmental transitions in Europe have been more orderly and programmatic, at a minimum, and that austerity politics have continued. </p>
<p>Sometimes, the simplest answers can be the most profound. In this case, the evidence suggests that the public erupting in protest against austerity measures was being driven, above all, by youth unemployment and texting. </p>
<p>In the study of emerging media and politics, newness is not often nearly as important as “embeddedness” – in this case, the device we all carry in our pockets, smartphone or not. Simple matters – and, as suggested here, sometimes short (message services) matters too.</p><img src="https://counter.theconversation.com/content/44832/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Jacob Groshek does not work for, consult, own shares in or receive funding from any company or organization that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>New research shows texting combined with rising levels of youth unemployment were primary drivers of the unrest that has unsettled Europe.Jacob Groshek, Assistant Professor of Emerging Media, Boston UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/481212015-10-01T10:04:15Z2015-10-01T10:04:15ZAusterity: Portugal is on a different path to Greece and Spain – here’s why<p>There is an air of calm in Portugal. Like Greece and Spain, Portugal was bailed out by international creditors and underwent austerity measures that included tax hikes and salary cuts across the public sector. But the political effect of this has been starkly different. </p>
<p>Greece has had five general elections in the past six years and seen the rise of the left-wing, <a href="https://theconversation.com/syriza-surges-ahead-of-january-election-as-greek-voters-reject-austerity-35829">anti-austerity Syriza party</a>. Spain too has seen a surge in popularity of the <a href="https://theconversation.com/meet-podemos-the-party-revolutionising-spanish-politics-33802">ideologically-similar Podemos</a>. Portugal, meanwhile, has enjoyed significant continuity. </p>
<p>As the country’s October 4 general election approaches, the centre-right ruling coalition of the Social Democrats and Christian Democrats, which has overseen the implementation of austerity and structural reform, has begun to stretch out ahead in <a href="http://www.marktest.com/wap/a/p/id%7E112.aspx#t">opinion polls</a> over the main opposition centre-left Socialist Party. This has been a huge turnaround since January when the Socialist Party <a href="https://euroinsight.mni-news.com/posts/analysis-portuguese-socialists-anti-austerity-election-message-clouds-outlook-490">had a significant lead</a>. </p>
<p>One factor that has played a central role in the stability of Portugal’s electoral outlook has been the condition of the economy. It is without question that the austerity prescribed with their bailout and the recession that subsequently followed hit ordinary people hard in Portugal. But, as the graph below shows, it did not have such a dramatic effect on GDP as it did in Greece which <a href="http://www.dw.com/en/greek-economys-numbers-still-worrying/a-18256967">lost 25% of GDP between 2008 and 2014</a>. </p>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/96053/original/image-20150924-17059-1ehix9z.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/96053/original/image-20150924-17059-1ehix9z.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/96053/original/image-20150924-17059-1ehix9z.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=258&fit=crop&dpr=1 600w, https://images.theconversation.com/files/96053/original/image-20150924-17059-1ehix9z.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=258&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/96053/original/image-20150924-17059-1ehix9z.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=258&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/96053/original/image-20150924-17059-1ehix9z.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=324&fit=crop&dpr=1 754w, https://images.theconversation.com/files/96053/original/image-20150924-17059-1ehix9z.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=324&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/96053/original/image-20150924-17059-1ehix9z.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=324&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption">GDP of Portugal, Spain, Greece and Euro Area.</span>
<span class="attribution"><span class="source">Jamie Jordan | Data: Federal Reserve Bank of St. Louis</span></span>
</figcaption>
</figure>
<p>Spain, while not experiencing as large a contraction in overall GDP compared to Greece (or Portugal), did suffer a huge downturn in the construction sector. This was felt particularly hard as it followed an equally impressive boom, which was both <a href="https://www.imf.org/external/pubs/ft/wp/2013/wp13181.pdf">important in terms of economic output and employment</a> – as shown in the graphs below.</p>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/96054/original/image-20150924-17062-at6l67.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/96054/original/image-20150924-17062-at6l67.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/96054/original/image-20150924-17062-at6l67.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=310&fit=crop&dpr=1 600w, https://images.theconversation.com/files/96054/original/image-20150924-17062-at6l67.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=310&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/96054/original/image-20150924-17062-at6l67.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=310&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/96054/original/image-20150924-17062-at6l67.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=390&fit=crop&dpr=1 754w, https://images.theconversation.com/files/96054/original/image-20150924-17062-at6l67.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=390&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/96054/original/image-20150924-17062-at6l67.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=390&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption">Employment in the construction industry.</span>
