The New Faces of the EU

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Some initial response to the selection of Prime Minister Herman Van Rompuy as president of the European Council and Lady Catherine Ashton as the new High Representative for foreign affairs and security policy (more to come later):

The International Herald Tribune editorial board commends the choice for its pragmatic reflection of the necessities of bargaining and consensus-building within the European Union, here.

Patrick Chappatte, also of the International Herald Tribune, expresses a somewhat different view, here.

Borut Grgic, nonresident senior fellow with the Atlantic Council of the United States, identifies key areas in European security where the new team can have an immediate positive impact, including the Balkans and the South Caucasus, here.

More information, along with proper analysis, to come!

Which member-state will lead Europe?

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For this week, the New York TImes has two different takes on the dynamics of member-state leadership in the European Union.

John Vinocur, in Politicus, examined a rumored French plan for promoting French-German joint leadership on EU policymaking. The proposal dovetails nicely with theories that French and German cooperation on major initiatives have driven the EU forward since its inception, but the Presidency created in the Treaty of Lisbon could reinforce or buck this trend. Nonetheless, Franco-German relations in the wake of the economic crisis have been anything but smooth.

Meanwhile, Roger Cohen examined the European views of the third leg of the Big Three, largely missing from Vinocur's analysis: Great Britain. As the Tories ascend in Great Britain for the first time in over ten years, Foreign Minister David Milliband expressed great concerns over Conservative leader David Cameron's growing Euroskepticism and alliance with hard conservative groups in the European Parliament. Cohen does an excellent job at pulling apart the dynamics between American interests in a strong EU, the special relationship, and Britain's often reluctant leadership in the EU.

Good articles, and definitely worth a look!

Foreign Policy examines the field for the EU Presidency

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With the success of the referendum on the Treaty of Lisbon in Ireland last week, the speculation on which European politician will run for the newly-created EU Presidency has already begun. Suggestions have covered big-name politicians who could enhance the post--read: Tony Blair--to less-prominent Eurocrats who are nonetheless adept at managing the politics of Brussels. Foreign Policy weighs in on some of the most popular candidates, evaluating them on qualities particularly valued in Brussels politics:

First, the president should be, well, boring -- like Brussels itself. Politicians have knocked down candidates for being too controversial or too outspoken. Second, he should likely hold center-right or Christian Democratic political tendencies, given that Europe itself is headed that direction. Third, he should come from a country that uses the euro -- showing full fealty to the concept of the union. Fourth, he should come from a small European country -- anything other than Britain, France, Germany, and Italy, which normally dominate the union's affairs. Finally, two wild-card characteristics: He should ideally speak French and have opposed the 2003 U.S. invasion of Iraq -- if not at the time, then soon afterward.

Read their full analysis, as well as a neat breakdown of each candidate, here: European Idol.

A slightly more scholarly breakdown at Euractiv, here: Choosing 'Mr(s). Europe.

From The New Republic Blog: The Stash

Europe Defends Itself Against Krugman

...albeit not entirely convincingly.

Lorenzo Bini Smaghi of the European Central Bank recently responded to Paul Krugman's critique of Europe's response to the economic crisis. The case mostly comes down to two things: automatic stabilizers (like unemployment insurance, which tends to be more generous in Europe) and Lehman Brothers. The Journal's Real Time Economics blog has the translation:

[S]tarting with the question of fiscal policy, an area in which – according to Krugman – Europe has failed, more so than the United States, to enact an effective recovery policy. This conflicts with recent IMF calculations, which show that the fiscal stimulus in European countries is wholly comparable to that seen in the United States, particularly when taking into account measures to cushion the effect of automatic stabilisers, which, by contrast with the United States, are a major factor in Europe. For instance, for the period 2009-10, discretionary measures adopted in Germany total 3.5% of GDP, compared with 3.8% in the United States. In some European countries, such as Italy, the size of such stimulus measures is relatively limited owing to the high levels of debt, but in other countries the total fiscal stimulus is larger than in the United States. ...

As regards monetary policy, the degree of stimulus can be better measured by comparing market interest rates, rather than official interest rates. Such a comparison shows that European rates are more or less in line with those observed in the United States, and are even lower in some cases. For example, 6 and 12-month interbank interest rates in Europe are slightly lower than their US equivalents. Furthermore, real interest rates – i.e. net of inflation – are markedly lower in Europe than in the United States, and retail interest rates on mortgage lending and lending to non-financial corporations are of a comparable magnitude, if not somewhat lower in Europe. ...

Krugman’s argument is that it is better to have only one decision-maker in a crisis, rather than 16 governments which need to coordinate their actions, as is the case in the euro area. In theory, this seems reasonable. But it doesn’t explain how the most fateful decision of all – the decision to allow a systemically important bank to fail in the midst of a financial crisis – was taken by a single decision-maker, while the 16 euro area governments have managed to avoid making such a large mistake. Neither does it explain how euro area governments have managed to agree on measures aimed at bank recapitalization, at guarantees to bank liabilities and on principles for removing toxic assets from banks’ balance sheets, decisions which have become a point of reference for all the countries of the G20.

I'll let Krugman respond for himself, but I'd just note a couple things: 1.) There seems to be a lot of wiggle room in the term "comparable." 2.) It's not super helpful if Germany's coming close to what we're doing but Italy isn't in the same zip code--you need concerted action to avoid diluting your efforts. 3.) Not only have we been more aggressive using monetary policy, there's a lot more in the pipeline that we've committed to (even before the Bernanke's trillion dollar announcement this week), while Europe has dragged its feet a bit. So market interest rates at this precise moment aren't necessarily the best gauge of monetary policy effectiveness. 4.) Lehman seems a bit unfair. It was obviously a mistake, but I'm not sure what it has to do with the response to the crisis that followed.

