The Politics of Fear
To those who were surprised that the
European Union received the Nobel Peace Prize, I say: "Think twice."
This was not only a deserved award for Europe's contribution to bringing peace
and stabilizing democracies in the recent past
the Nobel Committee was also sending a clear warning to contemporary
leaders. I could almost hear them saying: "On this difficult odyssey,
don't abandon ship. In today's world, the EU is too valuable to
squander."It was an indirect but powerful rebuttal to the dangerous
nationalist and populist rhetoric some politicians have adopted when describing
the recent financial crisis.This message couldn't have come at a better
time.Like ghosts from the past, we see political violence, xenophobia, migrants
being scapegoated and extreme nationalism creeping into our public debates even
into our parliaments. This is a Europe diverging from its founding principles. Principles that rendered
nationalistic hatreds an anathema.But it is these politics of fear that seem to
have incapacitated Europe. A Europe seemingly incapable of ending this crisis, a fractious Europe. This has undermined a sense of
trust between us and in our European institutions. This climate does not
inspire confidence either in our citizens or the markets. Nor will our retreat
into a renationalization of Europe be the solution.My recent experience in
dealing with the financial crisis in Greece and in Europe has confirmed my
belief that this is a political crisis more than a financial one.I am convinced
that, with the political will, we could have avoided much pain, squelched
market fears and stabilized the euro, while at the same time reformed ailing,
unsustainable economies such as ours in Greece. Despite media hype to the
contrary, it is the Greek people who first and foremost have wanted this
change. Instead, we allowed fear and mistrust to overcome us. And fear begets
more fear and uncertainty. Instead of understanding, we have name-calling.
Instead of collective, transparent action by our institutions, we have moved
into a mode where the community method is undermined by makeshift
intergovernmental decision-making, with the balance of power tipping
dangerously towards the very large member states. Instead of real, necessary
reform and fiscal responsibility, we are implementing an overdose of austerity
dealing more with symptoms and less with the root causes of the economic woes
of Europe. Instead of rewarding superhuman efforts, we are condemned for our
shortcomings. More than anything else, it has been this political climate that
has undermined our common efforts to deal with today's financial crisis.
Whether it is banks or governments, we have adopted a passive, almost
defeatist, attitude, which we cloak in the language of "caution and
responsibility. "It is our responsibility to break this cycle of fear and
mistrust now. We are vastly underestimating our own capacities as a union. Our
capacity to calm markets or create jobs. We again need to believe in the great
capacity of our peoples north and south, west and east. We must rekindle the
spirit that united us in 1989 when the Berlin Wall fell. We know
the difficulties we then faced. But we did not cower. We decided to invest in
the potential Europe and our peoples had. And there is so much hidden or untapped potential
in our youth, our experience, our diversity and our cultures.But this not
simply an issue of political will. We must combine this will with an
understanding of our real weaknesses. Over the decades we have become more and
more interdependent in Europe. This was not by chance, this was by design -- from the days of Monnet
and Schuman. It is this interdependence that has made the wars of the past
unthinkable.But if interdependence is important to keep the peace, it is not
enough to make us effective, adaptive, powerful on the global scene. Neither
does interdependence guarantee the democratic empowerment of our citizens and
the liberation of our peoples' potential.In fact, this interdependence today is
seen by many as a straight jacket, hindering us rather than giving us the
capacity to deal with new global challenges. The debate about the breakup of
the euro, or even euro-exits, is a case in point.Our citizens, therefore,
wonder whether this European structure is still useful or if we should go our
own separate, independent ways. As in The Odyssey, the sirens are
beckoning that we change course. However sweet their song, we know their
purpose is that we crash on the shallow rocks. If we are to avoid these rocks,
we need to radically rethink our governance structures and policy responses so
that we capitalize on our strengths and neutralize our weaknesses.Three
fundamental principles must underpin a more progressive Europe.First, we must
strengthen Europe's institutional capacity. Priority today must be in the
financial-economic sphere. The eurozone is the world's largest economy, the
euro is the world's second reserve currency and on aggregate we have strong
economic fundamentals; but we are not able to leverage our strengths due to
weak or missing institutions. Despite significant progress such as:
- The European Stability Mechanism;
- The Six-Pack to strengthen governance and oversight; and
- A broader mandate for the European Central Bank, with the recent introduction of Outright
Monetary Transactions, we must go one step further.
