SAIS Next Europe

Economic Issues



October 8, 2008 3:56 PM

Italy's 'Bridge to Nowhere'

At a time when the airline industry is crumbling in Italy, Prime Minister Silvio Berlusconi is focusing on other means of connections. He wants to build a bridge - not that we haven't heard that from politicians before. But while others eventually say, 'thanks, but no thanks,' Berlusconi smiles widely and says yes. He has given the go-ahead to start building the world's longest suspension bridge. It will be a grandiose national project. It will also be to Italy what was snubbed in Alaska: a bridge to nowhere.

This one will stretch more than two miles over the stormy Strait of Messina and link the toe of the boot-shaped Italian mainland to its closest island, Sicily. It will connect one poor region to an even poorer island. But is the project worthwhile?

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October 10, 2008 1:39 PM

Our New Capitalist Model: Sweden

Sweden is not accustomed to being touted in America as the example of capitalism done right. Two months ago, most policymakers referred only to the Nordic country as an example of the classic cradle-to-grave social welfare system with all of its inherent challenges. Politicians on the right were particularly fond of pointing out all the inefficiencies and socialist policies that undermined the country's capitalism. And just one month ago, Mike Huckabee warned at the Republican National Convention that Obama had taken "lots of ideas from Europe he'd like to see imported here."

But now it is not just Obama who is suggesting some idea imports from Europe. Almost overnight, world leaders have rushed to seek advice from Swedish policymakers on how to deal with a banking and credit collapse and restore faith in the capitalist system. The irony that socialist Sweden may rescue America's capitalism is causing some smug smiles in Stockholm.

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October 10, 2008 3:57 PM

Financially Bold Britannia

U.S. Treasury Secretary Henry Paulson's $700 billion bailout plan still suffers from at least two problems. First, Paulson has yet to explain what he is going to do exactly with all that money. His primary justification was to buy "toxic" mortgages from sinking financial institutions. But the U.S. mortgage crisis has turned into a global credit freeze, and Treasury has yet to explain how its new-found funds will address this far bigger issue. Second, Paulson's plan is still likely to reward those who made the worst mistakes while giving taxpayers little to nothing in return for their investment except a bunch of worthless mortgage assets.

Enter the Brits and the Swedes.

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October 14, 2008 3:47 PM

EU Leads U.S. on Cuban Policy

Is the European Union paving the way for a new U.S. policy on Cuba? Cuba recently accepted an invitation from the EU to engage in a formal political dialogue - the first step towards normalizing relations between Cuba and the EU's 27 member states.

In June, the EU lifted diplomatic sanctions that had been in place against Cuba since 2003. The sanctions had been mostly symbolic, with the EU continuing to trade with and invest in Cuba. The latest announcement suggests that the European-Cuban relationship will continue to evolve, much to the displeasure of the U.S. State Department.

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October 16, 2008 10:31 AM

Russia Takes Upper Hand in Crisis

Russia, like the United States and by now much of the rest of the world, is treading dangerously at the edge of financial despair. Four weeks ago, Finance Minister Alexsei Kudrin stated that Russia would not have to use its reserve funds. The government has since changed its position, and then some. In just the past two months Russia's reserves have decreased by nearly $50 billion [in Russian]. It looks like some (nobody knows yet how much) of Russia's reserves will now be employed in keeping its banks and firms from total collapse.

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October 22, 2008 4:01 PM

In Italy, a Lesson in Laundry Economics

"Wash and Dry-- 6000 Lire." It was the last thing I expected to see painted on the wall of the local laundromat in Bologna, Italy, where I made the most banal of weekly pilgrimages in college life. I was hoping for clean underwear; I got a lesson in economics.

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October 24, 2008 2:21 PM

Rich-Poor Gap Widens in Europe, North America

The Paris-based Organization for Economic Cooperation and Development (OECD) released a study Tuesday showing clearly that the gap between rich and poor is widening in Europe and North America. The report, which covers developments spanning 20 years in 30 countries, contains some interesting nuggets:

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October 27, 2008 2:52 PM

In Financial Crisis, Europe Reexamines Priorities

Ironic Europe! After spearheading the fight against climate change for years, the EU now seems to encounter more difficulty reaching consensus on the environment than on the financial crisis.

