Brookings: Topics - Europe

CO2 Emission Permit Prices Plunge In Europe: What's Up?

Adele Morris — Fri, 17 May 2013 13:47:00 -0400

Recent headlines proclaim "deep trouble" in the European cap-and-trade system for greenhouse gases, evidenced by the decline in allowance spot prices from over $25 per metric ton of carbon dioxide in June 2008 to about $3 this month. Although many press articles have referred to an "oversupply" of emissions permits, suggesting some kind of intrinsic imbalance, the markets are clearing just fine. It's just that the price is lower than forecast.

Whether this represents trouble or not depends on what you think the goal of the program should be. If the goal is to ensure that emissions in the covered industrial sectors are no higher than the emissions caps, then the program has worked just fine. It just didn't have to work very hard since much of the decline in emissions relative to projections was driven by the multi-year economic crisis. A sputtering EU economy lowered industrial activity and consumer energy demand, and this drove down allowance demand and prices. This makes compliance easier for the remaining emitters just at the time business and consumers are suffering most. This counter-cyclical property might be seen by some as a feature, not a bug.

On the other hand, if you think the goal of climate policy should be to provide stable cost effective long-run incentives to lower emissions relative to what would otherwise occur, then the ETS price plunge is a cautionary tale. First, it illustrates the importance of the design details of the carbon market. The ETS law included no provision to restrict automatically the number of allowances when prices get low. Efforts to withhold allowances failed when, not surprisingly, coal-dependent states balked at the proposed stringency in an economic downturn.

Second, the price volatility shows that the ETS hasn't really fixed the market failure in which fossil energy prices don't reflect their full social costs, including environmental damages. Economists widely advocate a price signal on carbon that would include those external costs, as best we can estimate them, in fuel prices through a carbon tax or a cap-and-trade system. The ETS illustrates one key drawback of a poorly designed cap-and-trade system: fluctuating allowance prices and abatement incentives. Price volatility makes no sense if you're trying to internalize an external cost because there's no reason to think the social cost of carbon fluctuates over the short run, much less drops by 90 percent over five years.

Third, the ETS illustrates the potential for laxity in one carbon market to erode abatement incentives abroad. For example, the Australians plan to convert their carbon tax to an ETS-linked permit program in July 2015. The prospect of linkage to the ETS lowers the expected Australian carbon price well below the current tax of about $25 per ton of CO2. To be sure, low prices in the ETS just amplify the investment-depressing effect of the broader uncertainty around a policy so incompetent one wonders if they'll go through with it.

Finally, the ETS experience reveals the limitations of framing the environmental success of a climate policy solely in terms of emissions levels. Many environmentalists are more comfortable with an emissions cap than a carbon tax because the cap provides more environmental certainty. However, the lower-than-predicted ETS allowance price has made it unexpectedly easy for utilities to fire up coal-powered plants and delay investments in cleaner natural gas and renewables, and this could set back climate efforts in the EU for years.

The fits and starts of the EU carbon market suggest the potential advantage of an enduring and credible incentive to reduce emissions through a carbon tax. Even if the EU had set a tax at the lesser of the estimated damages from emissions and the public's willingness to pay, it would surely have been greater than the current ETS price, suggesting that the policy with the greater environmental certainty has foregone the opportunity for greater environmental benefits.

Policymakers should expect the unexpected and do what they can to establish a climate policy that is robust to changing economic conditions at home and abroad. Compared to the EU's current approach, a modest predictable tax would be more robust to shocks, solidify the payoffs of investments in new technologies and emissions reductions, cost less (especially if the revenue is used wisely), and ultimately do more to protect the planet.

Authors

Adele Morris

Publication: Real Clear Markets

Image Source: © Alessandro Garofalo / Reuters

Turkish Prime Minister Erdoğan's U.S. Agenda

Kemal Kirişci — Thu, 16 May 2013 10:46:00 -0400

Editor's note: On May 17, 2013 Brookings hosted Prime Minister Erdogan for an event on U.S.-Turkish relations.

Turkish prime minister Recep Tayyip Erdogan is visiting Washington this week and will meet with President Obama today. This is his first visit to the United States since December 2009. But the world and the Middle East have changed dramatically since then. Thus, the agenda for Erdogan’s talks with Obama will be a very crowded one. Four topics in particular are likely to stand out.

1. The Situation in Syria

Erdogan arrives in Washington at a time when there is growing pressure on the Obama administration to change its course on Syria. Secretary of State John Kerry has already taken some steps to increase nonlethal support for the opposition in Syria while putting growing pressure on the moderate opposition to tighten their ranks and distance themselves from radical Islamist groups. These measures are unlikely to satisfy Erdogan. He has long been a vocal critic of the international community, the United Nations Security Council and the United States for idly “watching the tragedy” unfolding in Syria.

He is likely to remind Obama quite loudly that the butchery of civilians by the Assad regime has reached levels that makes it unethical not to respond to and that, as the car bombs that exploded in Turkish border town of Reyhanli last weekend demonstrate, Turkish national security is being directly affected. He will also offer facts and figures to show how the humanitarian situation is fast deteriorating and becoming untenable with an ever expanding flow of refugees and displaced people. He will not miss the opportunity to share with Obama the evidence collected from refugees arriving in Turkish hospitals that the Syrian regime is using chemical weapons. Erdogan may go as far as to push Obama to support the idea of creating a no-fly zone along the Turkish border.

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Authors

Kemal Kirişci

Publication: The National Interest

Image Source: © Larry Downing / Reuters

Pragmatism May Drive Israeli-Turkish Ties

Kemal Kirişci — Tue, 14 May 2013 00:00:00 -0400

Israeli-Turkish relations are likely to feature prominently during Turkish Prime Minister Recep Tayyip Erdoğan’s visit to Washington, DC. Turkish and Israeli officials are engaged in talks to work out Israeli compensation to the families killed and injured during the 2010 Mavi Marmara flotilla incident. These talks are part of a U.S.-brokered rapprochement between the two countries, which began with an official apology by Prime Minister Benjamin Netanyahu to Erdoğan in late March for “any mistakes that might have led to the loss of life or injury” aboard the Mavi Marmara. This hasn’t been an easy exercise; a major challenge for Turkey comes from finding a balance between the domestic debate over the lifting of the blockade of Gaza and Turkey’s own compensation issues for the Kurdish population on the one hand and Turkey’s pressing national security needs against the deteriorating situation in Syria on the other.

The families of the Mavi Marmara victims have repeatedly objected to compensation talks until the Gaza Strip blockade is lifted. The Humanitarian Relief Foundation (İHH), the Turkish NGO which organized the Mavi Marmara trip, and the hard-core Islamists who partly constitute the electoral basis of Erdoğan’s ruling Justice and Development Party (AK Party) also publicly support their position. Recently, they held a major public meeting promoting the idea of “first lifting the blockade” and took a critical view of Deputy Prime Minister Bülent Arınç’s involvement in compensation talks with Israel. Interestingly, Erdoğan chose to remain silent on the issue and allow Arınç to face the criticism on his own. Arınç’s position and Erdoğan’s silence should be viewed in the context of Turkey’s own domestic compensation issues.

