For years, the European Union has said it wants a common policy on asylum. So far, all attempts to create one have failed as a result of what members states see as their national interests.
http://www.dw.de/still-no-sign-of-a-common-asylum-policy-in-the-eu/a-16512690
On Monday, Jose Manuel Barroso, president of the European Commission, the executive body of the European Union, said he believed the worst is over. The turning point, according to him, was the pledge by the European Central Bank in September for unlimited sovereign debt purchases, a move that is supposed to help debt-strapped countries borrow at lower interest rates and keep the region solvent.
He was swiftly denounced by the UK-based Institute for Directors, whose chief economist Graeme Leach was quoted as saying: “The headline figures spell bad news, but that is compounded by the political and human impact of terrifying levels of youth unemployment in Spain, Greece, and Italy.
“This saga is far from over, whatever President Barroso may believe, and it seems it is set to get worse in 2013.”
An economic adviser for business consultancy Ernst & Young also said in a report carried by the Wall Street Journal that unemployment in the euro area is expected to climb to 12.5% by early 2014, giving their governments little reprieve amidst tough austerity measures that have curtailed living standards, consumer spending and economic growth.
As Marios Maratheftis, Standard Chartered Bank's global head of macro research, puts it, Europe will be the biggest drag on the world economy this year, even more than the United States with its fiscal cliff stand-off and the elephant in the room that is China.
“While the US is moving ahead despite its difficulties, in Europe it is more complicated,” he says at an economics briefing organised by Standard Chartered earlier this week in Kuala Lumpur.
“According to Germany, the European Commission and many others, the situation can be described as follows: you have the good people in Germany who like to work hard, pay their taxes, and stand in queues. Then you have those in southern Europe who like to party hard, don't stand in queues, and don't pay their taxes.
“The thinking is that southern Europe is paying for its sins. They were living beyond their means, they have been fiscally irresponsible and corrupt, and the crisis is a natural consequence of their lifestyle. The solution that has been put forward is austerity. If you bring tough rules and discipline into the picture, these economies will be able to grow.”
“This, however, is untrue and will not work,” Maratheftis asserts. The only country that has been irresponsible, he says, is Greece. Incidentally, Maratheftis, by his own admission, is Greek.
“Spain, Italy and Portugal were in better fiscal condition than Germany in 2007,” he says. “Last year, Spain had lower government debt to gross domestic product than Germany. Ireland also had better fiscal accounts. Italy, if you remove the interest rate payments, is in a surplus, and this was the case when Berlusconi was in charge as well.
“Berlusconi was famous for his parties, but if you took away what Italy had to pay for its debt, its government accounts were healthier than Germany. In other words, the huge deficit in southern Europe is not the cause of the crisis, it is a consequence.”
Boom and bust
What then, is the real problem in Europe? Maratheftis thinks it can be broken down into three parts: banks, sovereigns, and competitiveness.
“Of these, competitiveness is the most serious, but it is not being addressed by the Europeans,” he explains.
“Since the introduction of the euro, Germany's current account surplus exploded. So, too, the deficits of southern Europe. The south had not been in deficit before they joined the eurozone.
“They fell under the influence of foreign cash, largely from Germany, which was basically lending money to the south to buy more Mercedes and BMW cars. This created an imbalance. There was a boom in southern Europe that lasted for eight years.
“Along with that came inflation, and when you have inflation, you become expensive and uncompetitive. This is the true story in Europe.”
Here Maratheftis draws parallels between Europe and Asia's financial implosion in the late 1990s.
“Many Asian economies were running massive current account deficits and became too dependent on foreign capital. One day the inflow stopped and the crisis emerged.”
The difference, he says, is that Asian economies had the option of devaluing their currencies.
“Current account deficits turned into surpluses within a year. The currency devaluation restored competitiveness overnight. You can become 20% to 30% cheaper by devaluing your currency by 20% to 30%.”
With such a move out of the question for the single-currency eurozone, how else can competitiveness be restored?
Cutting salaries
The answer from Europe, ironically, is to make southern Europe cheaper by cutting salaries.
