our world in 2012: a new europe annual edition
TRANSCRIPT
Our World in 2012NEW EUROPE
Feat
uri
ng:
Joseph E.Stiglitz
AthanasiosKotsis
ChristineLagarde
NourielRoubini
GeorgeSoros
Tsvetan Vassilev
Jean-ClaudeTrichet
Javier Solana
TheodorosRoussopoulos
JanezPotocnik
PeterHustinx
Tony Blair
PeterSutherland
JohnVassallo
Tony Graziano
PaulDembinski
More than 70 leading thinkers visualise our world in 2012
January 2012| € 5.00 A New Europe Special EditionIssue # 967
NEW EUROPE02 OUR WORLD IN 2012
GLOBAL PERSPECTIVE
The year of rational pessimism 06
Leaders-cum-losers of 2011Our world is not for sale,
but it may be for rent04
EUROPEAN FUTURE
Europe’s year of indecision26
Europe: Any light at the end of the tunnel?27
Greece under siege…
28
OUR WORLD
The Europe of the future
29
More pro-active transparency in the EU administration30
Europe’s challenges in 2012
31
A new diplomacy for the EU?32
European maritime and fishing economytowards sustainability and new growth 33
Any hope for Europe?
34
Fight the Hydra with an ‘Iolaus strategy’35
The domino effect
36
2012, the year of the new euro37
The sovereign debt crisis and the need for a political vision38
Mission not yet accomplished39
So what happens next?
40
Upgrading EU commercial diplomacy in 201241
The European brewing sector in 2012: The challenges ahead42
Reinvigorate the rich to help the poor 07
Disaster can wait
18
Invest in youth: It's time to act 19
Guns and beer will get us through 2012 20
Between Iraq and a hard place 21
Interlocking effect on co-operationwith NATO to be stronger in 2012 22
Industrialisation’s second golden age 23
Gold up, Dollar down in 2012
25
The Balkans in 2012: A year of hopes and challenges 24
Fragile and unbalanced in 2012 08
After the promised land
09
Obama the statesman
10
Russia’s botoxic president returns 11
Taking faith seriously
12
The new international economic disorder 13
South Eastern Europe in 2012- Contrasts in troubled waters 14
‘We must revisit democracy’
15
Occupy the government
16
The economic imperatives of the Arab spring 17
NEW EUROPE03OUR WORLD IN 2012
ENVIRONMENT & ENERGY
Gazing into the energy crystal ball for 201254
Timely reminders
55
New energy resolutions for the New Year56
Europe’s energy debate in 2012
57
Saving energy: A sensible response to the economic and climate crisis58
OUR DIGITAL WORLD
Three things I have learned in 2011: A New Year's message59
The future of machines lies in themost advanced technology: YOU60
Fuelling the European economy in 201261
2012: Time to untap the potential of digital data Kotsis62
The year of the broadband
63
Internet freedom: A fight beyond boundaries64
Ensuring stronger, more effective andmore consistent protection of personaldata in the EU
65
The renaissance of hope
43
A contract with the future
44
Looking for the constant in an ever-changing environment 45
Wine in moderation– a balanced approach to reduce harmful drinking
46
The role of sport in 2012 47
RISING ASIA
Asia enters the storm
48
What Chinawants in 2012 49
Asian women on top
50
ETHICS IN FINANCE
The global message of the Robin Cosgrove prize 66
When ethics conflictswith interest 67
Ethics or How to cure financial markets 68
Worlds at war, how to reconcile finance with ethics 69
Derivatives and responsibility: Guidelines for dealing with risk 70
An analysis of the origins, problems and future perspectives 71
Financial solidarity and the democratisation of money 72
A critique of the financial sector and people's behavior 73
Reflection and action, ethics and ethical behavior 74
The citizen bank
75
ENDING EXTREMISM
Countering extremism by empoweringindividuals in local communities in EU51
A global culture to fight extremism 52
In tough times, why do Europeans always turn to the Right? 53
LIFE & SOCIETY
KASSANDRA
Greece: Between a chaotic government from the 'barricades'
and the Deus ex Machina
76
In last year’s Our World In 2011, I suggested thatthe next revolution would be the information rev-olution. I wrote : “The internet as a platform is onethat lends itself to a large public forum with no bor-ders, boundaries, and no problems with distance; infact, it is the perfect platform for starting a revolu-tion. However, platforms do not start revolutions;information does. And we are in an era where crit-ical information is becoming more accessible, lessobscure and can be found in abundance.”We certainly witnessed the power of informationin this respect. Access to and sharing of informa-tion changed the world in 2011 and, as my onlyprediction for the coming year, I have no doubt thatit will continue to do so.This year, I offer a few observations of failures inleadership. In this issue: Barack Obama, GeorgePapandreou, and Dominique Strauss-Kahn. Allthree leaders have virtues that have elevated them,and are not the villains of history, but all three mustshare responsibility for the shattered pieces of the2011 puzzle.
The terrorist, the precedent and the deconstruction of justiceOne of the most notable events of the past yearwas the successful operation to gun down Osamabin Laden. In a mission sanctioned and obsessivelyobserved by the US President and leadership, ahuman being was denied justice. The terrorist wasgunned down, with no attempt to take him alive.America was at war with terror, and OBL was acasualty of war. Sadly, this was not the last suchcase in 2011. Congratulations world, the USA hasbegun a vendetta while we were watching. Con-gratulations to the US administration for sup-porting vigilantism. If you are a fan of the deathpenalty, there is no doubt that you would wantOBL to be executed; if you are not a fan, then lifebehind bars in solitude would do. In both cases,the question would not be the outcome but thesystem in which he was tried. “Coulda, Woulda,Shoulda…the world is a better place withouthim,” voices echoed while Obama raised his mid-dle finger to the principle of justice, hiding behindits shadow of war.
The Greek hero-to-be who became the village idiotWith a country in debt and nearing bankruptcy, GeorgePapandreou decided that the citizens should take partin a referendum and collectively decide on the future ofGreece as part of the Eurozone. The referendum nevertook place, and Papandreou was essentially forced to re-sign over the backlash. In the hours leading up to hispublic announcement for a referendum, the-then Greekprime minister found himself in a unique situation. Hewas about to make a statement to the press, that wouldtemporarily rock world markets. This moment, this critical moment, was one that couldhave made him a hero. Papandreou had all the time inthe world to make sure that Greek money would be in-vested in the right places. It was one of those rare mo-ments when a politician was about to say somethingthat would have a significant impact on markets. Bystrategically investing Greek resources, Papandreoucould have singlehandedly taken Greece out of crisis,made himself the hero and remained as Greece’s leaderfor the rest of his life. There is no doubt that Greekmoney was made on the announcement of the referen-dum, but such insider trading was certainly not to thebenefit of the state.
The man who would be president, if it wasn’t for his sex driveDominique Strauss-Kahn, who graced us with his pres-ence last year’s edition, is certainly a man with quirks.Months after the DSK incident in New York, I am quitecertain that the case was a set-up. DSK, who had a goodchance of being the next French president, lost it all in afew minutes of naivety (to say the least). With his im-plied absence from the political mainstream for the timebeing, the man changed the future of France, Europe, andthe world with his shortcomings. On the flipside,thumbs-up to conspiracy theorists around the world.
The biggest failure of allThe tragedy that shrouds the world like a dark cloud isnot just the sum of the individual errors made. It is thelack of leaders in our world. We have become sur-rounded by leaders-by-teleprompter, leaders withoutinitiative, leaders without principles. Gone is the era ofreal leaders. Our world is not for sale, but it certainlyfeels that some can rent it by the hour. A Happy New Year to you all – may it bring you health,happiness and prosperity.
NEW EUROPE
04 OUR WORLD IN 2012
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Associate with men of good quality if you esteem your own reputation; for it is better to be alone than in bad company.George Washington |EPA/ETTORE FERRARI
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ISSN number: 1106-8299
It is a small step forthe Eurozone and a
big step for Estonia
-Prime Minister Andrus Ansip welcomes the new currency
January
05OUR WORLD IN 2012
2011 started with Es-tonia becoming the17th country to adoptthe euro and with areferendum in SouthSudan, which voted forindependence and theTunisian governmentfell after a month of in-creasingly violentprotests, causing Presi-dent Zine El AbidineBen Ali to flee toSaudi Arabia after 23years in power.
February
The Arab Springgained momentum asEgyptian PresidentHosni Mubarak re-signed after widespreadprotests calling for hisdeparture, leaving con-trol of Egypt in thehands of the militaryuntil a general electioncan be held. Uncer-tainty over Libyan oiloutput causes crude oilprices to rise 20%.
People laughed atus for using the
word magical. But youknow what? It turned out
to be magical-Steve Jobs, Apple CEO,
unveiling new iPad
March
A 9.1-magnitudeearthquake and subse-quent tsunami hit theeast of Japan. Emer-gencies are declared atfour nuclear powerplants affected by thequake. Hamad bin IsaAl Khalifa, King ofBahrain declares athree-month state ofemergency as unrestspreads. The UN votedfor a no-fly zone overLibya.
As President, I refused to wait for
the images of slaugh-ter and mass graves before
taking action-Barack Obama decides
on military action in Libya
April
Former Ivorian Presi-dent Laurent Gbagbois arrested in hishome in Abidjan bysupporters of electedPresident AlassaneOuattara with sup-port from Frenchforces. An estimatedtwo billion peoplewatch the wedding ofPrince William andCatherine Middletonat WestminsterAbbey in London.
For God and coun-try-Geronimo,
Geronimo, Geron-imo. Geronimo E.K.I.A.
Enemy killed in action-Unnamed Navy SEAL an-
nounces his shooting of Osamabin Laden to his commanders
May
Osama bin Laden iskilled in Pakistan byAmerican SpecialForces. FormerBosnian Serb Armycommander RatkoMladić, wanted forgenocide, warcrimes and crimesagainst humanity, isarrested in Serbia.The EU agreed a€78 billion rescuedeal for Portugal.
Don't be afraid ofmaking an ass of
yourself. I do it all thetime, and look where I got
-William Shatner advises Canadian students
June
Yemeni President AliAbdullah Saleh trav-els to Saudi Arabiafor treatment of aninjury sustained dur-ing an attack on thepresidential palace.Syrians flee to Turkeyas Syrian troops laysiege to Jisr ash-Shugur. Chile's Puye-hue volcano erupts,causing air traffic can-cellations acrossSouth America.
This is one of themost humble days
of my life
-Rupert Murdoch describesbeing forced to testify on phone
hacking to the UK parliament
July
Following the Januaryvote, South Sudanbecomes the world’snewest nation. GoranHadžić is detained inSerbia. AndersBehring Breivik kills76 people in Norwayand the UN declaredthe first famine insouthern Somalia for30 years.
My friends and Ihave been coddled
long enough by a billionaire-friendly
Congress
-Warren Buffett said in the WallSt Journal.
August
In the Battle of Tripoli,Libyan rebels tookcontrol the nation'scapital effectively over-throwing the govern-ment of MuammarGaddafi. In space,NASA announcedthat they may havefound evidence of liq-uid water on Mars andlaunched Juno, the firstsolar powered space-craft, heading forJupiter.
Now I won't haveto see Abba being
used in a TV commercial
-Bjorn Ulvaeus is delighted thatthe EU extended copyright from
50 to 70 years
September
India andBangladesh sign apact to end their 40-year border disputeand floods in Pak-istan kill 434. AZanzibar ferry sinksoff the coast, losing240 people. Approx-imately 100Kenyans die after apetrol pipeline ex-plodes in Nairobi.
This has all been invented by porn-
obsessed prosecutors.It's all the work of their
fevered imaginations
-Silvio Berlusconi is outraged
October
Gilad Shalit is releasedby Hamas in exchangefor Palestinian and Is-raeli-Arab prisoners.100 people are killedin a car bombing inthe Somali capitalMogadishu. Gaddafiis killed in Sirte byrebels. In Spain, ETAends its 43-year cam-paign of political vio-lence. EU leadersagree a 50% haircut ofGreek bonds.
There is no racism,but maybe there is a
word or gesture whichis not the correct one. The oneaffected by this should say 'this
is a game' and shake hands-FIFA President Sepp Blatter leaps
from one scandal to another
November
The Mars ScienceLaboratory roverCuriosity, the mostelaborate Martianexploration vehicleto date, is launchedfrom the KennedySpace Center. It isslated to land onMars on August 5,2012.
Europe is undergo-ing an economic
and financial crisis,which is ultimately based
on the ethical crisis loom-ing over the Old Continent
-Pope Benedicit reflects.
December
The United Statesformally declares anend to the Iraq War.Tropical StormWashi hits thePhilippines causingflash floods, causingat least 1,010 fatali-ties, and 46 peopleare officially listedas missing.
I would like to tellyou as the presidentof the republic, I am
not embarrassed to listento the youth of my country
and to respond to them -Egyptian President, Hosni
Mubarak declines to step down
– Someone recentlyquipped that the best thing about 2011was that it was likely better than 2012. Bythe same token, while there has beenmuch concern about America’s politicalgridlock, something worse for America,and for the world, could have happened:the Republicans could have prevailed intheir program of austerity-cum-redistribution to the wealthy. Automaticcuts won’t happen until 2013, whichmeans that the economy in 2012 will bespared, ever so slightly.
Two more positive notes for 2011:America seems finally to have awakenedto the yawning gap between the rich andthe rest – between the top 1% and every-one else. And youth-led protest move-ments, from the Arab Spring to theSpanish indignados and the Occupy WallStreeters, have made clear that somethingis very wrong with the capitalist system.
The likelihood, though, is that the eco-nomic and political problems that wereso manifest in the US and Europe in2011 – and which have so far beentremendously mismanaged – will onlygrow worse in 2012. Any forecast for thecoming year depends, more than usual, onpolitics – on the outcome of the US grid-lock, and on European leaders’ ability torespond to the euro crisis. Economicforecasts are difficult enough; but whenit comes to political forecasts, our crystalballs are even cloudier. That said, here ismy best guess.
European leaders repeatedly proclaimtheir commitment to saving the euro, butthose who could have repeatedly said thatthey are committed to not doing what isneeded. They have recognized that aus-terity will mean slower growth – indeed,a recession is increasingly likely – andthat, without growth, the eurozone’s dis-tressed countries will not be able to man-age their debts.
But they have done nothing to promote
growth. They are on a death spiral.The only thing saving the euro in the
short term is the European CentralBank’s purchases of sovereign bonds,which have kept interest rates from soar-ing. Like it or not, the ECB is effectivelyfinancing the sovereigns. German leadershave frowned on this, and the ECB hasfelt uncomfortable, limiting its purchasesand saying that political leaders, not cen-tral bankers, should save the euro.
But the political response has been toolittle, too late, to say the least. The mostlikely scenario is more of the same: aus-terity, weaker economies, more unem-ployment, and continuing deficits, withEuropean leaders doing the minimum tofend off crisis for the moment. In short:more turmoil.
The day of reckoning – when the eurobreaks up or Europe takes the kind of de-finitive action that would make a singlecurrency work – may come in 2012, but,more likely than not, Europe’s leaderswill do whatever they can to postponethat day of reckoning. Europe will suffer,and so will the rest of the world.
The United States had hoped for anexport-led recovery, but, with economicgrowth slowing in Europe, its largest cus-tomer (and impeding growth in much ofthe rest of the world), that is unlikely.And, with the worst effects of spendingcuts potentially still to come, gridlock –and Republican spite – may mean thatthe Obama administration’s payroll-taxcut will not be extended, weakening
household consumption.That, combined with cutbacks at the
state and local level, means that the firstreal manifestations of austerity’s impactwill appear in 2012. (Already, though,public employment is around 700,000below its pre-crisis level; government,rather than acting counter-cyclically, off-setting weak private demand, has beenacting pro-cyclically, exacerbating theeconomy’s problems.) Meanwhile, theconsequences of failure to deal with thehousing crisis – which triggered financialmarkets’ near-meltdown in 2008 – arecontinuing to be felt: further decline inreal-estate prices, more foreclosures, andthus even greater stress on US house-holds.
No one in either US political partyseems willing to face the fact that fixingthe banking system, though necessary,was not sufficient to restore the economyto health (or that the financial systemwas never really fixed).
The American economy before the cri-sis was being maintained on artificial lifesupport by a housing bubble that led tounsustainable consumption. There is noway back to 2007.
But neither party has been willing toadmit what is really wrong, or advance anagenda that would address the underly-ing ills. Platitudes and placebos – vapidcalls for more job creation, fiscal restraint,reining in entitlement programs, and soforth – will characterize America’s elec-tion year.
Neither side will step forward with aprogram for restructuring the economyand reducing the inequality that is sap-ping the country’s strength.
I have been a big critic of markets, buteven America’s market participants nowsense that political leaders are not up tothe task. If investors suffered from irra-tional exuberance in the 1990’s, they arelikely to suffer from rational pessimismin the coming year.
After all, Americans will have tochoose between a leader who has proventhat he can’t lead the US out of its eco-nomic morass, and one who has not yetproven his inability to do so – but whocould make matters even worse throughpolicies that increase inequality and slowgrowth.
I hope that events prove me wrong, andthat my pessimism turns out to have beenexcessive.
But I am afraid that the risks are moreon the downside. Indeed, 2012 couldprove to be the year in which the experi-ment with the euro, the culmination of a50-year process of economic and politi-cal integration in Europe, comes to anend.
In that case, rather than bringing thehoped-for end of the Great Recession of2008, a downturn that has lasted too longand caused too much suffering, 2012 maymark the beginning of a new and morefrightening phase of the world’s worsteconomic calamity in three-quarters of acentury.
2012 could proveto be the year in
which the experimentwith the euro, the
culmination of a 50-yearprocess of economic and
political integration inEurope, comes to an end
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06 OUR WORLD IN 2012
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07OUR WORLD IN 2012
– For the third timein five years, the world’s poorest countries areat risk of being hit by a crisis not of theirmaking – a prospective downturn brought onby financial turmoil in the world’s most ad-vanced economies. Having gone through thefood and fuel shock of 2007-2008 and theglobal financial crisis that followed, low-in-come countries may now face even larger dis-ruptions in 2012. And, given theinterdependence of today’s globalized world,poor countries’ distress will invariably haveunwelcome consequences for everyone, richand poor alike.
At the height of the global crisis in 2009,many low-income countries experienced aslowdown in growth marked by falling ex-ports, lower remittances from expatriateworkers, and subdued foreign investment.The social consequences were severe: theWorld Bank estimates that an additional 64million people were left in extreme povertyby the end of 2010.
Yet it could have been much worse. Thanksto greatly improved policy performance overthe previous decade, low-income countriesentered the crisis far better positioned towithstand shocks than in the past. They hadsmaller fiscal and current-account deficits,lower inflation, larger international reserves,and – thanks in part to debt relief – lowerdebt burdens.
As a result, most countries were able tomaintain or even increase spending, despite
lower revenues, and allow fiscal deficits towiden. This propped up economic growth,while also boosting outlays for critical invest-ments and social programs needed to lessenthe hardships faced by the poorest people.The downturn was also relatively short-lived,partly as a result of the greater openness toworld trade that lower-income countries haveembraced over the past decade.
But these countries are still highly vulner-able. Many have not had sufficient time to re-build the policy buffers that served them sowell. There is less ammunition left in the fis-cal arsenal, current-account deficits havewidened, reserves have declined, and debt lev-els have risen significantly in some countries.Moreover, with the advanced economies fac-ing budgetary pressures, foreign aid may beseverely constrained for some time to come.Under these circumstances, it is by no meanscertain that low-income countries will haveaccess to additional concessional financing.
As a result, a new global downturn wouldhit low-income countries hard. Simulationsby the International Monetary Fund suggestthat a decline in global growth of 1.5 per-centage points could, owing to its impact ontrade and financial flows, generate a $27 bil-
lion gap in additional external financing in2012 alone. That would also push 23 millionmore people – most of them in Sub-SaharanAfrica and Asia – into poverty.
What can countries do to help themselves?The scope for fiscal stimulus is more limitedthan in 2009, but countries with sufficient fis-cal room and available financing shouldmaintain spending levels and preserve criti-cal social and infrastructure programs. Coun-tries with moderate inflation could be moreassertive with monetary and exchange-ratepolicy.
A key priority for 2012 and subsequentyears must be to build increased resilienceagainst shocks. Low-income countriesshould boost their revenue bases to reducereliance on external financing, while im-proving the efficiency of spending. In par-ticular, improving the scope and targetingof social safety nets would go a long way to-ward protecting the poorest in the event ofa further global downturn. Several coun-tries, including Armenia, Burkina Faso,Sierra Leone, Ghana, and Kenya, have al-ready made successful strides in this direc-tion, using means-tested food-voucherprograms, maternal and family benefits,
school-based social services, and conditionalcash-transfer schemes targeting the mostvulnerable groups, such as orphans.
Over the longer term, low-income coun-tries would benefit from diversifying theireconomies and avoiding over-dependence ona few products and trading partners. More di-versified economies are also likely to delivermore inclusive growth – growth that createsjobs for more people, and that distributes itsbenefits more widely. In order to boost long-term growth prospects and productivity, low-income countries will also need to meet hugeinfrastructure needs, especially in the area ofelectricity generation and transportation.
What can we do to help? The IMF isready to assist with policy advice, financialsupport, and technical assistance. We haveboosted our concessional lending capacityto $17 billion through 2014, and doubledthe amounts countries can draw. We havealso cut interest rates on all concessionallending to zero through 2012. We havemade our lending instruments more flexi-ble, so that financial support can reach ourmembers quickly, leaving sufficient room forhigh-priority spending to support growthand protect the most vulnerable.
Ultimately, the best way that the interna-tional community can help the low-incomecountries is for the advanced economies to gettheir houses in order and restore strong andsustainable global growth. That will help toensure that low-income countries remain ontrack to consolidate and extend the impres-sive achievements of the last decade.