We have already pooled our risks,
now we must pool our strengths. Eurobonds and a federal banking union are vital
tools to safeguard the EU from similar crises and set our economy on a more
stable footing. Second, we need to liberate and reenergize Europe's human capacity. High unemployment
needs to be offset by investment in our human capital, education, research,
green growth and the necessary infrastructure for green energy and a knowledge
society. In our race towards competitiveness, we are emulating models that have
little to do with our traditions. In many emerging markets, a lack of
collective bargaining and democratic accountability, low wages, substandard
working conditions and denigration of the environment combined with tax havens
which have robbed countries of huge revenues up to 11 billion euros per year in Greece
alone may offer a temporary comparative advantage. But in seeking growth, we
cannot race to the bottom. We must base our competitiveness on quality, not
inequality. Third, we must strengthen our democratic capacity. We need
innovative democratic institutions that will empower our citizens and
strengthen the legitimacy of our decisions .The EU's complex decision-making
process has been an outcome of a delicate historical balance between member
states. Today, however, people feel they are sidelined by these decisions. In
trying to confront its fiscal deficit, Europe has run up a democratic deficit. As
we take the next steps towards European integration, we must give ownership of
this process to the people. Policies imposed on citizens without their active
consent are doomed to fail. Already, a frustrated, educated but unemployed
younger generation is losing faith in our European institutions and values. This
vacuum has created fertile ground for populism and extremism. When our citizens
feel disempowered, they will turn to saviors or target scapegoats as they do
not participate through dialogue and responsible deliberation to understand and
solve common problems. Europe can regain the confidence of the markets, but first we must regain the
confidence of our citizens. That is why I called for a referendum in Greece, so that people could
debate and decide on their own future. There is nothing wrong with European
countries ceding sovereignty in the interest of creating a stronger Europe. Indeed, they already have. But as
we do so, we need to rethink how our representatives in the Union are elected and how decisions are
made. An EU president, elected by a European Parliament (or even a directly
elected president), European-wide referenda, forms of more direct citizen
participation and the use of social media are ideas already ripe to explore. This
new Europe, as I see it, will not be the product of one grandiose decision,
dictated by an elite minority of powerful nations or some anonymous bureaucrats
in Brussels. Small, incremental but complementary steps -made by each of us
individually and all of us together -will build the values and the foundations
for the Europe that we want. Democracy and education will give new capacity to our
citizens and that, in the end, will empower Europe and reinforce its legitimacy in our
societies and around the world. We do have a choice. Either we empower Europe and its citizens and become a
catalyst for humanizing our global economy, or globalization will dehumanize our
societies and undermine the European project. As a citizen of Europe, I vote for the first choice.
EU outlines stop-gap 2013 budget
European Union negotiators have
provisionally agreed to fix the bloc's spending at nearly 133 billion euros
($209 billion) in 2013, as part of a deal that adds 6 billion euros to spending
this year.The agreement which must now be approved by EU governments and the
European Parliament ensures stable funding for EU programmes next year.It also
guarantees the continuation of several employment, education and research
programmes this year that had been threatened with cancellation because of a
funding gap."There was an agreement on the draft package for the 2013
budget that will be submitted to the European Council and Parliament in the
coming days," a spokesman for the European Commission said in a
statement.But one EU official warned that the approval of governments and
lawmakers was far from guaranteed. "I'm not sure that everyone is going to
be happy with this package, particularly among some MEPs," said the
official, speaking on condition of anonymity. A successful conclusion to the
2013 budget row would allow governments and officials to focus on the far
thornier subject of the bloc's next long-term budget, for 2014-2020.EU leaders failed
to reach a deal on that 1 trillion euro ($1.57 trillion) budget at a summit in
Brussels last week, and are expected to try again early next year.As part of
Thursday's deal, EU payments next year will be limited to a maximum of 132.84
billion euros ($US208.97 billion).That would have represented an increase of
2.9% compared with this year far below the rise of 6.8%demanded by the European
Parliament and the executive Commission, and only a small real increase after
inflation is taken into account. But the extra 6 billion euros agreed for this
year means that spending in 2012 will now amount to 135 billion euros the
highest level ever and as a result, the budget will actually fall by 1.6% next
year. During previous rounds of talks, the Commission had insisted that an
extra 9 billion euros was needed to fill the 2012 funding shortfall. But at
Thursday's meeting, the EU's executive said it could forgo some of the extra
funds while it checked whether all the conditions for payment had been
met.About three-quarters of the EU's annual budget is spent on farm subsidies
and funding for new motorways, bridges and other public infrastructure projects
in poorer eastern and southern European member countries.
