Tag: EU

Cyprus: Follow the Money

While the Cypriot Parliament may be dragging its feet on a proposed rescue plan for Cyprus’ banks, the country ultimately faces a choice between Brussels’ bitter pill…and bankruptcy. Cyprus’ newly-elected President, Nicos Anastasiades, has quite accurately summed up the situation:

“A disorderly bankruptcy would have forced us to leave the euro and forced a devaluation.”

 Yes, Brussels and the IMF have finally decided to come to the aid of the tiny island, which accounts for just 0.2% of European output – to the tune of roughly $13 Billion. But, this bailout is different. Indeed, the term “bail-in” has emerged, a reference to the fact that EU-IMF aid is conditional upon Cyprus imposing a hefty tax on its depositors. Not surprisingly, the Cypriots, among others, are less than pleased about this so-called “haircut”.

Still, the question lingers: Why now? The sorry state of Cyprus’ banking system is certainly no secret. What’s more, the IMF has supported a “bail-in” solution for some time. So, why has the EU only recently decided to pull the trigger on a Cyprus rescue plan?

One reason can be found by taking a look at the composition of Cyprus’ bank deposits (see the accompanying chart).

 

There are two main take-aways from this chart:

  1. European depositors’ money began to flow out of Cyprus’ banks back in 2010. Indeed, most European depositors have already found the exit door.
  2. Over that same period, non-Europeans (read: Russians) have increased their Cypriot exposure. If the proposed haircut goes through, Russian depositors could lose up to $3 billion. No wonder Valdimir Putin is up in arms about the bail-in.

Perhaps a different “red telephone” from Moscow will be ringing in Brussels soon.

America’s European Diplomacy: A Bull in a China Shop

The U.S. government appears to be pathologically unable not to interfere in matters foreign as well as domestic. According to the Sun, the Obama Administration has warned the British government not to hold a referendum on remaining a part of the European Union. The U.S. assistant secretary for Europe Philip Gordon said that, “We have a growing relationship with the EU, which has an increasing voice in the world, and we want to see a strong British voice in it. That is in America’s interests.” He added that, “Referendums have often turned countries inward.”

Predictably, the British are annoyed. Bernard Jenkin, a Conservative Party member of Parliament said:

“The Americans don’t understand Europe. They have a default position that sometimes the United States of Europe is going to be the same as the United States of America. They haven’t got a clue.”

Another parliamentarian, Peter Bone, said that Gordon should “butt out” and that the British membership of the EU had “nothing to do with the Americans.” “It’s quite ridiculous,” he added, “and it’s not what you’d expect from a member of the senior executive in the USA.”

Quite so! After all, how would Americans feel if the British government opined about U.S. membership in NAFTA? Would they not be a bit “miffed?” Not too long ago, the then-secretary of state Condoleezza Rice urged the Europeans to accept Turkey as an EU member state. Again, how would Americans feel if the Europeans urged the U.S. government to make Mexico America’s 51st state?

Moreover, is it really a good idea for the U.S. government to be dissuading foreign governments from consulting their people on matters of national interest? Not quite democratic, is it?

Finally, consider the astonishing brazenness of America’s government officials. Note that Gordon did not say that British membership of the EU was in the British interest. Instead, he simply stated that the British membership of the EU was in America’s interest. That, presumably, settles the matter for everyone. Gordon’s behavior is worthy of a Roman proconsul throwing his weight around some impoverished province on the edge of the world. It is not what people expect from a White House administration that supposedly wishes to correct the foreign policy mistakes of the previous one.

Nobel Peace Prize to the EU Is a Farce

The Nobel Peace Prize Committee has awarded the 2012 Nobel Peace Prize to the European Union for “keeping peace in Europe.” The committee has now turned the award into a farce. But few people are laughing.

The Committee has ignored the important role that the North Atlantic Treaty Organization (NATO) and the United States have played in keeping Europe at peace throughout the Cold War. While it is true that the free trade agreements among the EU countries have led to more prosperity and cooperation, other EU initiatives have exacerbated Europe’s problems and ancient animosities.