A key priority for 2012 andsubsequent years must be to buildincreased resilience against shocks
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08 OUR WORLD IN 2012
– The outlook for theglobal economy in 2012 is clear, but itisn’t pretty: recession in Europe, anemicgrowth at best in the United States, and asharp slowdown in China and in mostemerging-market economies. Asianeconomies are exposed to China. LatinAmerica is exposed to lower commodityprices (as both China and the advancedeconomies slow). Central and EasternEurope are exposed to the eurozone. Andturmoil in the Middle East is causing se-rious economic risks – both there andelsewhere – as geopolitical risk remainshigh and thus high oil prices will con-strain global growth.
At this point, a eurozone recession iscertain. While its depth and length can-not be predicted, a continued creditcrunch, sovereign-debt problems, lack ofcompetitiveness, and fiscal austerityimply a serious downturn.
The US – growing at a snail’s pacesince 2010 – faces considerable downsiderisks from the eurozone crisis. It mustalso contend with significant fiscal drag,ongoing deleveraging in the householdsector (amid weak job creation, stagnantincomes, and persistent downward pres-sure on real estate and financial wealth),rising inequality, and political gridlock.
Elsewhere among the major advancedeconomies, the United Kingdom is dou-ble dipping, as front-loaded fiscal consol-idation and eurozone exposureundermine growth. In Japan, the post-earthquake recovery will fizzle out asweak governments fail to implementstructural reforms.
Meanwhile, flaws in China’s growthmodel are becoming obvious. Fallingproperty prices are starting a chain reac-tion that will have a negative effect ondevelopers, investment, and governmentrevenue. The construction boom is start-ing to stall, just as net exports have be-come a drag on growth, owing toweakening US and especially eurozone
demand. Having sought to cool the prop-erty market by reining in runaway prices,Chinese leaders will be hard put to restartgrowth.
They are not alone. On the policy side,the US, Europe, and Japan, too, have beenpostponing the serious economic, fiscal,and financial reforms that are needed torestore sustainable and balanced growth.
Private- and public-sector deleveragingin the advanced economies has barelybegun, with balance sheets of households,banks and financial institutions, and localand central governments still strained.Only the high-grade corporate sector hasimproved.
But, with so many persistent tail risksand global uncertainties weighing onfinal demand, and with excess capacityremaining high, owing to past over-in-vestment in real estate in many countriesand China’s surge in manufacturing in-vestment in recent years, these companies’capital spending and hiring have re-mained muted.
Rising inequality – owing partly to job-slashing corporate restructuring – is re-ducing aggregate demand further,because households, poorer individuals,and labor-income earners have a highermarginal propensity to spend than cor-porations, richer households, and capital-income earners. Moreover, as inequalityfuels popular protest around the world,social and political instability could posean additional risk to economic perform-ance.
At the same time, key current-accountimbalances – between the US and China(and other emerging-market economies),and within the eurozone between thecore and the periphery – remain large.Orderly adjustment requires lower do-mestic demand in over-spending coun-tries with large current-account deficitsand lower trade surpluses in over-savingcountries via nominal and real currencyappreciation.
To maintain growth, over-spendingcountries need nominal and real depreci-ation to improve trade balances, whilesurplus countries need to boost domesticdemand, especially consumption.
But this adjustment of relative pricesvia currency movements is stalled, be-cause surplus countries are resisting ex-change-rate appreciation in favor ofimposing recessionary deflation on deficitcountries. The ensuing currency battlesare being fought on several fronts: for-eign-exchange intervention, quantitativeeasing, and capital controls on inflows.And, with global growth weakening fur-ther in 2012, those battles could escalateinto trade wars.
Finally, policymakers are running outof options. Currency devaluation is azero-sum game, because not all countriescan depreciate and improve net exports atthe same time.
Monetary policy will be eased as infla-tion becomes a non-issue in advancedeconomies (and a lesser issue in emergingmarkets). But monetary policy is increas-
ingly ineffective in advanced economies,where the problems stem from insolvency– and thus creditworthiness – rather thanliquidity.
Meanwhile, fiscal policy is constrainedby the rise of deficits and debts, bond vig-ilantes, and new fiscal rules in Europe.Backstopping and bailing out financialinstitutions is politically unpopular, whilenear-insolvent governments don’t havethe money to do so. And, politically, thepromise of the G-20 has given way to thereality of the G-0: weak governmentsfind it increasingly difficult to implementinternational policy coordination, as theworldviews, goals, and interests of ad-vanced economies and emerging marketscome into conflict.
As a result, dealing with stock imbal-ances – the large debts of households, fi-nancial institutions, and governments –by papering over solvency problems withfinancing and liquidity may eventuallygive way to painful and possibly disor-derly restructurings. Likewise, addressingweak competitiveness and current-ac-count imbalances requires currency ad-justments that may eventually lead somemembers to exit the eurozone.
Restoring robust growth is difficultenough without the ever-present specter ofdeleveraging and a severe shortage of policyammunition. But that is the challenge thata fragile and unbalanced global economyfaces in 2012. To paraphrase Bette Davis inAll About Eve, “Fasten your seatbelts, it’sgoing to be a bumpy year!”
Inequality
fuels popular
protest around
the world
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09OUR WORLD IN 2012
– At the height of the Arab up-risings last spring, many Europeans weregripped by nightmare visions of a tsunami ofmigrants crashing against the continent’sshores. The wave never hit, but its specter feda tenacious anti-immigrant populism that hasconcealed an important new trend: migrationto Europe – and to the United States – haslargely stalled. In many countries, more immi-grants are leaving than are arriving, owingmainly to the economic crisis that has drainedjobs in the West.
That reversal is one of the great under-re-ported stories of 2011 (and of the precedingtwo years), and the numbers are startling. Con-sider Spain, which is on track to lose more thana half-million residents by 2020. By contrast,between 2002 and 2008, Spain’s populationgrew by 700,000 a year, driven largely by im-migration. The trends are similar elsewhere inEurope.
While this fact alone will not quiet oppo-nents of immigration, it does give countriesmore breathing room to repair and strengthenbadly broken systems for receiving and inte-grating newcomers. Although rapidly agingWestern countries are unable to attract the im-migrants they need, they allow millions whoare already there to suffer discrimination andabuse. Detentions and deportations take placeunder sometimes terrible conditions. Mean-while, the international community collectivelyfails to protect vast populations of vulnerablemigrants, such as the millions stranded by therecent conflicts in North Africa.
Undoubtedly, rising anti-immigrant pop-ulism must be confronted. While polling sug-gests that attitudes are influenced more byethnicity than religion, both help to defineidentities and mindsets. Political parties inFrance, Switzerland, and the Netherlands (toname a few) have run successful campaignsthat scapegoat immigrants.
Moreover, governments from Alabama toHungary are passing laws that underminewhat should be migrants’ rights. Italy recentlyadopted harsh “emergency” decrees that targetmigrants by making undocumented entry andresidence a criminal offense.
Anti-immigrant rhetoric from the politicalextremes has fed into mainstream political dis-course. European leaders trip over themselvesto declare, one more forcefully than the next,that multiculturalism is dead. Dutch politicianGeert Wilders, whose Freedom Party is infor-mally part of the governing coalition, did themone better by being charged with incitementto anti-Muslim hatred. In the US, alligator-filled moats and electrified border fences havefeatured in the current presidential campaign.
Such attacks on immigration might offersome instant political gratification, but theirnet result is to cleave societies whose cohesionis already seriously challenged by the economiccrisis. Growing discrimination in employment,housing, and education affects not just immi-grants and their children; it harms our societiesas a whole.
With the lull in net immigration, we nowhave a window of opportunity to addressthese shortcomings. Debunking the mythsabout migration – that most immigrantsenter unlawfully, for example, or that immi-gration displaces existing workers – wouldbe a good place to start. It would also beuseful to explain that immigration is neces-sary for prosperity and growth in almost allOECD countries.
If aging societies in the West and else-where (like Japan) fail to get immigrationright, they will be woefully unpreparedwhen they confront the real tidal wave: theretirement of baby boomers in the comingtwo decades. The gaps in these countries’labor markets – from software specialists tophysicians to home health aides – will beimmense. The European Union’s labor forcewill decline by almost 70 million workers inthe next 40 years; in the absence of signifi-cant net immigration (combined with amuch higher retirement age), Europeaneconomies and social safety nets will shrivel.
The priorities are clear. We need to un-derstand better how our economies willevolve in the coming decades, and to re-design our educational systems to produceworkers with usable skills. And, where it is
clear that immigrants will be needed, wemust be able to identify, welcome, integrate,and protect them.
Meanwhile, our most fundamental insti-tutions – schools, police, and the courts –must be re-engineered to reflect and re-spond to the diversity of our communities,which is now a fact of life. Countries mustlearn to work together to achieve thesegoals, few of which can be reached by goingit alone. If our toolbox were empty, our in-action might be understandable. But exam-ples of smart migration practices abound.Canada and the Philippines, for instance,have a well-functioning accord that protectsthe rights of temporary workers. Swedenhas developed legislation that minimizesbureaucracy for companies that need for-eign workers. And important advances havebeen made in ensuring that immigrant chil-dren receive the education that they need tobecome full members of society.
Progress is being made on the global levelas well, despite the economic crisis and pop-ulist headwinds. In June, the InternationalLabor Organization’s member states over-whelmingly approved the Domestic Work-ers Convention, which will significantly
increase protections for a vulnerable groupof workers – the majority of whom are mi-grants. Meanwhile, the Global Forum onMigration and Development, established in2007, has quickly become an importantmeans of fostering knowledge and partner-ships. The reason for growing internationalcooperation is simple: countries everywhereare affected by migration, and, increasingly,they are experiencing immigration and em-igration simultaneously.
Indeed, roughly one-third of migrantsnowadays move between developed coun-tries; one-third move between developingcountries; and only one-third move fromthe developing to the developed world.Highly skilled workers, such as bankers andengineers, are flocking to China. Mexico,known primarily as a country of emigration,is home to millions of migrants from Cen-tral America. Millions of people in South-east Asia venture to the Middle East towork, but millions more cross borderswithin the region. The list goes on.
When it comes to migration, we are all inthe same boat – and that boat is leaking.Starting in 2012, countries should redoubletheir efforts to fix it.
The reason for growing internationalcooperation is simple: countries everywhere
are affected by migration, and, increasingly, they areexperiencing immigration and emigration
simultaneously
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– The world may seeBarack Obama as a leader weakened by theintractability of American domestic politics,but, as the 2012 presidential campaign heatsup, the American public still sees him as astrong, capable leader in foreign affairs.Some 49% of Americans approve of hisoverall handling of foreign affairs, with 63%approving of his approach to terrorism and52% approving of the withdrawal from Iraq.Contrast that with the 30% of Americanswho approve of his handling of the econ-omy, or the scant 26% who back his ap-proach to the federal budget deficit.
With numbers like that, it would hardlybe surprising if Obama tried to keep votersfocused on foreign affairs in 2012, withhigh-profile initiatives like Secretary ofState Hillary Clinton’s trip to Burma(Myanmar), carefully brokered diplomaticdeals, and important international confer-ences at home, such as the NATO summitin Chicago in May. But presidential tripsoverseas in the coming election year arelikely to backfire at home, particularly withunemployment above 9%.
The Obama administration knows theiron law of American politics – “It’s theeconomy, stupid” – as well as anyone else.Nevertheless, highlighting Obama’s abilityto get things done abroad is more than anattempt at distraction; it also sends the mes-sage that the domestic-policy impasse is nothis fault. So expect plenty of foreign-policynews in the coming months.
Election-year tactics aside, American vot-ers are right. Obama has performed muchbetter in foreign policy than in domesticpolicy, which is all the more surprising giventhe weak hand that he was dealt: an Amer-ica that had lost its moral authority, its mil-itary invincibility, and its credibility as aneconomic model.
It is easy to focus on what has not beenachieved, because Obama raised high ex-pectations and then failed to deliver. On hissecond day in office, he appointed two Spe-cial Representatives: George Mitchell forMiddle East Peace and Richard Holbrookefor Afghanistan and Pakistan. A monthlater, Dennis Ross was named Special Ad-viser for the Gulf and Southwest Asia (read:Iran). Three years later, Ross and Mitchellhave resigned, with no agreement in sightin the Middle East, and Holbrooke diedunexpectedly, without having brought theTaliban and the Afghan and Pakistani gov-ernments to the negotiating table. Relationsbetween the United States and Iran arefrostier than ever.
But none of Obama’s predecessorsachieved any of these goals, either, whereas
he can claim credit for the killing of Osamabin Laden and more than half of al-Qaeda’stop leadership. Indeed, it is now believedthat al-Qaeda could fragment and cease toexist as a military organization within twoyears. Obama has also improved relationswith Russia and negotiated a major arms-control treaty with the Kremlin.
Moreover, Obama has dramatically in-creased America’s presence in Asia, in-cluding signing a Treaty of Amity andCooperation with ASEAN and joining theEast Asia Summit, and moved quickly andflexibly in response to the revolutionsacross the Middle East. He changed a 30-year relationship with Egypt in a week;helped to convince the Egyptian militarynot to fire on citizens in the first stage ofthe revolution; assembled and enabled asuccessful coalition to intervene in Libya;worked closely with Turkey, the EuropeanUnion, and Saudi Arabia to increase pres-sure on Syria; cooperated with Egypt tobroker a settlement in Yemen; and workedbehind the scenes to convince Bahrain’sgovernment to investigate its own violenceagainst Shia protesters.
Moving south, Obama dedicated consid-erable resources to ensuring that the Com-prehensive Peace Agreement, which endedSudan’s civil war, was actually implemented,allowing South Sudan’s peaceful secession.Although engagement with Iran and NorthKorea may have failed, Obama did help toengineer a historic breakthrough withBurma. Finally, the US Senate ratified free-trade agreements with South Korea,
Panama, and Colombia, clearing the way forthe new Trans-Pacific Partnership.
The common thread in all of theseachievements is old-fashioned diplomacy.In choosing Clinton as Secretary of State,Obama appointed one of the world’s mostadmired women. She has lived up to herreputation. Similarly, Susan Rice has been aremarkably successful US ambassador to theUnited Nations, consistently deliveringvotes in the Security Council.
Obama is pursuing a coherent grandstrategy – what he called in his 2009 in-augural address a “new era of responsibil-ity.” On the international side, hisnational-security strategy holds that “theburdens of a young century cannot fall onAmerican shoulders alone.” The USstrategic is committed to an “internationalorder based on rights and responsibilities,”including a “broader voice – and greaterresponsibilities” for emerging powers, andthe imposition of real consequences oncountries that violate their internationalobligations.
Within two years of taking office, Obamahelped to transform the G-8 into the G-20,secured the re-weighting of votes on the In-ternational Monetary Fund’s board awayfrom Europe and toward new economic
powers, and committed to supporting thecandidacies of India and Japan for mem-bership of a reformed UN Security Council.
His administration also devoted enor-mous energy to building and strengthen-ing regional institutions. For the first time,the Arab League is playing an active rolein addressing political upheaval and gov-ernment brutality in its midst, as is theGulf Cooperation Council. The AfricanUnion helped to restore democracy inMadagascar, aided in forcing Côted’Ivoire’s president to leave office after los-ing an election, and sent troops to Somalia.The East Asian Summit is becoming aforum for region-wide security discussions,from the resolution of maritime disputesto fighting pirates.
Obama’s Republican opponents love tohammer home the phrase “leading frombehind.” But they miss the point, for theyimagine leadership as the equivalent of anineteenth-century cavalry charge, inwhich the general is either out front car-rying the flag or following along in therear. Obama is actually far in front interms of shaping the world’s norms andexpectations. He leads from wherever heneeds to lead in order to get results. Andhe’s gotten plenty.
Obama has performed much better inforeign policy than in domestic policy
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– When a tsar is treated withmockery, rather than regarded with awe, it istime for him to consider retirement, or toprepare for a palace coup. Russian PrimeMinister Vladimir Putin, who intends tostage a glorious return to the Kremlin asPresident in the election scheduled forMarch next year, should reflect on thatchoice. This year began with a vigorous (byRussian standards) Internet petition urgingPutin to take the first option. Then thewhole country laughed when, during hiscustomary visit to a patriotic summer camprun by Nashi (a pro-Putin youth move-ment), he demonstrated his physicalprowess by scaling a rock-climbing wall,only to find that he couldn’t climb down.
Now Russians wonder what has hap-pened to their leader’s face. His newsmooth-faced appearance has sparked ru-mors of Botox, or even plastic surgery. Vam-pire jokes abound.
Recently, during a dive in the waters atKrasnodar, in southern Russia, Putin mirac-ulously salvaged two ancient Greek urns.Russians’ laughter turned Homeric whenPutin’s spokesman, Dmitry Peskov, inexpli-cably announced that the urns had beenplaced there to give Putin a sense of impor-tance. If I didn’t take the incompetence ofthe Russian state at face value, I might sus-pect a conspiracy to discredit Putin. For,make no mistake: Putin has been discred-ited. After a recent martial-arts match be-tween an American and a Russian, Putin, a
judo enthusiast, stepped into the ring tocongratulate the Russian victor, a memberof his United Russia party. The audiencescreamed wildly, “Putin, go home!” until hedid. Politics, the crowd seemed to say,should be taken out of sports – and Putinout of politics.
Putin thinks that his stunts are essentialto governance. He has kissed dolphins andbabies, saved tigers and journalists, andposed bare-chested on horseback and onfoot in the Siberian wilderness. But Putinthe performer cannot abide a bad review.Embarrassed by the judo fiasco, he canceledall of his subsequent unscripted public ap-pearances.
In fact, since that incident, Putin has at-tended just one event – the Congress ofUnited Russia – where 600 delegates votedunanimously for his nomination as theparty’s presidential candidate in 2012. Butthe parliamentary elections held on De-cember 4, which gave barely 50% to UnitedRussia (Putin used to be able to guaranteeabout 70%), had to be fiercely controlled,with an overwhelming police presence. Ob-
servers were harassed and obstructed, andmonitoring Web sites were shut down orhacked by the government. An elections-observing mission of the Organization forSecurity and Cooperation in Europe notedthat “most parties have expressed a lack oftrust in the fairness of the electoral process.”
Putin’s extravagant vanity has severely un-dermined the strongman image that he hasspent the last 12 years building. After all,narcissistic publicity stunts and facelifts –which worked well for his friend SilvioBerlusconi in Italy (until they didn’t) – don’tinspire fear, or even respect, among Rus-sians, where an iron-fisted ruler is alwaysthe preferred choice. So now Putin’s imageas the hard man of politics has been lost for-ever. It is difficult to assume a despoticcountenance when you can’t move your eye-brows. Indeed, Russians heckle Putin notbecause he has turned Russia into an indus-trial banana republic, where exports of oiland other commodities sustain a quasi-au-thoritarian state, but because he no longerinhabits his role convincingly. All the same,the origin of discontent with Putin is irrel-
evant; the desire for freedom has to startsomewhere. So long as Russians feel em-powered to confront the regime, even if onlywith contempt and laughter, there is hopefor change. And now, with the election re-sults inciting the largest protests since thecollapse of the Soviet Union, that hope isgrowing. When a tsar loses his image ofomnipotence, he eventually loses his grip onauthority.
After Putin’s long-running melodrama,the Kremlin’s options for a sequel are quitelimited. Everyone expects that the currentpresident, the puppet Dmitry Medvedev, toswitch roles with Putin after the Marchelections. But waiting in the wings is for-mer Finance Minister Alexei Kudrin, whocould replace Medvedev should Russia needa factotum of sincerity about economic re-form. Kudrin’s reputation for placid compe-tence might just buy Putin some extra time.
But, in Putin’s eyes, this is an unlikely sce-nario. The once and future president arguesthat he has already made Russia stronger,and that, as financial uncertainty grips muchof the developed world in 2012, the countryhas become an island of stability envied bymany. Perhaps, but it is difficult to be aheroic leader and the butt of popular jokessimultaneously.
Putin is often compared to Joseph Stalin,but nowadays, as the 20th anniversary of theSoviet Union’s collapse at the end of 1991approaches, he looks increasingly likeLeonid Brezhnev – the symbol of a politi-cal system that is well past its expiry date.All that is missing are the jowls.
Russians heckle Putin not because he hasturned Russia into an industrial bananarepublic, where exports of oil and other
commodities sustain a quasi-authoritarian state, butbecause he no longer inhabits his role convincingly
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– The term “Arab Spring” is al-ready highly disputed. Do the revolutions acrossthe Arab world presage the glory days of sum-mer, or a passage through a bleak winter? Onething is certain: the influence of religion andfaith in determining the outcome.
Consider the scale of what is now happen-ing. Across the Middle East and NorthAfrica, Islamist parties are ascendant.Sunni/Shia divisions are also at the fore. Ter-rorism, based on a perversion of religion, isdisfiguring politics not only in familiar places,but also in Nigeria, Russia, Kazakhstan, thePhilippines and elsewhere. More than half oftoday’s conflicts in the world today have apredominantly religious dimension.
Most (though not all) religious faiths todaycontain extremist groups, all capable of pro-ducing discord among previously settled com-munities. True, much of this extremism is basedon a perversion of Islam; but such perversionsof faith are also often directed against Muslims.In parts of Europe, Islamophobia now rivalsanti-Semitism and has potent and dangerouspolitical appeal.
In short, religion matters. Three and a halfyears ago, when I started a foundation dedi-cated to improving interfaith relations, somethought it quixotic, or plain weird: Why woulda former prime minister want to do that?
I did it for a very simple reason. My experi-ence as Prime Minister taught me that none ofthe problems of the Middle East and beyond –including Iran, Afghanistan, Pakistan, and So-malia – can be understood unless we compre-hend the importance of religion. I don’t meanthe politics of religion, but religion as religion.We cannot treat the influence of religious faithin purely secular terms. We must address it alsoas a genuine issue of faith.