<span class="attribution"><span class="source">Jamie Jordan | Data: Federal Reserve Bank of St. Louis</span></span>
</figcaption>
</figure>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/96055/original/image-20150924-17074-198cwv3.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/96055/original/image-20150924-17074-198cwv3.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/96055/original/image-20150924-17074-198cwv3.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=480&fit=crop&dpr=1 600w, https://images.theconversation.com/files/96055/original/image-20150924-17074-198cwv3.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=480&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/96055/original/image-20150924-17074-198cwv3.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=480&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/96055/original/image-20150924-17074-198cwv3.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=603&fit=crop&dpr=1 754w, https://images.theconversation.com/files/96055/original/image-20150924-17074-198cwv3.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=603&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/96055/original/image-20150924-17074-198cwv3.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=603&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption">The share of the construction industry as part of the economy.</span>
<span class="attribution"><span class="source">IMF</span></span>
</figcaption>
</figure>
<p>A longer view of Portugal’s economy explains further why it did not experience hardship as a result of its austerity policies and bailout as harshly as Greece or Spain. Portugal did not enjoy the same upswings that the Spanish and Greek economies did before the financial crisis. Indeed, Portugal’s accession to the euro very quickly choked off the high growth the country had <a href="http://www.brookings.edu/%7E/media/Projects/BPEA/Spring%202013/2013a_reis.pdf">from the mid-to-late 1990s</a>.</p>
<p>For Portuguese people, therefore, the euro crisis did not start in 2011. This has played an important role in halting any huge shift in the electoral landscape.</p>
<h2>The politics of the left</h2>
<p>Another important aspect which has shaped the differences of Portugal’s electoral landscape to that of Greece and Spain’s has been the politics of the left. In Portugal, the Communist Party dominates left-wing politics and protest through an electoral pact with the PEV Green Party; a pact that it established and controls. The party attempts to monopolise mobilisation against the government by using its close ties with the largest trade union confederation, CGTP, to hold onto the 8-10% of the vote that it <a href="http://www.electionresources.org/pt/index_en.html">regularly garners</a>.</p>
<p>By maintaining this strength, Portugal’s Communist Party continues to serve as a legitimate electoral party of protest on the left. This is in contrast to Greece’s Communist Party, which failed to make much of a dent in the Greek parliament due to its greater disengagement from electoral politics. The strength of the Communist Party in Portugal, however, meant there was not the same kind of vacuum for a radical anti-austerity party to inhabit, as it did in Greece and Spain. This is something that high-ranking centre-right Portuguese government officials told me with surprising regularity when I was conducting fieldwork in Lisbon this summer.</p>
<p>The dominance of the Communist Party in Portugal amongst progressive forces has also played an important factor in diluting the impact of new social movements in challenging the politics of austerity – the kind of movements that Syriza and Podemos were built upon.</p>
<p>The severe contraction of Greece’s economy left large sections of the population facing problems fulfilling basic human necessities. This gave rise to a <a href="http://omikronproject.gr/grassroots">network of solidarity structures</a> including social solidarity clinics to provide free healthcare for citizens in need. The response to the humanitarian crisis by these volunteers is not considered to be one of charity, however, but a political response seeking progressive change. The development of these groups has been important in helping Syriza <a href="https://theconversation.com/life-under-austerity-shows-why-syriza-is-fighting-it-so-hard-42953">increase its share of the vote</a> from 4% only a few year ago to <a href="https://theconversation.com/greek-election-tsipras-trounces-his-opponents-but-at-what-cost-47790">become Greece’s largest party</a>.</p>