Silvio Berlusconi and Donald Tusk, the Italian and Polish prime ministers, have led the rebellion at the latest Brussels summit. They claimed they did not have to follow EU restrictions, as they were not in power at the time the agreement was reached, an unprecedented denial of the supranational nature of so many of Europe's commitments.

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November 7, 2008 4:27 PM

Russia's Fate and Falling Oil Prices

How will the current plummet of oil prices affect Russia? Guesses abound, mostly in the negative, but they remain nothing more than just guesses.

History can be interesting without being terribly useful. In 1986 oil prices crashed. The resultant slowdown in the Soviet economy, heavily dependent on sales of oil and gas, was one of the causes of the Soviet breakup at the end of 1991. But is this lesson really relevant?

For starters, the Russian Federation is not the Soviet Union, even if it has inherited its legacy of pervasive corruption. The most notable feature is the absence of ethnic republics of any considerable size (and history of some self-rule). The economic slowdown was one of the causes of the Soviet collapse, but the mobilization of ethnic, nationalist claims was probably even more important. In today's Russian Federation ethnic tensions and desires for increased autonomy, or even sovereignty, do exist. (Look at nearly sixteen years' of events in the North Caucasus.) The Putin years have not laid this issue to rest, but the tensions have decreased since the formal end of the second Chechen War.

This brings us back to the original question: whither Russia if oil prices continue dropping? The government's 2009 budget will likely see its first deficit in nearly a decade. This will not be a problem for short-term operations, though: over $700 billion of reserves insures the government against this. The problem for Russia is a long-term one: several years of these prices, impossible though that might seem, would lead to catastrophic consequences for a state seeking to improve its living standards to and triple its GDP by 2020. By that date, the object of so much planning for Russia's long-term development, Russians' annual salary should increase by a factor greater than three and its pension problem should be solved. $60 per barrel of oil, if indeed we get there, will make these hopes and intentions a pipe dream.

The United States has strategic interests in these affairs. Our leaders would certainly hope to see a humbled Russian political and business elite. But only to some degree. We are not witnessing the imminent collapse of a fragile regime. Nor should we hope for one. The Russian leadership has not exercised great delicacy over the past six months. Its deterioration and consequent instability would be even worse for American interests. Bring the Russian back to the table, yes, but don't bring them back begging. Witness the results of the 1990s.

Chad Miner is a graduate student in the IR/Global Theory and History program at the Johns Hopkins University Paul H. Nitze School of Advanced International Studies (SAIS) in Washington, D.C.




November 7, 2008 4:29 PM

Joining the Euro Club

The current financial crisis poses one of the greatest threats for Europe since the adoption of the euro as a common currency in 1999. With more and more European countries being affected, one has to wonder how Eurozone countries are faring as compared to their non-euro counterparts. Denmark, for example, has thus refused to replace its krone with the euro and is finding it difficult to cope in the midst of the crisis, prompting Danish leaders to more readily accept the notion of converting to the euro. Similarly, Iceland's problems with the krona have exacerbated the crisis within the country, leading many analysts to suggest that adopting the euro would help Iceland stabilize its economy.

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November 13, 2008 12:14 PM

Europe's China Problem

Europe, like the United States, has a China problem. But the problem is not what most analysts suggest. Four months ago European trade officials were fulminating about Europe's growing trade deficit with China. This week, with the Chinese economic ministry reporting a dramatic slowdown in the Asian giant's growth and G-20 countries meeting to try to chart a new course for the global economy, Europeans have begun to ask a different question: "What effect would a serious deceleration in China have on the Old World?"