In fact, a fundamental foreign-policy weak-ness, especially in the West, is the assumptionthat political solutions alone provide a sensiblepath to the future. They don’t. Those who feelthat their faith compels them to act in a waydestructive of mutual respect must be per-suaded that this is a wrong reading of theirfaith; otherwise, such a faith-based compulsionwill always trump secular political arguments.
Consider the Middle East and North Africatoday. Like it or not, the Muslim Brotherhoodand other religious parties will possibly domi-nate. They are longstanding, well organized,deep rooted in communities, and, above all,highly motivated – a winning combinationanywhere. Arrayed against them are the dis-credited politics of the old regimes and well-meaning, often numerous, but highlydisorganized liberal-minded groups.
The risk we face is easy enough to describe.The challenge for these emerging democra-cies is to remain democratic through the trau-mas of comprehensive change. In particular,their economies need to reform, open up, andgrow in order to meet their citizens’ rising ex-pectations.
Indeed, the region has some of the world’syoungest populations, with the average ageoften below 30. Egypt’s population was around30 million in the 1950’s; today it is 90 million.Young, aspiring populations, whose criticism ofthe old regime was at least as much economicas political, need their tourist industry back onits feet, their business entrepreneurs feelingconfident, and eager foreign investors. Theyneed fundamental education and welfare re-forms. And the new political masters need toknow that if they don’t succeed, it is the right ofthe people to vote them out.
But democracy is not just about the freeelections and the constitutional rule of themajority the freedom. It is about freedom ofexpression, freedom of religion, and marketsthat, albeit regulated, also are free and pre-dictable. In other words, democracy is notjust a system of voting, but an open-mindedattitude.
That distinction – open versus closed – is aspolitically salient today as traditional left-rightdistinctions. Do we view globalization – withtechnology, communication, migration, andtravel pushing us closer together – as something
to be embraced but made to work fairly, or as athreat to our traditional way of life that must beresisted? I believe that the future belongs to theopen-minded. But the closed-minded have apowerful gut appeal, and religion pays into it.
There are two faces of faith in our worldtoday. One is seen not just in acts of religiousextremism, but also in the desire of religiouspeople to wear their faith as a badge of identityin opposition to those who are different. Theother face is defined by extraordinary acts ofsacrifice and compassion – for example, in car-ing for the sick, disabled or destitute.
One face is about service to others; the otherface does not accept them. One recognizes thatequal dignity should be accorded to all humanbeings, and seeks to build bridges of under-standing between faiths. The other regardsthose who do not share their faith as unworthyunbelievers, and seeks to build a protective wallaround it, or even to be actively hostile to “out-siders.”
All over the world, this battle between thetwo faces of faith is being played out. What isneeded are platforms of understanding, respect,and outreach in support of the open-minded
view of faith.Education has a vital role to play. How many
Christians know that Jesus is revered by Mus-lims as a prophet, or that it was through Islamthat Christian thinkers in the eleventh centuryrelearned the importance of Aristotle andPlato? And how many Muslims understandfully the Christian Reformation and what ittaught believers about philosophy and religion?How much do either Muslims or Christiansreally know of their debt to Judaism? And havewe in the West any real appreciation of the truenature of the Hindu or Buddhist faith? Do weunderstand how Sikhism developed its ex-traordinary openness to all faiths, or who theBahai’s are and what they believe?
The point is that faith is culture; and, intoday’s world, people of different cultures arecoming into contact as never before. Whetherthis produces harmony or discord depends ourframe of mind – open or closed. Can strong re-ligious faith coexist with such pluralism?
This is a key question of our time. Yet manyopen-minded people remain curiously passivein the face of religious extremism. Sometimeswe ignore it, hoping we can treat it as some-thing other than religion. Sometimes we justgive up and embrace secularism. The first ig-nores the essence of the problem; the secondundermines faith, which still has a hugely im-portant role to play in civilizing globalizationand infusing it with spirit.
In short, we need religion-friendly democ-racy and democracy-friendly religion. At thistime of Christian celebration, that is an impor-tant message, of which Jesus Christ, I believe,would have approved.
In fact, a fundamental foreign-policy
weakness, especially in the West, is the
assumption that political solutions alone
provide a sensible path to the future
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– A new eco-nomic order is taking shape before oureyes, and it is one that includes acceler-ated convergence between the old West-ern powers and the emerging world’smajor new players. But the forces drivingthis convergence have little to do withwhat generations of economists envis-aged when they pointed out the inade-quacy of the old order; and these forces’implications may be equally unsettling.
For decades, many people lamented theextent to which the West dominated theglobal economic system. From the gover-nance of multilateral organizations to thedesign of financial services, the global in-frastructure was seen as favoring Westerninterests. While there was much talk ofreform, Western countries repeatedlycountered serious efforts that would re-sult in meaningful erosion of their enti-tlements.
On the few occasions that such resist-ance was seemingly overcome, the out-come was gradual and timid change.Consequently, many emerging-marketeconomies lost confidence in the “pooledinsurance” that the global system suppos-edly put at their disposal, especially attimes of great need.
This change in sentiment was cat-alyzed by the financial crises in Asia,Eastern Europe, and Latin America inthe late 1990’s and early 2000’s, and bywhat many in these regions regarded asthe West’s inadequate and poorly de-signed responses. With their trust in bi-lateral assistance and multilateralinstitutions such as the InternationalMonetary Fund shaken, emerging-mar-ket economies – led by those in Asia –embarked on a sustained drive towardgreater financial self-reliance.
Once they succeeded in overcoming apainful crisis-management phase, manyof these countries accumulated previouslyunthinkable levels of international re-serves as precautionary cushions. Theyextinguished billions in external indebt-edness by generating and sustaining largecurrent-account surpluses. And they in-creased the scale and scope of domesticfinancial intermediation in order to re-duce their vulnerability to externalstorms.
These developments stood in starkcontrast to what was happening in theWest. There, unprecedented leverage,massive debt creation, and a seeminglyinfinite sense of credit entitlement pre-vailed. Financial excesses become the rulerather than the exception, facilitated byfinancial innovation and the erosion oflending standards and prudential regula-tion. Suddenly, the world turned upsidedown: “rich” countries were running large
deficits and, in some cases, tipping fromnet creditor status to net indebtedness,while “poor” countries were running sur-pluses and accumulating large stocks ofexternal assets, including financial claimson Western economies.
Little did these countries know thattheir divergent paths would end up fuel-ing large global imbalances, and eventu-ally trigger a financial crisis that hasshaken the prevailing international eco-nomic order to its foundations.
There is no restoring fully that order.Rather than recovering strongly, sluggishWestern growth is periodically flirtingwith recession at a time of high unem-ployment and multiplying debt concerns,particularly in Europe. In an amazingturn of events, virtually every Westerncountry must now worry about its creditratings, while quite a few emergingeconomies continue to climb the ratingsladder. We can now consider the image ofWestern delegations heading to emerg-ing countries to plead, cap in hand, for fi-nancial support, both direct and throughthe IMF.
At first blush, this unusual convergencebetween Western and emerging countriesseems to reflect what advocates of a newinternational economic order had inmind. But appearances can be misleading,and, in this case, they are misleading in asignificant way.
Advocates envisaged an orderly processin which economic convergence accom-panied and facilitated global economic
growth. They foresaw a collaborativeprocess guided by enlightened policy-making. But what is occurring is far dif-ferent and more unpredictable.
Rather than exhibiting enlightenedleadership, Western policymakers haveconsistently lagged realities on theground, with a bewildering mixture ofdenial, misdiagnosis, and bickering un-dermining their responses. Rather thanproceeding in an orderly manner, today'sglobal changes are being driven by thedisorderly forces of de-leveraging ema-nating from a Europe in deep financialcrisis and an America seemingly unableto restore sustained high rates of GDPgrowth and job creation.
Multilateral institutions, particularlythe IMF, have responded by pumping anunfathomable amount of financing intoEurope. But, instead of reversing the dis-orderly deleveraging and encouraging
new private investments, this official fi-nancing has merely shifted liabilitiesfrom the private sector to the public sec-tor. Moreover, many emerging-marketcountries have noted that the policy con-ditionality attached to the tens of billionsof dollars that have been shipped to Eu-rope pales in comparison with what wasimposed on them in the 1990’s and early2000’s. Fortunately, despite having laggedrather than led this process of conse-quential (and increasingly disorderly)global change, it is not too late for poli-cymakers to catch up.
But doing so requires more than justbetter national policymaking in Europeand America; it is also time for urgentand deep reform of the multilateral sys-tem and its main institutions. Thatprocess requires joint leadership by theemerging world as a true equal and part-ner of Western powers.
Rather than exhibiting enlightened
leadership, Western policymakers
have consistently lagged
realities on the ground
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- With every turnof the year over the recent period it has re-peatedly become routine to draw a scoreboardof developments in South East Europe, inparticular its core area of Western Balkans, byusing a convenient term – contrast. No ex-emption this year, as successes are again fol-lowed by failures and achievements bystagnations.
Indeed, the year that is getting to a closewas broadly characterized by tremendouscontrasts, whilst the year ahead is most likelyto continue the trend.
Illustrations are easy to find. The SouthEast Europe scoreboard for 2011 marks, forexample, a remarkable success of Croatiacompleting its long EU accession negotia-tions with full membership only a step away,thus changing the strategic map of the region.In a contrasting manner, other aspiring coun-tries are set for additional check-ups, pro-longing a strategic impasse in parts of theregion. Serbia has been offered an additionaltime to prove its true European capacity aswell as a general political and social consen-sus over the goal. Montenegro will have to beready by the next summer if it is to continueon the EU path. The Former Yugoslav Re-public of Macedonia is still no closer to theEU. Albania, Bosnia and Herzegovina,Kosovo – one can only lament and hope forthe better, relying on the persistency of StefanFule and his team – at no easy times for themeither – whilst urging political leaders in the
region to respond with urgency and vision be-fore the region slips even lower down theagenda of the remaining interested friendsand partners.
The contrast is obvious – the region ismoving towards the European and Euro-Atlantic integration, with Croatia confirm-ing to the region and to the EU that it isworthy of the membership even at the mostdifficult period for the Union itself. But thestrategic picture remains incomplete. More-over, with several frustrating trouble spotsin the region, from northern Kosovo to arange of destabilizing issues in Bosnia andHerzegovina, even the peace may not beconsidered completed yet. Indeed, the wa-ters are still troubled. The biggest politicalchallenge in 2012 for the region, but also forEurope and beyond, will be to avoid strate-gic imbalances and, more challenging, notto allow cementing a protracted strategicvacuum in this corner of Europe.
In this sense, the EU enlargement dynam-ics will continue to be of crucial, if not his-torical importance. Again, Brussels will beappraised to keep the engine of enlargementrunning; the region will be urged to resolveits residual open issues. Anything else, afterCroatia's accession, may only be an invitationfor the Balkans to become, sooner or later, atrump card in a broader geopolitical trade-offs. The global crisis will continue to shapeand design the international relations, optionsand models may differ from today's ones; thetimes of post-Wall honeymoons may well beexpiring, while new alliances, new divisions
may be in the offing. History teaches thatsuch a course is not the best one for theBalkans. There is yet another contrast andanother kind of troubled water – economy.The region in general is witnessing the harsh-est economic slowdown in decades, spirallingtowards a protracted recession, whilst someeconomies are propelling in an unprece-dented way. Turkey is telling a different storythen the neighbouring Greece, but almost noother economy in the region – Croatia, Ser-bia, Bosnia and Herzegovina, The FormerYugoslav Republic of Macedonia, etc. – isspared from a syndrome of deep structuralweakness in a long run or from a lack of in-vestment to rewind production. These coun-tries are forced to choose between theausterity strangling consumption and suffo-cating production. With the European eco-nomic crisis most probably to remain aprolonged one, and with the economies in theregion deeply linked and dependent on flowswithin the EU markets, in 2012 the economiccheck-up in South East Europe will have totackle the very sustainability of many of re-gional economies. Against the backdrop ofunavoidable social consequences and with a
handful of unresolved political issues sim-mering across the region, it will be of a para-mount importance to invest, politically andfinancially, to avoid that Balkans slips awayfrom political to security challenge again.
And it is not so much about the money,Greenfields or Instrument for Pre-accessionAssistance (IPA). First and foremost, it isabout the investment into a political stabilityand economic recovery through preservationof the enlargement dynamics and full consol-idation of regional cooperation. The aim is toavoid unproductive loss of time and recycled“blame games” across the border, and respondto the crisis with a number of strategically im-portant “jump start” trans-national projects ofa New Deal type: infrastructure building, re-habilitation and modernization of transportsector, waterways, etc. In general, broadly un-used natural potentials and geo-economic po-sition of South East Europe between the EU,Russia and Asia markets continue to be themost potent answers to the current economicslowdown and looming depression. And, theymay as well be the best answers to other pos-sible slowdowns, after Croatia joins the Eu-ropean Union.
Brussels will be appraised to keep theengine of enlargement running; the
region will be urged to resolve its residualopen issues
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– Everyone at the moment istalking about the crisis, everyone is talk-ing about the difficulties facing the globe,but I believe that the Crans MontanaForum represents an alternative point ofview – and our work has in fact not be-come more difficult in the context of theglobal crisis, but rather there appears tobe a renewed sense of positivity with ourefforts to make the world more impartialand humane – during 2011, we greetedmore than 77,000 international personal-ities during our events, namely hundredsof heads of state and government, thou-sands of ministers and tens of thousandsof business people. I still believe that thereal added value of joining the CransMontana Forum is to become part of acoherent group of personalities who aremeticulously chosen for their importanceand influence.
It is the question of good governancethat will dominate our agenda during2012 – even more so during times of in-ternational crisis, as we are now, it mustbe recognised that only good, human andstable governance can help economies toclimb out of the situation into whichpoor governance and financial misman-agement has placed them.
Of course, it is impossible to say thatCrans Montana is near to ‘achieving its
ambitions’, for the simple reason thateach day, particularly during the global fi-nancial crisis, presents new challenges,owing to the changes that are takingplace on a near-daily basis globally andhow these affect our goals and workingmethods.
However, we must constantly be re-newing our efforts – simply because thereis no discernible ‘end point’ in sight doesnot mean that we stop trying to get there!The challenges that we face today havechanged enormously, are in fact even big-ger, than Crans Montana was facingwhen it began back in 1986, which wasstill three years before the fall of theBerlin Wall and the end of the Cold War.
Globalisation has proved to be a veryseductive ‘mirage’ for many countries and,as a result, injustices are being commit-ted in its name – it must be rememberedthat the world is not composed solely of
good and honest people, but also thosewho have little or no social responsibility.The present crisis has come about as theresult of such irresponsibility on both apublic and private level, from businessenterprises to banks – it is comparable toan individual spending, month in andmonth out, more than he or she is actu-ally earning, and we all know what suchbehavior will eventually bring.
The public debt crisis is the result ofdeficient and incompetent managementat a governmental level, and also by pop-ulist leaders who think of nothing morethan being ‘popular’ with their people andbeing re-elected.
What is required I believe, therefore, isa fundamental change to the way that ourdemocratic system works – during 2012,we will be looking to encourage the in-vestigation of whether it is possible toprohibit the re-election of a particular
leader after one term. That is to say, theremust always be variety and, after one(sufficiently long) term in office, theremust be an alternative offered. This way,leaders will no longer be seeking to makethemselves popular, but will rather con-centrate only on making the correct deci-sions for their country’s populationduring their term in office, which they donot do at present, because all they areconcerned about is securing their re-elec-tion.
We must revisit democracy – to pro-hibit all re-elections is, I believe, the bestway for our world to escape the financialcrisis.
As an Honorary Member of the Paris BarAssociation, Ambassador Carteron has beenawarded with the highest honours inFrance (Chevalier de la Légion d ’Honneur,Chevalier de l ’Ordre National du Mérite,Conseiller du Commerce Extérieur de laFrance), in Europe (Medal of the Presidentof the European Commission, Medal ProMerito of the Council of Europe) and fromaround the World with numerous off icialdistinctions. Amb. Carteron has also beenappointed ISESCO Ambassador in chargeof the Dialogue among Cultures and Civi-lizations and is responsible for relations be-tween the Islamic World and UNESCO. Hewas talking to New Europe’s Online Edi-tor James Drew.
The present crisis has come
about as the result of
irresponsibility by business
enterprises and banks
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16 OUR WORLD IN 2012
– Too much of the talknowadays about how social media havesaffected politics focuses on awareness:people adopt social media, discover thatthey are not alone, start to protest, andeventually their “Facebook revolution”overwhelms those in power. But, even ifsuch a revolution succeeds, that is onlythe beginning. What happens next?
As an angel investor in start-up com-panies and a sometime philanthropist, Ihave the luxury of traveling the worldand talking with articulate people whogive me an unofficial, clear-eyed view ofhow most countries actually work. It is adepressing picture.
I have been to roughly 70 countries,and have discovered roughly 70 differentways to run things badly.
Many of these countries have elections;but, as has been said of Russia, while thecandidates may surprise, the outcome ispredictable. Often a single individual or asmall group has almost absolute power.Seemingly independent businesses aremostly beholden to government support-ers, who typically take a cut of the pro-ceeds.
Even in real democracies, where peoplevote freely, things are going badly, as inGreece. Elsewhere, as in Egypt, democ-ratization incites further protests, or evenviolence.
Yes, things seem to be improving inBurma, and Zimbabwe appears quiet; butHungary – and, more recently, SouthAfrica – has enacted laws to suppress in-
formation that might prove damagingnot to government in general, but tothose in power. Riots and protests areerupting around the world.
In the United States and elsewhere,elected governments used to take care ofthe people, but now, like companies col-luding against their customers to keepout disruptive newcomers, they have be-come a separate interest group. Politicalparties exchange benefits and ignorethose who elected them.
The power to tax, for example, is oftenused more to employ civil servants orworkers in favored companies than toprovide services the people want. Lack-ing competition, inefficient bureaucraciesfocus more on maintaining jobs than onserving putative customers.
One part of the problem is how moneystacks the deck, not just for dictatorshipsthat wield de facto control over the econ-omy, but also in democratic countries,where business is free to use its resourcesto “influence” government. Political par-ties claim to embody ideas and world-views, but in many ways they are simplyself-perpetuating money machines.
Recent rebellions worldwide show thatsome citizens recognize that they arebeing offered false choices, often no moremeaningful than the choice betweenbrands of toothpaste. Social networkinghas given them new tools of protest totopple governments, but what is alsoneeded are new ways to make govern-ment operate effectively and accountably.
I don't know what should be done, butI am supporting one effort, called Amer-icans Elect, to push for radical change inthe US. Perhaps it can be a model else-where.
The group’s first task is simply to winthe right to put a candidate on the ballotin all 50 US states to run against the con-ventional slate of one Democrat and oneRepublican.
That has not been easy, and the fightcontinues state by state. Rules and regu-lations in most states protect the two par-ties that have held sway in US politics formore than a century. It turns out thatmost state bureaucracies, theoretically ac-countable to the public, in fact are ac-countable to the parties, and doeverything they can to keep AmericansElect from claiming its right to a spot onthe ballot next fall.
Many commentators claim that Amer-icans Elect will simply take votes fromthe incumbents but have no lasting im-pact. But I am hoping that widespreadfrustration will leverage the group’s abil-ity to encourage a genuine shift towardsa new approach.
Americans Elect will use a long seriesof competitions and online and offlineconvocations to select a candidate whowill be beholden to millions of people atlarge, rather than to a smaller group ofbig donors whose interests the candidatemust serve.
Its plan is cunning: the original fun-ders are being asked for loans, not dona-
tions; that way, they will have no furtherclaim on Americans Elect after they arerepaid. (Obviously, they will be a naturalsource of money for the next round, sothe group has to become self-sustainingon the basis of small donations, or it willbecome beholden as well.)
That money is supposed to go towardreaching a broad public who will respondvia the Internet, making small donationsand joining in a national effort to suggestand choose a third candidate for presi-dent. This candidate will not try to divideand polarize the country, but rather willunite it around common-sense ap-proaches to fiscal policy, education,health care, and other long-term issues.In the end, people do not want to be soldthe same old toothpaste when what theyreally need is serious dental work.
Americans Elect is not the only organ-ization with this vision, but it is the onlyone with the necessary scale. I recentlysaw a presentation by a company called5ivePoints, which helps people runningcampaigns, often volunteers, reach out totheir Facebook, Twitter, Google+, andother friends. Of course, 5ivePoints willbe going after the established parties ascustomers, but my hope is that groupslike Americans Elect, and eventually pro-testers in other countries, will start to useit (or something similar). If the point isto replace our current governments withmore accountable models, we need to usenew online tools not only to throw outthe old, but also to bring in the new.
Recent rebellions
worldwide show
that some citizens
recognize that they are
being offered false
choices, often no more
meaningful than the
choice between brands
of toothpaste
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17OUR WORLD IN 2012
–Almost a year has passed since revolutionin Tunisia and protests in Cairo’s TahrirSquare toppled ossified authoritarianregimes and ignited a much wider – andstill raging – storm in the Arab world. Noone can safely predict where these eventswill eventually take the Arab people andnations. But one thing is certain: there isno turning back. New social and politicalmovements and structures are emerging,power is shifting, and there is hope thatdemocratic processes will strengthen andspread across the Arab world in 2012.
Events in the Arab world in 2011 re-call other far-reaching regional transi-tions, such as in Eastern Europe after thefall of the Berlin Wall in 1989. There aredifferences, of course, but the upheavals’sweeping and contagious nature isstrongly similar to that of the revolutionsthat brought communism to an end inEurope. So, too, is the debate about therelative contributions of political andeconomic factors to the eventual eruptionof popular protest.
While the yearning for dignity, free-dom of expression, and real democraticparticipation was the driving force un-derlying the Arab revolutions, economicdiscontent played a vital role, and eco-nomic factors will help to determine howthe transition in the Arab world unfolds.Here, three fundamental and longer-termchallenges are worth bearing in mind.
