Sunday, November 28, 2010

Euro Crisis: Calling the Little Dutch Boy

Ireland's financial house is on the brink of collapse, the transatlantic media is incessantly telling us. If the floodgates are to be held back indefinitely, Europe will need to coordinate both a stability plan and a mechanism by which the Eurozone never again finds itself prone to being swept away. 

Ireland's troubles began at roughly the same time as every other beleaguered state in the eurozone, following the financial crisis in 2008 that spawned the generalized, global economic downturn that persists today. The country formerly known as the "Celtic Tiger" for its stellar growth and market conditions -- including a business-attracting 12.5% corporate tax rate, far below the 35% rate in the U.S. Ireland has since fallen from high up the totem pole of Europe's most robust economic performers. 

A major element of the current worry over Irish finances is that the instability it has caused within investment markets will spread to other at-risk countries in the eurozone, namely Spain and Portugal. The 16 European countries that comprise the bloc all face serious exposure to a currency sapped of investor confidence; if market professionals decide en masse that the euro is a fool's bargain, the EU faces a nightmarish self-fulfilling prophecy by which dimmed hopes on the euro will fuel a sell-off of eurozone assets, which will depreciate their value, which will further dim investors' hopes, which will lead to more selling and more depreciation... The trick will be to stanch this vicious-circle psychology before Ireland and other precarious countries bring the entire eurozone to rock-bottom.

To combat this, European leaders have adopted a common and steely demeanor by which they hope to hold off full-fledged exodus from eurozone markets.  The Prime Minister of Spain, Jose Luis Rodriguez Zapatero, declared through what seemed like gritted teeth that “I should warn those investors who are short-selling Spain that they are going to be wrong and will go against their own interests," as quoted in the FT on Nov. 28.  

Zapatero “absolutely” ruled out any need for a rescue. But his words came just one week after Irish Prime Minister Brian Cowen caved to pressure from fellow eurozone senior officials and requested a bailout from the IMF. Cowen had initially denied the need for an Irish bailout, and the dustcloud kicked up by Cowen's reversal of words has triggered demonstrations, feelings of betrayal among Ireland's citizens and further tumult on the waves of international finance. 

It seems Cowen, Zapatero and others are scrambling to play the proverbial Little Dutch Boy, who in sticking his finger in the dyke was able to prevent a large-scale flood of his entire community. European leaders have in the last days all put their fingers in, but the levee doors are straining and leaking both confidence and political capital--neither of which the eurozone can afford to lose. 

For more on the intra-Irish politico-economic situation, see this article from The Economist. Gulf Stream Blues provides a good big-picture summary. And the FT's Wolfgang Munchau ponders the formerly "unthinkable" moves still available to the eurozone, namely, in his own turn of phrase, "fiscal union or break-up."

Tuesday, November 16, 2010

The US-EU Summit: Merry Freaking Christmas

If the media lead-up is any indication, next week's EU-US summit in Lisbon should prove as much a non-event as people are expecting -- and those are the ones actually aware of it. 

Scheduled to begin this Friday, November 19th, The Great America blog from the French newspaper La Libération reports a sadly appropriate "Christmas tree" analogy for all the issues EU leaders want to air to a listening Barack Obama.

"The Europeans have so much they want to discuss with the United States that the agenda proposals of EU-US summits sometimes make you think of a Christmas tree," stated Pierre Vimont, currently the French ambassador to Washington. 

Part of the unlikely success of the summit owes to its planning. Scheduled over the 19th and 20th, the summit will happen concurrently with a NATO summit. Yet the Europeans may get squeezed out on time to discuss purely political issues. The NATO portion will last a day and a half, with the entire EU summit apparently able, according to US planners, to be polished off in the remaining half-day. Or less, as the actual dialogue part of the meeting is set for a single 90-minute session.

Obama's experience with Europe hardly lends itself to genuine taking of interest. He is perhaps the least Eurocentric president in American history, instead reaching out to China and the Arab world in his first diplomatic dealings. A diplomat cited in the Great America post describes the EU-US summit in Prague from April 2009, in which starry-eyed politicians caught up in Obamamania volleyed repetitive and exhausting commentary at the new President. Afterwards the word back in Washington was that Obama felt "drawn and quartered" in the Prague session. Little wonder, then, that he hurried through the subsequent gathering in Washington in November 2009, and skipped altogether the Madrid summit in May of the next year.