“There are two issues with this approach,” Maratheftis observes. “First, salaries cannot go down easily. Second, even if you can bring salaries down, the deficit will continue to increase. The concern here is we might reach a point where the social pressure is so huge that it would better for a country to simply leave the euro.
“This is a dangerous game Europe is playing. In Greece, one in two people under the age of 24 is unemployed. The unemployment rate underestimates what is truly happening on the ground.
“It could come to a point where they say, Enough is enough, we are not going to destroy our society for the sake of the euro'.”
Competitiveness, argues Maratheftis, is a two-way street. “If the south cannot become cheaper, the north has to become more expensive. If austerity must take place in the south, then a stimulus has to be carried out in Germany. Germans have to start spending more.
“I told a Bundesbank (Germany's central bank) member that Germany is also responsible. I said what they need to do is accept inflation of 4% in Germany over the next five to six years.
“You can imagine his reaction. There is nothing the Germans love more than a Greek economist telling them they need to accept higher inflation. It did not go down very well. The answer from him was that they will never accept inflation at 4% in Germany.”
And therein lies the heart of the problem. Even so, Maratheftis does not see a breakdown of the 17-member eurozone as imminent, given that the European Central Bank's bond purchases will buy time for politicians to “do the right thing”.
But on China Maratheftis is decidedly more sanguine. He believes growth in the world's second-largest economy will average 7% to 8% over the next five to six years.
While conceding that this is less than what investors are used to, he says it is nevertheless significant.
“The old model that was dependent on foreign investment is past. It now has to look to domestic drivers, and Chinese policymakers are aware of this. Will they grow at 10% or work towards more sustainable growth? They have chosen the latter.
“They are attempting to rebalance the economy and are willing to accept lower growth. As long as growth is within 7% to 8%, we think the Chinese are unlikely to panic and roll out aggressive stimulus.”
http://biz.thestar.com.my/news/story.asp?file=/2013/1/12/business/12560965&sec=business
He was swiftly denounced by the UK-based Institute for Directors, whose chief economist Graeme Leach was quoted as saying: “The headline figures spell bad news, but that is compounded by the political and human impact of terrifying levels of youth unemployment in Spain, Greece, and Italy.
“This saga is far from over, whatever President Barroso may believe, and it seems it is set to get worse in 2013.”
An economic adviser for business consultancy Ernst & Young also said in a report carried by the Wall Street Journal that unemployment in the euro area is expected to climb to 12.5% by early 2014, giving their governments little reprieve amidst tough austerity measures that have curtailed living standards, consumer spending and economic growth.
As Marios Maratheftis, Standard Chartered Bank's global head of macro research, puts it, Europe will be the biggest drag on the world economy this year, even more than the United States with its fiscal cliff stand-off and the elephant in the room that is China.
“While the US is moving ahead despite its difficulties, in Europe it is more complicated,” he says at an economics briefing organised by Standard Chartered earlier this week in Kuala Lumpur.
“According to Germany, the European Commission and many others, the situation can be described as follows: you have the good people in Germany who like to work hard, pay their taxes, and stand in queues. Then you have those in southern Europe who like to party hard, don't stand in queues, and don't pay their taxes.
“The thinking is that southern Europe is paying for its sins. They were living beyond their means, they have been fiscally irresponsible and corrupt, and the crisis is a natural consequence of their lifestyle. The solution that has been put forward is austerity. If you bring tough rules and discipline into the picture, these economies will be able to grow.”
“This, however, is untrue and will not work,” Maratheftis asserts. The only country that has been irresponsible, he says, is Greece. Incidentally, Maratheftis, by his own admission, is Greek.
“Spain, Italy and Portugal were in better fiscal condition than Germany in 2007,” he says. “Last year, Spain had lower government debt to gross domestic product than Germany. Ireland also had better fiscal accounts. Italy, if you remove the interest rate payments, is in a surplus, and this was the case when Berlusconi was in charge as well.
“Berlusconi was famous for his parties, but if you took away what Italy had to pay for its debt, its government accounts were healthier than Germany. In other words, the huge deficit in southern Europe is not the cause of the crisis, it is a consequence.”