As much as the Turkish government in recent times has been trying to address the Kurdish problem and reach a political solution, the three decades’ old conflict between the Turkish Armed Forces and the Kurdistan Workers’ Party (PKK) has taken a heavy toll on civilians. It has led to the injury and death of many civilians, loss and destruction of property, and the internal displacement of over 1 million civilians. Long discussions related to compensation for these individuals finally culminated in the Turkish government’s passing of a compensation law in 2004. The law aimed to facilitate the return of internally displaced persons (IDPs) and compensate them for their losses. Yet, critics of the implementation of this law say it falls short of sufficiently compensating the economic losses and emotional pain IDPs have suffered. Furthermore, critics cite high rejection rates among those applying for compensation and a failure to formally recognize victims and acknowledge any wrongdoings toward the individuals as shortfalls of the compensation law.

A more recent example is the Uludere incident where 34 civilians of Kurdish ethnicity were mistaken for PKK terrorists and killed in an airstrike by the Turkish military in the southeastern corner of Turkey in December 2011. Although the Turkish government has offered close to $70,000 in compensation for each victim, families of the victims have refused to accept the offer until a full investigation takes place, those responsible for the attack are brought to justice, and an official apology is issued by the Turkish state. Such an apology has not so far been issued, prompting criticism in Turkish media outlets over the importance placed on an Israeli apology for the victims of the Mavi Marmara while the victims of Uludere wait for an apology and compensation from the Turkish government.

As compensation talks with Israel continue, the real challenge will lie in the Turkish government’s ability to soften the position of the İHH, hard-liners within AK Party and the victims’ families toward the Gaza blockade while keeping an eye on Turkey’s immediate geopolitical interests. Shifts in the balance of power in the region brought about by the Arab Awakening and most recently the Syrian crisis is pushing Turkey to re-evaluate its position toward Israel. Pragmatism on the part of Turkey and Israel in resolving their differences will be of greater benefit to addressing the growing security and humanitarian challenges resulting from the Syrian crisis as well as improving the welfare of the Palestinians in Gaza than if negotiations between the two countries failed. As Prime Minister Erdoğan prepares for his visit to Washington, DC, this week, the carnage provoked by two car bombs that exploded in the Turkish border town of Reyhanlı on Saturday will surely be a stark reminder of the need for this kind of pragmatism. U.S. President Barack Obama should seize the occasion of the visit to promote such pragmatism but also be willing to listen to Erdoğan’s deep-seated and genuine frustration with the situation in Syria. An empathetic ear on the part of Obama may go a long way in not only helping to improve Israeli-Turkish relations, a major U.S. objective, but also start cooperating in concrete terms to address an ever-expanding Syrian crisis.

Authors

Kemal Kirişci

Publication: Hurriyet Daily News

Image Source: © Murad Sezer / Reuters

Germany: A Global Miracle and a European Challenge

Carlo Bastasin — Thu, 09 May 2013 14:00:00 -0400

INTRODUCTION

In 1994, five years after the fall of the Berlin Wall, the Germans feared that the unification of the two Germanys had failed. In 1997 the term "Reformstau" (the reform deadlock) had been elected as the "word of the year". In 1999 and 2000 the weekly magazine The Economist called Germany "the sick man of Europe". In 2003 the German economy was back in recession.

Until 2004, Germany was struggling in a spiral of a seemingly unstoppable decline, without precedent for its length. Since 2004, Germany has emerged from its economic sluggishness with a performance that, considering the preceding fifteen years, appears to be exceptional. Today, people commonly interpret the rebirth of the German economy as a new Wirtschaftswunder, an economic miracle comparable to that of the postwar period and able to provide such a political prestige and diplomatic assertiveness to determine the fate of the political and institutional framework of the rest of Europe.

Over the past seven years, other European countries have had comparable growth rates, Sweden and Switzerland in particular. France has been growing at higher rates if one takes into account a longer period, but probably as a result of the fiscal stimulus induced by a structural budget deficit which regularly exceeded the average of other euro area countries. But the German exception lies in having permanently transformed its economic model in line with the global challenge, showing that the opening of national economic systems can be an opportunity for prosperity. The transformation occurred by introducing more market elements in the economy. This has allowed the achievement of the traditional shared goals of German society - starting with full employment - which have always characterized the Sozialmarktwirtschaft, the social market economy.

Income divergence has increased. The labor market has become dual. Seven million workers, many of them foreigners or migrants, have become dependent on extremely low salaries.

However this has been possible only at the cost of giving up the traditional goal of egalitarianism, both within the German society and in the economic relations with the European partners. Income divergence has increased. The labor market has become dual. Seven million workers, many of them foreigners or migrants, have become dependent on extremely low salaries. Balance of payments disequilibria, and their re-distributional effects within the euro area have been regarded as irrelevant.

In order to defend at least some parts of the social market model, German governments since the early 1990s have accompanied the economy’s internationalization process initiated by companies and major financial institutions. The common political analysis behind this is that a population of 1.15 percent of the world, which currently produces more than 5 percent of global GDP4, can maintain its standard of living only by tying its growth to that of countries bringing 6 billion people out of relative poverty.

For this reason, the entire German production system had to and was able to strengthen its export orientation, while facing the major geopolitical changes that have directly involved the country: the German reunification, the European monetary unification, Eastern Europe opening to international trade and, finally, the entrance into the markets of large areas of the world up to the full development phase of globalization.

The German experience has been proposed by Chancellor Angela Merkel as a reference model for the entire euro area: "To be competitive in the world is not a requirement for Germany, but for the entire euro area, a group of countries which accounts for 7 percent of the world population but produces more than 20 percent of global GDP". Inevitably, it becomes important to understand whether the features of the German economic miracle are identifiable and replicable as a historical process of reform. The indications of this analysis are that the process of transformation of the German economy was born long before becoming a political project, under the impulse of a group of industrial and financial actors subject to the pressure of global competition. Only later, an intensive set of government-led economic reform programs accompanied the transformation of production, allowing the entire economy to benefit from their acquired competitive success. Therefore, the possibility of replicating the German success must lie not only in the process of political reform, but in a double and parallel evolution of the production structure and regulatory framework consistent with a long-term project. More importantly, Germany has deliberately forged its fiscal and labor policies as to ensure a very high net savings surplus. This strategy has drained resources from the rest of the euro area in two ways: The first via lower imports and the second through a huge amount of capital incomes flowing back from the countries of the euro area that had received huge German financial investments. I estimate this effect at a yearly 0.75 percent of German GDP and at an equivalent yearly amount subtracted from the euro area periphery for ten years. Given the incapability of the countries receiving the flows of capitals to put them to good use, the German strategy has aggravated the imbalances within Europe and — among other causes — seems to have contributed dramatically to the origins of the euro crisis.

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Authors

Carlo Bastasin

Image Source: © Tobias Schwarz / Reuters

Geopolitics in the Eastern Mediterranean: A Cypriot Perspective

Thu, 09 May 2013 14:30:00 -0400

Event Information

May 9, 2013
2:30 PM - 4:00 PM EDT

Saul/Zilkha Rooms
Brookings Institution
1775 Massachusetts Avenue NW
Washington, DC 20036

In recent months, the Republic of Cyprus has been at the center of a number of critical geopolitical developments—holding a largely successful presidency of the European Union (EU), announcing the discovery of large offshore natural gas deposits, and undergoing an economic crisis that led to a bank bailout and raised new uncertainties about the future of the eurozone. The Cypriot government has also announced recently that talks with Turkey could be re-launched in the fall in a new attempt to resolve the political standoff that has divided the country for a generation.