First, growth will have to be muchmore inclusive, especially in terms of jobcreation. The youth employment-to-population ratio was about 27% in theArab countries in 2008, compared to 53%in East Asia.
Moreover, income inequality haswidened, with the global phenomenon ofincreasing concentration of wealth at thetop very pronounced in many Arab coun-tries. Top incomes in these countries haveresulted largely from political patronage,rather than from innovation and hardwork. While Tunisia was an extreme caseof a regime furthering the economic in-terests of a small clique of insiders, thepattern was widespread.
That is why a knee-jerk, simplistic“Washington Consensus” prescription ofmore liberalization and privatization isinappropriate for the Arab world in 2012.There is a clear political need for agrowth strategy in which inclusion is thecenterpiece, not an afterthought.
Neither the old statist left, nor therent-seeking, crony-capitalist right hadpolicies to respond to the yearning for in-clusion. New political forces in the Arabworld, Islam-inspired or social-democra-tic, will have to propose policies that donot just perpetuate rent-seeking capital-ism or reliance on a discredited state bu-reaucracy. It will be necessary to harnessgrass-roots dynamism and entrepreneur-ial potential to achieve social solidarityand equity.
While a truly competitive private sec-tor has to be unleashed, the state mustnot be weakened but transformed, to be-come one that is at the service of citizens.Generous but targeted and performance-oriented social transfers, conditional onparticipation in health and basic educa-tion programs, will have to replace theold, largely untargeted subsidies. Publicdevelopment finance will have to focuson large-scale access to housing and apeople-oriented infrastructure. All of thishas to be achieved within a sustainablebudget framework, requiring both fundsand comprehensive administrative re-forms.
Accompanying inclusive growth, thesecond challenge is skill development, forwhich a performance-oriented educationsystem must become a top priority. ManyArab countries have spent huge sums oneducation; the problem is that the returnon these investments has been dismal.Arab students, for example, score wellbelow average on international mathe-matics and science tests.
Deep reforms – focused on quality andperformance, rather than on enrollmentand diplomas – are needed to transformthe learning process and unleash the pro-ductivity growth that a young labor forcerequires.
The third challenge, instrumental tomeeting the first two, will be tostrengthen regional Arab solidarity.Many outsiders underestimate or pur-
posefully minimize the “Arabness” of theArab world. But the revolutions of 2011demonstrated that a strong sense of iden-tity, a common language, and muchshared history bind Arabs together, de-spite huge differences in natural-resourceendowments, political circumstances, andaverage per capita incomes. How else canone explain that an act of revolt inTunisia led to popular revolts from NorthAfrica to the Arabian Peninsula?
One implication of this is that the oil-rich states and leaders cannot expect toremain isolated and protected from theunfolding events.
The future of the region is also theirfuture; the transition that started in 2011unleashed forces that cannot be stopped.But the transition can be more orderly,more peaceful, and less disruptive if statesthat command immense resources andwealth generously support the poorercountries – and back the reforms that allArab countries need.
Existing institutions with proven trackrecords, such as the Arab Fund, can help,but this requires scaling up their fundsdramatically.
Prosperity and peace in the region willdepend on thinking big and acting fast.The revolutions of 2011 are a historic op-portunity for all Arabs. Making the mostof it will require realism, courage, will-ingness to change, and a readiness to sup-port change, particularly among thosewho have the greatest means to do so.
While a truly
competitive
private sector has to be
unleashed, the state
must not be weakened
but transformed, to
become one that is at
the service of citizens
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18 OUR WORLD IN 2012
– Nowadays there is noshortage of pundits, economic or other-wise, warning of impending disaster. Ifright, they are hailed as seers; if wrong,chances are that no one will remember. Sohere’s a forecast: there will be no shortageof predictions that 2012 is shaping up as adisastrous year.
My view is different: 2012 will not be ayear of crisis, but nor will it bring an endto our current economic troubles. Rather,it will be a year of muddling through.
Many people think that 2012 will be themake-or-break year for Europe – either aquantum leap in European integration,with the creation of a fiscal union and theissuance of Eurobonds, or the eurozone’sdisintegration, igniting the mother of allfinancial crises.
In fact, neither scenario is plausible. Thecollapse of the eurozone would, of course,be an economic and financial calamity. Butthat is precisely why the European CentralBank will overcome its reluctance and in-tervene in the Italian and Spanish bondmarkets, and why the Italian and Spanishgovernments will, in the end, use thatbreathing space to complete the reformsthat the ECB requires as a quid pro quo.
To be sure, Europe will not be sparedthe pain of a recession. A botched bank-recapitalization plan and the cloud of un-certainty hanging over the euro mean thatrecession is already baked in. Moreover,the pro-growth reforms needed in coun-tries like Italy will almost certainly makethings worse before they make them bet-ter. The initial effect of reducing hiring
andfiring costs, for example, will be layoffs ofredundant workers. But investors lookahead, so reforms that promise an even-tual return to growth should reassurethem.
While the eurozone is unlikely to col-lapse in 2012, there will be no definitiveanswer to the question of whether theeuro will survive, because there will be noquantum leap in European integration.Treaty revisions take time to draft – andmore time to ratify. Efforts to strengthenEurope’s fiscal rules, for example, will takethe form of bilateral agreements betweengovernments, rather than changes in theEuropean Union’s Lisbon Treaty.
It is a sad state of affairs when a reces-sion qualifies as muddling through. Butsuch is the European condition.
Consider next the United States. Whilerecent data suggest that the economy isdoing better – all signs are that GDP willhave expanded at a 3% annual rate in thefourth quarter of 2011 – it is importantnot get carried away. Fiscal support for theexpansion will continue to be withdrawn.And, while the housing market showssome signs of stabilizing, prices will re-main weighed down by the large shadowinventory of homes in foreclosure andheld by banks.
These considerations suggest that theacceleration of US growth that began inthe third quarter of 2011 is unlikely to besustained. At the same time, if growthslows significantly, the US Federal Re-serve will undoubtedly respond with an-
other round of quantitative easing – QE3by another name. Thus, while growth nextyear is likely to fall well short of 3%, theUS should be able to avoid a double-diprecession.
Finally, China should grow by 7.5-8%in 2012. This is muddling through, Chi-nese style –considerably slower growththan the double-digit rates of the past, butnot the hard landing that purveyors ofdoom and gloom warn is inevitable.
I am more pessimistic than institutionslike the World Bank and InternationalMonetary Fund, which anticipate Chinesegrowth in 2012 of 8.5-9% – forecasts thatdo not take into account the sharp coolingof China’s housing market. Althoughweakening housing demand has not yetshown up in lower prices, the volume oftransactions has fallen off dramatically.And where volumes lead, prices eventuallyfollow.
Fortunately, China is still enough of aplanned economy that officials can mobi-
lize policies to cushion the impact.If construction plummets, for example,
the authorities can reduce reserve require-ments, as they recently did, thereby en-couraging banks to lend to other sectors.And, if the European and US economiesavoid the worst, Chinese exports will holdup.
Thus, if all of the global economy’slargest pieces fall into place, there is noreason why 2012 should be a disaster. Butmuddling through cannot continue for-ever. Europe needs to draw a line under itscrisis and figure out how to grow. The USneeds to overcome its political polariza-tion and policy gridlock. And Chinaneeds to rebalance its economy – shiftingfrom construction and exports to house-hold consumption as the main engine ofgrowth – while it still has time.
Of course, if none of this happens – orif not enough of it does – 2013 could turnout to be the annus horribilis of theperma-bears’ dreams.
While the eurozone is unlikely to collapse
in 2012, there will be no definitive
answer to the question of whether the
euro will survive
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19OUR WORLD IN 2012
- Over the space of a fewshort years, the world has become an unde-niably different place for young people, andthe pace of change appears to be growing.
YouTube was created in February 2005and by May of this year, was capturingthree billion views a day, and 48 hours ofnew video were being uploaded eachminute. In December 2006, Facebook hadmore than 12 million active users. Almostfive years later, it has more than 800 mil-lion active users – an increase of more than6,000 percent. Earlier this year, an Egypt-ian man named his newborn daughter‘Facebook.’
Extraordinary change has also been in-curring in the global economy. In 2006, theinvestment firm Lehman Brothers reporteda net income of $4 billion, on assets worthmore than $500 billion. Several years later,the firm declared bankruptcy. Lehman’sNorth American holdings were purchasedby Barclay’s for $1.3 billion; its assets inEurope and the Middle East were pur-chased for $2 by Nomura Holdings ofJapan. Lehman’s assets in 2008 were worthless than one-half of one percent of theirvalue just two years earlier.
These are fundamental changes to theway the world and the global economywork, especially for young people. Mes-sages, democratic ideals, information andmisinformation can travel across bordersand spread across populations far morequickly and efficiently than in the past.Think of the role of social media IN theevents of the Arab Spring.
Reports of joblessness and disaffectionamong young people are growing through-out the world, from China to Egypt toLondon to New York. There are growingpopulations of “ninis” (ni trabajar ni estu-diar), “hittistes” (a portmanteau word fromFrench and Arabic meaning those who leanagainst a wall), or “NEETS” (the Englishterm for “not in education, employment, ortraining”). Does this mean that unem-ployed young people are prone to violenceto achieve their goals and redress griev-ances?
Frustration and anxiety yes, but in spiteof the popular conjecture, there is no evi-dence that youth unemployment necessar-ily leads to violence. So why is it soimportant that young people have jobs? Itmatters hugely for welfare, for equity, forproductivity and growth, and for personaland collective identity, and for social cohe-sion. These are some of the profound rea-sons why governments, employers,development partners, and others must
spur opportunities for the millions ofyoung men and women around the worldwho have problems negotiating their tran-sition to adulthood and joining their localcommunities.
The costs of prolonged unemployment inyoung people are potentially enormous interms of lifetime earnings. In the MiddleEast and North Africa, there are countlessstories of unemployment leading to delayedmarriage and staring families, delays inachieving the productive identity whichmarks the successful transition from youthto adulthood.
How is the World Bank responding tothis crisis? Bank financing for children andyouth development work tripled in the tenyears from 2000 to 2010. The value of thatloan portfolio grew from $950 million in2000 to over $4.8 billion in the same pe-riod. There are now youth employmentand empowerment projects in every region– even in Eastern Europe and Central Asia,where the share of young people in thepopulation is declining.
The World Bank has joined forces withthe Nike Foundation and other donors toset up the Adolescent Girls Initiative to pi-oneer employment projects for girls inpost-conflict and fragile environmentsaround the world. The Bank is also prepar-ing large youth development programs incountries as diverse as Mexico, SierraLeone, El Salvador, Papua New Guinea,and Nepal to enhance the opportunitiesavailable to young people and the employ-ability of young people who enter the labormarket.
The Bank is also working in partnershipwith the International Labor Organisa-tion’s (ILO) Youth Employment Network,with leading NGOs and Civil Society or-ganizations, and with the broader donor
community to improve our global knowl-edge on effective youth employment inter-ventions that will succeed even after thecrisis has subsided.
We know that countries that invest intheir young men and women end up withgreater economic growth and social cohe-sion. Governments that encourage theirstudents to stay in school see significant na-tional returns on each additional year ofschooling. This is especially true whencountries invest in educating their adoles-cent girls to secondary school level and be-yond. Governments are working moreintensively with the international donorcommunity, NGOs and corporate sponsorsto champion new models of youth employ-ment programs that focus on a more com-prehensive market-driven approach – withrelevant job and life skills training, intern-ships, and job placement opportunities.
Governments are also forming partner-ships with private companies to finance andexpand effective job-training programswhich can groom young people for the de-mands of a global economy that requiresmore highly skilled workers.
For example, in the Dominican Repub-lic’s Juventud y Empleo project, compre-hensive job training has increased youngpeople’s salaries by as much as 10 per cent.The returns on the investment in the youngbeneficiaries are expected to exceed theprogram costs within two years of theirgraduation. Such returns are observed in
youth employment programs around theworld.
To be sure, the global recovery is takinglonger than anticipated. It will take timefor countries to restore confidence and en-courage trade and investment, to createjobs, enhance productivity and spur re-newed growth. But we cannot wait untilthe crisis ends to pay serious attention tothe plight of today’s young people.
Young people today constitute the largestyouth population in human history – morethan one billion people between the ages of15 and 25 – the vast majority of them indeveloping countries. Sub-Saharan Africa,according to the US-based Population Ref-erence Bureau, is home to the world’slargest population of young people and isprojected to stay this way for decades.
If we do nothing to address these issues,the consequences will be severe. Even ifthere is no violence, too little investment inyoung people costs countries as much as 2per cent of their GDP every year, even atthe best of times.
As a result, fewer young people will beable to contribute to the economic growththat will fuel a widespread and sustainableglobal recovery. Now is the time for gov-ernments and donors to act. Young peoplemust be empowered to take charge of theirown lives and discover their full potential.Whether they succeed has everything to dowith whether we succeed as a world, and asa society. But they cannot do so alone.
Young people today constitute the largest youth
population in human history – more than one
billion people between the ages of 15 and 25
– the vast majority of them in developing countries
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20 OUR WORLD IN 2012NEW EUROPE
- Writing this in the closingdays of the year, it is apparent that anypreparations for 2012 should involvefinding a remote mountain refuge, stock-ing up with bottled water and tinnedfood and acquiring a range of armaments.
This isn’t because of the deranged pro-nouncements of Mel Gibson or thosewho think the Mayans predicted the endor worlds, but because the fallout of thefinancial crisis has yet to really bite. Partof the reason for that lies with our polit-ical leadership who reacted with theirusual sluggishness, spending more timesquabbling between themselves and withmore regard for their electoral prospectsthan the prospects of their citizens. Byany standard they are all guilty of grossdereliction of duty. This will not changein 2012.
There are two major events next year,all for the benefit of business, who haveto try and drag the long suffering publicwith them.
The first is the US Presidential elec-tion. Obama got elected on a promise of‘Change’ and then didn’t change any-thing, leaving his supporters increasinglyangry, but he might get away with it asthe Republican contest to find a chal-lenger has been little more than a freakshow, geared towards finding the mostunelectable candidate. This is the resultof letting the Tea Party become the intel-
lectual force of the party. The breadthand depth of the challengers’ ignorancewill alarm anyone who completed basicschooling.
The independents are no better. De-clared candidates include Roseanne Barr,Koran burning Pastor Terry Jones and‘The Naked Cowboy’. The latter isclaiming to represent the Tea Party.
These elections are estimated to cost$6 billion and the candidates are busyfundraising… from the only people whohave cash to spare, the bankers. There’sno change like… no change.
The UK is hosting the Olympics, orig-inally announced as ‘the sustainablegames’ which were to herald a bright newworld, at least in London, but austerityand dubious planning has meant thatthere is likely to be little real legacy forthe poor Londoners who are helping payfor this.
Others are also contributing. Sponsorsinclude the sort of people who havestuffed the Brit kids so full of fat andsugar that they’ve become the shape andtexture of medicine balls and have a lifeexpectancy lower than their parents.
The Brits have shown some interest,the tickets for the beach volleyball soldout immediately, although few purchasershave a detailed knowledge of the rules, oreven scoring. Mystifying.
Of course, holding such an expensiveevent is tricky in times of austerity. Toguard against terrorist attack, and ab-
solutely not to control an increasinglyangry populace, the UK is having 10,000police patrolling and… 13,500 soldiers, afigure higher than the current UK de-ployment in Afghanistan. London 2012:bringing Helmand to Hackney.
The EU has declared 2012 as the ‘Yearof Active Aging and Solidarity betweenGenerations’. I’m sure that I’m not alonewhen I say that a little piece of me ac-tively ages every time Van Rompuy orBarroso open their mouths. As for soli-darity between generations, the EU hasmade great strides towards this. I lostcount of the number of times I have seena male middle aged official or deputy sur-rounded by a gaggle of young, attractive,female interns. I’m told that discussionson this important issue often carry on allthrough the night. The poster boy for thisinitiative was Silvio Berlusconi, the Ital-ian Carrion.
Another school of thought suggeststhat the EU should declare 2012 as the‘Year of sitting in a dark room weepingquietly, hoping it all goes away’.
In Belgium, we will have our first fullyear of government for several years. Thelack of one didn’t really upset people andthe Belgians took it all in their stride andmany greeted the news that a cabinet hadbeen formed, under the pressure of a totaleconomic wipeout when the marketsopened the next morning, with a vaguefeeling of disappointment and that aGolden Age had passed.
Belgium is, without a doubt, theworld’s finest failed state. To celebratethey’ve declared a year of gastronomy,where Belgian food and beer is to bemade available throughout the land. Thisis the only truly good thing about thecoming year. Of course, this can onlywork if the nation can hold itself togetherfor the next 12 months.
2011 can be summed up by the EU fail-ing to get a grip on the approaching finan-cial apocalypse, headquartered in a nationthat just couldn’t get a government formed.
2012 is going to be even worse. I’m re-lying on large amounts of Belgian beer tosee us through.
2011 can be summed up by the EU
failing to get a grip on the approaching
financial apocalypse, headquartered in a nation
that just couldn’t get a government formed
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21OUR WORLD IN 2012
- After the withdrawal ofall U.S. combat troops from Iraq the visible oc-cupation the country has come to an end.However, the true struggle for the future of Iraqhas begun, in fact the struggle for the survival ofIraq as one entity has begun. Also, as the visi-ble occupation comes to an end, the invisibleoccupation is still very strong and it is menac-ingly threatens the future of Iraq and of thewhole Iraqi people regardless of ethnic or sec-tarian group that they belong to.
To understand the statement above we firstneed to understand the history of the recentpast.
Iraq was ruled by Saddam Hussein a vicioustyrant for 35 years, both as Vice-President andfrom 1979 as President, where no one was safe,more than 4 million Iraqis were exiled. Hiskilling machinery and torture chambers wereunrivalled in the history of Iraq. Also, Iraq wasembroiled in many adventurous wars for thebenefit of other countries and not for the ben-efit of Iraq or the Iraqi people. A million moreIraqis died as a result of these foolish wars. Inaddition, Saddam began a concerted campaignagainst the Kurds and other ethnic groups inthe north, culminating in the gassing of Halabjaand the Al-Anfal Campaign and the destruc-tion of hundreds of Kurdish, Assyrian, Turko-man, Shabak, Armenian and Yazidi villages andtheir mass killings. He set upon a policy of set-tling Arabs in the formerly Kurdish area, copy-ing the Stalin’s Soviet Union. Many Kurdish,Assyrian, Turkoman, Shabak and Yazidi villagesand towns were destroyed or forcibly resettledwith Arabs from the south of Iraq.
The United States of America promisedIraqis Freedom, Democracy and Respect forHuman Rights. Then they invaded Iraq inMarch 2003 with the help of the main Iraqiopposition parties that are in power now. Butsoon it turned out that Iraq jumped from fry-ing pan directly into fire, because neither USAnor Iraqi opposition parties had any plans tostabilise Iraq after the invasion. The Liberationturned into occupation, the country was lootedand more than 500000 innocent Iraqis have losttheir lives and many more were injured as a di-rect or indirect result of the occupation. An-other 4 million Iraqis were displaced bothinside and outside the country with theirHuman Rights flouted on daily basis. Also,many thousands of Iraqis were incarcerated forindefinite periods and without any trial by theliberators. Terrorism, secret prisons, kidnap-pings, torture and serious abuses of HumanRights flourished in new democratic Iraqwhich culminated by the abuses of Iraqi pris-oners in the infamous Abu Ghraib prison inBaghdad. Finally the defender of freedom andHuman Rights has betrayed its main principlesand stabbed the lady liberty in the back andraped her when they abused and raped menand women in Abu Ghraib prison.
As for the promise of Democracy and pros-perity it turned out to be the most hollowest of
a l lpromises, because after the invasion the USAcreated a flawed political structure and dividedthe Iraqi society along ethnic and sectarian lines(i.e. Shia, Sunni and Kurds) which was and stillis a recipe for disaster. The minorities such asthe Turkomen, Christians, Yazidis, Shabaks,Assyrian and other groups had virtually novoice or they had minimal representation in thenew democratic Iraq. In the drafting of the newconstitution the majority were ignored or side-lined by the two main groups. One cannot sayIraq is democratic just because it holds electionswhich many knows the elections in Iraq hadmany fundamental flaws that rendered thewhole election undemocratic and put intodoubt the legitimacy of the government. Wemust not forget that many dictators around theworld hold elections to legitimise their rule andwe all know that they are not democratic. Also,in democracy we can setup systems and politi-cal structures that are undemocratic too and inthe same fashion as the ones under the dicta-torship, which renders the whole system ille-gitimate. We can safely say that the newpolitical structure in Iraq falls under such a cor-rupt or inept system. Unfortunately, this ineptsystem will always result in weak and ineffectivegovernments that will continuously fuel insta-bility, but it also contributed to inactivity in re-lation to implementing reforms and takingmeasures that protects human rights or theIraqi population. We saw in the last electionthat this inept political structure resulted in in-conclusive election that led to a long process ofgovernment formation which was not con-cluded until December 2010 and left the ordi-nary people without government and paralysis
of the institutions. As for the prosperity we have widespread
corruption, poverty, economic stagnation, un-employment and absence of basic services. Thecorruption in Iraq is allowed to become en-trenched and spread throughout its institutionsand it is now interwoven into the fabric of thesociety. This corruption has contributed to a se-vere decay in public services and it is so wide-spread that even jobs in ministries of Defenceand Interior are sale for thousands of dollars.This flaw in political structure discussed abovetogether with the government interference inanti-corruption cases, manipulation of investi-gations to frame rival political opponents andintimidating and silencing critics to prevent up-rising in Iraq has exacerbated the problem evenfurther.
The recent event with the issue of arrest war-rant for the Vice-president Tariq Al-Hashimi(Sunni Arab), the fragile Iraqi political struc-ture the US military has left behind is begin-ning to fall dangerously apart and it will headthe country for either a Civil War or the brake-up of the country, which cannot be done with-out a Civil War.