--Noam Scheiber

Is the EU undergoing a cultural revolution of its own?

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International Herald Tribune
EU bureaucrats to head for the farm
Wednesday, March 18, 2009

BRUSSELS: White-collar bureaucrats handle the biggest chunk of the EU budget — farming — so to make sure they know what's needed, they will be trading in their pinstripes for overalls.

In other words, the European Union wants these administrators to get firsthand experience on the farms they subsidize, so they will be sent to work on one for several weeks.

Often reviled as out-of-touch bureaucrats who go straight from university to their EU offices, these staff members will be sent to get their hands dirty in a program being launched next year, EU Farm Commissioner Mariann Fischer Boel said Wednesday.

"I am definitely in favor of giving possibilities to those that have never been on a farm. They simply don't know how things work," Boel said. "It is definitely not meant to be a punishment, but a possibility to see what is out there."

She became the EU's farm commissioner in 2004 and said her experience on a family farm in Denmark had been vital.

The 1,200 bureaucrats in the EU's farm department oversee by far the largest part of the bloc's budget, €53 billion ($70 billion) in handouts being spent every year to boost the sector.

Farming has been at the heart of the EU since it was founded half a century ago. At first, programs to encourage more output were successful in eliminating shortages left over from World War II.

Afterward, production got out of hand, with the EU being forced to cope with surplus supplies of butter and milk that had to be stored and subsidized to market prices at a great cost to taxpayers.

Recently, the sector has sought to become more competitive in the world by cutting subsidies and trimming its programs of guaranteed prices.



Paul Krugman is concerned about Europe

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March 16, 2009
Op-Ed Columnist

A Continent Adrift


I’m concerned about Europe. Actually, I’m concerned about the whole world — there are no safe havens from the global economic storm. But the situation in Europe worries me even more than the situation in America.

Just to be clear, I’m not about to rehash the standard American complaint that Europe’s taxes are too high and its benefits too generous. Big welfare states aren’t the cause of Europe’s current crisis. In fact, as I’ll explain shortly, they’re actually a mitigating factor.

The clear and present danger to Europe right now comes from a different direction — the continent’s failure to respond effectively to the financial crisis.

Europe has fallen short in terms of both fiscal and monetary policy: it’s facing at least as severe a slump as the United States, yet it’s doing far less to combat the downturn.

On the fiscal side, the comparison with the United States is striking. Many economists, myself included, have argued that the Obama administration’s stimulus plan is too small, given the depth of the crisis. But America’s actions dwarf anything the Europeans are doing.

The difference in monetary policy is equally striking. The European Central Bank has been far less proactive than the Federal Reserve; it has been slow to cut interest rates (it actually raised rates last July), and it has shied away from any strong measures to unfreeze credit markets.

The only thing working in Europe’s favor is the very thing for which it takes the most criticism — the size and generosity of its welfare states, which are cushioning the impact of the economic slump.

This is no small matter. Guaranteed health insurance and generous unemployment benefits ensure that, at least so far, there isn’t as much sheer human suffering in Europe as there is in America. And these programs will also help sustain spending in the slump.

But such “automatic stabilizers” are no substitute for positive action.

Why is Europe falling short? Poor leadership is part of the story. European banking officials, who completely missed the depth of the crisis, still seem weirdly complacent. And to hear anything in America comparable to the know-nothing diatribes of Germany’s finance minister you have to listen to, well, Republicans.

But there’s a deeper problem: Europe’s economic and monetary integration has run too far ahead of its political institutions. The economies of Europe’s many nations are almost as tightly linked as the economies of America’s many states — and most of Europe shares a common currency. But unlike America, Europe doesn’t have the kind of continentwide institutions needed to deal with a continentwide crisis.

This is a major reason for the lack of fiscal action: there’s no government in a position to take responsibility for the European economy as a whole. What Europe has, instead, are national governments, each of which is reluctant to run up large debts to finance a stimulus that will convey many if not most of its benefits to voters in other countries.

You might expect monetary policy to be more forceful. After all, while there isn’t a European government, there is a European Central Bank. But the E.C.B. isn’t like the Fed, which can afford to be adventurous because it’s backed by a unitary national government — a government that has already moved to share the risks of the Fed’s boldness, and will surely cover the Fed’s losses if its efforts to unfreeze financial markets go bad. The E.C.B., which must answer to 16 often-quarreling governments, can’t count on the same level of support.

Europe, in other words, is turning out to be structurally weak in a time of crisis.

The biggest question is what will happen to those European economies that boomed in the easy-money environment of a few years ago, Spain in particular.

For much of the past decade Spain was Europe’s Florida, its economy buoyed by a huge speculative housing boom. As in Florida, boom has now turned to bust. Now Spain needs to find new sources of income and employment to replace the lost jobs in construction.

In the past, Spain would have sought improved competitiveness by devaluing its currency. But now it’s on the euro — and the only way forward seems to be a grinding process of wage cuts. This process would have been difficult in the best of times; it will be almost inconceivably painful if, as seems all too likely, the European economy as a whole is depressed and tending toward deflation for years to come.

Does all this mean that Europe was wrong to let itself become so tightly integrated? Does it mean, in particular, that the creation of the euro was a mistake? Maybe.

But Europe can still prove the skeptics wrong, if its politicians start showing more leadership. Will they?



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Welcome to the EuroBlog!

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Welcome to the EuroBlog where EU Program Undergraduate Fellows can share ideas and observations on European politics, on recent EU-related talks and lectures at Princeton, and on their trips to Europe!