<p>In Spain, a similar process has occurred. In the face of a <a href="http://time.com/4007349/spain-evictions-housing-crisis/">huge housing crisis</a>, a community network called the Platform for People Affected by Mortgages (<a href="http://afectadosporlahipoteca.com/">PAH</a>) has supported those affected by the country’s biggest economic concern. As with Greece, this large-scale movement and the politics around it provided a solid foundation for Podemos to grow its support. This is most evident in the recent election of new mayors in <a href="http://www.theguardian.com/world/2015/jun/13/ada-colau-barcelona-spain-mayor-targets-tourists">Barcelona</a> and <a href="http://www.theguardian.com/world/2015/jun/12/madrid-manuela-carmena-deal-socialists-mayor">Madrid</a>, both of whom have close links to Podemos (the mayor of Barcelona was actually a founder of the PAH movement).</p>
<h2>The household debt analogy</h2>
<p>As well as the politics of the left showing deficiencies, the incumbent centre-right parties have done well to maintain their popularity. In particular, they have successfully presented themselves as economically responsible by using the “household debt” analogy to explain Portugal’s economic situation. </p>
<p>This intuitive analogy describes the national budget along similar lines to a household’s finances. The story goes that the government has lived beyond its means and that – as would be the case in a household – once the bad times hit there is no alternative but to tighten the belt in order to get the finances back under control. This is not how <a href="http://www.huffingtonpost.co.uk/adnan-aldaini/running-a-government-budg_b_7585914.html">government finance functions at all</a> – but the power with which it intuitively speaks to people’s everyday understanding of economic functions has been instrumental in allowing the Portuguese government to implement austerity.</p>
<p>The parallels with UK politics are incredibly similar. The coalition government, led by the Conservative Party did a similar job of undermining the centre-left Labour Party <a href="https://theconversation.com/why-did-labour-lose-and-where-next-for-the-party-41629">for its economic policies</a>, using the same household debt analogy. And, if the <a href="http://www.telegraph.co.uk/news/politics/conservative/11599600/How-did-the-Conservatives-win-the-general-election.html">result of the British general election</a> is anything to go by, Portugal will see the centre-right Social Democratic Party holding onto power.</p>
<p>Read more: <a href="https://theconversation.com/is-portugal-a-poster-child-for-austerity-48364">is Portugal the poster child for austerity?</a></p><img src="https://counter.theconversation.com/content/48121/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Jamie Jordan receives funding from the Economic and Social Research Council.</span></em></p>Like Greece and Spain, Portugal endured a bailout and austerity. But it has not seen the rise of a Syriza or Podemos equivalent.Jamie Jordan, ESRC PhD Candidate in International Relations, University of NottinghamLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/456842015-08-26T09:51:09Z2015-08-26T09:51:09Z‘Hamilton’: the Broadway hip-hop musical every European leader should see<figure><img src="https://images.theconversation.com/files/92952/original/image-20150825-15920-1rgsvp2.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">Hamilton is shown whispering into Ben Franklin’s ear in Howard Chandler Christy’s depiction of the signing of the Constitution.</span> <span class="attribution"><a class="source" href="https://www.flickr.com/photos/uscapitol/6263666566/in/photolist-23sHQ9-axuVR9-4R48Yd-eUBrK5-7pNvhq-ise3F7-wQWG59-oyZ3wQ-ia9QAN-5AM4Te-5AM4PK">US Capitol/flickr</a></span></figcaption></figure><p>What do the new Broadway hip-hop musical <a href="http://www.hamiltonbroadway.com">“Hamilton”</a> and Europe’s debt crisis have in common? A great deal, actually.</p>
<p>“Hamilton,” which opened on August 6, celebrates the life and public career of one of our nation’s greatest statesmen, Alexander Hamilton, our first secretary of the treasury under President George Washington and the lead author of the most important and influential commentary on the Constitution, The Federalist. </p>
<p>European leaders such as German Chancellor Angela Merkel and Greek Prime Minster Alexis Tsipras, who <a href="http://www.nytimes.com/2015/07/30/world/europe/how-germany-prevailed-in-the-greek-bailout.html">squared off</a> recently over the latter’s desperate need for another bailout, should book front-row seats, because “Hamilton” has important lessons for them about debt and government. </p>
<h2>Hamilton’s stroke of genius</h2>
<figure class="align-right ">
<img alt="" src="https://images.theconversation.com/files/92954/original/image-20150825-15875-1rhnxun.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=237&fit=clip" srcset="https://images.theconversation.com/files/92954/original/image-20150825-15875-1rhnxun.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=880&fit=crop&dpr=1 600w, https://images.theconversation.com/files/92954/original/image-20150825-15875-1rhnxun.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=880&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/92954/original/image-20150825-15875-1rhnxun.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=880&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/92954/original/image-20150825-15875-1rhnxun.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=1106&fit=crop&dpr=1 754w, https://images.theconversation.com/files/92954/original/image-20150825-15875-1rhnxun.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=1106&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/92954/original/image-20150825-15875-1rhnxun.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=1106&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">Hamilton used the Roman pen-name Publius on his essays in The Federalist.</span>