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November 13, 2008 12:56 PM

Europe's Winner in Financial Crisis: Politicians

In France, President Nicolas Sarkozy nearly abandoned capitalism during his speech in Toulon on September 24th. Coming from the current EU President, his comments added to the sense of panic, rather than showing resolve and leadership. Those comments may have resonated with socialist sympathizers in France, but left financial analysts scratching their heads. Many are wondering if this is just another French promised reformist, turned apathetic. A few weeks ago he gathered with his European counterparts for a coordinated rescue package, which calls into question the purpose of his Toulon rhetoric. Remind me which side was he on during the '68 protests? He's made a decent effort to spearhead negotiations recently among the EU and US counterparts, but now appears to be stalling the process with his insistence on including energy-related language. If the Kyoto and the EU carbon credit fiascos taught anything is that the US and the EU are nowhere near consensus on climate change.

Italian Prime Minister Berlusconi appeared too fixated on saving Alitalia to notice the looming global meltdown. Now, with the banking system called into question, the rescue of Italy's national airline is on the backburner. Although he's a successful business executive who must understand markets, with his three-thousand Euro suits Berlusconi embodies an air of the backroom-deal and golden parachute that many attribute as the prime causes of the financial crisis. It may be hard for the billionaire to appeal to the unemployed if the crisis gets out of hand in Italy, but the jury is still out, pending the country's financial state in the coming months.

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December 16, 2008 5:09 PM

Germany's 'Madame No'

On a recent cover of Der Spiegel, Germany's leading newsmagazine, she's referred to as "Angela Mutlos". Translation: Fainthearted Angela. The headline of a recent article in The Economist asks where she can be found.

German Chancellor Angela Merkel's response to the world's economic crisis has been slow and hesitant, earning her the nickname of Madame No in media across Europe.

Now, it has drawn criticism from within her own Christian Democratic Union (CDU), and particularly from its more conservative sister party, the CSU. And although her party still leads in the polls, the percentage of Germans who credit her with strengthening the country's economic power has slipped 17 percent in about a month.

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December 18, 2008 12:43 PM

In Climate Stalemate, An Energy Opportunity

During recent climate talks in Poznan, Poland, several players made public statements that lowered the bar on what could be achieved during the coming year. The United Nations' top climate chief, Yvo de Boer, said he doubted a new treaty could be achieved by next year's deadline to replace the Kyoto Protocol after it expires in 2012. He emphasized aiming for a "robust political agreement" instead.

That may sound discouraging to some, but it could also be an opportunity for the Obama administration to reorient the transatlantic dialogue on climate change toward the energy technology revolution we will ultimately need to deal with this challenge in a meaningful way.

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January 13, 2009 5:27 PM

In Bulgaria, Out With The Old...

Anyone who has visited Bulgaria before the turn of the century and returns to the country today might be immediately shocked by the sweeping transformation of its architectural landscape. In the capital of Sofia, casinos and new hotels have popped up in the most unusual of places, replacing the city's older historic appeal with the atmosphere of a gambling resort. At the same time, a quick expansion of nightlife to the city's student neighborhood has contributed to escalating incidents in the area (including the murder of a student early last month) and has earned the academic hub the nickname 'Sin City'.

Behind these changes are a serious corruption problem, a dysfunctional legal system and inadequate regulation under the current administration, all of which have led to a blooming of the country's organized crime network. As the New York Times reported last year, that network has also managed to penetrate Bulgaria's ruling elite. In the process, mafia members have been capitalizing on a thriving construction industry, simultaneously using the opportunity to move some of their operations away from the underground world.

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January 16, 2009 1:58 PM

Will the Euro Survive?

With its tenth anniversary on January 1, 2009, the euro has come of age. Sixteen European countries now use the euro as their national currency and the popularity of the euro for foreign reserves is on the rise. Policymakers have breathed a sigh of relief as the currency has so far withstood the current economic downturn, including crises in large multinational banks such as Fortis and Dexia.

But congratulations are premature. The euro area has yet to demonstrate its cohesiveness when confronted with the growing economic divergence of its member states and even the specter of a sovereign debt default.

