Tag Archives: EU

Pound-Less Scotland Could Face Euro-Like Troubles

On September 18, Scotland will vote in a referendum on whether the country should end its three-century-long union with England. An independent Scotland may no longer be the distant dream of Scottish right-wingers, but is it a realistic prospect? The SNP are encouraging Scots to vote for independence on the grounds of keeping the pound but will the UK allow an independent Scotland to share it? British Prime Minister David Cameron voiced his opinion on the matter last week, urging Scots to stay in the union, a view which is also shared by Oren Laurent. In this article, Oren gives his views on why this would be the most beneficial solution. Read more…

Ukraine falls out of EU hands and into Putin’s

Ukraine doesn’t mind the fact that the European Union is stricken by financial troubles and rising nationalism; they still want in. Unfortunately, their leadership doesn’t, much to the dismay of the people who protested in tens of thousands in central Kiev. Braving icy weather and tear gas to demonstrate against their leaders’ sudden decision to scuttle an EU trade deal, police estimated the crowd at 25,000, but participants and aerial photographs suggest the number was closer to 100,000.

The pact which was on track to be signed at a Nov. 29 summit in Vilnius seemed to be going ahead as planned, with Ukrainian President Viktor Yanukovych pushing through the required legislation. However, Russia’s efforts to keep Ukraine out of the EU seems to have finally made progress, as Yanukovych is deemed to have made two semi-secret trips to Russia for talks with President Putin, who must have put something on the table more attractive than what the EU was willing to put up.

As Prime Minister Mykola Azarov put it on national television, modernising Ukrainian industry to EU standards will cost at least 150 billion to 165 billion euros. According to Azarov, the Russian leader promised to renegotiate Ukraine’s contracts with Gazprom, the Russian state-controlled natural gas supplier; a price cut could help Ukraine patch its budget deficit without reducing gas subsidies to households. Gazprom denies a price reduction has been agreed.

Whatever the motivation, Ukrainian government announced on Nov. 21 that it was suspending EU association talks, and the parliament threw out the Tymoshenko bill. For many Ukrainians, this is heartbreaking news: to them, the EU agreement was a cultural, rather than an economic one. The nation’s middle class, and a majority of people living in the western part of the country, saw it as a statement of values and identity.

It seems that the cynical Ukrainian government will go with whoever offers to bail it out. Distasteful as it may be for the EU, bailing out the government could bring into united Europe millions of enthusiastic citizens, who may be poor, but determined and idealistic, perhaps even able to replace the government in the near future with a less corrupt one. Europe, however, does not seem prepared to take on such a big project. Putin is a more determined player, so victory falls in his hands – for now.

What’s So Special About EU-Canada Trade Deal?

The European Union and Canada are on the verge of reaching a breakthrough trade pact which will deeply integrate the two economies. With world economies already intertwined, this particular agreement will inevitably be of major significance, with a host of long-term benefits and repercussions to follow. The pact will eliminate tariffs on almost all goods and services and it is estimated that it will boost bilateral trade in goods and services by 20% to 25.7 bln euros a year. It is being touted as “the biggest deal the country has ever made”, setting a precedent for a similar and potentially even bigger deal to reduce transatlantic barriers to business between Europe and the United States. Pending approval by the 13 Canadian provinces and 28 EU governments, this already sets a positive economic tone and example for moving forwards. With prospects of increased trade, employment and investment, this may just be the best medicine for the EU economy. Read more…

Is The Euro Doomed?

Has the euro been a disaster, or what? It seems pretty self-evident that it has been. Unemployment is 27.6 percent in Greece, 26.2 percent in Spain, 16.5 percent in Portugal, and 13.6 percent in Ireland, which, remember, is supposed to be the austerity success story. What’s happened? Well, exactly what euro-skeptics feared would happen from the time the common currency was just an idea: a shock hit some parts of Europe worse than others, and there hasn’t been any easy way to adjust. The ECB’s one-size-fits-Germany policy has left crisis countries no choice but to try to pay-cut their way to prosperity which would be painful enough if it were even possible. But it’s really not when interest rates are all but at zero. The euro has turned a recession into a depression. Countries can’t devalue their currency or cut interest rates or even run bigger deficits when they get into trouble, so their trouble gets worse. It goes against all intuition that a less flexible monetary would work as well as a more flexible one during a global financial crisis….and against all evidence too. Fixed exchange rates work until they don’t. But when they don’t, they really don’t, like the Great Depression ‘don’t’! So it would be strange to say the gold standard had worked as well as other monetary regimes if you just disregard the 1930s. It’s equally strange to say fixed exchange rates are working today if you just disregard the countries where they aren’t. Because there are plenty of those. Half a continent of them, in fact!

No End in Sight for Eurozone Recession

The ailing Eurozone is now officially in its longest ever recession, once again prompting speculations about the single currency’s future. Signs of crisis are clearly visible as nine out of 17 eurozone nations are in recession with Francois Hollande’s France joining the list of economic underachievers.