On May 9, the Center on the United States and Europe at Brookings (CUSE) and the Energy Security Initiative (ESI) hosted the Minister of Foreign Affairs of Cyprus Ioannis Kasoulides for a public address. In his remarks, the foreign minister offered his perspectives on a range of issues that are shaping Cyprus’s role in Europe and across the rapidly evolving Eastern Mediterranean region.

Minister Kasoulides previously served as the Cypriot government spokesman from 1993 to 1997. He was first appointed minister of foreign affairs in 1997 and served in that capacity until 2003. During his initial term as foreign minister he led the diplomatic effort that marked the initiation and completion of Cypriot accession negotiations to the EU. From 2004 to 2013 Kasoulides was a member of the European Parliament, where he served as the vice president of the EPP group and head of its foreign affairs working group. He was appointed to a second term as foreign minister in 2013.

Vice President Martin Indyk, director of Foreign Policy at Brookings, offered introductory remarks.

Video

The Social Impact of the Eurozone Crisis in Southern Europe: The EU Response and the Challenges Ahead

Fri, 03 May 2013 10:30:00 -0400

Event Information

May 3, 2013
10:30 AM - 12:00 PM EDT

Saul/Zilkha Rooms
Brookings Institution
1775 Massachusetts Avenue NW
Washington, DC 20036

As the ongoing eurozone crisis continues to threaten the European single market and endanger the global economy, it has unleashed uncertainties about Europe’s political and institutional durability. The economic crisis has also become increasingly a social crisis, especially in the heavily-indebted states of Southern Europe, where austerity measures and high unemployment have led to questions about the sustainability of the current situation.

On May 3, the Center on the United States and Europe at Brookings (CUSE) and the European Parliament’s Liaison Office, hosted a discussion with European Parliament Vice-President Gianni Pittella. In his remarks, Mr. Pittella discussed the social impact of the crisis and how the European Parliament has responded to address these challenges.

Gianni Pittella has been the first vice-president of the European Parliament since July 2009 when he was re-elected for the third time with the Democratic Party from the Southern Italy electoral district. He was first elected as a member of the European Parliament in 1999. Mr. Pittella is the author of numerous books, including most recently, Federalismo Avvelenato (Fondazione Zefiro, 2011) and A Brief History of the Future of the United States of Europe (Fazi, 2013), which he coauthored with Elido Fazi.

Brookings Nonresident Fellow Clara Marina O’Donnell provided introductory remarks and moderated the discussion.

Audio

The Social Impact of the Eurozone Crisis in Southern Europe: The EU Response and the Challenges Ahead

Transcript

Uncorrected Transcript (.pdf)

Event Materials

20130503_pitella_eurozone_transcript

Why Global Education Financing Must Be Part of Europe's Financial Transaction Tax Revenues for Development

Sarah O’Hagan and Rebecca Winthrop — Wed, 01 May 2013 14:17:00 -0400

As the financial transaction tax (FTT) becomes part of the European political landscape and moves its way through EU member-state legislatures, the use of a percentage of tax revenues for development – and specifically for basic global education needs— remains highly uncertain.

The 11 eurozone countries that got the green light from EU finance ministers in January to move forward with a coordinated tax on financial transactions could deliver as much as €35 billion for their national budgets. But the clear consensus shared by these 11 nations— which collectively represent two-thirds of the EU’s economy— on the timeliness and necessity of implementing such a tax now is not equally matched by a consensus on allocating part of the revenues to international development, let alone education. This is an unfortunate state of things given that the idea of using part of the revenues to support global development was a big reason for the huge social movement in support of the tax.

The backdrop to this uncertainty is the austerity agenda being pursued by many governments, in which foreign aid budgets are under pressure. As a consequence, foreign aid to global education risks falling faster than overall aid levels.

To date, only one of the vanguard countries in the FTT movement, France, passed its own FTT in mid 2012 and committed to allocate part of the revenues to development and climate finance. At the time, many called for 50 percent of FTT revenues to be dedicated to overseas development assistance and climate finance, but that figure soon dwindled to 10 percent, and ultimately 4 percent, for health and environmental projects. The ray of hope is that France has expressed its willingness for the EU FTT to also be partly allocated to development and climate finance, and is currently gathering support.

Civil society groups in France and in Europe generally are more effectively mobilized within the health and environment sectors, and are comparatively weaker on the education front. Yet given that global education is a sine qua non for successful economic development, it’s vitally important that global education activists in France and elsewhere not only mobilize within their countries to earmark revenues for development-- including basic education— but also collaborate across the larger European landscape to set a precedent for the use of financial transactions taxes around the world. An EU financial transaction tax for development could indeed put more kids in school and improve their learning outcomes in developing countries.

The European Union, via its member states and the European Commission, is among the largest donors to global education in the world. But the recent OECD Development Assistance Committee data release revealed a decrease in official development assistance for the second year in the row with significant cuts in countries like Spain and the Netherlands. And an agreement among EU heads of state at the February 8 European Council for the 2014-2020 EU budget is not going to fill this gap. In fact, the budget froze the portion earmarked for development at 2007-2013 levels, leaving the EU far from its commitments to reach 0.7 percent ODA/GNI by 2015.

Another worrying fact is that global education may not be a priority sector for the EU in many countries moving forward according to early word from several developing countries partners.

For low-income countries that simply cannot grow and improve their basic education systems without external financing, a decrease in aid flows without a compensating or greater infusion from innovative financing such as the financial transactions taxes, spells disaster. That is why, in addition to pushing donors to respect their commitment in developing countries to aid, the education community should do all it can to ensure that newly enacted financial transaction taxes allocate part of their revenues to global education.

If these examples are indicative of the way financing for global education has worked to date, they amply underscore the patchwork approach that even pieced together will still leave students in developing countries falling behind.

Authors

Sarah O’Hagan
Rebecca Winthrop

Image Source: © Darrin Zammit Lupi / Reuters

Arab Uprisings and Completing Turkey's Regional Integration: Challenges and Opportunities for US–Turkish Relations

Kemal Kirişci — Mon, 29 Apr 2013 13:33:00 -0400

Abstract:

Today, regional economic integration in the Middle East continues to remain at an unusually low level compared to other regions of the world. This is especially problematic because traditionally, regional integration has long been seen as an effective tool for encouraging regional peace, stability and prosperity, with also the added expectation that economic growth may also help or facilitate transition to democracy. This paper asks the question of whether the Arab uprisings might provide a new environment in which Turkey and the USA, together with the European Union, could cooperate to bring about some degree of regional economic integration. The paper discusses Turkey's increasing economic engagement of its neighbourhood since the end of the Cold War and argues that this experience constitutes a good basis for cooperation, even if there remain a number of challenges stemming from Turkey as well as the Middle East. As much as these challenges may seem insurmountable, initiating a tri-lateral dialogue is of critical importance as the rewards of regional integration in the Middle East in terms of stability, peace and prosperity would be huge and of a ‘win-win’ nature for Turkey, for the EU, for the USA, and of course for the region.

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Authors

Kemal Kirişci

Publication: Journal of Balkan and Near Eastern Studies

Image Source: © Osman Orsal / Reuters

Banking Has to Become Boring Again

Lex Rieffel — Mon, 29 Apr 2013 17:39:00 -0400

Editor's Note: Lex Rieffel responds to John Dizard's opinion piece, "Tobin tax will only benefit shady fixers,” in a Letter to the Editor.