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January 30, 2009 4:27 PM

Ukraine on the Brink

The gas supply crisis between Russia and the EU has been resolved; the larger crisis in Ukraine has just begun. In what has become a regular ritual, gas deliveries to Europe via Ukraine were halted for two weeks in January as the Russian and Ukraine argued over debt, shipment fees, and the price of gas sold to Ukraine. With EU intervention, Russia and Ukraine agreed to resume shipments to Europe. Europe is now breathing a sigh of relief, but Ukraine is wincing at the new price it will have to pay for domestic gas and implications for its economy.

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February 6, 2009 5:41 PM

China Manipulates, Europe Wins

Tim Geithner, the newly confirmed U.S. Treasury Secretary, ruffled feathers in Beijing and raised eyebrows across the Atlantic with a statement at his confirmation hearing that China has been "manipulating" its currency to gain an unfair advantage in export markets. Geithner's comments were received with predictable hostility in Beijing, but more interesting was the lukewarm response from across the Atlantic--given the European Union's own large current account deficit with China.

A spokesperson for the EU's monetary and economic affairs commissioner simply commented that "exchange rates should reflect economic fundamentals. That's all we wish to say." In other words, despite tough talk on China last year, the EU prefers not to touch this one.

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February 10, 2009 10:36 AM

A New Model for Foreign Aid

A sign in the lobby of the British government's Department for International Development (DFID) bears the following bold motto: "Leading the British Government's fight against world poverty."

Since 1997, the UK Department for International Development (DFID) has emerged as a top-rated international development organization. The decision to focus on the single goal of fighting poverty is one reason for its success. At the same time, the U.S. Agency for International Development (USAID) has grown weaker. Major aid initiatives have been set up outside of USAID, the U.S. military is shouldering a growing share of development and reconstruction work overseas, and a shrinking staff has forced USAID to rely more on private contractors to carry out its work. In reaction to this trend, some American aid experts have called for creating a strengthened, cabinet-level development department, and suggested that DFID could serve as a model.

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March 2, 2009 3:43 PM

EU Takes Realist Tone With Colombia

During Colombian President Alvaro Uribe's recent visit to Berlin, two agenda items garnered attention: closer economic ties with Europe and help fighting the drug trade.

Europe is charging ahead on the former. Negotiations over a free trade agreement (FTA) began in mid-February, leaving the EU poised to gain where the United States lost last year. After two years of negotiations and substantial expenditures of political capital by both the Bush administration and President Uribe, Congress refused to vote on the U.S.-Colombia (FTA) over concerns about human rights and labor standards--even after the FTA was revised to include enforceable labor provisions. (The bill ultimately fell victim to an underlying difference in perspective: The Bush administration saw the FTA as a tool for strengthening national security through economic development that could undercut drug activity in Colombia, but the Democrats in control of Congress saw it as a reward that Colombia did not deserve).

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March 20, 2009 2:16 PM

Transatlantic Leadership: Restart International Trade

As the economic crisis continues, feelings on both sides of the Atlantic have been hurt.

Americans are accusing European countries of not doing enough to stimulate demand while Europeans are dismayed that the U.S. is unwilling to implement regulations to prevent such a crisis from happening again. I do not foresee an easy solution to these disputes. However, leaders on both sides of the Atlantic can look beyond such disagreements and focus on an area where they can make substantial progress: trade.

The Doha Trade round was initiated in 2001 to cut tariffs and other barriers to trade within the WTO framework. After a number of attempts, negotiations stalled in 2008 and there has been little progress since. The key point of disagreement is agricultural supports, particularly within the U.S. and EU. Along with the EU, some developing countries seek a significant cut in American price-distorting agricultural support while the U.S. wants a reduction in tariff barriers in the EU and developing countries. However, negotiating positions have converged in the last seven years and the major ingredient now lacking is political will.

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April 1, 2009 5:37 PM

G-20 Stretching U.S.-Europe Bonds

This week's G-20 meetings might say more about the true state of U.S.-Europe relations than any other recent event, highlighting fissures in the post-Cold War bonds between President Obama and his European counterparts. Over the next few months, heads of state from both sides of the Atlantic will have to face their two most vexing concerns: the financial crisis and conflicts with non-state actors, especially in Afghanistan. Both of those threats require unified, international action, something the two sides are finding difficult to produce as their meetings progress.

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