Obviously this move by the government isdesigned to strengthen the grip of Shia power
in the country to protect Iran from the shock-wave of the collapse of the regime in Syria. Also,it is designed to force the creation of regionsalong the Sectarian lines which they were pre-vented from accomplishing this goal in 2006 bythe American.
In addition the nature and the compositionof the current Iraqi political parties that arrivedwith the Americans to power are such that theycan only survive if there are sectarian and eth-nic tensions. But the majority of the Iraqi soci-ety is aware of this ugly intention.
In conclusion we in the People’s NationalDemocratic Liberation Movement of Iraq be-lieve that 2012 will see a dramatic change in theMiddle East and in Iraq in particular and weeither create an Iraq based on Citizenship,Equality and true Democracy or stay on thecurrent path that leads to disaster and mass up-rising. We must all work for Iraq and the Iraqipeople or we are all doomed to years of insta-bility or civil war.
We as a movement have been warning ofsuch a fate from the outset and we have a de-tailed plan to take Iraq to safety and establish aDemocratic Iraq based on Freedom, Democ-racy, Justice and Equality with full adherence toprinciples of Human Rights.
This inept system will always result
in weak and ineffective governments
which fuels instability
NEW EUROPE
22 OUR WORLD IN 2012
- Peal of the bells on NewYear’s Eve will notify not only about thebeginning of 2012, but also about the in-trigues that will accompany importantevents expected in Ukraine and Russia.
Ukraine, with its strategic and delicategeopolitical position as an independentstate, finds itself again in the situation ofchoice between two neighbours, EU andRussian Federation. Ukraine, due to thiscondition and especially due to its en-ergy-dependent economy and fragile en-ergy security, is not able to conduct anindependent foreign policy. Kyiv willhave to operate according to the neigh-bour’s interests and actions.
The discussion about Ukraine joiningCustoms and Eurasian Union has been inthe shadow of the possible ratification ofthe Association Agreement with the EU.The debate will definitely revive again,since the expected Agreement was notsigned during the recent Summit in Kyiv.
Russia’s interest and its foreign policywill most likely remain unchanged asPutin, after his presidential bid an-nouncement, may serve his third andfourth term as President of the RussianFederation. Russia will continue to pullthe strings, influencing the process of theEuropean integration of Ukraine, whichalso includes partnerships in the area ofsecurity and defence area. At the sametime, it will provide its own interpreta-tion of the story, like it is sometimes doneby the comments of the Russian officials
on the case of Ukraine not beingmember of NATO by now thanks to thediligent work conducted by the Russiansecurity services. Moscow’s attempts toeffect Ukraine- NATO relations will es-calate together with the talks around Eu-ropean Missile Defence System.
As it was in the past, NATO will claimthat Ukraine is one of its major partnerswithin the Partnership for Peace. The po-sition of Ukraine towards Allies is pre-dicted by the law of 2010 about Ukraine’sneutral status and non- affiliation withmilitary unions.
Nevertheless, according to the Ministryof Foreign Affairs in Kyiv, the new co-operation plan with NATO is soon to beannounced and mutual Ukraine-NATOagenda is getting broader. NATO is will-ing to continue and expand mutual aidfor the operation in Afghanistan togetherwith possible tenders in the process ofoperation withdrawal, co-operation inthe cyber defence and the disposal of am-munition. A Ukrainian ship may takepart in combating piracy in Somalia.Moreover, NATO proposed to contributein providing security during theEuro2012 football championship nextsummer. And it is recommendatory bynature that the Ukrainian side shouldreact positively and use the Western ex-perience, as until the beginning of 2012
the government seems to have poor un-derstanding of the importance of law en-forcement training for an event of thatlevel. Despite of some efforts, the Soviet-type police approaches still prevail inUkraine. Thus no kind of action plan orUkrainian campaign for NATO will en-hance political dialogue. The context ofthe relationship is marginally deepening;and one may question whether it is aquality difference or is just a set of addi-tional measures which preserve the stateof the relationship on the same level.
Since NATO Secretary General An-ders Fogh Rasmussen invited Ukraine topartnership in locating objects of themissile defence, and by his words Ukraineshares the interest, Russian oppositionwill continue to grow. Russia is uncertainwhether it will participate in ChicagoSummit in May, because of the bilateralcontradiction issues over ballistic missiledefence system. Russia will use the timeuntil spring to provide with the prepara-tion on response reactions. Instead ofbargaining with Moscow and Brussels,Ukraine will be in a hostage situation,hoping for compromise between Russiaand NATO in the name of a strongerglobal security.
Despite the diplomatic efforts tosmoothen the situation, the statement ofPresident Yanukovych that Ukraine has
no intention to participate in the process,may leave the country on the outskirtsbetween two other competitors. It will beup to the diplomats to try and find aplace for Ukraine in the project.
The most crucial event for Ukraine in2012 is the Parliamentary elections.Their result will indicate who will be thenext President, which, in turn, may leadto changes in the security orientation andchange of mood in the society regardingEuro- Atlantic ideas.
Linked to foreign policy, main nationalsecurity threats come up before electionin both Russia and Ukraine. Presidentialelections in Russia in March and Parlia-mentary in Ukraine in October are mostlikely to become an attempt to the cur-rent governments to remain in power,while they lose the vote of confidencewithin their countries and beyond theirborders.
As shown in the recent parliamentaryelections in Russia, social and politicalinjustice can increase tensions in the so-cieties and may lead to social movementsthat will be hard to control in the usedauthoritarian force-based manner. Reac-tions of the other interested parties, whosay they share common security interestsbased on the values of the fundamentalfreedoms, human rights and democracy,are to be expected...
The most crucialevent for Ukraine
in 2012 is theParliamentary elections.
Their result will indicatewho will be the next
President, which, in turn,may lead to changes inthe security orientationand change of mood in
the society regardingEuro- Atlantic ideas.
Linked to foreign policy,main national security
threats come up beforeelection in both Russia
and Ukraine
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23OUR WORLD IN 2012
– “The goldenage of finance,” the economist BarryEichengreen has said, “has now ended.”If that is true – and let us hope that it is– what follows will most likely be a newgolden age of industrialization.
Historically, except for a few oil-ex-porting economies, no country has everbecome rich without industrializing.Thus, all eyes nowadays should be on oureconomies’ real sectors.
Confronted by the global financial cri-sis that looms over Europe, political lead-ers around the world are waking up to astark new reality: unless the developedcountries stop relying excessively on fi-nancial deal-making and start to rebuildfrom the ground up, they will lose theircurrent standard of living.
The global community must look be-yond the eurozone and sovereign-debtcrises and pay attention the opportunityof structural transformation in the devel-oping world’s real sectors. By structuraltransformation,
I mean the process by which countriesclimb the industrial ladder – their work-forces move into higher value-addedmanufacturing sectors as their sources ofproduction advance.
Throughout 2011, I was struck by thepotential for less-developed countries –including in Sub-Saharan Africa – toemulate successful industrializing EastAsian countries such as Japan, South
Korea, Singapore, Malaysia, China, andVietnam. Indeed, by focusing develop-ment efforts on the comparative advan-tages of poorer countries, we can rebuildconfidence in the business sector andreinvigorate investment in job creation –not only in developing countries, but alsoin advanced economies.
The current global financial crisis,which is rooted in the advanced countries’structural problems, requires investmentand innovation policies, in addition tomonetary or fiscal measures.
In advanced countries, research and de-velopment costs are quite high, becausetheir technologies and industries are al-ready in the vanguard.
By contrast, developing countries, in-cluding those in Sub-Saharan Africa,have the potential to expand their indus-trial sectors rapidly, because they can bor-row technology from the advancedcountries with little risk and at low cost.
So developing countries’ backwardnessin terms of technology and industrymeans that they can grow for decades atan annual rate several times that of high-income countries before they close theincome gap.
This May, in Maputo, Mozambique, Idelivered the United Nations University’sannual WIDER lecture on development.I explained how the winning formula fordeveloping countries is to build up thesame tradable industries that have beengrowing for decades in wealthier coun-tries that have endowment structures
similar to their own.The pattern of flying geese is a useful
metaphor to explain this idea. Beginning in the eighteenth century,
the less-developed West European andEast Asian countries followed their moresuccessful neighbors: emulating a flying-geese pattern, they benefited from theleaders’ tailwind as they first industrial-ized and then became advanced countriesthemselves.
Large, dynamic emerging-marketeconomies (particularly Brazil, Russia,India, China, and South Africa) that haveindustrialized quickly offer unprece-dented opportunities for other develop-ing economies to emulate their success –and thus to jumpstart their own industri-alization processes.
China – once a “follower goose” – is onthe verge of becoming a leader, with thepotential to relocate 85 million low-skilled manufacturing jobs in the comingdecade.
The scale of this shift is huge whencompared with the 9.7 million jobs thatJapan created in the modern sector in the1960’s, or South Korea’s 2.3 million mod-ern jobs in the 1980’s. And a similar trendwill arise in other emerging-marketeconomies.
In fact, it is already happening: China’soutward foreign direct investmentreached $68 billion in 2010, exceedingthat of Japan and the United Kingdom.India, Brazil, Russia, and South Korea arenot far behind.
Moreover, India’s outward FDI is heav-ily concentrated in the manufacturingsector, accounting for 42.7% of the totalin 1999-2008.
For developing countries to benefitfully from industrial upgrading in Chinaand other large emerging-marketeconomies, their governments must iden-tify tradable industries that are consistentwith their latent comparative advantage.They also must help private firms to re-solve information, coordination, and ex-ternality issues in the process ofindustrial upgrading.
Rapid industrialization in developingcountries will require large imports ofcapital equipment from advanced coun-tries. Given that developing countrieshave accounted for as much as two-thirdsof global growth in GDP and importsover the past five years, focusing on howto foster development in their industrialsectors could benefit advanced countriesby helping to boost demand, therebypulling the world out of its economicmalaise.
In short, the imminent golden age ofindustrialization in developing countrieswill help to create jobs and spur recoveryin advanced countries.
The benefits of this new era will betwo-pronged: it will contribute to theachievement of the UN Millennium De-velopment Goals – the plan to cut worldpoverty in half by 2015 – and also willhelp to drive a global recovery. Then, wemay see a golden age for all.
The imminent
golden age of
industrialization in
developing countries
will help to create jobs
and spur recovery in
advanced countries
NEW EUROPE
24 OUR WORLD IN 2012
- As with every year duringthe past couple of decades, 2012, just like2011 was, has been widely announced asa year of great expectations and no lesserchallenges in the Western Balkans.However, for the first time since theterm has been coined (as a designationfor a group of non-EU countries boundto join the Union as soon as they fulfilthe criteria, located in the same region),at least by the type of challenges each isfacing, we can clearly distinguish the re-gion’s countries.
Croatia, since 9 December 2011 whenthe Accession Treaty with the EU wassigned, has a distinctly different set ofchallenges compared with its neighbours.The newly formed government inheritedthe completed EU integration project and,in 2012, needs to see the accession refer-endum and ratification process through.However, running an institutionally andsocially sound country means that the newprime minister and his cabinet will haveto tackle an array of 'bread and butter' is-sues, from unemployment to debt anddeficit. The governor of the central bankhas already warned that the keywords for2012 will be 'spending cuts'.
With Croatia's accession scheduled forJuly 2013, responsibility for the enlarge-ment engine seems to be placed on theshoulders of the smallest of all the coun-tries in the region – Montenegro. Withmerely 625,000 inhabitants and alreadyprepared translations of the EU's acquis(courtesy of their Croatian neighbours)the infamous 'EU absorption capacity'and harmonisation of legislation shouldnot present major obstacles. However, thenew praxis of the enlargement, introducedthis year – starting with the most chal-lenging chapters of negotiations (23 and24 – rule of law and fight against corrup-tion and organised crime) – has alreadydelayed the decision on beginning negoti-ations for June 2012.
The start of the 'real' accession processis no clearer to the Former Yugoslav Re-public of Macedonia, whose dispute withGreece over the name is still deadlocked.Although the European Commissionsends regular recommendations to opennegotiations with the country, each yearnew reasons are found for why it shouldbe postponed. It does provide authoritiesin Skopje with necessary time to conductmuch-needed reforms, improve standardsof living and political actions, as well asdeal with smouldering ethnic tensions, butequally is creating a strong sense of frus-tration, especially among younger genera-tions. It seems as if the longer the solutionis delayed, the less likely it becomes.
Serbia is faced with a similar challengeas its southern neighbour, namely the in-
compatibility of internal political issueswith the country's European aspirations.Historic first rejection of the EuropeanCouncil to grant a candidate status to acountry following the positive recommen-dation from the Commission and addi-tional personal lobbying by CommissionerFüle is clear evidence that Serbia's path tothe EU's stars will be longer and tougherthan expected.
Serbia's authorities are facing a virtuallyimpossible task of balancing two seem-ingly contradictory policies – towardsKosovo and the EU. It is hard to imaginethat, with the elections due to take placein the spring of 2012, the government willbe able to fulfil the Kosovo-related re-quirements set up by the Council in timefor the March summit, when the candi-dacy will be reconsidered.
With the highly likely possibility ofthere being a tight result in the election,and another lengthy process of govern-ment forming, it is not unrealistic to ex-pect that Serbia could miss the train forthe June Council as well. And the candi-dacy itself means little in practical terms,as Belgrade's counterparts from Skopjecan witness, at least from the EU's per-spective, whereas it could be (or perhaps'could have been') a lifeline for Serbiansociety, which is rapidly radicalising andturning anti-EU. In addition, existence ofthe EU's 'twin-track' approach withKosovo reminds of the situation withMontenegro, within then-state union of
Serbia and Montenegro.Albania for its part has passed through
a tough period of high political instabil-ity, opposition boycott of the Parliamentand negligible progress towards the EU, asituation its leadership is looking forwardto overturning in 2012. The countryrecorded a decent economic growth ofnearly 3.5% in 2011 and, aside from insti-tutional challenges, the main objectivewill remain the eradication of poverty andfurther strengthening of the economy. Po-litical volatility and divisions along thepolitical lines will, however, remain themain stumbling blocks for the country.
When it comes to divisions, the situa-tion hardly gets worse than in Bosnia andHerzegovina. The country is in perpetualexistential perplexity, divided between twoentities and three nations, each more con-cerned about the well-being of its respec-tive group than the country as a whole.Bosnia and Herzegovina is seriously chal-lenging the Belgian record for the longestperiod without a government, at now
more than 400 days since the last federalelections and with little hope of reachingconsensus. The deadlock of the executivewill have major ramifications on the coun-try, both politically and economically. Is-sues of reform of the constitution(enshrined in Dayton peace accords, with-out necessary consideration or even usualconstitutional principles), functioning offederal institutions and even the territo-rial integrity of the country are deemed totop the agenda in 2012 without a clear so-lution to any of them.
2012 will obviously bring many (differ-ent, yet somehow similar) challenges tothe region, complementary to the overen-compassing economic crisis of the entirecontinent. Hope still remains and it evenhas a symbolic emanation (a blue flag with12 yellow stars) and embodiment (Croa-tia's accession ratification and bits and,potentially, pieces of candidacy here-opening of negotiations there), but thequestion remains…how realistic is thathope?
2012 will obviously bring many(different, yet somehow similar)
challenges to the region
NEW EUROPE
25OUR WORLD IN 2012
According to Clem Chambers, CEO ofleading stocks and shares informationwebsite ADVFN.com 2012 will see mar-kets continue this year’s rocky ride. Hereare his seven best guesses for marketevents in 2012:
Gold will go through
$2000 an ounceGold is down in the dumps right now.
This is partly due to the general Christ-mas wind-down in levels of general trad-ing, as well as concerns about EFT whichmay or may not hold Gold. Nothing goesup in a straight line – hence the currentcorrection in the yellow metal. Mean-while, Europe and the US are on the pathto inflation. The printing presses of theworld’s biggest economies are churningaway ‘QE’ing’. Whether this will result inhyperinflation or a more manageable 5-10% rate is yet to be seen. Gold will ap-preciate in 2012, however. New highs willbe reached. Gold will get over $2000with a chance of run at $2500.
Euro will fall below 1.10
to the dollarThe euro is saved – it’s also doomed to
devaluation. Without Germany on theinflation bandwagon the euro was strong.This was because weak members were setto fall out of the zone, leaving behindGermany and other stronger economies.Now the latest ‘Euro-fix’ is in, Europewill print and print and print. This willtake the form of lending money to theIMF who will lend it back; ‘buddy deals’with the US - anything to not appear tobe merely printing euro notes. In anyevent, money supply will be expanded tobail out the Eurozone and inflate awaythe vast, accumulated debts of the gov-ernmental wastrels.
The market in UK/US
will crashGermany, France and Italy crashed in
2011. The US and UK didn’t. The FTSEand Dow teetered and tottered but didn’tfold. In 2012 they will. Maybe it will bein April/May when giant developingworld countries bloated with westerncurrency put on their hedges and readjusttheir vast stashes of cash, or maybe it willjust kick off randomly. To avoid a crash,the whole sorry credit crunch saga willneed to be over. That seems like a dream
we are likely to wake up from in 2012with a nasty jolt. There are 3-5 years ofeconomic lumps and bumps to getthrough and a US/ UK stock marketcrash is likely to be one of those bumps.
Inflation in the US and
Europe will rise but will be
flat in the UK
Inflation will zoom in Europe, hittinglevels now seen in the UK. The US is fol-lowing. Inflation is standard treatmentfor state debt. It’s the only way out of thefiscal dead end Europe and the US are at.Even though it ’s enshrined in the man-dates of central banks, 5-10% inflation isthe only solution to clearing up the messleft behind by binge-spending govern-ments. Expect plenty of denials and lameexplanations and price rises on the shopshelves. The age of price stability is rap-idly coming to an end.
BRIC nations will suffer
more hard landingDon’t confuse your brains with a bull
market, the old market saying goes.Meaning: ‘Even an idiot will do well in a
bull market, so if you have made a packetin a big rally don’t think it was becauseyou were smart’. Emerging markets havebeen the recipient of huge US largesse.Like an attached sea cucumber, Americahas expelled its economic stomach to buyoff trouble. The EU has not been any lesssaintly, maintaining huge trade deficits toBRIC countries. That river of money isabout to be choked off. As the first tight-ening starts in the developed world, sothe BRICs are already folding.
The emerging market bubble will beginto collapse in 2012. Nonsensical valuationsin emerging markets will vanish, just as theydid in the Dotcom crash. Overleveragedbusinesses will fold. Developed world aus-terity will be a hammer blow for the devel-oping markets: ‘Game Over’.
Bank nationalisations in
Spain, France and Ger-
many
Banks are getting direct access to theprinting presses of the US and Europe. Thisshould keep most of them in business.However, some will fail stress tests and benationalised in the same way banks wereswallowed up in the UK in 2008. It’s a poi-
soned chalice for the politicians but theylove to meddle. Having banks to tinker withwill be just the temptation they need tosweep up a large chunk of Europe’s financialinfrastructure.
Sarkozy, Merkel and
Obama all re-electedSarkozy and Merkel should, of course,
carry the can for Europe’s problems.Where were they when Europe was get-ting high on spending? Like any USCEO hauled up in court, they were else-where with no idea of the terrible crimesgoing on below. Out with them?! Nochance - the respective electorates willbe impressed by their leaders’ crisis man-agement skills - even though said leadershelped create the crisis. Obama, on theother hand seems set to be a tragic JimmyCarter, a one- term President grounddown with nothing to boost his popular-ity. Yet he, too, will be re-elected. The Re-publicans simply do not have a candidateto beat him. 2012 will see the US econ-omy magically blossom. Deep in the un-derbelly of America, things have beenpicking up. 2012 will see this comebackbreak the surface and give Obama the tailwin he needs to have his final four years.
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26 OUR WORLD IN 2012
– The dire economic situ-ation in which most of the rich worldfound itself in 2011 was not merely theresult of impersonal economic forces, butwas largely created by the policies pur-sued, or not pursued, by world leaders.Indeed, the remarkable unanimity thatprevailed in the first phase of the finan-cial crisis that began in 2008, and whichculminated in the $1 trillion rescue pack-age put together for the London G-20meeting in April 2009, dissipated longago. Now, bureaucratic infighting andmisconceptions are rampant.
Worse still, policy disagreements areplaying out more or less along nationallines. The center of fiscal conservatism isGermany, while Anglo-Saxon countriesare still drawn to John Maynard Keynes.This division is complicating mattersenormously, because close internationalcooperation is needed to correct theglobal imbalances that remain at the rootof the crisis.
Doubts about sovereign debt in Europehave revolved around the euro to such anextent that some now question whetherthe single currency can survive. But theeuro was an incomplete currency fromthe outset.
The Maastricht Treaty established amonetary union without a political union– a common central bank, but no com-
mon treasury. Its architects were aware ofthis deficiency, but other flaws in theirdesign became apparent only after thecrash of 2008.
The euro was built on the assumptionthat markets correct their own excesses,and that imbalances arise only in thepublic sector. As it happened, some of thelargest imbalances that fueled the currentcrisis arose in the private sector – and theeuro’s introduction was indirectly respon-sible.
In particular, sovereign debt in the eu-rozone was deemed riskless: banks hadonly to hold minimal reserves againstmember countries’ bonds, which the Eu-ropean Central Bank accepted on equalterms at its discount window.
Member countries could borrow atpractically the same interest rate as Ger-many, and banks were happy to earn afew extra pennies by loading up their bal-ance sheets with the government debt ofthe eurozone’s weaker economies. For ex-ample, European banks hold more than a€1 trillion ($1.3 trillion) of Spanish debt,with German and French banks holdingmore than half of that sum.
Instead of the convergence prescribedby the Maastricht Treaty, the radical nar-rowing of interest-rate differentials gen-erated divergences in economicperformance. Countries like Spain,Greece, and Ireland developed real-estatebubbles, grew faster, and developed trade
deficits with the rest of the eurozone,while Germany – weighed down by thecosts of reunification – reined in its laborcosts, became more competitive and de-veloped a chronic trade surplus.