Starting next month Vimont will assume the position of secretary-general for the EU's European External Action Service (EEAS). His status as an éminence grise in one of the EU's leader countries and his deep experience in transatlantic affairs is meant to lend gravitas to the fledgling EU diplomatic arm, but his own words betray scattered confidence that the EEAS can launch smoothly in December. (See more of what I've written on the EEAS at The Hill's CongressBlog, or at EurAmerican here and a comprehensive version of the Hill article here.)

Friday, November 5, 2010

Midterms and Moderation

In the frenzy of international coverage on the U.S. midterm elections, voices on either side of the Atlantic are starting to turn from frenetic excitement to more cool-headed thinking on what lies ahead for American politics--and their effect in the world.

The latest post from Gulfstream Blues paints a damning picture of the new make-up in Congress, where Republican candidates won six seats in the Senate and a whopping 67 in the House of Representatives. But Democrats managed to hang on to their majority in the Senate, and have a steady ally in Obama; As most bills pass from the House to the Senate and then to the President, the new GOP-heavy House still faces tall hurdles in getting the Washington political machine to crank its way. 

And the government shake-up may still be feeling the first tremors of the 2010 partisan earthquake. Some House Democrats have joined fed-up Republicans in calling for Nancy Pelosi to resign. Pelosi, the Speaker of the House and superlative bête noire of conservative circles around the country, has become increasingly seen as a stale mouthpiece of the Democratic Party. 

Growing rumors place Steny Hoyer (D-Maryland) at the top of the Democratic Party's leadership list, though his record is considered too moderate by many progressives under the Democratic party banner. But no clear alternative has emerged, giving Hoyer a strong shot at clinching the Democratic leadership despite some of his party's misgivings. A choice like Hoyer may bring his party's side of the rapidly partisan  Congress toward the middle, which may neutralize some of the incendiary rhetoric heard in the election run-up. Then again, the fiscally conservative coalition of "Blue Dog" Democrats suffered heavy losses Tuesday, which may remove a stabilizing force from Washington's already polarized atmosphere.

Now that the Republicans have poured into Congress (the biggest victory in 70 years, writes The Washington Post), key questions have risen on message and how much the party can realistically expect to accomplish. The "Party of 'No'" has been surprisingly effective at stonewalling much of Obama's initiatives, stirring ire from within the country and baffled confusion from without. 

Yet Republicans can't get too ambitious, or the electorate will throw them out in 2012. Nevertheless Senate minority leader Mitch McConnell (R-Kentucky) publicly stated Thursday that his aim is to "deny President Obama a second term in office." He tempered these stiff words with a reminder to Republicans that they "have to be realistic about what we can and cannot achieve, while at the same time recognizing that realism should never be confused with capitulation." 

McConnell and Obama may find some common ground when they meet at the White House November 18th. Obama may agree to a temporary extension of high-earner tax cuts, and McConnell could build support for an upcoming House bill that would limit its current $1.4 billion operations budget. House minority leader and Speaker-apparent John Boehner (R-Ohio), has agreed to seek a 72-hour reading period for all bills, which will give the diminished Democratic caucus more time to consider new legislation.

Each of these measures will, if passed, play to the middle of taxpayers' concerns with profligate government spending on one end and, on the other, recession-era federal liquidity seen by many as vital to keeping the U.S. economy on track to recovery.


For European observers of the midterms, it is vital to accept that American politics is fundamentally different from politics on the Continent. The U.S. and Europe are not aligned on one continuous political spectrum. Their histories in classical liberalism, socialism and other political thought lines are connected but different. Observers frequently use the one-spectrum image to reduce transatlantic comparison to bite-sized and ultimately meaningless dimensions. Europe has its own political spectrum, and that of the U.S. is wholly separate; together the two form a kind of fuzzy X shape in which certain fundamental values and ideas make up the center in similar ways--or don't. All other branches trace their roots to distinct roots of the transatlantic political tree. 