<span class="attribution"><span class="source">US Treasury Department</span></span>
</figcaption>
</figure>
<p>Hamilton was instrumental in transforming the United States into a true nation, in particular by his policies and actions as treasury secretary, and the musical conveys the scope and drama of his achievement. </p>
<p>One of Hamilton’s most brilliant and successful policies was to have the federal government <a href="http://founders.archives.gov/?q=Ancestor%3AARHN-01-06-02-0076-0002&s=1511311111&r=1">assume</a> the Revolutionary War debts of the states, which it did in 1790. </p>
<p>Hamilton recognized that the United States would be better able than individual states to make regular payments on those debts and ultimately to retire them. Further, he recognized that the government could use the debt as a means to stimulate economic growth, bolster the strength of the new nation’s currency and shore up its honor in the community of nations – by showing that the US would meet its obligations.</p>
<p>One key insight also drove Hamilton’s policy. He saw that consolidating state debts into a single national pool would require a single national policy. No longer would the United States be plagued by divergent or conflicting state policies. Hamilton ensured that his plan would promote national unity. </p>
<p>To this day, scholars of American constitutional and legal history like us, who try hard to maintain their objectivity in interpreting the past, find it difficult not to admire Hamilton’s constitutional, legal, economic and political creativity. And rarely have Hamilton and his policies seemed more relevant than today, particularly for Europe as it struggles to prevent Greece’s debt crisis from ripping apart the eurozone and potentially the European Union. </p>
<h2>A clash of nations</h2>
<p>In this crisis, we see individual European nations clashing with one another.</p>
<p>Germany and its supporters have insisted on imposing strict austerity measures on Greece in exchange for a third bailout needed to prevent the collapse of the Greek economy – even at the price of stripping Greece of its sovereign power to determine the structure and workings of its economy and society. </p>
<p>Some even charge Merkel with seeking to turn Greece into a colonial satellite by means of Germany’s economic clout, as it did with its <a href="http://www.amazon.com/Inside-Hitlers-Greece-Experience-Occupation/dp/0300089236/ref=sr_1_1?ie=UTF8&qid=1440440396&sr=8-1&keywords=mazower+greece">military might</a> during World War II. </p>
<p>Nor have Greece’s political leaders played innocent roles. By holding a referendum on the EU’s proposed bailout for Greece, Tsipras and his government sought to blackmail Merkel into abandoning her demands for austerity by <a href="http://www.theguardian.com/world/2015/mar/22/german-anger-towards-greece-mounts-over-bailout-as-tsipras-meets-merkel">asking</a> for reparations for the Nazis’ occupation of Greece and implying current leaders are bent on ignoring Greek democracy and the democratically expressed wishes of the Greek people.</p>
<p>Tsipras refused to follow the consensus-building rules by which the EU has governed itself. In our view, his embrace of populist, hardball politics has done serious harm to the mechanisms of European governance, risking destroying them. </p>
<h2>Preventing destructive political conflicts</h2>
<p>In the 1790s, by contrast, the federal government’s assumption of state debts under Hamilton’s guidance prevented similar destructive political conflicts in the early United States. </p>
<p>When Hamilton proposed his plan to bolster the nation’s public credit, he did so within the context of a constitutional system in which there was a general government, at least arguably supreme in certain spheres of activity over the states. In addition, it was within the context of a union that many Americans saw as necessary to their new independence and ability to create a nation and maintain their liberties. </p>
<p>Vigorous, contentious debates within Congress and the public could thus unfold without threatening to burst the Union or the Constitution – even though some states, which had already paid their Revolutionary War debts, resented that the federal government would relieve other states of their burdens.</p>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/92947/original/image-20150825-15883-1h06xvz.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/92947/original/image-20150825-15883-1h06xvz.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/92947/original/image-20150825-15883-1h06xvz.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=428&fit=crop&dpr=1 600w, https://images.theconversation.com/files/92947/original/image-20150825-15883-1h06xvz.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=428&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/92947/original/image-20150825-15883-1h06xvz.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=428&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/92947/original/image-20150825-15883-1h06xvz.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=538&fit=crop&dpr=1 754w, https://images.theconversation.com/files/92947/original/image-20150825-15883-1h06xvz.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=538&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/92947/original/image-20150825-15883-1h06xvz.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=538&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption">America’s founding fathers weren’t immune to destructive political conflicts. Hamilton and his contemporaries, however, successfully turned politics into a peaceful war of words and ideas. In this anti-Republican cartoon, Jefferson is the one standing on a table.</span>