The convergence of interest rates wasbroken when a newly elected governmentin Greece revealed that the deficit in-curred by the previous government wasmuch larger than had been reported. Eu-ropean authorities were slow to react, be-cause member countries held radicallydifferent views.
Germany, traumatized by runaway in-flation in the 1920’s, and its dreadful po-litical consequences, adamantly opposedany bailout.
Moreover, it was heading into an elec-tion cycle, which increased the rigidity ofits position. With German leaders insist-ing on charging penalty rates for provid-ing assistance, the crisis festered – andthe rescue costs continued to grow.
Indeed, as eurozone members’ inabilityto print their own money effectively rel-egated them to the status of less-devel-oped countries that must borrow in aforeign currency, risk premiums widenedaccordingly.
The authorities, seeing no solution,kicked the can down the road – an ap-proach that usually works, because prob-lems become easier to solve whenmarkets calm down.
But, in this case, the crisis kept growing
bigger, and the authorities ran out of roadwhen Germany’s Constitutional Courtruled out additional guarantees beyondthe European Financial Stability Facility(EFSF) without the consent of the Bun-destag.
At the European Union’s December 9summit in Brussels, the eurozone coun-tries agreed to establish a closer fiscalunion. But, by the time this decision wastaken, it was no longer sufficient to bringthe financial crisis under control.
The measures introduced by the ECBwent a long way toward relieving banks’liquidity problems, but nothing was doneto reduce the large risk premiums on gov-ernment bonds.
Because the premiums are intimatelyinterconnected with the banks’ capitaldeficiencies, half a solution is not goodenough. Unless the sovereign debt of therest of the eurozone is successively ring-fenced, a Greek default could cause ameltdown of the global financial system.
Even barring such a nightmare scenarioin 2012, the summit sowed the seeds offuture conflicts – over the emergence of a“two-speed” Europe and the false eco-nomic doctrine guiding the eurozone’sproposed fiscal pact.
That doctrine, by imposing austerity ina period of rising unemployment, threat-ens to push the eurozone into a viciousdeflationary debt spiral from which it willbe difficult to escape.
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- The global financial crisiswhich began in 2008 marked the end ofthe romantic neo-liberal capitalist model.It is clear that contradictions accumu-lated over the years, though long cloakedby abundant and cheap money, swelled tothe point of forcing a search for newworkable paradigms.
The situation was greatly complicatedby the fact that the corporate finance cri-sis coincided with a public finance crisismade most apparent in the comprehen-sive inability of a large number of coun-tries (mainly European) to service theirdebts.
The need for a drastic tightening ofgovernment financial discipline addition-ally hit demand, in freefall due to botheconomic and purely psychological fac-tors.
The consequences of the Great De-pression in the Thirties are sufficientlywell-known not to warrant comment inthis rather brief analysis. Most likely, thecurrent crisis will also lead to significantgeopolitical developments.
Undoubtedly, the problems of unitedEurope are the gravest, mainly becausethe systemic factor amplifies the financialcrisis, attenuating its effects. Entropicprocesses in a none-too-balanced eco-nomic and financial system threaten tobecome endemic. If the consequences failto be controlled in good time, they couldimpact the entire world economy, bearingin mind Europe’s place and role in it.
The hawking of lateral and occasion-ally rather exotic solutions additionallyheightens uncertainty and buttressespanic and fear of the unknown.
It is clear that the problems of theworst-hit European countries stem bothfrom the manner in which they managedtheir economies, and from factors specificto the European Union.
The gravity of the current situation isreinforced by an all-too-probable chainreaction to crisis which could affect thelargest European economies: Germanyand France.
It is well known that those countries’exports depend greatly on the afflictedmarkets of other European counties,greatly increasing the likelihood of a re-cession in Europe’s leading economies.
The reasons for this situation are many,yet could be systematised thus:
Global: stemming from the overallstate of the world economy expressed ingravely restricted manufacturing andconsumer demand. Naturally, this im-pacts the “open” economies of developedEuropean countries which depend on in-ternational commercial and economic ex-change for a significant part of theirnational income.
An additional problem is that Euro-pean banks hold significant volumes ofstill-underprovisioned US bonds, furtherconstraining their already rather conser-vative lending policies. The effect is clear:yet another closing of the vicious circle oflow demand and budget deficit.
Systemic: mainly stemming from omis-sions in Europe’s currency and economicsystem.
Hasty wholesale expansion involvingthe close intertwining of economies at di-verse stages of development and withoutsafeguards against negative influences re-sulted in systemic entropy.
Moreover, the egocentricities of themost developed economies preventedthem from going further in forming thenew European economic union than themere creation of additional and relativelycaptive markets for their companies. Theavailability of cheap resource in Euro-pean structural funds, mainly earmarkedfor financing less developed counties’ in-frastructures, created the illusory impres-sion of great growth in the latter,alongside great export opportunities forthe former. The problem with this modelof systemic development was that itfailed to boost European competitivenessvis-à-vis the rest of the world. Economicdiscrepancies between the former andlatter not only failed to reduce, but grewin certain cases.
A number of countries’ debt grew — insome cases, through debt issues to coverbudget deficits; in others, though chronic
current account deficits. Defence spending, generously financed
through national debt issues, was anadded burden for some countries.
At the same time, scant attention waspaid to fostering growth, productivity,and technological development in less-developed countries. It was clear thatthese countries were unable to divert suf-ficient own resource for R & D.
It took the 2008 crisis to show that,after sharp drops in direct investmentand tourism revenues, countries likeGreece, Spain, Portugal, and Italy had noalternative revenue sources.
In the circumstances, it seems that thecreation of a single financial platform tocontrol individual countries’ fiscal frame-works was greatly delayed. To top every-thing, the moment is not very propitiousin view of growing nationalism in a num-ber of countries. All the same, this is thesole route to saving the European system.
A vicious circle, indeed!I feel that the only way of resolving the
problem is to show greater solidarity intackling the issues — particularly fromthe developed countries. These countries’politicians ought to display leadershipand convince their public that restrictionsmust bind not only those “guilty” and“naughty,” but them themselves. Foreveryone is equally guilty and everyonemust taste the bitter pill. This is not all;continuing with “pro discriminating”moves in their favour and to the detri-ment of the less-developed countries canonly hasten the system’s collapse. Wemust not consider this an automatic res-olution of German and French problems:quite the reverse! This is why these twocountries’ haughtiness ought to give wayto a constructive stand for a united Eu-rope. Only such a stand will benefit boththe “dimwits” and those at the top of theclass.
Scant attention was paid
to fostering growth, productivity, and
technological development in
lessdeveloped countries
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- I have long been watching the in-ternational trial that my country is undergoing,and I am protesting. Everyone is laying siege toGreece – the story begins with Greek formerprime minister George Papandreou who, in acrescendo of political foolishness, defamed mycountry abroad, to build on his image of beingthe ‘good guy’ and gain the grace and favour ofEuropean leaders for himself. What’s more, inan attempt to show how good a learner he was,he classified the Greeks as a nation of charla-tans. At first, they slapped him on the back,congratulating him on his ‘bravery’ and then, asexpected, they drove him into the corner. How-ever, Greek pensioners and employees are set tobe clobbered for many years to come.
Nevertheless, there is something called ‘na-tional dignity’. I cannot have any other coun-try’s finance minister point the finger at mebecause he allegedly does me the favour oflending, when he has in fact been paid off dur-ing past decades, at very satisfactory rates of in-terest. In fact, interest rates are even higher now.I cannot allow, and neither have any previousleaders allowed, anyone who is a stranger to thiscountry to humiliate Greece by discrediting it.With our words and deeds, we have given thecountry a chance to rank among the wealthiestcountries in the world, to have much lower un-employment rates than those prevailing inother southern countries and to enjoy the rightof having its voice heard on its own national is-sues. A pointed example is our refusal to haveour neighbour, the former Yugoslavian Repub-lic of Macedonia (FYROM) admitted toNATO, unless the issue of its name is resolvedfor good.
I know that some of you may perhaps smilewhen reading about FYROM – maybe it’s be-cause you have forgotten the last time thatsome of your own neighbours tried to steal andmisappropriate a part of your own history. It istypical for us Greeks to always be reminded ofthe past – some lay additional blame on us, asthey believe that in a world dominated by mar-kets, cultural history is of no value. It is like en-joying the fruit of a tree and forgetting that itsroots go deep down into the Earth….
We keep our past alive, but we do not livetherein. Some might say that we do not hon-our our past. That we are not worth being thedeserving descendants of prominent ances-tors. I believe that such oversimplificationsand generalisations are harmful, not only forGreece, but for humanity as a whole. Not allGreeks created miracles in the past, and its’not just Greeks who are responsible for thecurrent European mess. On the contrary,modern Greeks have decisively contributed
to the formulation of a new Europe and to itsrescue from totalitarianism. Am I going toofar back in time? You, our dear German part-ners, also go back in time when you claim thatyou built the modern economic miracle inEurope – and you actually did. You forget,however, that you accomplished this with thesolidarity of other people who suffered muchat the hands of your ancestors. There aremany Greeks living today, such as ManolisGlezos and Mikis Theodorakis, currently intothe ninth decade of their lives, who stood upagainst Nazism and all kinds of fascism andstill talk about World War II. They remind usof Winston Churchill’s phrase: “Hence, youwill not say that Greeks fight like heroes butthat heroes fight like Greeks.” One might askwhen all is said and done, why I bother to re-call all this and that besides, during the past70 years, Alsace and Lorraine have heardgunfire only from hunters, not from war ri-fles, thank God.
Greece, on the other hand, was hearing gun-shots even during the 1990s from its neigh-bouring Balkans and even to this day from itsneighbouring countries of North Africa. Doyou remember the economic decay that mycountry suffered because of the Balkan Warduring the 1990s? Have you forgotten the mil-lions of illegal immigrants who rushed intoGreece, and were not removed to other Euro-zone countries? I am not looking for excuses, Ido not need them – I am only citing facts thatare already known.
Greece had the average debt and deficit lev-els of most European countries (see Eurostatannouncement 22.04.10), although it repre-sents only 2% of the European economy – avery low figure to have everyone laid siege to it.Of course, my country does not have the powerto threaten foreign rating agencies with publicprosecution, as was recently done by France andthe US, when such agencies dared to down-grade their own banking systems. In the case ofmy country, foreign rating agencies simply saidthat it was a …technical mistake.
Why all the fuss about Greece? Of course, Ido not embrace the justification being spreadby some of my countrymen that we are enviedbecause we have the ‘best beach-front land inEurope with plenty of sun’. No. We have alsomade our own mistakes, we were the first toadmit this and it would be unacceptable for usto claim that it is all someone else’s fault. How-ever, there should be a measure for everything– the defamation of Greece is disproportion-ately huge, if compared with the actual prob-lems that it is causing to Europe. Only idiotscan smile at the gross propaganda of the presswith the Parthenon sinking into a sea of debtsand Aphrodite de Milos sodomising Greekswith her pointing finger. True Europe lovers areaggrieved at this kind of defamation, becausethey know that the Parthenon and Aphroditeshall modestly stand as magnificent monu-ments of culture for thousands of years to come.
I am not enjoying my country being made tostand trial, no one would. To be accurate, in theGreek case, sentence was imposed before thehearing began. In this trial, those who are re-sponsible and those who are not responsible,take the blame. The other day, I was informed bya friend that a Greek national who has beenprofessionally active in Germany in transportbusiness for 15 years has been subjected to ruth-less financial control on his company premisesand his family house, as if he were a commonthief. Nothing blameworthy has come out of hisbusiness, as has been the case for 15 years. How-ever, it was the first time that a control was car-ried out with the controllers’ suspiciousnessoverflowing. ‘He is Greek. Scrutinise him.’‘Kristallnacht’ began somewhat like this…
I am implying nothing concerning the lead-ers of France and Germany. They are democ-rats who have fought, on a personal level, toclimb their way up democratic systems. Theirrecent behavior, however, towards all other EUcountries goes beyond the limit. They accusemy country of having breached the rules of the
Eurozone but, at the same time, they them-selves are breaching EU rules. Which treatyprovides that France and Germany can jointlydecide on the future of Europe and announcea new treaty to partners for their consent? Issuch behavior not a breach of the fundamentalprinciples of the European Union?
They blame my country for its financial col-lapse, when the same leaders in all their meet-ings with Greek prime ministers, have beenpushing my country to buy their own super-ar-maments, priced at many billions of euro. Theymuttered when they heard the Greek primeminister responding that the economy is not ina good enough situation to procure new arma-ments, but kept on pushing and pushing. Wehave now reached the point where Greeceranks between the top three countries of theworld in the armaments market in proportionto its population – those leaders pretending tobe ignorant and surprised by the drift ofGreece’s economy and the same in Europe aretherefore partners in crime.
I understand that they are accountable totheir own people. However, they have made afundamental mistake – their populism has de-stroyed a Europe of solidarity and fostered eth-nicism once more, which ruled during themid-war and the Cold War periods. They havepushed Europe decades backwards. And some-thing more – with their indecisiveness, back-sliding and procrastination, they have allowedanonymous markets to determine the destinyof European people and pull the strings out ofthe stock-exchange markets and bank institu-tions. Today’s European leaders are not leadingpeople; they are following markets and turningbankers into peer partners in decision-making.Instead of inspiring optimism in the hearts ofEuropean citizens and markets, they strike fear.Even Margaret Thatcher, a deeply anti-Euro-pean leader, would be angered by such incom-petence and lack of sound leadership in Europe– even she would become a ‘Europeanist’.
‘He is Greek.Scrutinise him.’
‘Kristallnacht’ begansomewhat like this…
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- Whenever people seek a justifi-cation for European integration, they arealways tempted to look backwards. Theystress that European integration banishedthe specter of war from the old continent.And European integration has, indeed,delivered the longest period of peace andprosperity that Europe has known formany centuries.
But this perspective, while entirely cor-rect, is also incomplete. There are as manyreasons to strive towards “ever closerunion” in Europe today as there were backin 1945, and they are entirely forward-looking.
Sixty-five years ago, the distribution ofglobal GDP was such that Europe hadonly one role model for its single market:the United States. Today, however, Europeis faced with a new global economy, re-configured by globalization and by theemerging economies of Asia and LatinAmerica.
It is a world where economies of scaleand networks of innovation matter morethan ever. By 2016 – that is, very soon –we can expect eurozone GDP in terms ofpurchasing power parity to be below thatof China. Together, the economies ofChina and India could be around twicethe size of the eurozone economy. Over alonger time horizon, the entire GDP ofthe G-7 countries will be dwarfed by themajor emerging economies’ rapid growth.
So Europe must cope with a newgeopolitical landscape that is being pro-foundly reshaped by these emergingeconomies. In this new global constella-tion, European integration – both eco-nomic and political – is central toachieving an ongoing prosperity and in-fluence.
Like individuals in a society, eurozonecountries are both independent and inter-dependent. They can affect each otherboth positively and negatively. Good gov-ernance requires that both individualmember states and EU institutions fulfilltheir responsibilities.
First and foremost, every eurozonecountry needs to keep its own house inorder. This means responsible economicpolicies on the part of governments, aswell as rigorous mutual surveillance ofthose policies – not just fiscal policies, butalso measures affecting all aspects of theeconomy – by the Commission and mem-ber states.
In a society, law-enforcement institu-tions can ultimately compel a citizen toabide by the rules. In the eurozone, aframework based on surveillance andsanctions has, until the most recent deci-sions, depended on offending states’ will-ingness to comply.
But what can be done if a member state
cannot deliver on its promises? For coun-tries that lose market access, the approachof providing aid on the basis of strongconditionality is justified. Countries de-serve an opportunity to correct the situa-tion themselves and to restore stability.
This approach nonetheless has clearlydefined limits. So a second stage is nowenvisaged for countries that persistentlyfail to meet their policy targets. Duringthis second stage, eurozone authoritieswould play a much deeper and more au-thoritative role in the formulation ofcountries’ budgetary policies.
This moves us away from the currentframework, which leaves all decisions inthe hands of the country concerned. In-stead, it would be not only possible, but insome cases compulsory, for the Europeanauthorities to take direct decisions.
Implementing this idea also impliesembracing a new concept of sovereignty,given the complex interdependence thatexists between eurozone countries. But itis ultimately in the interests of all euro-zone citizens that these changes be made.
It is my firm conviction that the Europeof the future will embody a new type ofinstitutional framework. What might itlook like? Would it be too bold to envis-age there being an EU finance ministryone day?
Any future European finance ministrywould oversee the surveillance of both fis-cal policies and competitiveness policies,and, when necessary, impose the “secondstage.” Moreover, it would carry out the
usual executive responsibilities regardingthe supervision and regulation of the EUfinancial sector. Finally, the ministrywould represent the eurozone in interna-tional financial institutions.
Recent events have only strengthenedthe case for pursuing this approach. Eu-rope’s leaders are discussing a Treatychange to create stronger economic gov-ernance at the EU level, and eurozone cit-izens are themselves calling for bettersupervision of the financial sector. And Iknow that our partners in the G-20 lookto Europe as a whole, rather than to indi-vidual member states, for solutions. So, in-creasingly, it seems that it would be toobold not to consider creating a Europeanfinance ministry at some point in the fu-ture.
But an EU finance ministry would beonly one component of Europe’s futureinstitutional framework. One can imaginethat, as various elements of sovereigntycome to be shared, the European Councilmight evolve into the EU Senate, with theEuropean Parliament becoming the lower
house. Similarly, the European Commis-sion could become the executive, while theEuropean Court of Justice takes on therole of an EU judiciary. And, given Euro-pean countries’ long and proud history, Ihave no doubt that “subsidiarity” will playa major role in the future Europe – signif-icantly greater than in current models offederation.
Mine are the personal views of a Euro-pean citizen. The future of Europe is inthe hands of its democracies, in the handsof Europe’s people. Our fellow citizenswill decide the direction Europe is to take.They are the masters. But, however Eu-rope’s institutions take shape, a truly pan-European public debate is essential.
As Europeans, we identify deeply withour nations, traditions, and histories.These are Europe’s roots. But we alsoneed to extend our branches more widely.
So, today, we should not look back. Wemust look forward – to opportunities ofcollective betterment, and to every coun-try’s potential to be stronger and moreprosperous in a well-functioning union.
The European Council might evolveinto the EU Senate, with the
European Parliament becoming the lower house
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Every year, the European Om-budsman receives around 3,000 complaintsfrom citizens, businesses, NGOs, civil societyorganisations, and associations, and opens hun-dreds of inquiries into alleged maladministra-tion by the EU institutions.
In 2010, by far the most common allegationexamined by the Ombudsman was lack oftransparency in the EU administration. This al-legation arose in 33% of all closed inquiries andincluded refusal to provide information or ac-cess to documents.
The European Parliament and the Om-budsman recently commissioned a Special Eu-robarometer survey in which 27,000 Europeancitizens were asked about their perceptions re-garding citizens' rights and the performance ofthe EU administration. Of the persons who re-sponded to the survey, 42% were not satisfiedwith the level of transparency in the EU ad-ministration. Only 9% stated that they weresatisfied.
I remain very concerned about some of thekey messages conveyed by the survey and aboutthe consistently high number of transparency-related complaints, since an open and account-able administration is key to building citizens'trust in the EU.
I am aware that the EU institutions and bod-ies have done a great deal in recent years to im-prove their openness and I am constantly intouch with them to give constructive advice andrecommendations on how best to achieve thisgoal. More needs to be done, however.
A significant proportion of the trans-parency complaints I receive are related tothe EU administration's refusal to give ac-cess to documents. In my view, there are sev-eral ways to improve the procedures fordealing with such requests in the EU ad-ministration. I sometimes have the impres-sion that no one in the EU institutionsthinks about public access until they actuallyreceive an application for access.
Good administration includes havingpublic access in mind at the moment docu-ments are drafted. The drafting processshould aim to ensure that citizens, organisa-tions, and businesses can have the widestpossible access to documents. If a documentmust contain confidential information, thenthat document should, as far as possible, bedrafted so as to facilitate partial disclosure.That can be done by putting the confidentialmaterial in a separate section of the docu-ment, preceded by a non-confidential expla-nation of why the material is exempt fromdisclosure and, wherever possible, a non-confidential summary.
If documents were drafted in this way, lesstime would be needed to deal with applica-tions, fewer confirmatory applications wouldbe required, and the institutions would bebetter able to respect the deadlines.
To facilitate public access to documents, Ihave repeatedly called for the appointmentof information officers in the EU institu-tions and bodies. Their role should be to se-
cure citizens' rights of access to EU docu-ments by encouraging the institutions toadopt a proactive approach, as well as ensur-ing that they react correctly to requests foraccess.
In practice, this would mean providing ad-vice and training to ensure that the right ofpublic access is taken into account at thestage when documents are being drafted.
Another important consideration whenwe talk of pro-activity is the need to createuseful, citizen-friendly, online registers ofdocuments that not only inform citizens ofthe documents available, but, wherever pos-sible, make those documents directly acces-sible through a link. In this way, the citizencan obtain the document directly, withouthaving to make an application for access.
To be sure, the EU institutions alreadymake a vast number of documents accessibleonline. But mere quantity is not enough,however. Good administration in this fieldinvolves making available the documentsthat people actually want and presenting
them in such a way that they can be easilyidentified and accessed.
The creation and maintenance of such aregister is an essential aspect of engagingwith citizens. Such engagement should beseen as part of the core business of every in-stitution, in order to help the Union to ful-fil its promises of transparency, participation,and good administration.
The aim should be to ensure that, unlessthere are valid reasons to restrict access, peo-ple can immediately obtain the documentsthey need through the register, without hav-ing first to submit an application. Any re-striction of access should be properlyjustified on a case by case basis.