The GDP of 17 eurozone countries shrank by 0.2 per cent in the beginning of 2013. The European powerhouse Germany only grew by 0.1 per cent in the first quarter while France’s economy shrank by 0.2 per cent for the second quarter in a row. The country’s unemployment rate is expected to rise from the current 10.6 per cent. President Hollande is now the most unpopular president in French history, even surpassing his predecessor Nicolas Sarkozy who was widely disliked.

The shoddy data was followed by Pew Research Centre’s report according to which public support for the European Union fell from 60 per cent to 45 per cent. Pew’s research confirmed the perilous situation of the European project which is already being buried in many European countries. For instance, Spain’s dire situation is likely to continue and even worsen while the austerity policies enacted by many nations do not seem to work or stimulate growth.

The Stubborn Man of Europe

High hopes, grandiloquent speeches, beautiful office buildings and elegantly designed symbols. All the seemingly necessary elements for a functioning supranational union are in place, but the recession plaguing the Eurozone is here to stay. According to EU’s spring economic forecast, eurozone is not about to bounce back from its current state anytime soon. With its stubborn and archaic policies, France is one of the countries preventing growth.

Olli Rehn, EU commissioner for economic and monetary affairs said that France might receive an additional two years to bring its deficit within the target three per cent of gross domestic product. France’s dire state can be explained by the country’s president Francois Hollande’s policies which are a mixture of nationalism, socialism and protectionism.

New York Times, hardly a champion of free markets, lamented Hollande’s misguided pride over preventing Yahoo from purchasing a controlling stake in the French video streaming site, Daily Motion. The NYT editorial reminded Hollande that after Skype - a Swedish/Danish venture - was sold to Ebay, its founders went on to invest in new startups.

With a president too scared to promote entrepreneurship, it seems that France has become a symbol of stagnation because it is willingly preventing its citizens from succeeding and connecting with the rest of the world. In modern financial markets, there is very little room for petulant nationalism and archaic rhetoric. Hollande needs to decide whether he wants to cling to fleeting notions of greatness or embrace modernity by freeing French innovation.

Portugal, Ireland to Avoid Disaster

Portugal and Ireland, two debt-ridden Eurozone economies will likely receive more time to repay their loans after a meeting between euro ministers in Dublin on Friday. The news was welcomed by both countries which have struggled tremendously with ailing recoveries after massive debt-crises. Both countries look to receive an additional seven years to pay back their debts and make a healthy and robust return to the financial markets.

The finance ministers would be wise to discuss the potentially catastrophic consequences of the bloated and bigger-than-expected Cyprus bailout package which could derail the small island nation and even lead to mass exodus. Such worries became more realistic after ti was rumored that Cyprus needs to cough up an additional 6 billion euros to cover the expenses thus increasing the total amount to 23 billion euros. The figure is higher than the size of the whole Cypriot economy.

Bailout Friday

Eurozone ministers meet in Dublin on Friday to discuss Cyprus bailout and the possibility of extending rescue package repayment dates for Ireland and Portugal. The first item on the agenda is Cyprus as ministers are readying for heated deliberations over the bailout conditions in exchange for the 10bn euros from the Eurozone and the International Monetary Fund. Nicosia is eagerly waiting for the first payment of 75 million euros, due in May, to pay for public sector wages. Discussions in Dublin will also revolve around the recent estimate according to which the restructuring of Cypriot banks will throw the country into a deep recession for at least two years.

Springtime for Hollande?

The French president Francois Hollande’s arguably disastrous policies have put France in the same category of failing economies as Greece, Spain and Italy. Recent reports from Brussels suggest that France is on a collision course with Germany and other countries that advocate for fiscal responsibility. A report released by the European Commission on Wednesday used harsh language to describe France’s financial situation.

“France’s public sector indebtedness represents a vulnerability, not only for the country itself, but also for the euro area as a whole,” said the EC report.

The report also stated that “the resilience of the country to external shocks is diminishing and its medium-term growth prospects are increasingly hampered by longstanding imbalances.”

EC went as far as to threaten France with sanctions if it fails to change course. The two protagonists in the unravelling Eurozone play, Germany’s Angela Merkel and Hollande have been at odds since Hollande was elected president. Their economic policies and visions differ fundamentally, as Merkel has emphasised fiscal responsibility, while Hollande has sworn in the name of big government policies to revive the French economy. If one is to look at all the relevant variables measuring a country’s economic health, Merkel has succeeded while Hollande – who is now extremely unpopular in France – is heading towards a massive failure.

Spain Continues to Disappoint

Reports this morning suggest that Spain is in the throes of an ever-deepening financial crisis. The country’s industrial production took another dive, falling by 6.5 per cent in February compared to the corresponding month in 2012. Earlier this morning, during a speech to the country’s parliament, Spain’s Prime Minister, Mariano Rajoy appealed the eurozone for solidarity. He asked that all countries take part in attempts to bring the region back from the verge of an economic abyss. Meanwhile, data from Italy and Spain also looked weak, while France’s industrial production only dropped by 2.8 per cent year-on-year in February.

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