Criticizing U.S. politics is easy (and easy to oversimplify) from a European perch, especially given certain night-and-day differences, such as how much money is involved in American campaigning. The liberal commentariat unleashed withering rebukes on the mostly Conservative Supreme Court for having opened up the floodgates of deregulated campaign finance in 2009. But little suggests that more cash in the game means more money for conservatives, any more than for the Democrats as well. 

"Perhaps the most important lesson from Election Day was that money simply can't overcome demographics. Republicans who spent big tended to run in states where the Democratic Party dominates," writes the Washington Post.

Americans are sometimes chided as not voting in a way that considers all those under American governing influence, which is to say all those affected -- worldwide -- by all (or any one) U.S. policy. Ridiculous notions that "Europeans should get to vote in U.S. elections too" surface in op-eds like this one from European Voice:

"If European observers ever wondered if American elections matter, this mid-term election is likely to demonstrate how important shifts in political power can be, especially for Europeans and others who did not get a vote."
This kind of pontificating, with its apparent disregard for national sovereignty and will of the people, is exactly what alienates Americans from Europeans politically, and vice-versa. It does little to advance the understanding that would inform U.S. voters, who would lean on representatives, who would then legislate in the common interest of transatlantic citizens everywhere.

Let's be more specific, and take the foreign policy example of Iran. Fears over a U.S. military response to Iran's nuclear progress are largely overblown, contrary to what European Voice has claimed, because the two wars America is currently fighting leave next to zero political capital to take on a third fight. Likewise, the U.S. resistance to climate change legislation, a top-priority issue for Europeans, sits on the back-burner of Congressional legislation when global economic recovery, huge joblessness, and Iraq and Afghanistan are still left on its political plate--and all that, in an election year. 


Many Republicans dug in their heels in 2008-2010 because they felt they had to. Greatly outnumbered in Congress, with furious voters at home, the GOP had to fight tooth-and-nail to preserve its influence. Some fear more entrenched partisan skirmishing through 2012; I wonder if a chamber held by each party may actually have the psychological effect of easing the pressure on each side not to reflexively dismiss the other's concerns. In an interview in the Washington Post, Blue Dog Democrat Heath Shuler (D-North Carolina) cited Bill Clinton's urge to grab at small-scale progress in the face of steep odds. 

"If you can't get a dollar but you can get a dime, take a dime every time," Schuler quoted the former President.

With Democrats holding both the Senate and the White House, Republican triumphalism--or the liberal doom-and-gloom that has inversely mirrored it--is far from a practical, moderate reading of this week's events. If the GOP leads the pack today, there's no guarantee they won't stumble in future clutch moments. We saw as much in the mediocre transatlantic dealings of a Democrat-controlled House, Senate and White House since 2008.

Tuesday, November 2, 2010

Europe Covers Mid-Term Election Day 2010

See it for yourselves, transatlanticists: this is a smorgasbord of headlines from across the pond, covering the US mid-term elections. 

By tomorrow, Washington may be a considerably different -- and likely more Republican -- political capital, with all the attending pitfalls and windfalls that come with the seismic political shift both domestically and for the US' friends and enemies abroad. 


Nuit cruciale pour Barack Obama et les démocrates ("Crucial Night for Obama and the Democrats")  

"Marée républicaine en vue au Congrès" ("Republican Tidal Wave Seen From Congress") -- La Libération

Un scrutin à l'ombre de la crise immobilière-- Le Figaro
("An Election in the Shadow of the Mortgage Crisis")

Ce Tea Party qui bouscule la politique américaine "Tea Party Shakes Up American Politics" -- Le Figaro

Vers une large victoire des républicains
("Toward a Big Republican Victory") -- Le Figaro



"Midterm elections 2010: live" -- Daily Telegraph
"A Gathering Storm" -- The Economist

 "Mid-Terms in America: Home Stretch" (audio)-- The Economist


'Obama Failed to Connect the Dots' -- Der Spiegel

More to come tomorrow, with an "after" post to complement this "before"post. 

Comments welcome.