Only if European citizens feel that theEU administration is transparent, accessi-ble, and accountable will they develop thenecessary trust and willingness actively toparticipate in the democratic life of theUnion. When it comes to the European cit-izens' right to access EU documents, a lotremains to be done. I hope that some of myproposals will help to stimulate the debateabout possible improvements in the EU ad-ministration.
Only if European citizens feel that the EUadministration is transparent, accessible, and
accountable will they develop the necessary trustand willingness actively to participate in the
democratic life of the Union
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– For more than six decades,Europe’s integration process has beensteadily evolving. Each step, from the Eu-ropean Coal and Steel Community totoday’s European Union, was taken withthe common good in mind, and wasbased on shared values (democracy,human rights, and social justice) andgoals (economic growth, prosperity, andthe consolidation of Europe’s interna-tional prestige). In the coming year, theresult – the common rules and institu-tions that we Europeans have painstak-ingly forged – will be tested like neverbefore.
In 2011, Europe’s foundations began totremble, as the eurozone’s sovereign-debtcrisis, set in motion by the global finan-cial and economic crisis that erupted in2008, moved from the eurozone’s periph-ery to its core countries. The EU’s re-silience – indeed, its very survival – isbeing called into question at a time ofprofound geopolitical transformation, inwhich a stronger Europe is essential.
Global power is shifting towards Asiaand the Pacific. New – and newly influ-ential – non-state actors have appeared,in some cases (for example, terrorist or-ganizations) jeopardizing states’ capacityto guarantee national security. Nuclearproliferation is a growing menace, asshown by the International Atomic En-ergy Agency’s recent report on Iran.Progress on other crucial global issues –particularly energy security and climatechange – has been disappointing. Andthe scourge of poverty and famine – mostvividly urgent today in Somalia – contin-ues to offend the very idea of civilization.
All of this stands in stark contrast withthe predictions of a peaceful, predictable,and safe “post-historical” world that werepopular at the Cold War’s end. The Arabrevolts, unthinkable a year ago, now chal-lenge a regional order that has prevailedfor more than a half-century.
The Japanese tsunami has called intoquestion the future of nuclear energyworldwide. And, perhaps most remark-ably, the relative global decline of theUnited States, the world’s economic andsecurity anchor since 1945, became un-mistakable in 2011, reflected in political
p o -larization and paralysis – and punctuatedby a credit-rating downgrade.
So the strategic challenges facing theEU are vast. To meet them, it must firstrestore its international credibility. Sincethe adoption of the Lisbon Treaty in2009, great advances have been made –and should continue to be made – towardreform and regulation of the financialsystem. But many decisions came too lateor have not gone far enough, with far-reaching consequences, because currenttools are inadequate to address the seri-ousness of the crisis.
As the sovereign-debt crisis has proven,the euro requires mechanisms to confrontasymmetrical shocks, which implies the cre-ation of a common treasury. An importantfirst step in confronting the speculative at-tacks that eurozone economies suffer todayis a commitment to greater risk-sharing andgreater authority for the European CentralBank. Confirmation of a stricter and morerigorous Stability Pact is also imperative toachieve greater integration.
Here, the EU summit in December wasan important step forward in terms ofdeepening political union and strength-ening governance among the eurozone’smember states. Nevertheless, more willbe needed to restore financial stability,such as enlarging the total firepower ofthe European Financial Stability Facility.
Moreover, if we want the EU to emergestrengthened from the crisis, it must alsostrike a better balance between austerity andpro-growth policies, because, without
growth and higher employment, the euro-zone’s problems cannot be resolved. Moreimportantly, the EU must tie its economicstrategies to long-term competitiveness,which is ultimately determined by the valueadded to goods and services.
China and India have learned that les-son well.
In less than 15 years, they will accountfor 20% of global spending on investmentin research and development, more thantwice their current share. Meanwhile, theEU will run up against serious demo-graphic constraints: in 2025, Europe willrepresent just 6.5% of the world’s popu-lation, compared to Asia’s 61%, and itsaverage age will be 45, compared to 28 inIndia, 37 in China, and 38 in the US. Inthe absence of adequate strategies for im-migration, integration, health care, edu-cation, and much else, Europe’s growthand competitiveness will decline, and so-cial tensions will worsen and multiply.
Europe must also contribute to reform-ing the traditional system of internationalrelations. The existing multilateral insti-tutions were designed for a vanishingWestern-centric world. At the same time,the dispersion of power, the degree of in-terdependence, and the sheer dimensionof the challenges confronting the worldrequire effective, accountable, and legiti-mate global governance.
The inability to achieve a consensus onacute issues, such as Syria’s internal re-pression, or on chronic problems, like cli-mate change, highlights the (increasing)
complexity of global governance and re-sponsibility.
Accommodating today’s institutions tothe new global powers is a key challengethat cannot be postponed further in2012.
An example is the IMF’s general revi-sion of quotas, due in 2014. Here, no oneis better positioned than Europe to advo-cate for effective multilateralism and fa-cilitate agreement and adjustment, byadopting a common position to correcttoday’s overrepresentation.
Speaking clearly will enable us to pro-mote our interests more successfully by de-veloping partnerships not only withtraditional allies, like the US, but also withnew leaders, like China and Brazil, andstrategic players, like Turkey and Russia –and with the increasingly important re-gional blocs that are forming around them.In the Middle East – a region that, unlikeEastern Europe, has no landing strip – oursupport is essential to the construction of anew regional framework.
No one claims that meeting all of thesechallenges will be easy. All roads have upsand downs, just as every crisis imparts a les-son.
In 2012, the lesson should be the needfor greater political integration and fi-nancial regulation, a legitimate and trans-parent institutional framework, andconsensus. All problems can be workedout if we keep the lights on high and an-alyze the situation with a clear strategicvision.
Traditional system of
international relations.
The existing multilateral
institutions were designed
for a vanishing
Western-centric world
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- London cabbies are a greatsource of received wisdom. Over the pastseveral years I have had occasion to focustest some members of this select group. Iqueried them about the reputation ofdiplomacy in general, and their impres-sions of diplomats in particular.
Their verdict?Reduced to its most essential iteration: Dithering dandies, hopelessly lost in a
haze of irrelevance somewhere between pro-tocol and alcohol...
For diplomatic practitioners, exposureto the mainstream view of cartoon cari-catures in pin stripes or pearls riding highat public expense serves as a sobering re-minder that any vestigial prestige andmystique once associated with the pro-fession has worn long since off.
More worrisome still, since at leastChamberlain’s ill-starred visit to Munichin 1938, diplomacy has come to be asso-ciated with weakness and appeasement,with caving in to power.
In other words, diplomacy’s debilitat-ing image problems are matched by seri-ous misunderstandings concerning thesubstance of the work. That said, howevermisleading the archetypes, popular per-ceptions of diplomacy are not entirelyunfounded. Neither the profession nor itsinstitutions have adjusted well to the ex-igencies of the globalization age.
It doesn’t help that so few diplomatshave a clear sense of just how their workfits into the bigger picture. Simply put,diplomacy is a non-violent approach tothe management of international rela-tions which relies upon dialogue, negoti-ation and compromise. Doing it wellrequires empathy and understanding, akeen intellect, a capacity for politicalcommunication, and a very particular setof personal aptitudes. Book learning maybe necessary, but it is by no means suffi-cient. Adaptability, self awareness and lifeskills, most more easily acquired throughworld travel than over the course of yearsof formal education, are crucial.
Diplomacy matters now more thanever, but it is in crisis. Western politicalleaders have developed an unfortunatehabit of reaching for the gun - think Iraq,Afghanistan, Libya - as the policy instru-ment of choice. Defence departments re-ceive the lion’s share of internationalpolicy funding, while foreign ministriesand development agencies struggle. Inthe world we live in, not only does thismake no sense, but it gives rise to seriousdistortions and misallocations. Our gov-ernments seem to have failed to learn themain lesson of the Cold War, namely thatmilitaries work best when they are notused. Take the sword out of the scabbard,and it makes a dreadful mess.
Defence is primarily about power.Diplomacy is about influence. The mostprofound threats and challenges engen-dered by globalization - and in my viewreligious extremism and political violencedo not make the A-list - are notamenable to coercive military solutions.Generals and admirals, bombs and gunshave their place, but at this point in the21st century, it should not be centrestage. The best army cannot stop pan-demic disease. Air strikes are uselessagainst climate change. Alternatives tothe carbon economy cannot be occupiedby expeditionary forces.
The unresolved, transnational issuesthat today imperil the planet are neitherterritorial nor ideological. Diminishingbiodiversity, resource scarcity and a col-lapsing physical environment affect us all.In contrast, the probability that anyonereading this article will be caught up inan international terrorist incident isslightly lower than that of drowning inthe bathtub.
Bottom line? Security is not a martialart. The military is both too sharp, andtoo dull an instrument with which to re-spond in the prevailing circumstances.Diplomacy, in many cases linked inte-grally to development, is our best hope.
Diplomacy can produce results by fos-tering genuine dialogue. That is exactlyhow the EU has been constructed. Whenfed back into decision-making loops, thesorts of inputs generated by meaningfulexchange can affect behaviour at both
ends of the conversation. That capacity toresolve differences and forge agreementsnon-violently is diplomacy’s most formi-dable advantage over the alternatives.
But that advantage is being squan-dered. In most EU countries, if not incomplete disrepair, diplomacy is underpressure. Foreign ministries, often morethan other departments of government,are being cut back. Foreign services arefacing hiring freezes and layoffs. Missionclosures have been widespread.
It is certainly not an auspicious momentin which to get the European ExternalAction Service (EEAS) up and running.It is no small achievement that amidst theadversity afflicting the diplomatic profes-sion - not to mention the euro debt crisis,faltering economies, and political differ-ences - the administrative and budgetarywheels have finally been bolted on to thatvery large cart. Moreover, there are allsorts of practical arguments which can beconvincingly adduced to justify theEEAS’s creation. None of this, however,likely to capture anyone’s imagination. Itmay therefore be time to turn from theplumbing to the poetry, and to fashion forthe EEAS a compelling narrative and astrategic vision.
My advice? Europe’s ability to act ef-fectively as a player on the international
stage will never be based upon the threator use of armed force, or the ability tocobble together a common defence pol-icy. The Union’s strength resides in itsabundant soft power, which is to say theappeal generated by liveable cities, qual-ity public education and governmentservices, a rich cultural and artistic tra-dition and an abiding commitment to so-cial democracy - even if not referred to assuch.
A supple, connected and innovativeEEAS would do well to build upon thatfoundation. Leave behind work on filesbetter handled by specialized depart-ments located elsewhere within the EUapparatus in order to focus on the large,cross-cutting issues such as climatechange, distributive justice and manage-ment of the global commons. By risingup a couple of levels of analysis to serveas a catalyst, entrepot and network nodeequipped to manage the complex chal-lenges of globalization, the EEAS coulddo something that is no one else’s job, in-cluding the foreign ministries of memberstates.
Such a formula just might help definethe basis for a new diplomacy, and in sodoing contribute both to a higher level ofEuropean integration and to a betterworld.
Diplomacy matters now more than ever, but it is in crisis
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- 2011 has indeed been an ex-citing and challenging year in my area of re-sponsibility: maritime affairs and fisheries.Here are some highlights from the past yearand some of the challenges we will have fornext year.
Reform of the Common Fisheries Policy Τhis year I presented the Commission's
proposals for a root-and-branch reform ofthe Common Fisheries Policy. The packageof proposals is now in the hands of the Eu-ropean Parliament and the Council for finaladoption. This does not mean, however, thatmy role and that of my staff is played andover. I will be following this process closelyover 2012 and will do all I can to facilitatea smooth negotiation and adoption processso that the final agreement can be reachedend of 2012.
The ambitious reform plan consists ofthree pillars; Sustainability, Efficiency andCoherence. Sustainability requires long-term solutions, and our proposals containa number of elements in this sense. Allfish stocks have to be brought to sustain-able levels by 2015 through long-termmanagement plans based on the bestavailable scientific advice. The practise ofdiscarding will be phased out. The newpolicy also:
l introduces individual transferable fish-ing concessions for trawlers and all ves-sels more than 12m long,l supports measures for small-scalefisheries,l improves data collection andl promotes sustainable aquaculture inEurope. In terms of efficiency, the policy creates a
new simplified framework for decision-making. Member States will be able to de-vise their own fisheries management regimeaccording to their own regional specificitiesand with the help of the industry itself.These regimes will naturally have to tallywith the general objectives set at EU level.Finally, Coherence means that all other in-struments, from market organisation to fi-nancial support, will be aligned to bothSustainability and Efficiency.
At international level, all our actions mustmatch our domestic goals and our environ-mental commitments while at the sametime ensuring a level playing field betweenour own fishermen and those from othercountries which export fish to us.
Consumers are a big part of this reformand our proposals on labelling will assistthem in making sustainable choices. In factin 2011, in parallel with the CFP reform, Ialso launched a consumer awareness cam-paign, which your readers can check out athttp://chooseyourfish.eu/
To make the new CFP a success storywe need more than action at political level.We all need to work together: decision-
makers, fishermen, coastal populations, re-tailers and consumers all have to play ballwith us. It is the right thing to do and itis in everybody's interest: only by address-ing the challenge of sustainability can wesave our seas and give a future to the fish-ing community.
In 2011 we also adopted the implement-ing rules which made the 2010 ControlRegulation fully applicable and which guar-antee proper control "from the net to theplate". These implementing rules cover allstages of the supply chain and contain con-crete mechanisms to ensure a level playingfield for fishermen, other operators and theMember States. They also promote newtechnologies and simplify some previouscontrol and enforcement rules.
Early December, I put forward a newfunding mechanism for fisheries and mar-itime policy for 2014-2020, the EuropeanMaritime and Fisheries Fund. This newfund, which will replace the current Euro-pean Fisheries Fund, will finance the tran-sition of EU maritime and fisheries policytowards environmental and economic sus-tainability and social cohesion by support-ing conservation, innovation and smartgrowth in coastal areas. Our proposal willbe discussed with Member states and theEuropean Parliament during next year,and I look forward very much to these dis-cussions.
In the context of our Integrated Mar-itime Policy work progressed on severalfronts during 2011, culminating with theadoption late November of a Maritimestrategy for the Atlantic. Work will nowgo on during the next year to furthershape the implementation of this strategythrough an Action Plan. The Commissionwill facilitate the development of this Ac-tion Plan through a series of workshopsand discussion groups that will be open toa wide array of participants - the 'AtlanticForum'
In 2012, I also intend to present a legisla-tive proposal on maritime spatial planning.The proposal will aim at ensuring thatMember States provide a stable, reliable andfuture-oriented integrated planning frame-work to optimize the use of marine space inorder to benefit economic development andprotect the marine environment.
Next year, I will also present a new initia-tive called Blue Growth. The aim of Blue
Growth is to identify and unlock newsources of growth from oceans, seas andcoastal regions. The proposals will build onthe findings of an on-going study exploringsustainable growth and employment in es-tablished, emerging and prospective mar-itime sectors based on the innovative use ofmarine and coastal resources as drivers forinnovation and competitiveness.
If we don't act now, only a handful of fishstocks out of more than a hundred will behealthy by 2022. A 'business as usual' sce-nario would make us lose one fish stockafter another, with heavy repercussions forthe ecosystem and of course for the fishingindustry itself.
So the challenges for the future are farfrom negligible. There are major hurdlesthat we need to overcome to get there. ButI am confident that we will manage toachieve these ambitious objectives if we allact together.
If we don't act now, only a handful of
fish stocks out of more than a hundred
will be healthy by 2022
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- The European continentlooks solid, geologically. The EuropeanUnion may well plod on, give or take a fewcountries. The euro area and currency areless safe bets.
We can be almost sure of European coun-tries and banks being downgraded, of highborrowing costs for most governments andof recession compounding the problems.
We can also see that a number of Euro-pean summits have failed to catch up withthe markets. Few international partners aregoing to fill the empty coffers, even for po-litical gain.
The latest European Council gave us aroadmap to the closest lamp post, but nomore. Much blood and tears may flowunder the bridges before the next powwowin a month and a half.
I am as much for hair shirts and self-fla-gellation for my neighbours as the nextman, but afraid that penance for the sinnersfalls short of the solutions needed.
Is it possible that repentance and atone-ment are needed more widely, perhaps evenmore profoundly?
Let us return to the birth of European in-tegration and to the creation of the euro.Are there original sins we have not as yetfaced up to? Have we committed transgres-sions on the road?
The European Union is still basicallyowned by the member states, subject tounanimity and national ratifications, thus
almost impossible to reform. Britain lastweek, next week another member state...
The euro area has even less in the way ofsolid structures, despite being recentlytopped up by monthly summits betweennational leaders.
A currency area can hardly be describedas ideal, if almost half of the people carrythe cross of mortification and more thanhalf of the population sees its liabilitiesgrowing sky-high, both groups without realchoice in the matter.
When democracy comes into play, it isseen as a danger instead of an opportunity,because it takes place in a national settingwhere every misstep can bring down thewhole house of cards.
Creating the euro currency without a sov-ereign was a mistake, but persisting is amortal sin.
I am not wise enough to know if the eu-rozone will split, or the euro crash, or evenmagically survive intact, but I am deeplyworried.
I feel reasonably sure that much more isneeded, if we want the euro area to returnto growth and prosperity in a foreseeable fu-ture, possibly ever.
Are we beyond absolution?This brings us back to the roadmap. The
new one has to achieve two things: remedythe fundamental flaws of the current cur-rency, and show the destination and the sta-tions in between.
We really have to leave the old quarrelsbetween intergovernmentalists and feder-
alists behind us. We have already seenwhere intergovernmental solutions lead,and there is little time left to create cred-ible structures.
Why do countries with high debt levelsand deficits, such as the USA and the UK,have much lower borrowing costs than thecomparable basket cases in the eurozone?The main difference seems to be that theeuro is a zombie currency, without a sov-ereign.
The euro, like all currencies, needs a sov-ereign. We in Western and Central Eu-rope are past the ages when a sovereigncould be instituted by or between princesor dictators. This means that the newpolity at European level has to be basedon its citizens, with a politically account-able government, respecting fundamentalrights, providing good governance andacting transparently.
The Basic Law must provide for propor-tional representation through free and fairelections, robust structures and sufficientpowers, including a real federal budget andtaxes, determined according to majorityrule. The people is sovereign, in short.
Foreign policy, security and defence, seemnatural tasks for the European level, whilewe are at it.
Federal Europe has to start as a coalitionof the willing, among the electorates votingfor a common future. Referendums wouldapply in states joining later, as well.
When a credible polity has been outlinedenough to put it on the drawing board, ourleaders can trace the necessary steps alongthe route.
In the short term the European CentralBank and eurobonds are needed to preventmeltdown.
Preserving something akin to the existingbenefits and responsibilities for EU mem-bers remaining on the outside is going toprove tricky, but hardly insurmountable.
European level democracy may look likea stark choice, but it should not. It only rep-resents an new level and ... we just need tocontemplate the alternatives.
Continuing to make more wrong deci-sions in the short term, as if there wasn'ttime for the right choices, is dangerous.
Your choice: credible Utopia or worsen-ing Dystopia?
A currency area can hardly be described
as ideal, if almost half of the people carry
the cross of mortification
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- In a recent report byOECD, the public administration inGreece received a dismal assessment.Greek EU functionaries could help Hel-las to get ahead with necessary reforms.
Public servants that don't communi-cate with each other, total lack of coordi-nation, ghost units, and a prevalence ofthe tunnel perspective: A report by theOECD, that has just been issued, findsthe current system of Greek public ad-ministration unfit to get the country onthe growth track.
The report has been finalised in 2011by a team of OECD officials, in joint col-laboration with the Greek Ministry ofAdministrative reforms. The report isvery substantial and the findings cannotbe ignored.
According to the report, the underly-ing problem is that there is no central orstrategic leadership setting the parame-ters of policy and controlling them. Con-cretely speaking, in the reports ownwords: "A major finding of this report isthat monitoring, co-ordination and in-
formation-sharing mechanisms are ex-tremely weak throughout the central ad-ministration, which makes it verydifficult for individual ministries to su-pervise and control public sector entitieseffectively." The report concludes thatthe public sector at large was affected bythe "inadequate capacity of ministries tocarry reforms into the implementationstage."
Everybody knows that without sub-stantial reforms, competitiveness will notbe restored and the crisis will not beovercome. Nowadays, too many parts ofthe Greek public administration resem-ble a multi-headed Hydra. Of course,there are committed and qualified peoplein the administration, but they have to
fight the system in case they want tomake a difference. The report judges: "Incases where co-ordination does happen,it is ad hoc, based on personal initiativeand knowledge, and not supported bystructures."
My conclusion, after having read thereport: We have to support the willingand committed public servants in Greece.They need to be supported by Greek EUfunctionaries. According to estimates,there are around 2,500 of them all overBrussels.
They are excellently qualified, commit-ted to good governance, and mourn thestate their home country is in.
Ever since the crisis broke out, I met alot of these functionaries. Many are ready
to go to Athens and help to implementthe reforms. Technically it is easily feasi-ble. The EU can provide financial sup-port via "technical assistance" to memberstates and can delegate staff to memberstates. Hence, they stay on the payroll ofthe EU institutions.
This is what I propose: The EU formsa special "Iolaus team", a task-force of500 delegated Greek EU functionaries,which directly reports to the Prime Min-ister and is vested with the power to en-force reforms of good governance? TheIolaus team focusses on tax collecting,control of public funds, and the manage-ment of EU-funds.
Why do we call it "Iolaus"? There is anepisode from Greek history that came tomy mind reading the article. When Her-acles was confronted with the multi-headed monster Hydra, he got essentialhelp from his nephew Iolaus. Some evenargue that without his nephew, Heraclescould not have done the job. Drawing theanalogy, I would like to call this strategy"Iolaus strategy". Let us face the Hydra.Its heads have had enough time to grow.