Sir, John Dizard makes the classic argument against the European financial transaction tax (Tobin tax) due to go into effect at the beginning of 2014, cleverly linking it to the fresh warning from the Institute of International Finance about the “Balkanisation” of the global economy (“Tobin tax will reinforce position of banks it seeks to challenge”, April 20). But Mr Dizard focuses on the short-term impact and misses the larger context.

While US banks are likely to benefit in the short term, past experience suggests that their eager financial engineers and clever lawyers will invent a new set of instruments that in due course trigger another financial crisis.

The point is that ordinary citizens around the world will not be able to sleep soundly until banking once again becomes boring. Given the choice between Balkanisation and more taxpayer-funded bailouts, isn’t Balkanisation the more rational option?

The argument that financial sector freedom is necessary for economic growth rests on an assumption that gross domestic product growth is the solution for all problems. Surely we have seen enough in the past few decades to question this assumption.

If the solution instead is smart investment, both by the public sector and the private sector, then bankers are among the last we would want deciding which investments to finance.

Banks are backward-looking intermediaries, inclined to invest in the last good idea. That is actually a more useful function than the alternative, which is rushing like lemmings over a cliff.

Authors

Lex Rieffel

Publication: Financial Times

Image Source: © Fabrizio Bensch / Reuters

Era of Big Oil Secrecy is Over

Daniel Kaufmann — Wed, 24 Apr 2013 15:49:00 -0400

Earlier this month, the European Union (EU) took a decisive step towards transparency: It agreed to mandate publicly-listed European companies as well as large private firms to disclose their payments to governments for oil, gas and mining projects. This transparency is crucial in the fight for better governance of resource-rich countries. It will empower citizens with information about the amount of money their governments receive, helping them to monitor how this money is ultimately used and to deter corruption.

Opacity has long ties with corruption, and both are detrimental to growth. Our research shows that countries that control corruption and improve governance can triple their incomes per capita in the long term - a 300% dividend. As seen in the figure, this good governance dividend also applies to countries rich in natural resources.

The benefits of transparency dwarf the cost of disclosure. Today about 40 percent of the 1.7 billion people in resource-rich countries live in poverty, making less than $2 a day. Such poverty in the midst of immense resource wealth is due to low standards of governance and transparency, a critical issue for which oil and mining companies are also responsible.

The EU rules are part of the international community’s response to the opacity challenge, and are modeled after U.S. rules the Securities and Exchange Commission (SEC) released last August to implement the Cardin-Lugar amendment of the 2010 Dodd-Frank Act.

This move towards mandatory disclosure in two of the world’s largest capital markets signals what European Commissioner Michel Barnier has called a “new era of transparency.”

BIG OIL BATTLES NEW RULES

The emergence of this new global standard, however, does not mean the campaign for revenue transparency is over. While the transparency train has clearly left the station, not everyone is on board. Major multinational oil companies have been trying to water down these requirements on both sides of the Atlantic. These companies have put their reputations in jeopardy by backing the American Petroleum Institute (API) in its lawsuit against the SEC to stop implementation of the U.S. rules. Now that the EU has joined the drive for disclosure, Big Oil faces a major problem in its assault on transparency.

The new EU disclosure deal undercuts a number of API’s arguments. API’s inflated estimates of compliance costs are now increasingly irrelevant, as major cross-listed companies, like Shell and BP, will have to comply with EU rules regardless of the lawsuit’s outcome. API’s claims that the SEC acted arbitrarily by adopting the U.S. rules - already questionable given that Congress mandated the rules and the SEC conducted an exhaustive public comment process during its rulemaking - are also undermined by the EU’s agreement to adopt very similar measures. The EU legislation will, in fact, encompass more than the U.S. rules as it covers large, privately held companies (and the timber sector), in addition to publicly listed companies.

And API’s argument that the rules cause competitive harm is even less compelling since the EU will apply analogous rules to companies under its jurisdiction, helping to level the playing field. Together, the U.S. and EU regulations will cover capital-markets listed companies, accounting for nearly 70 percent of the market capitalisation of extractive industry firms on the world’s most significant stock exchanges.

SECRECY DAMAGING REPUTATIONS

By continuing to support API’s lawsuit, companies are incurring significant costs defending opacity, not only pecuniary, but reputational as well. The public is becoming increasingly aware of their fight against transparency. While a few companies are taking some steps away from secrecy - Norway’s Statoil disavowed support for the API lawsuit - they are still the exception.

Shell, for instance, faced setbacks when Alan Detheridge, one of its former executives, openly criticized the company’s efforts to block U.S. and EU transparency, and the Dutch government pledged its support for strong EU rules consistent with U.S. law. The company has now started to change its tune, claiming it has supported mandatory reporting requirements all along - an assertion The Economist wryly noted contradicts Shell’s membership in API and refusal to disavow support for the U.S. lawsuit.

Oil companies should draw lessons from Shell’s mishaps, seizing the moment to actually “walk the talk” on transparency. Instead of litigating against transparency, companies should focus on complying with the U.S. and EU rules and enlist their lawyers to prepare for new reporting. Companies covered by the U.S. and EU rules should also join the global transparency movement to ensure these disclosure standards apply to all relevant companies. Obtaining a G8 commitment to mandatory disclosure at this year’s Summit would bring key countries like Canada into the fold. An effort to enact similar legislation in additional markets, including Australia and emerging Asian and South American economies, should follow.

The U.S.-EU legislative consensus on a global standard of transparency is a watershed moment for improving the governance of natural resources worldwide. Big Oil should not stand in the way. To restore their credibility and support good governance and development around the world, oil companies should publicly state their intent to comply with the new disclosure standards and urge API to drop its lawsuit.

Authors

Daniel Kaufmann

Publication: Reuters/TrustLaw

Image Source: © Beawiharta Beawiharta / Reuters

Ukraine at a Crossroads with Europe?

Steven Pifer — Mon, 22 Apr 2013 11:43:00 -0400

The Kyiv Security Forum, held in the Ukrainian capital on April 18-19, brought together Ukrainians, Europeans and Americans to discuss the current challenges facing Ukraine. Much of the discussion centered on Ukraine’s relationship with the European Union, in particular on whether Kyiv will make sufficient progress in meeting EU conditions to permit signature in November of an EU-Ukraine association agreement.

Several speakers asserted that Ukraine is at a crossroads with Europe. “Ukraine is at a crossroads” has been written or said so many times over the past 20 years that it has become something of a cliché. This time, however, it may be for real. The choices that Kyiv makes in the next weeks and months will determine whether Ukraine moves closer to Europe or whether the EU-Ukraine relationship gets stuck on hold.

EU and Ukrainian negotiators concluded the association agreement at the end of 2011. It would significantly deepen Ukraine’s links with the European Union. Among other things, it includes a deep and comprehensive free trade agreement that would open up large segments of the EU’s economy to Ukrainian exports. It is a big deal.

Although the association agreement was initialed in early 2012, it has since sat in limbo. The European Union has declined to sign given growing concerns over the past two years about negative developments regarding democracy within Ukraine.