Boom and bust
What then, is the real problem in Europe? Maratheftis thinks it can be broken down into three parts: banks, sovereigns, and competitiveness.
“Of these, competitiveness is the most serious, but it is not being addressed by the Europeans,” he explains.
“Since the introduction of the euro, Germany's current account surplus exploded. So, too, the deficits of southern Europe. The south had not been in deficit before they joined the eurozone.
“They fell under the influence of foreign cash, largely from Germany, which was basically lending money to the south to buy more Mercedes and BMW cars. This created an imbalance. There was a boom in southern Europe that lasted for eight years.
“Along with that came inflation, and when you have inflation, you become expensive and uncompetitive. This is the true story in Europe.”
Here Maratheftis draws parallels between Europe and Asia's financial implosion in the late 1990s.
“Many Asian economies were running massive current account deficits and became too dependent on foreign capital. One day the inflow stopped and the crisis emerged.”
The difference, he says, is that Asian economies had the option of devaluing their currencies.
“Current account deficits turned into surpluses within a year. The currency devaluation restored competitiveness overnight. You can become 20% to 30% cheaper by devaluing your currency by 20% to 30%.”
With such a move out of the question for the single-currency eurozone, how else can competitiveness be restored?
Cutting salaries
The answer from Europe, ironically, is to make southern Europe cheaper by cutting salaries.
“There are two issues with this approach,” Maratheftis observes. “First, salaries cannot go down easily. Second, even if you can bring salaries down, the deficit will continue to increase. The concern here is we might reach a point where the social pressure is so huge that it would better for a country to simply leave the euro.
“This is a dangerous game Europe is playing. In Greece, one in two people under the age of 24 is unemployed. The unemployment rate underestimates what is truly happening on the ground.
“It could come to a point where they say, Enough is enough, we are not going to destroy our society for the sake of the euro'.”
Competitiveness, argues Maratheftis, is a two-way street. “If the south cannot become cheaper, the north has to become more expensive. If austerity must take place in the south, then a stimulus has to be carried out in Germany. Germans have to start spending more.
“I told a Bundesbank (Germany's central bank) member that Germany is also responsible. I said what they need to do is accept inflation of 4% in Germany over the next five to six years.
“You can imagine his reaction. There is nothing the Germans love more than a Greek economist telling them they need to accept higher inflation. It did not go down very well. The answer from him was that they will never accept inflation at 4% in Germany.”
And therein lies the heart of the problem. Even so, Maratheftis does not see a breakdown of the 17-member eurozone as imminent, given that the European Central Bank's bond purchases will buy time for politicians to “do the right thing”.
But on China Maratheftis is decidedly more sanguine. He believes growth in the world's second-largest economy will average 7% to 8% over the next five to six years.
While conceding that this is less than what investors are used to, he says it is nevertheless significant.
“The old model that was dependent on foreign investment is past. It now has to look to domestic drivers, and Chinese policymakers are aware of this. Will they grow at 10% or work towards more sustainable growth? They have chosen the latter.
“They are attempting to rebalance the economy and are willing to accept lower growth. As long as growth is within 7% to 8%, we think the Chinese are unlikely to panic and roll out aggressive stimulus.”
http://biz.thestar.com.my/news/story.asp?file=/2013/1/12/business/12560965&sec=business
Could Britain end up leaving the EU? The key questions
Other countries are concerned. During a trip to London on Thursday, Gunther Krichbaum - who chairs the Bundestag's European affairs committee and is a member of Chancellor Angela Merkel's Christian Democrats - said Britain was trying to "blackmail" EU states.
He argued that by seeking a renegotiation, the British government could open a "Pandora's box", with other member states picking and choosing what they liked and disliked.
http://www.channel4.com/news/could-britain-end-up-leaving-the-eu
He argued that by seeking a renegotiation, the British government could open a "Pandora's box", with other member states picking and choosing what they liked and disliked.
http://www.channel4.com/news/could-britain-end-up-leaving-the-eu
Posts