<span class="attribution"><span class="source">Federalist cartoon via www.shutterstock.com</span></span>
</figcaption>
</figure>
<h2>Lessons for Europe</h2>
<p>Did Hamilton and other founding fathers of the United States behave better than Europeans today? </p>
<p>To be sure, political leaders at all times and in all places will do what they must to please supporters and constituents who place their selfish fears and interests ahead of the need to maintain rational government. By contrast with most of his contemporaries, Hamilton’s defiant candor, which sometimes amounted to tactlessness, often made him and his policies more enemies than friends.</p>
<p>Even so, Hamilton understood, as did most politicians of his time, that the way to avoid irrational politics was to create governmental structures for a federal republic that channeled decision-making in productive directions. </p>
<p>In helping to create the first system of national politics, Hamilton and other founding fathers devised a system that forced voters who wanted to make effective and constructive political choices to unite behind centrist candidates and to make binary choices between partisan alternatives. </p>
<p>A case in point is the election of 1800, when voters rejected many of Hamilton’s domestic and foreign policies, elected his archrival Thomas Jefferson to the presidency and gave the Jeffersonian Republicans control of Congress. This result testifies further to the wisdom of the system that Hamilton helped create in Philadelphia in 1787. That system often showed its ability to contain and damp down heated disagreement over major policy issues. </p>
<p>Indeed, one aspect of the 1800 election that showed the Constitution’s strength and resiliency was the peaceful transfer of power from the Federalists to the Republicans, when President John Adams stepped down from office after losing, making way for Jefferson to become the third president. Behind the scenes, Hamilton urged his fellow Federalists not to block Jefferson’s election, though he admitted his dislike of Jefferson and his political views.</p>
<h2>An end to blackmail and conquest</h2>
<p>The Greek debt crisis is only the latest problem demonstrating the need to create European political structures that can prevent games of blackmail and conquest and give citizens the political power to attain the economy and society they desire. </p>
<p>Europeans themselves are aware of the need for such strengthening and reform. As the European Commission’s 2015 report “Completing Europe’s Economic and Monetary Union” (EMU) <a href="http://ec.europa.eu/priorities/economic-monetary-union/docs/5-presidents-report_en.pdf">notes</a>:</p>
<blockquote>
<p>A complete EMU is not an end in itself. It is a means to create a better and fairer life for all citizens, to prepare the Union for future global challenges and to enable each of its members to prosper.</p>
</blockquote>
<figure class="align-right ">
<img alt="" src="https://images.theconversation.com/files/92949/original/image-20150825-15891-rwi3sm.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=237&fit=clip" srcset="https://images.theconversation.com/files/92949/original/image-20150825-15891-rwi3sm.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=988&fit=crop&dpr=1 600w, https://images.theconversation.com/files/92949/original/image-20150825-15891-rwi3sm.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=988&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/92949/original/image-20150825-15891-rwi3sm.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=988&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/92949/original/image-20150825-15891-rwi3sm.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=1242&fit=crop&dpr=1 754w, https://images.theconversation.com/files/92949/original/image-20150825-15891-rwi3sm.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=1242&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/92949/original/image-20150825-15891-rwi3sm.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=1242&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">Jean Omer Marie Gabriel Monnet, considered the EU’s founding father, saw the American model as the right one for Europe.</span>
<span class="attribution"><span class="source">Monnet statue via www.shutterstock.com</span></span>
</figcaption>
</figure>
<p>Hamilton’s career, and the American founding experience in general, offer insight as to how those structures might be built. </p>
<p>Statesmen such as the late Jean Monnet – considered the <a href="https://www.foreignaffairs.com/reviews/review-essay/1977-04-01/what-jean-monnet-wrought">founding father</a> of the European Union – and modern scholars such as British political philosopher Larry Siedentop have often <a href="http://www.amazon.com/Democracy-Europe-Larry-Siedentop/dp/0231123779/ref=sr_1_4?ie=UTF8&qid=1440440601&sr=8-4&keywords=siedentop">invoked</a> the American example as a model for a United States of Europe, or of a European Union beyond what we see today. </p>