EU officials have asked Kyiv to make progress on three conditions—implementation of its general reform agenda, reform of its electoral law, and an end to selective prosecution—in order to permit signature of the agreement at the EU Eastern Partnership summit in November. These conditions were reaffirmed at an EU-Ukraine summit in February, which called for “concrete progress” by May.

Many regard the third condition as the most critical. More than a dozen senior members of the opposition have been sent to jail since President Victor Yanukovych took office in 2010. Most attention focuses on the case of former prime minister Yuliya Tymoshenko. She was convicted in 2011 for signing a gas contract with Russia in a trial that received broad criticism in the West. The near unanimous view in European capitals and Washington holds that Tymoshenko is a victim of selective prosecution. On the day her conviction was announced, even Moscow joined in the barrage of condemnation of the verdict.

In the seven weeks since the EU-Ukraine summit, there has been good news and bad news. The good news: Yanukovych pardoned Yuriy Lutsenko, a leading opposition leader, along with one other opposition member.

The bad news: Serhiy Vlasenko, Tymoshenko’s lawyer, was stripped of his membership in the Rada (Ukraine’s parliament) on grounds that he could not hold his Rada seat and continue his legal work. Critics cite this as another selective application of the rules, as many Rada members, including in the pro-government Regions Party, hold outside jobs that would appear to contravene the rule. And more bad news: the Prosecutor General is pursing another case against Tymoshenko, alleging her involvement in the 1996 murder of businessman Yevhen Shcherban. Given the many questions about how the 2011 trial was conducted, few analysts have confidence that this legal process will be objective.

At the Kyiv Security Forum, several speakers made clear the key importance that Europe attaches to what happens to Tymoshenko. Jacek Saryusz-Wolski, Vice President of the European People’s Party—the European Parliamentary party with which Tymoshenko’s party is affiliated—took a stark position: Tymoshenko had to be released, or there would be no signature in November, and Ukraine would miss its window of opportunity with the European Union. EU Ambassador to Ukraine Jan Tombinski cautioned that Kyiv had to understand that the European Union only accepted democratic states that abided by the rule of law. European Parliament member Pawel Robert-Kowal warned that, even if the association agreement were signed, Ukraine had to demonstrate real progress, as the agreement would face the challenge of ratification by 27 individual EU member states.

During and on the margins of the conference, some Ukrainians expressed optimism that the Ukrainian government would take a positive step regarding Tymoshenko. Others doubted that Yanukovych would take any action on his archrival. Some expected the Ukrainian government to try to do the minimum necessary in order to argue that it had met the EU conditions and assert that freeing Lutsenko, but not Tymoshenko, should prove sufficient progress on the condition of selective prosecution.

Right now, EU member states appear to be split. Some, primarily in Central Europe and the Baltic region, do not want to delay signature of the association agreement over Tymoshenko. They fear that Ukraine might otherwise drift into Russia’s orbit.

Other EU member states, apparently now in the majority, believe Kyiv must do more to show its commitment to European democratic values. France and Germany lead this group. The fate of Tymoshenko has become a domestic issue in Germany, and Chancellor Angela Merkel said on April 17 that, “if the Yuliya Tymoshenko case is not settled, the association agreement cannot be signed.” Ukrainian diplomats understand that Berlin presents the toughest case to win over.

Although the European Union and Ukraine have agreed that concrete progress should be made by May, that might not prove a hard deadline for an EU decision on whether or not to sign the association agreement in November. Some in Kyiv believe a final EU decision could wait until later in the year, perhaps as late as October.

The question remains, regardless of when the European Union decides: will Ukraine do enough to secure signature? That may turn on Tymoshenko’s fate—and how badly Yanukovych wants the association agreement.

Neither Brussels nor Kyiv appear to have a Plan B in case the association agreement is not signed. In late March, Tombinski warned that, if the agreement were not signed in November, the press of other EU business in 2014 and the Ukrainian presidential election in 2015 would put Ukraine and the association agreement on the back-burner until late 2015. Another European diplomat recently suggested the delay would last until 2016.

Ukrainians do not want to think about what happens if the association agreement is not signed. But they expect a failure to sign to be warmly welcomed in Moscow, to be followed by a greater Russian push to draw Ukraine into the Customs Union that currently includes Russia, Belarus and Kazakhstan. Yanukovych thus far has resisted joining the Customs Union. Doing so would be incompatible with a free trade agreement with the European Union and would essentially kill the association agreement—which is almost certainly Moscow’s objective.

So, Ukraine may indeed be facing a critical crossroads. It is one where the key choices are as much about Yanukovych’s domestic policy—how democracy will develop and how the opposition is treated—as they are about foreign policy. If Yanukovych makes the right choices, he will take an important step in integrating Ukraine into Europe. If he makes the wrong choices, he risks miring the country in a gray zone between Europe and Russia and having to face Moscow’s pressure with a severely weakened hand.

Editor's note: Steven Pifer, a senior fellow in the Center on the United States and Europe and a former ambassador to Ukraine, was in Ukraine April 18-20 to attend the Kyiv Security Forum.

Authors

Steven Pifer

Image Source: © POOL New / Reuters

The Way Forward for the Eurozone and Europe: A Conversation with European Policymakers

Thu, 18 Apr 2013 16:15:00 -0400

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April 18, 2013
4:15 PM - 6:00 PM EDT

Falk Auditorium
Brookings Institution
1775 Massachusetts Avenue NW
Washington, DC 20036

Register for the Event
On April 18, Global Economy and Development at Brookings and the Center for the United States and Europe hosted a discussion on the European economy and the ongoing crisis in the eurozone with a distinguished panel of European policymakers. Panelists included: Olli Rehn, European Commission vice president for economic and monetary affairs and the euro; Jeroen Dijsselbloem, Dutch finance minister and president of the Eurogroup; Klaus Regling, managing director of the European Stability Mechanism; Werner Hoyer, president of the European Investment Bank; and Jorg Asmussen, executive board member of the European Central Bank. Brookings President Strobe Talbott provided introductory remarks. Vice President Kemal Derviş, director of Global Economy and Development, moderated the discussion.

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How Effective Are Regional Organizations in Disaster Risk Reduction and Management?

Elizabeth Ferris — Thu, 18 Apr 2013 12:00:00 -0400

Regional organizations are playing an increasingly important role in disaster risk reduction and management, but how effective are they? Leading up to our event on April 22 (Earth Day), I'll continue to share with you some additional interesting findings from my annual disasters review with Daniel Petz and Chareen Stark.

Join the conversation on Twitter using #Disasters2012.

While regional organizations are playing an increasingly important role in disasters, there has been remarkably little research on their role in disaster risk management. In an effort to address this gap, Daniel Petz and I examined thirteen regional organizations, to see how they stack up against one another according to 17 indicators of effectiveness.

Here are our results (a glossary of acronyms appears at the end of this blog post):

As you can see above, the landscape of regional organizations is complex and diverse.

In most regions, governments and other actors see value in working together to prevent disasters and—to a lesser extent—to respond to disasters occurring in their respective regions. At the same time, regional organizations have worked out different mechanisms for encouraging collaboration, including frameworks for disaster risk reduction, regional military protocols, joint training exercises and regional insurance schemes. Also, technical cooperation mechanisms—such as early warning systems—have been established, but few regional bodies provide ways of channeling financial assistance after a disaster.