Decision making in the EU lacks basic transparency and accountability. As shown by the Danish, French, Dutch, and Irish referenda, the EU has nothing but contempt for disagreement and opposition. The European common currency is in existential crisis. Periodic bailouts, which are needed to keep the eurozone together, have led to riots and loss of life. The EU today is deeply unpopular and distrusted. Corruption, scandals, and cynical abuses of power by EU officials are pervasive.

This is the troubling reality of the EU that should not be ignored. Unfortunately, the Nobel Peace Prize Committee has decided to look the other way.

Here is a related podcast.

Pushing Ukraine Back to the Soviet Union?

Ukraine scored a historic upset in their first Euro 2012 soccer match yesterday, creating a rare celebratory and unifying atmosphere in the country. There had been little good news out of the Ukraine leading up to its co-hosting—with Poland—of the continent’s major soccer championship. Despite achieving independence two decades ago, Ukraine’s political development remains stunted. Ironically, European governments risk pushing Kiev away while attempting to promote democracy there. Such as by Berlin’s threat to block a new political and trade agreement between Ukraine and the European Union.

There’s not a lot to choose from among Ukraine’s leading politicians. However, President Viktor Yanukovich appears to be misusing his power to punish rival Yulia Tymoshenko for political revenge.

In response, German Chancellor Angela Merkel said that her nation would boycott the 2012 European Championships. Last month German Foreign Minister Guido Westerwelle also threatened to kill Kiev’s Association Agreement and the Common Economic Space Treaty with the EU. Ukraine is a member of the Eastern Partnership initiative, created three years ago by Brussels.

Ukraine is not the only troubled member of the EP:  Armenia, Azerbaijan, Belarus, Georgia, and Moldova all have serious human rights issues. However, Nicu Popescu of the European Council on Foreign Relations explained that while Ukraine is not the worst offender among the group, it “is the biggest source of disappointment and bad news.” As a result, warned Jana Kobzova, also at the Council, “More and more EU states are asking why should we want the Ukraine closer to the EU when its political system is increasingly incompatible with the values the EU preaches?”

It’s a fair question, but the alternative is Kiev slipping closer to orbit around Russia. Yanukovich originally was viewed as Moscow’s candidate, since he represented Russophone speakers. However, in office he put his nation first. He has refused to join Russia’s Customs Union (which also includes Belarus and Kazakhstan) and turn over control of Ukraine’s natural gas to Moscow. But because of resistance in Brussels, Yanukovich last month declared a “strategic pause” in Ukraine’s relations with the EU. In fact, Foreign Minister Konstantin Grishenko said his nation would no longer seek full EU membership.

Germany and the other EU members should moderate their ambitions. None of the Eastern Partnership members were on the fast-track to EU membership. The systems were too different and the geographic distances were too great. Even before Kiev disappointed its European friends people were talking of a 20-year accession process. And enlargement fatigue had not yet afflicted Brussels, with disappointment over the performance of Bulgaria and Romania, resistance to Turkey’s membership, and reluctance to quickly include the rest of the Balkans.

Instead of viewing Ukraine as a candidate member to be transformed, the Europeans should treat Ukraine as an errant friend to be reformed. Closer ties should be developed, allowing more criticism to be delivered with greater effect. The association agreement between the EU and Kiev obviously is important economically to Ukraine. It also may be the best vehicle to help pull Kiev back to a more democratic course.

Cross-posted from the Skeptics at the National Interest.

The Egg on the EU’s Face

The European politicians love to talk about the “huge” benefits of membership in the European Union. It is certainly true that the “single” market between the EU member states has brought tangible benefits, but those have been declining in importance as technological change made access to services and capital cheaper and easier, and trade liberalization progressed world-wide. Moreover, as the Brussels-based EU bureaucracy expanded, economic liberalization gave way to regulation that helped to strangle European growth (see the graph below). Consider the latest absurdity to emerge from Brussels—a poultry regulation, which aimed to increase the comfort of the egg-laying chickens, but resulted in a drastic cut in egg production and a 100% increase in the price of eggs.