The Economist on the US Mid-Term Elections

Count on The Economist to deliver detached, informed, and dispassionate assessments of the US political scene. This UK news source is far removed from the red-and-blue squabble here in Washington, as well as the political phase cancellation that renders both parties' politicking all but inaudible. 

The piece is titled "Angry America," recognizing the palpable angst caused by historically high joblessness rates and the giant question mark looming over the day-to-day of many Americans' lives and plans. Yet it urges the US populace  to "cheer up" over their immediate future, a rare cadence within the polarized American commentariat.

"(...) America is now an uncharacteristically uncertain place. Abroad it seems unsure of who its friends and enemies are. At home there are too many imponderables: over how the health bill will play out in practice; over what might happen to energy prices if carbon-pricing is resurrected via executive action; most of all, over what Mr Obama can do about those yawning deficits. People do not like uncertainty; so if Americans are angry, it is hardly surprising.
Mr Obama seems curiously unable to perceive, let alone respond to, the grievances of middle America, and has a dangerous habit of dismissing tea-partiers and others who disagree with him as deluded, evil or just bitter. The silver tongue that charmed America during the campaign has been replaced by a tin ear. Some blame this on an emotional detachment his difficult upbringing forced on him, others on the fact that he has lived all his life among tribal Democrats. Whatever the reason, he does not seem to feel America’s pain, and looks unable either to capitalise on his administration’s achievements or to project an optimistic vision for the future.
Which ought not to be so hard. Despite its problems, America has far more going for it than its current mood suggests. It is still the most innovative economy on earth, the place where the world’s greatest universities meet the world’s deepest pockets. Its demography is favourable, with a high birth rate and limitless space into which to expand. It has a flexible and hard-working labour force. Its ultra-low bond yields are a sign that the world’s investors still think it a good long-term bet. The most enterprising individuals on earth still clamour to come to America. And it still has a talented president who can surely do better than he has thus far."

Merkel's Gains in Brussels

Here's a cogent wrap-up, from The Economist's "Charlemagne's Notebook" blog, of the EU economic governance summit that ended late last week in Brussels. Among the demands presented, German Chancellor Angela Merkel argued for -- and won qualified concessions -- for a reopening of certain economic contours held in the landmark 2009 Treaty of Lisbon.

Merkel emerged as the clear winner -- and, it seems, one of the most effective national leaders in the Union.  This is certainly true when compared with Herman Van Rompuy, whom the article insinuates as a kind of EU pipsqueak, out of his depth in the EU's play-for-keeps attitude among the Continent's heavies such as Merkel, Nicolas Sarkozy and David Cameron. The blogpost's takeaway is as follows:

 “I AM on the whole quite satisfied with the decision.” With these modest words, Angela Merkel, Germany’s chancellor, rounded off a remarkable victory at the end of a bruising European summit that concluded today.

Less than a fortnight ago, members of the European Union were universally opposed to Germany’s demand to reopen the EU’s treaties to strengthen the means of maintaining fiscal discipline among members of the euro zone. But within days of winning over Nicolas Sarkozy to her cause at the Deauville summit on October 18th, she got everyone to sign up to the idea of a “limited treaty change”. By the slow-moving standards of the EU, this happened in an eye-blink. It is a testament to the authority of Mrs Merkel, as well as the power of Germany’s constitutional court in Karlsruhe.

“Everybody was very sensitive to Mrs Merkel’s persuasive arguments,” is how one national diplomat put it. “Bullying,” said another. Whether by persuasion or compulsion, Mrs Merkel secured her main objective: agreement to amend the EU treaty to allow the creation of a “permanent crisis mechanism” to resolve the debt of countries that may be hit by a Greek-style crisis in future.

This means creating a bail-out fund similar to the €750 billion IMF-backed temporary financing facility that was created in May, imposing tough conditions on any country that taps it in future and making bondholders take some of the pain of saving insolvent countries. “The burden must never again be borne simply and only by the taxpayer,” she declared." (...)

This may turn out to be a baby step toward tighter EU integration, at a time when member states can hardly maneuver otherwise -- and would hardly choose to do so in sunnier times. Once the tight belt of the recession loosens, we'll see which European country strains for more room to breathe.