BoE urges UK banks to boost capital
British banks need to act now to
bolster their defences against financial shocks, as many have underestimated
the cost of loans going sour and future fines for misconduct, the Bank of
England (BoE) has said.Underlining a growing sense of urgency about capital
defences, outgoing BoE Governor Mervyn King said that while the problem was
"manageable", he wanted the banks' regulator to report back by March
on what steps banks were taking, and warned that he did not want them to cut
lending."Our primary concern has been to ensure that UK banks have sufficient
capital ... so that they are on a solid footing to support economic
growth," King told a news conference."The problem is manageable, and
is already understood at least in part by markets. But it does warrant
immediate action," he added.King made the comments as he presented the
half-yearly report by the BoE's Financial Policy Committee, which from next
year will take charge of British bank regulation.He said that the government
would not need to put extra money into Royal Bank of Scotland or Lloyds Banking
Group, the two banks in which it has held controlling stakes since the
financial crisis. Instead, he said banks could raise funds by issuing
contingent debt that converts into equity in a crisis, or by restructuring
actions - often a euphemism for asset sales. The BoE said that British banks'
true capital position was probably worse than relatively healthy official
numbers imply, and this was already hurting investors. "Progress by banks
in raising capital has slowed and investor confidence remains low," the
BoE said in its half-yearly Financial Stability Report. "Market concerns
are likely to reflect in part uncertainty about bank capital adequacy."he
BoE has repeatedly urged British banks to raise capital levels, and November's
report marks a stepping up of these recommendations, despite a slight reduction
in the risks facing the financial system due to an easing in euro zone
tensions. "UK banks' capital buffers, available to cushion losses and
maintain the supply of credit following realisation of a stress scenario, are
not as great as headline regulatory capital ratios imply," it said.King
also confirmed the new effort would apply to international banks with British
subsidiaries which are regulated by the Financial Services Authority.The BoE
identified three main areas where banks were over-optimistic about how much
capital they had.First, information from supervisors suggested some British
banks would suffer bigger losses on loans than they had made provision for,
according to the report.Second, it said banks had also persistently
underestimated the scale of fines they would face for past misconduct, adding
that external analysts had suggested further costs of 4 billion to 10 billion
pounds ($7.8 billion to $31 billion) for missold payment protection insurance
and the LIBOR rate-rigging scandal. Finally, the BoE criticised the
"complex and opaque" system banks use to calculate the riskiness of
its assets, with the amount of capital that banks estimated they needed
sometimes varying threefold between banks for the same type of assets.The
report also revealed muted results from the BoE's June effort to get banks to
boost lending, by paving the way for up to 500 billion pounds of liquidity
reserves held by the banks to be run down.But it noted that just 31 billion
pounds had been released and that it was mostly used to repay debt rather than
provide direct support to credit growth.The BoE cautioned that it was "too
early" to judge the impact of the initiative.
US stocks and euro sell-off on Boehner comments
US stocks and the euro sold off
after US House Speaker John Boehner said there had been "no substantive
progress" in talks to avoid the fiscal cliff.Republican Boehner made the
comments after speaking with President Barack Obama and Treasury Secretary
Timothy Geithner, saying there was a real danger no agreement would be reached
to avoid $US607 billion of automatic tax increases and spending cuts that kick
in on January 1. Democrats had "yet to get serious about spending cuts,"
Boehner said.There was no mention of the optimism he cited 24 hours ago that
gave a boost to Wall Street and was echoed around the globe.The Congressional
Budget Office has warned that falling off the fiscal cliff could drive the US
jobless rate back up to 9.1% by the end of 2013 and send the world's biggest
economy back into recession.The dollar pared its decline against the euro,
which traded recently at $US1.2967, having early touched $US1.30.US stocks did
recover some ground after the selloff.The Dow Jones Industrial Average was up
0.2% and the Standard & Poor's 500 Index up 0.4%."One minute the
portents for a deal on the fiscal cliff are negative, the next minute they are
positive," Mike Mason, a senior trader at Sucden Financial Private Clients
in London, told Reuters."This is likely to be the pattern all the way up
to the deadline on January 1. Equities are sure to remain volatile and trading
subdued until there is any concrete outcome to these
negotiations."Economic data in the US was mixed, though the revised
reading for gross domestic product in the third quarter was 2.7%, up from the
2% pace previously published.That just missed the estimate in a Bloomberg
survey of 2.8% and marks an acceleration from the second quarter's 1.3%
growth.Consumers, though, were subdued. Household spending rose a revised 1.4%,
down from the first reading of 2%, according to the Commerce Department.
Economists were hoping the revision would only be down to 1.9%.Yet the US trade
deficit shrank for revised to US$US403 billion from an initial estimate of
$US413.7 billion and inventories turned positive.And an index of pending home
resales beat estimates by rising 5.2%, according to the National Association of
Realtors, while the number of Americans applying for jobless benefits fell
23,000 to 393,000 last week, according to the US Labor Department.Stocks in the
UK rallied, as did equity markets across Europe, which closed before Boehner
made gloomier noises about the US fiscal cliff.The FTSE 100 advanced 1.2%, with
Rio Tinto up 5.1%. Germany's DAX 30 climbed 0.8% and France's CAC 40 was up
1.5%.In the UK, Lord JusticeLeveson's long-awaited report into media ethics
that followed the phone hacking scandal at Rupert Murdoch's News Corp called
for a new independent media regulator to stamp out unethical behaviour.UK Prime
Minister David Cameron, who himself was tarnished by associations with
Murdoch's lieutenants in Britain, have a tepid welcome to the report while
saying he wouldn't support new law to enshrine such a body.
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