The EU bureaucracy may not appreciate the problem of unintended consequences, but ordinary Europeans are beginning to realize that the EU no longer is what it used to be—a byword for prosperity and stability. In the Czech Republic, for example, a record number of citizens do not trust the EU (63 percent) and the EU Parliament (70 percent). If the EU elite persist in killing jobs and growth, it may bring about the ultimate unintended consequence—the break up of the EU.

The Euro Crisis in Prose and Poetry

The European debt crisis is inspiring public radio to literary analysis. Last week NPR’s Planet Money put the French-German relationship into a “threepenny opera”:

All

Everyone is counting on you
You’ve got the money
We’ve got the debt (Oh yes, we’ve got a lot of debt!)
And do we need a bailout—you bet

Germany

Zat’s it, I’ve had enough
Looks like it’s time now for me to leave…

France

Oh?

Germany

Vhy is ze door locked? You must let me out.

France

Dear when the times are tough
It’s better to give zan to receive

Then Monday Marketplace Radio turned to classics professor Emily Allen Hornblower and economist Bill Lastrapes to discuss Greek debt as classical tragedy—Oedipus? The ant and the grasshopper?

Loyal Cato readers will recognize Bill Lastrapes as the coauthor of the much-discussed Cato Working Paper “Has the Fed Been a Failure?

And then, if you prefer prose and sober analysis to literary analogies, let me recommend Holman Jenkins’s perceptive column on why Europe hasn’t solved its crisis yet, which unfortunately appeared in the less-read Saturday edition of the Wall Street Journal. (OK, not less read than Cato-at-Liberty, but probably less read than the weekday Journal.)

Neither leader has an incentive to sacrifice what have become vital and divergent interests to produce a credible bailout plan for Europe. To simplify, German voters don’t want to bail out French banks, and the French government can’t afford to bail out French banks, when and if the long-awaited Greek default is allowed to happen….

There is another savior in the wings, of course, the European Central Bank. But the ECB has no incentive to betray in advance its willingness to get France and Germany off the hook by printing money to keep Europe’s heavily indebted governments afloat. Yet all know this is the outcome politicians are stalling for. This is the outcome markets are relying on, and why they haven’t crashed.

All are waiting for some market ruction hairy enough that the central bank will cast aside every political and legal restraint in order to save the euro….

And then the crisis will be over? Not by a long shot.

All these “solvent” countries and their banks will be dependent on the ECB to keep them “solvent,” a reality that can only lead to entrenched inflation across the European economy. That is, unless these governments undertake heroic reforms quickly to restore themselves to the good graces of the global bond market so they can stand up again without the ECB’s visible help.

It’s just conceivable that this might happen—that countries on the ECB life-support might put their nose to the grindstone to make good on their debts, held by ECB and others. Or they might just resume the game of chicken with German taxpayers, albeit in a new form, implicitly demanding that Germany bail out the ECB before the bank is forced thoroughly to debauch the continent’s common currency, the euro.

Ratko Mladic Arrested

The arrest of Ratko Mladic is a welcome development that should remove the last major obstacle to closer relations between Serbia and the United States and the EU nations.  For too long, the Western powers have placed an excessive emphasis on his apprehension as a condition (explicit or implicit) for Serbia’s full inclusion in the Western community.

If the objections now continue, Serbs will understandably conclude that the Mladic issue was little more than a convenient excuse that Western governments used to justify a less-than-friendly policy toward Belgrade.  An expected improvement in relations now that Mladic has been apprehended is especially pertinent with respect to Serbia’s path toward membership in the European Union.

The arrest will have little substantive impact on prospects for reconciliation in Bosnia-Herzegovina or anywhere else in the former Yugoslavia, however.  The trend in Bosnia over the past year or so is toward renewed tensions rather than reconciliation, and that trend is being driven by factors that have little to do with the Mladic issue.