*Here are the acronyms for key terms we used above:

DRM = disaster risk management
DRR = disaster risk reduction
DM = disaster management

CCA = climate change adaptation
IDRL = international disaster response laws, rules and principles

and for the regional organizations we studied:

ASEAN = Association of Southeast Asian Nations
AU = African Union
CAN = Andean Community of Nations
CARICOM = Caribbean Community
CoE = Council of Europe
ECOWAS = Economic Community of West African States
EU = European Union
LAS = League of Arab States
OAS = Organization of American States
SAARC = South Asian Association for Regional Cooperation
SADC = Southern African Development Community
SICA = Central American Integration System
SPC = Secretariat of the Pacific Community

Authors

Elizabeth Ferris

Europe on a Slippery Slope

Thomas Wright — Wed, 17 Apr 2013 00:00:00 -0400

Editor's note: This article originally appeared in the International Herald Tribune.

Throughout the euro crisis, observers have been asking if the euro zone will disintegrate — as if it is a decision that will be made by its leaders at some point in the future. This holds out the prospect of a great historic choice: Europeans can choose to properly unite and overcome their crisis or they can choose dissolution. We wait with bated breath for the next summit or the latest “most crucial month in the euro’s history,” which now seems to come several times a year.

But, this may be the wrong way of looking at the euro crisis. Integration and disintegration are not just the products of deliberate decisions. They are both processes, set in motion by actions regardless of the stated intentions of leaders. Once underway, each process takes several election cycles — probably a decade or so — to reach completion. Only one will prevail in the end, but it is possible that in the early stages these two processes can coexist even as each vies for supremacy.

Looked at this way, the euro zone is in serious trouble. The events of the past six months are consistent with a process of disintegration, while the process of integration has steadily weakened. The question is no longer, “Will Europe unravel?” We should be asking, “Can European disintegration be reversed?”

The trigger that brought integration to a halt and set disintegration in motion is surprising. In July 2012, the European Central Bank chief, Mario Draghi, declared that he would do whatever it takes to save the euro, and in August he kept his promise by introducing a program of Outright Monetary Transactions to finance troubled member states, thus bringing down the price of sovereign debt. The temporary lull led José Manuel Barroso, president of the European Commission, to confidently declare that “the existential threat against the euro has essentially been overcome.”

But Barroso could not have been more mistaken. The E.C.B.’s actions, while welcome, had a major unintended consequence. European governments became complacent and stopped pushing the policies needed to save the euro. The German government now believes that a quantum leap toward deeper fiscal and political integration through treaty change (the only way it could be done) is no longer necessary. At the December summit meeting, it was taken off the table. Instead, the Germans will push for incremental steps to increase coordination. Banking union has been watered down to the point where it is grossly insufficient. The euro zone is proposing a common supervisory mechanism, but banking debt will remain primarily a national concern.

The optimists say that the small steps the euro zone has taken are the first in a long journey, but this assumes that it will be easier to accomplish extraordinarily difficult goals later. Unfortunately, European politics are becoming polarized in a way that makes further progress unlikely. The core member states have run out of patience with the periphery and do not want to take on new commitments, such as a real banking union. Voters in the periphery are turning toward politicians who will say no to German austerity, as Italians recently demonstrated.

As integration stalled, the euro zone experienced its first major act of disintegration. The spectacularly botched rescue of Cyprus formally created a two-tier euro zone. Deposits are safer in Germany than in the periphery and this has enormous implications. We should expect large-scale capital flight if markets fear that other states will need a bailout. With capital controls in place, Cyprus itself is half in and half out of the single currency.

The next decisive moment may be when a member state on the periphery elects a government with a cast iron mandate to say no to a German government that has a cast iron mandate not to buckle. This almost happened in Greece in June of 2012, and it may yet happen in Italy in a couple of months. This could cause a withdrawal of E.C.B. support and an escalation that will lead to new acts of disintegration.

Winston Churchill once said: “It is not enough that we do our best; sometimes we have to do what’s required.” All European leaders should have this advice engraved onto a plaque and then affix it to their desks. Throughout the euro crisis, they have sought credit for good intentions and effort. They continually point out that the euro zone has moved far further and faster than anyone could have imagined before the crisis.

They are right, but it is completely irrelevant.

There are other forces at work and at the moment they are prevailing. Europe’s leaders need to be honest about the steps necessary to reverse a long spiral of disintegration. If they can’t do that, they need to ask how they can manage the process in the least damaging way possible.

Authors

Thomas Wright

Publication: International Herald Tribune

Energy, Indigenous Communities and the Arctic Council

Wed, 17 Apr 2013 08:30:00 -0400

Event Information

April 17, 2013
8:30 AM - 2:00 PM EDT

Falk Auditorium
Brookings Institution
1775 Massachusetts Avenue NW
Washington, DC 20036

Register for the Event
Owing to the vast economic opportunities and environmental, social, and geopolitical challenges it presents, the Arctic is emerging as an important topic of debate. With an estimated 25 percent of the world’s undiscovered oil and gas reserves, and with climate change making shorter maritime routes through Arctic waters possible, the rewards of successful economic development are plentiful. However, the remote, pristine frontier is home to some of the world’s harshest conditions making energy development, maritime trade and tourism increasingly difficult and dangerous. The Arctic is also home to indigenous communities whose livelihoods are likely to be challenged by both the effects of climate change and increasing external human activity in the region.

On April 17, the Energy Security Initiative at Brookings hosted a forum to discuss the implications of greater Arctic energy and natural resource development and assessed how the international community can best cooperate to ensure that such developments are done in an environmentally and socially sustainable manner. The forum begins with keynote remarks from Ólafur Ragnar Grímsson, president of Iceland, and Kuupik Kleist, a member of Parliament of Greenland and former Greenland prime minister. Other speakers included the incoming Chair of the Senior Arctic Officials of the Arctic Council, Patrick Borbey; David Hayes, deputy secretary of the U.S. Department of Interior; and Mead Treadwell, lieutenant governor of the State of Alaska.

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Don't Forget Free Trade with Turkey

Kemal Kirişci — Mon, 15 Apr 2013 00:00:00 -0400

Last month, both the U.S. and the European Union (EU) took important internal steps to prepare the ground work for negotiations to establish the Transatlantic Trade and Investment Partnership. TTIP would create the largest integrated market in the world, bringing together half of the world’s GDP and 30 percent of world trade. If it went beyond eliminating already low-level tariffs and succeeded in aligning regulatory standards on both sides of the Atlantic, it also could generate more than 3 percent GDP growth. Beyond bilateral effects, TTIP could also spill over to global-trading trends and serve as a tool for strengthening the Western economic order. But in its current form TTIP would leave Turkey, currently the sixteenth-largest economy in the world, and a long-standing transatlantic ally, out in the cold.

Turkey has been deeply integrated within the EU’s internal market since the establishment of a customs union in 1996. Turkey is in membership negotiations with the EU and has therefore already adopted a number of the EU’s internal regulations.

But under current rules, Turkey must negotiate its own agreement with countries the EU signs preferential trade agreements with. This puts Turkey at a significant disadvantage, as the EU-Turkey Customs Union is structured to allow these countries to access Turkish markets without having to reciprocate by opening their own markets. As long as these agreements were signed with countries that had smaller economies, the cost to Turkey was negligible. But the EU has recently begun negotiating and signing trade agreements with countries that have relatively large economies and high volumes of foreign trade, including Canada, Japan, India, Korea and Mexico. Most of these countries have exports that compete with Turkish ones. Thus, it’s a “lose-lose” situation: Turkey faces greater competition in the EU as well as in its own domestic market without enjoying preferential access to these other markets.