<p>While recognizing that ethnicity, religion and national heritage may serve as barriers to such a union, these scholars and statesmen have argued for a rational recognition among Europeans of their many shared interests. That step would help to replace self-interested and bitter squabbling among nation-states with a rational means of controlling nationalist resentments, emotions and suspicions. </p>
<p>In the US founding era (comprising the years from the 1760s through the 1830s), even though the early states had few sensible reasons to remain separate and many good reasons to coalesce, suspicions, jealousies and resentments comparable to those plaguing Europe today reigned. </p>
<p>These suspicions and resentments, and Americans’ fears of a too-powerful general government, were so strong that, during the framing of the US Constitution in 1787, the delegates to the Federal Convention specifically crossed out the words “nation” or “national” from the working draft. Even so, they created a government strong enough to protect national interests while checked and balanced enough to safeguard democratic governance and individual rights.</p>
<h2>Lessons for US</h2>
<p>Not only Europeans could learn a thing or two about rational political decision-making from the new musical “Hamilton.” Americans, also plagued today by a vicious, bitter, either/or form of political conflict, could benefit from the lessons of Hamilton and the other founding fathers.</p>
<p>Those who see “Hamilton” will gain a renewed appreciation for the need to preserve rationality in American politics. The musical’s presentation of complex and difficult policy disputes between Hamilton and Jefferson as well-staged, well-written rap battles shows how words and arguments matter. The show’s author, Lin-Manuel Miranda, recognizes the power of words not only in his use of hip-hop and rap forms but in his close attention to getting the substance of his rap lyrics right. </p>
<figure class="align-right ">
<img alt="" src="https://images.theconversation.com/files/92955/original/image-20150825-15912-1812951.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=237&fit=clip" srcset="https://images.theconversation.com/files/92955/original/image-20150825-15912-1812951.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=972&fit=crop&dpr=1 600w, https://images.theconversation.com/files/92955/original/image-20150825-15912-1812951.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=972&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/92955/original/image-20150825-15912-1812951.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=972&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/92955/original/image-20150825-15912-1812951.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=1221&fit=crop&dpr=1 754w, https://images.theconversation.com/files/92955/original/image-20150825-15912-1812951.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=1221&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/92955/original/image-20150825-15912-1812951.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=1221&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">The title page of THE FEDERALIST, written by Hamilton, James Madison and John Jay to support and explain the Constitution.</span>
<span class="attribution"><span class="source">Federal Hall National Memorial</span></span>
</figcaption>
</figure>
<p>The play is pervaded by one great insight: the power of language and reason. That power not only enables Miranda’s Hamilton to transcend his humble roots and vault into political leadership of the Revolution and of the creation of an American constitutional republic, it also enables all the founding fathers who appear in the show – Hamilton, Washington, Jefferson, Madison and Burr – to order the American political world with words. </p>
<p>“Hamilton” reminds us once again of the power of reason and of words in the political realm, and of the need for reason to anchor that political world and to direct its course.</p>
<p>Perhaps “Hamilton” might persuade Americans who see it, whether conservative or progressive, of the foolishness of hardball politics and of the need to nurture institutions that promote compromise and to accept it as a legitimate means of getting political things done. </p>
<p>It may convince people that their leaders cannot satisfy every interest demanding satisfaction, and it also may emphasize the need to show respect to their opponents as well as to the values by which those opponents live.</p><img src="https://counter.theconversation.com/content/45684/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>The authors do not work for, consult, own shares in or receive funding from any company or organization that would benefit from this article, and have disclosed no relevant affiliations beyond their academic appointment.</span></em></p>Alexander Hamilton and the policies he pursued as America’s first treasury secretary set the US on a course of national unity. That’s just what Europe needs today.William E. Nelson, Weinfeld Professor of Law, New York UniversityR B Bernstein, Lecturer in Political Science, City College of New YorkLicensed as Creative Commons – attribution, no derivatives.