Along with other grievances, this asymmetry helps to explain Turkish prime minister Recep Tayyip Erdogan’s announcement in February that Turkey should consider joining the Sino-Russian Shanghai Cooperation Organization (SCO) in favor of the EU. Even though he subsequently retracted this position, his economy minister, Zafer Caglayan, argued in early April that the EU Customs Union had become “an agreement of servitude” and that Turkey either had to renegotiate new terms or get out of the deal. Caglayan’s remarks may well be a bluff intended only for domestic consumption.

Nevertheless, the exclusion of Turkey from TTIP would only aggravate current grievances about the Customs Union, ranging from ground transportation quotas (which deny Turkey the possibility of exporting greater volumes of goods) to requiring Turkish businesspeople to obtain visas for travel to the EU while the goods they sell travel freely. To many in Turkey, such practices seem to be barriers that deny Turkey its full export potential to the EU market.

A study by the German IFO Institute lists Turkey among countries that are likely to experience a net loss of welfare from TTIP. Such an outcome would aggravate existing grievances and create additional pressures on Turkey to break away from the EU and the broader Western liberal order— an outcome detrimental to the interests of both the EU and the United States.

Turkey was a participant in the formation of the global economic order at the end of the Second World War and has remained a part of it in spite of occasional ups and downs. The EU’s engagement with Turkey, first through a Customs Union and then through the pre-accession process, has bolstered revolutionary political and economic reforms. This contributed to massive economic growth in Turkey, and it became a source of stability in a region that has long suffered from entrenched conflicts. Now a model for economic and political transformation in its neighborhood, Turkey has become a major player in integrating the Balkans, the southern Caucasus and the Middle East into the world economy.

Yet in the last few years, as accession negotiations with the EU stalled, Turkey has looked for other economic opportunities in its immediate neighborhood and beyond. This period has also seen the quality of Turkish democracy decline alongside setbacks in earlier political reforms, particularly freedom of expression. TTIPing Turkey would reengage it with the West.

The instability in the Middle East, as well as growing recognition in Turkey of the economic and security advantages that come with the West, have been gently pushing Turkey back toward Europe. The EU is reciprocating with efforts to revive the accession process. In addition, the recent apology by Israel to Turkey will help deepen cooperation with the United States. And the truce announced by the leader of the separatist PKK is opening the prospects of finding a political solution to the Kurdish problem in Turkey, which in turn should help improve the quality of democracy in the country.

While U.S.-EU negotiations on TTIP are going to be challenging, this should not be an excuse for excluding Turkey from the partnership. The EU must rise to the challenge of recognizing Turkey’s concerns. This year marks the fiftieth anniversary of relations between the EU and Turkey. But the EU has not shown any concern for the interests of its long-standing partner. The TTIP impact report prepared by the European Commission makes no reference to Turkey or how TTIP would impact on the customs union. At least a member of the European Parliament has asked the European Trade Commissioner to consider this question, which may be a step in the right direction.

The United States also should avoid to the temptation to reap the benefits of access to Turkish markets without opening its own market to Turkey. The benefits of involving Turkey in TTIP far outweigh the costs resulting from the additional burdens of the negotiation process. TTIP would create more jobs for Americans and Europeans, not just Turks.

Close economic integration between Turkey and its neighborhood means that a Turkey in TTIP would also benefit countries ranging from Armenia to Ukraine—and even countries like Iraq and Syria, once they achieve some stability. Turkey under TTIP would motivate other countries to join the Western economic order and support the values associated with it. Such an outcome would be win-win for the EU, the United States, Turkey, and a Western economic order under challenge from other parts of the world.

Editor's note: This article was originally published by The National Journal.

Authors

Kemal Kirişci

Publication: The National Interest

Economic Policy’s Narrative Imperative

Kemal Derviş — Mon, 15 Apr 2013 10:40:00 -0400

The best advice I received when taking up policymaking responsibilities in Turkey more than a decade ago was to take “a lot of time and care to develop and communicate the ‘narrative’ to support the policy program that you want to succeed.” The more that economic policy is subject to public debate – that is, the more democracy there is – the more important such policy narratives are.

The crisis faced by the European Union and the eurozone is a telling example of the need for a narrative that explains public policy and generates political support for it. A successful narrative can be neither too complicated nor simplistic. It must capture the imagination, address the public’s anxieties, and generate realistic hope. Voters often sense cheap populism.

European Central Bank President Mario Draghi provided such a narrative to the financial markets last July. He said that the ECB would do everything necessary to prevent the disintegration of the euro, adding simply: “Believe me, it will be enough.”

With that sentence, Draghi eliminated the perceived re-denomination tail risk that was highest in the case of Greece, but that was driving up borrowing costs in Spain, Italy, and Portugal as well. It was not a populist message, because the ECB does indeed have the firepower to buy enough sovereign bonds on the secondary market to put a ceiling on interest rates, at least for many months.

Central bankers, more generally, are typically able to provide short- or medium-term narratives to financial markets.

Central bankers, more generally, are typically able to provide short- or medium-term narratives to financial markets. US Federal Reserve Board Chairman Ben Bernanke provided his own by pledging that US short-term interest rates would remain very low, and the Bank of Japan’s new chairman, Haruhiko Kuroda, has just provided another by saying that he will double the money supply so that inflation reaches 2%.

While central bankers can provide such narratives to financial markets, it is political leaders who must provide the overall socioeconomic messages that encourage long-term real investment, electoral support for reform, and hope for the future. Central bank alchemy, to borrow a term from the US journalist Neil Irwin’s new book, has its limits.

Europe, in particular, needs a narrative of long-term hope that will trigger a real recovery. France is coming closer to the danger zone, and even Germany’s annual GDP growth is falling well below 1% per year. In the meantime, the easing of sovereign interest-rate spreads provides little comfort to the growing army of unemployed in southern Europe, where youth unemployment has reached dramatic heights – close to 60% in Greece and Spain, and almost 40% in Italy.

The narrative should address three essential questions. How can the European model of strong social solidarity and security be reformed, but endure? How can economic growth be revived and sustained throughout the EU? And how can Europe’s institutions function with enhanced legitimacy to accommodate countries that share the euro and others that retain their national currencies?

For starters, a revolution is required in the organization of work, learning, and leisure. Social solidarity, essential to European identity, can and must include longer work lives, but also more work-sharing, adult learning, and shorter average work weeks (particularly close to retirement).

Such flexibility requires the consent of all: employees must adjust to changing requirements; employers must re-organize their enterprises to allow more work-sharing, work from home, and learning intervals; and governments must overhaul taxes, income support, and regulation to promote a “flex-solidarity revolution” that encourages personal choice and responsibility, while remaining committed to social cohesion. This can lead to a better future for all, with citizens gaining better access to adult education, having more free time to pursue personal interests, and remaining productive and occupationally engaged far longer into their healthy lives.

Europe does not need Asia’s rates of economic growth. It can secure decent jobs and prosperity, with a sustained annual growth rate of around 2%.

Europe does not need Asia’s rates of economic growth. It can secure decent jobs and prosperity, with a sustained annual growth rate of around 2%. To achieve that, German voters should be told not that their country’s resources will forever flow to Spain, but that their wages can rise at twice the rate of the recent past without risking inflation or a current-account deficit, because Germany has the world’s largest external surplus.

Service-sector industries throughout the EU must be opened up. The countries with stronger fiscal positions should take the lead in a major pan-European skill-upgrading program. The number of pan-European scholarships should be doubled. School programs everywhere should aim to educate trilingual citizens.

Moreover, a full European banking union with shared resources for resolution should be created without further delay. The European Investment Bank, which received a significant capital increase in 2012, should add a large investment-support program for medium-size enterprises to its current operations, with a subsidy financed from the European budget to encourage first-time job takers for a limited period. Jobs and training for young people must be the centerpiece for the new growth pact, and projects must move ahead in “crisis mode,” rather than according to business as usual.

Finally, while monetary union obviously requires greater sharing of sovereignty, there should also be a “greater Europe” that includes the United Kingdom and others. This implies two-tier institutions that can accommodate both types of countries: the “euro-ins” and those that prefer to preserve their monetary sovereignty in a larger Europe built around a vibrant single market and common democratic values.

These interconnected visions can and must be realized if Europe is to thrive again. Together, they form a compelling narrative that European leaders must begin to articulate.

Authors

Kemal Derviş

Publication: Project Syndicate

Global Economic Recovery Stuck Below Takeoff Speed

Eswar Prasad and Karim Foda — Sun, 14 Apr 2013 12:17:00 -0400

Editor’s note: This commentary is based on research and analysis from the April 2013 update of Tracking Indexes for the Global Economic Recovery (TIGER) interactive map, which appears on the Financial Times Web site.

The global economic recovery remains stuck below takeoff speed, unable to achieve liftoff and facing the risk of stalling. Half-hearted fiscal austerity measures are proving to be a drag on growth and doing little to rebuild investor and consumer confidence.

Monetary policy continues to shoulder the burden of limiting downside risks and has kept financial markets buoyant even in the face of weak growth prospects.

The Brookings-FT Tiger index shows that growth momentum remains weak in nearly all major advanced and emerging market economies. The best that can be said about the weak pace of economic activity is that it has bottomed out in some key economies. However, prospects of a strong cyclical pickup in growth are likely to be hampered by continued policy uncertainty and concerns about further financial market turbulence, with the simmering euro zone debt crisis once again coming close to boiling over.

The US economy continues to be a relatively bright spot, with economic activity showing modest strength and equity markets booming. Consumer demand continues to prop up the weak recovery, although even that is tenuous as labor market performance remains weak. The Fed’s commitment to maintain easy monetary policy until the unemployment rate falls to 6.5 percent has boosted bond and equity markets. The Fed’s actions have also helped to limit downside risks to growth in the short term but at the cost of creating greater financial system risks. Fiscal policy, both directly and through the uncertainty about its future course, is hampering the recovery.

Growth in the core eurozone economies, including Germany and France, remains weak while the eurozone periphery remains mired in a danger zone.

Growth in the core eurozone economies, including Germany and France, remains weak while the eurozone periphery remains mired in a danger zone. The backstop provided by the ECB’s interventions bought some time for European policymakers, who have been squandering it with political squabbling. There has in fact been some progress on fiscal and structural reforms in countries such as Greece and Spain. However, in general the pace of reforms in the eurozone periphery economies has been far too slow. There are few grounds to anticipate improved growth momentum in these economies, which continue to post shrinking GDP levels. They also have dismal levels of business and consumer confidence, as well as financial systems that are still in distress and unable to provide much credit to finance a recovery. Moreover, recent developments such as the outcome of the Italian elections and the mishandled Cyprus bank rescue plan have raised the risks of an unpleasant end-game to the crisis.

The Bank of Japan’s new leadership has clearly signaled its intention to employ a broad and aggressive set of unconventional monetary policy measures to reverse deflation and support growth. For these measures to gain traction, they need to be supplemented by structural reform measures that are essential to revive the economy’s productivity and competitiveness. Bolstering Japan's productivity and long-term growth prospects requires reforms of the tax system, labor markets, and various aspects of the regulatory regime.

Emerging markets are treading water as their policy space becomes increasingly constrained and they continue to be buffeted by a weak external environment.

Emerging markets are treading water as their policy space becomes increasingly constrained and they continue to be buffeted by a weak external environment.

The outlook for China’s economy is evenly balanced, with some indicators such as industrial production suggesting that growth has stabilized. Inflation appears to have moderated, leaving room for policy stimulus if growth were to slow. The new leadership has hit the ground running in terms of laying out its economic reform agenda and making a series of statements and high-level appointments that bode well for reform prospects. The difficult task of developing specific action plans and implementing them lies ahead. Still, it seems clear that the government is prepared to accept lower growth than in the past decade so long as that growth is more sustainable and increasingly driven by private consumption and productive investment.

In India, the optimism engendered by a wave of modest but important reforms at the end of 2012 has given way to renewed gloom as the February 2013 budget did not sustain the reform momentum. The budget contained some steps to put public finances on a more sustainable path, but even the modest deficit reduction goals may be upended by weak growth. The large current account deficit remains a source of vulnerability and the high level of inflation has constrained monetary policy’s ability to support growth.

Latin American economies have hit a rough patch, with countries like Argentina and Brazil experiencing significant slowdowns. Even Mexico, one of the strongest performers in the region of late, is in danger of losing momentum as export growth has been hit hard by weak external demand.

Politicians around the world continue to avoid tough structural reforms, instead relying on central banks to continue propping up growth. Policy and political uncertainty remain sources of drag that could prevent the world economy from attaining liftoff, raising the risk of a crash.

Authors

Eswar Prasad
Karim Foda

Scotland as a Good Global Citizen: A Discussion with First Minister Alex Salmond

Tue, 09 Apr 2013 10:30:00 -0400

Event Information

April 9, 2013
10:30 AM - 12:00 PM EDT

Falk Auditorium
Brookings Institution
1775 Massachusetts Avenue NW
Washington, DC 20036

In an historic referendum set for autumn 2014, the people of Scotland will vote to determine if Scotland should be an independent country. The decision on Scottish independence will carry with it far-reaching economic, legal, political and security consequences for all of the United Kingdom (UK). The debate about Scottish independence will also be watched closely across the continent of Europe. An independent Scotland would have to review its relationships with the rest of the world, including its priorities in foreign and diplomatic affairs and its memberships of international organizations such as the European Union.

On April 9, the Center on the United States and Europe at Brookings (CUSE) hosted First Minister Alex Salmond, MSP, leader of the Scottish Government, for an address on Scotland’s future as an independent nation. In his remarks, First Minister Salmond discussed the Scottish values and principles that would shape a modern, independent Scotland and the choices and opportunities that would characterize Scotland’s contributions to the world. The Right Honorable Alex Salmond has served as first minister of Scotland since 2007. He first became a member of the Scottish Parliament in 1999 and has served as the leader of the Scottish National Party (SNP) since 2004. Salmond was first elected as a member of the UK Parliament in 1987 and served until 2010.

Vice President Martin Indyk, director of Foreign Policy at Brookings, provided introductory remarks, and Fiona Hill, director of CUSE, moderated the discussion.

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