Without substantial reforms,
competitiveness will not be restored and
the crisis will not be overcome
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- The first big news story of2011 actually had its beginnings towardsthe end of the previous year. On 17 De-cember 2010, Tunisian market stall ownerMohamed Bouazizi set himself on fire infront of the Sidi Bouzid town hall afterbeen publicly harassed by the police; thereason, apparently, was that he didn't havea license to sell vegetables. Bouazizi suf-fered burns all over his body, and diedlater in hospital, but not before he re-ceived a visit from Zine El Abidine BenAli, Tunisia's autocratic ruler, who, photoevidence records, did not receive a sympa-thetic welcome from the dying man. TheArab Spring had begun.
The Arab Spring, its optimistic, some-what depoliticised name given by thewestern media to indicate a tide of bloom-ing democracy, had breathless commenta-tors swarming over North Africa and theMiddle East in the first half of the year. Itwas, they said, history in the making; rulerafter ruler would fall, country after coun-try would change. It was popular democ-racy in action. The prediction, however,turned out to be only half right.
The popular protests that led to thedownfall of Ben Ali inspired similarprotests in Egypt, where the three decaderule of Hosni Mubarak was brought to anend. In Morocco, pro-democracy stirringsled the king to usher in reforms to quellany further civil disturbances. But elec-
tions in Tunisia and Egypt have notproved to be wholly satisfactory, and bothsaw Islamist parties gain ground. Else-where, the hoped for democratic revolu-tions never materialised in Morocco,Bahrain, Yemen and Syria, which by theyear's end was still experiencing violentcrackdown on suspected dissidents asPresident Assad desperately tries to hangon to power.
Following the departures of Ben Ali andMubarak, eyes turned to the equallydespotic rule of Colonel MaummarGaddafi in Libya. As protesters took tothe streets, and government loyalist coun-tered with waves of violent suppression, itsoon became obvious that change wouldnot happen smoothly. The country soondescended into a nasty civil war, and whileit ended with the death of Gaddafi, hisbloodied corpse paraded through thestreets evidence that any kind of judicialprocess for the former dictator was neverreally on the cards, the country still facesan uncertain 2012.
In Europe, EU leaders debated howbest to deal with all this. No doubt withone eye on the presidential elections duein the new year, Nicolas Sarkozy was thefirst to call for air strikes and supply mil-itary aid to the rebels, something theBritish Prime Minister, David Cameron,was wary of doing. It wouldn’t be the onlytime the two men would fail to agree dur-ing the course of the year.
The EU was suffering its own crisis;
namely the possible collapse of the Euro-zone. The buzzword was ‘contagion’, andthe fear of declining economies infectingone another.
As country after country introducedausterity measures to protect their ailingfinances, angry protesters took to thestreets in widespread displays of dissatis-faction. Indeed, Time magazine evenmade the Protester, an abstract figure thatencompasses everyone from the ArabSpring dissenters to members of theglobal occupy movement to disaffectedyouths who protested budget cuts, it'sprestigious Person of the Year.
EU leaders, especially French PresidentNicolas Sarkozy and German ChancellorAngela Merkel, feared the demise of thesingle currency above all, and rescue ef-forts dominated the latter half of the year.In Italy, Silvio Berlusconi finally left of-fice to be replaced by the so-called tech-nocrat, Mario Monti, a former EuropeanCommissioner. Greece, too, received asimilar fate. In Ireland, the government ofEnda Kenny, which came to power at theend of February on a tide of massive anger
at the previous administration's handlingof the economy, has been forced to intro-duce severe cuts and tax hikes in a bid toshore up its economy and gain the ap-proval of the EU's financial watchdogs.Other European economies, such as Bel-gium and Spain, will have to make similaradjustments in the coming months.
The year ended with an inevitable spat,and all but one of the EU member statesagreeing to a pact designed to save thetroublesome euro. It was the UK, much tothe chagrin Merkel ans Sarkozy, whostopped short of giving unanimous sup-port for a rescue plan, citing insignificantprotection for the City of London's fi-nancial sector. It led to insults and accu-sations, a split in the ruling coalitiongovernment in the UK, and renewed talkof a two-speed Europe.
Swift action on implementing theagreement has been promised, but withpossible constitutional problems in Ire-land, and parliamentary ones expected inthe likes of Denmark, Czech RepublicFinland and Hungary, no one is declaringthis crisis to be over just yet.
The EU was suffering its own crisis; namely
the possible collapse of the Eurozone. The
buzzword was ‘contagion’, and the fear of declining
economies infecting one another
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- Even before the physical ap-pearance of the euro, a large number ofmainly English language analysts and econ-omists predicted a brief life. Now, ten yearsafter its introduction, in the peak of a crisis,the new currency’s parity with the Ameri-can dollar is in the region of 130 US cents,having reached peaks as high as 159 cents.Incidentally, the Eurozone is now goingthrough its worst crisis ever but the euro is,nevertheless, far above the initial parity withwhich it first appeared.
Let's not forget that the fundamentals ofthe euro area are positive, with its overalltrade balance always leaving positive re-serves, powered mainly by German exports.That is why it gained all that ground withthe dollar after the American credit meltdown in 2008. Currently, it is the turn of theEurozone to pay its dues to the credit and‘casino’ markets, with the rating agenciesnow trying to regain, at the expense of theEurozone, the prestige they lost during the2008 New York tsunami.
All those are, however, well known factsand world markets have highly valued theexport dynamism of the surplus Eurozonecountries, ensuring that throughout the tenyear life of euro the overall trade balace ofthis common money zone has been positive.One question still remains, though; how theEurozone is to deal with the sovereignoverindebtedness of a small number of itsmembers? At this point it should be notedthat Italy and Ireland are strong exportpowers leaving only Greece, Portugal andprobably Spain in the problematic area oflarge trade deficits, unfortunately accompa-nied in these latter cases by large fiscaldeficits too.
In this respect, Spain, a country featuringboth large fiscal and trade deficits, is nowblessed with a very low government debt,around 60% of its GNP, much lower thanGernmany or France. At this stage, it isworthwhile making an analysis of what hap-pened in the Eurozone over the past year.
Undoubtedly the gravest problem hasbeen the contagion fears from the Greekand the Irish crisis. In these two countrieshowever, there are distinct differences bothin the causes and the policy measures toremedy the illnesses. In the case of Irelandthe problem was the overexposure of itsbanking sector to toxic assets of the real es-tate sector, both at home and in the US.Now, however, the Irish efforts to overcomethese problems is already paying dividendsand the country is regainig its export dy-namism, leaving Greece as the only patientstill needing special treatment.
As for Portugal, the tiny size of its econ-omy and its more or less successful effortsto reduce budget deficits and debts havekind of insulated the Eurozone from anyspill-over effects from this source. Con-
cerning Italy and Spain, in the first case thecountry’s economy is not only outward ori-ented but has been blessed with large inter-nal savings traditionaly directed to supportgovernmnet deficits. In the case of Spain in-debtedness is very low, as already men-tioned, and the new Rajoy governmnet hasannounced severe austerity measures for2012. Last but not least France and Bel-gium, the two central Eurozone economieswith large state debts and govenmentdeficits are to apply adequate policies totake care of their problems.
Despite all that, during this past year theEurozone was under heavy pressure fromthe fear that the contagion effect of a po-tential financial failure in Greece could be‘exported’ to Italy, then to Spain and Portu-gal and finally to the core economies ofGermany and France.
Capital markets adopted this logic afterIreland, towards the end of 2010, arrived atthe point which Greece had reached in Mayof the same year, and the two were soon tobe followed by Portugal. Then in 2011 cap-ital markets and investors feared that Italyand Spain will follow the other three in ask-ing for help. In such an environment thedomino effect became a distinct possibility,potentially reaching Germany and thusbringing down the euro.
This logic prevailed and on certain occa-sions affected the creditworthiness of the‘bunds’, the German bonds. Not any morehowever. What happened to make the mar-
kets change their evaluation of the Euro-zone, now differantiating completely theirattitude towards the debt paper of thedeficit countries on the one hand and thesurplus Eurozone countries on the other?Let's follow the facts.
Towards the end of last year, especially afterthe EU leaders’ Summit of 8 and 9 December,investors started thinking differently. In theweek after that summit, Germany and Italysimultaneously issued their bonds and mar-kets made Rome pay 6.5% for its new debt,while Berlin was charged only 0.29%. Thishuge difference of risk premiums betweenGerman and Italian bonds means that Berlinand Rome would have under whatever cir-cumstaces quite different prospects. Not tomention anything about Greece.
During 2012 we are going to see more ofthat. The idea is that the EU 26 decided tocreate a new union within the EU, to be fol-lowed probably by Britain in the future. Inany case, the image of the Eurozone willdrastically change before the end of 2012.Towards the middle of the year, the ESMwill be in force with a dowry of €600 bill-
lion, plus at least €200 billion through theIMF. All that money will be used to counterthe possible default of Greece or Italy. Noother country of the 17 Eurozone memberstates is running such a danger any more.
Ireland is contemplating a return to mar-kets within this year, while Portugal is moreor less successful in applying its programmeand Spain under Rajoy is to implement asevere austerity policy package to abandonthe danger region. On top of this, the IMF€200 billion fund is already attracting sup-port from non Eurozone but EU membercountries, like Sweden along with contribu-tions from non EU counties like Russia. Bythe same token Germany and France havedefinitevely abolished the possibility of Eu-robond issuance, a decision drasticallyblocking the probability of a domino effect.
In short, during this year, the Eurozone isto build a fire wall, making sure that aGreek bankruptcy will not reach the core ofthe Eurozone. All that together with thenew fiscal union, which is to make sure thatoverindebtedness will never again happenin the Eurozone, will turn the year 2012into a new landmark in the history of thecommon European currency.
Let's not forget that the fundamentals of
the euro area are positive
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- 2011 is definitely a year to for-get, as financial turmoil struck Europe onceagain; or a year to remember for the lessonsthis turmoil has offered. It has certainlybeen one of the most tiring for Europeanleaders, who have faced many a sleeplessnight.
In December, the Brussels summitdemonstrated the EU’s will to act toward astable and trustworthy eurozone. The newdecisions are an indication of movement togreater integration in the EU. However,Angela Merkel has rightly pointed out thatthere is ‘no quick way out of the crisis’, andthis was evident in the summit.
The current financial and sovereign debtcrisis in Europe cannot be viewed inde-pendently from the economic model thatEurope has followed for the precedingdecades. Analysts have also drawn the con-clusion that the problem lies in the archi-tecture of the eurozone. But is this financialgiant what Monnet and Schumann, thefounders of the European Coal and SteelCommunity (ECSC) originally had inmind? When signing the Treaty of Paris in1951, the founders of the ECSC wanted inprinciple to achieve long-term peace in Eu-rope. One of the aims of the treaty (in Ar-ticle 2) was to contribute to economicexpansion, employment growth and a risingstandard of living by creating a commonmarket for coal and steel.
Almost 60 years later, the continuation of
the ECSC, the EU, is struggling to remainunited under the euro. The picture in manyEU countries certainly cannot be describedby rising standards of living. Rather the op-posite; especially when looking at southernEuropean economies. At the moment, theeuro is conversely associated with unem-ployment and limited or zero economicgrowth. There are large asymmetries be-tween the economies of the sovereign na-tions within the euro. These asymmetrieswere evident to the founders of the euro-zone, but they turned a blind eye to them.Along with this also comes an asymmetricalinterdependence, where the more powerfulEuropean nation-states set the rules of‘inter-state bargaining’.
Debt and contagion issues are not theonly problems. The citizens of Europe arealso dissatisfied about the level of democ-racy of the EU and also have a certain dis-comfort with the power wielded by itsleading nation, Germany. These doubtsabout Germany’s role are also heard fromwithin Germany itself. Recently, HelmutKohl quoted the famous Thomas Mannphrase: "We do not want a German Europe,but a European Germany".
Unfortunately for the peoples of Europe,especially in the south, they are obliged topay for those debts not created by them butsimultaneously they must play the role ofscapegoat. Greece is paying the heftiestprice through unprecedented austeritymeasures, wage cuts and heavy taxation. Thegreatest concern is the consequence of the
contagion effect on larger economies suchas Spain and Italy.
The way that the leaders of the powerfulEU states have chosen to solve this sover-eign debt crisis underlines the fact that theEU remains a financial coalition, whichclaims to be a political one as well. Butshould we not also have a firm action planto combat unemployment and stimulategrowth, alongside the new financial mech-anisms and the pain of austerity? And whyhave current European leaders fallen deaf tovoices like that of Jacques Delors and Hel-mut Schmidt?
It appears that the end state of this proj-ect will result in unhappier European citi-zens, less well paid workers and youthunemployment. Day by day, Europeans alsofeel they are losing what they have gainedover the past fifty years; their political voiceand social benefits. Now it is all about res-cue of the banks and the stability of thecommon currency. It is no longer about
people; this is the reason why everyoneacross Europe is marching on the streetscarrying placards with anti-capitalist slo-gans.
The future of the EU is undoubtedly injeopardy. This is not only due to the poten-tial failure of the euro; it is the democraticdeficit. Citizens distrust the Union andtheir own parliaments. At 2012, the Euro-pean project has reached a fork in the road.We will either see wider integration or itscollapse. It remains to be seen whether po-litical integration will be impacted by thespill over from increased fiscal consolidationand the debated eurobonds.
The least one can hope for in 2012 is amore democratic and humane approach toresolving the current crisis. Without a for-ward looking political vision for Europe,monetary strictness alone cannot offerlongevity in the dream of European stabil-ity and unity. Nor can it offer certainty thatit will restore the trust of the markets.
The future of the EU is undoubtedly injeopardy. This is not only due to the potentialfailure of the euro; it is the democratic deficit.
Citizens distrust the Union and their ownparliaments. At 2012, the European project has
reached a fork in the road. We will either see widerintegration or its collapse
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- An exceptionally multidi-mensional economic crisis - nurtured byfiscal, balance of payments, financial, sov-ereign debt and recession problems - hasdeveloped into a political and confidencecrisis. All these dimensions mutually re-inforce each other and make effective re-sponse a challenging task.
A lot has been done over the last threeyears to combat the roots of the crisis andits wild spreading capacities. Reforms thatwere unthinkable not so long ago havebeen designed, adopted and implemented,bringing more Europe into such areas asfinancial supervision, integration of the fi-nancial sector, economic governance andthe single market.
Fiscal consolidation - unfortunately notat all growth friendly - and structural re-forms have become our religion throughausterity packages. The latter have beenseen as a mechanism to trigger growththrough stability and confidence. Unfor-tunately, so far there has been no evidenceof any expansionary outcome of thesepackages as they seem to completely ig-nore extraordinary economic and financialcircumstances in EU member states'economies in distress; for example, thefact that the banking sector is practicallydysfunctional in these economies.
Confidence, especially that of financialmarkets, continues to be a moving targetfor policy makers whose decisions cannot
compete with the extraordinary short-ter-mism of market behaviour.
The Summit of 8-9 December was seenby many as a chance to announce a sweep-ing set of further reforms that would adda subsequent step to the reform path thatis already behind us.
The lack of strong - positive or negative- reactions of the market demonstratesthat we might be close to a kind of com-promise between political delivery andmarket expectations.
We might be very close to what marketsneed and each new piece of promise com-ing from decision makers if well-designedcan get us closer to the critical mass ofchange needed to trigger market confi-dence. It is true, however, that the majornovelty that had been expected by marketsand did not appear in the summit out-come was an openness towards more ag-gressive involvement of the ECB incuring the European crisis. We continuewithout clarity on what role the ECB willplay now.
The ECB is the only institution thatcan impact financial markets and that caninfluence member states through strategicbargaining while purchasing sovereignbonds.
Fiscal integration, that has beenlaunched as a reaction to the crisis andthat requires many further steps, includ-ing the preparation, adoption and imple-mentation of the new intergovernmentalfiscal treaty, is a long term process that
might still face unpredictable hurdles. Itwill not reach its fully fledged efficiencywithout such tools as eurobonds or therole of the ECB or another financial in-stitution as a lender of last resort for theeuro area.
In the near future, the Union will needboth reflection and action on those lack-ing elements fundamental for a fiscalunion. For the time being, Europe has of-fered itself a fiscal stability union that,hopefully, will take us closer to a compro-mise with markets, provided they translaterecent advances in euro area fiscal gover-nance into the beginning of investors'confidence in government bonds. Whatmakes me sceptical is that under strength-ened fiscal rules, countries in distress willhave to continue austerity and internal de-valuation.
Without moving decisively to the sec-ond edition of austerity packages - agrowth friendly version - it is rather un-likely that investors will shift their inter-est towards those economies. A long termausterity trap is looming on the horizon.
What has, however, to be excluded from
the list of possible scenarios for Europe isthe breakup of the euro. Risks, costs andlosses across all dimensions of the econ-omy would be unimaginable. We knowtoday what went wrong and we haveenough imagination to understand theimplications of such a breakup. The onlypotential benefit - "having own monetarypolicy" - would be devoured by losses oncross-border capital flows, on introducingcapital controls, on lack of credit, on bankruns, on protectionism, etc. In short, itwould be a problem, not a solution.
While working on the intergovernmen-tal treaty, we cannot afford to do nothing.The economic governance six-pack mustbe rigorously implemented, macroeco-nomic and budgetary surveillance must beeffectively carried out, debt above 60%could be pooled and quickly reduced inline with the German redemption fundproposal, the idea of fully fledged eu-robonds could be elaborated, EFSF couldbe offered a banking license and immedi-ate growth strategy could be put into mo-tion. It is imperative that Europe actsboldly and that it acts now.
While working on the
intergovernmental treaty,
we cannot afford to do nothing
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- It hasn’t been a good year foranyone really, except for the odd Cassan-dra. Even for UKIP and the cause ofdemocracy and independence it hasn’tbeen marvelous.
The fact that over the last twelve monthour opinion poll ratings have doubled (de-spite a late year dip caused by the BritishPrime Minister’s phantom veto of a phan-tom Treaty) is neither here nor there. Thefact that euroscepticism is a growing phe-nomenon across the European continentgives me no pleasure. That UKIP are reg-ularly challenging the main British partiesin by-elections across the UK is OK butnothing to get excited about. That thepopulation of Britain is getting veryrestive with our membership of the EU,and that even the dormant drive for na-tional liberty is slowly waking in theHouse of Commons where 81 MPs of allparties rebelled against their whips inorder to speak up for their constituentsand called for a referendum is just so so.
How can anybody in all conscience byhappy with any of this in the light of theslow motion B Movie disaster sweepingacross the European Union? Millions ofjobs are under threat from North toSouth. The under 25’s unemployment ratein some EU countries is pushing 50%.Services are being decimated and taxes arerising. For every lost job another life isblighted, more hopes are crushed, and the
future is impaired.Families are put under massive pressure
and the civilising bonds that make our so-cieties enjoyable are torn apart. Worsestill the very systems in which we, in lib-eral Europe place our trust and faith arebeing undermined.
Democracy itself is under serious threat.Take a look at the Economist IntelligenceUnit’s report produced this December.The report, an annual study of the globalstate of democracy has this to say,
Seven countries in western Europe hada decline in their democracy score in2011; none had an increase. The main rea-son has been the erosion of sovereigntyand democratic accountability associatedwith the effects of and responses to theeuro zone crisis (five of the countries thatexperienced a decline in their scores aremembers of the euro zone--Greece, Italy,Portugal, Spain and Ireland). Most dra-matically, in two countries (Greece andItaly) democratically elected leaders havebeen replaced by technocrats. The near-term political outlook for Europe is dis-turbing. The European project is underserious threat and disputes within the EUare ever sharper. Harsh austerity, a new re-cession in 2012, high unemployment andlittle sign of renewed growth will test theresilience of Europe’s political institu-tions.
That all this is coming to pass as I havelong predicted gives me no pleasure. It in-creases my anger, true, but that is cold
comfort. And I am angry, angry at thepampered ignorant arrogant political classthat in the capitals of the member statesof Europe, and co-ordinated by the Brus-sels Euro-elite have, despite warning afterwarning, done nothing to mitigate theforces unleashed by the financial crisis of2008, but instead have dithered anddithered, compounding the problem andpiling on the pain on their citizens.
They have done this because, despiteknowing full well that their dream of acountry called Europe, reality has steppedin. If, as they say ‘to destroy us, first thegods make us mad. Then the collectivedelusion that has struck those in power ispernicious in the extreme. Because ofcourse it is not they driving down the Zillanes, to summit after summit, councilmeeting after council meeting to re-arrange their deck chairs one more timethat suffer. Not a bit of it. It is the littleman and women powerless, inconsequen-tial and friendless that bear the brunt. Notfor him and he the guaranteed pensionsand comfortable old age.
Why are the normal hopes and dreamsof our citizens being sacrificed on themegalomaniacal fantasies of those whothink they are our betters? Because for theelite to improve matters they would haveto admit fault, and that is something theyjust cannot do.
My predictions for the year? That in theend reality will bite and the edifice willstart to crumble, people will rediscoverthat they matter, and their hopes count.The elite will get the rudest wake upimaginable. Sadly I fear that there will bemore pain and more destruction of liveswrought before this happens, but happenit will.
I return to the EIU study for a pointer,in it 5 of the top seven countries in theirDemocracy Index are European (withNew Zealand and Australia taking 5 and6). They are Norway, Iceland, Denmark,Sweden and Switzerland. What unitesthese pillars of democracy? None are Euroarea members, and three are not in the EUat all. Does this point to a better futureby any chance?
For the elite to improve matters they
would have to admit fault, and that is
something they just cannot do
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41OUR WORLD IN 2012
- One of the EU’s main chal-lenges for 2012 will be that of internationalgeo-economics. The euro crisis and shifts inglobal power require a more assertive focuson immediate economic interests. Geo-eco-nomics is an increasingly important shaperof EU external policy. The external dimen-sions of the euro crisis merits far greater at-tention in 2012.
Geo-economics denotes the use of state-craft for economic ends; a focus on relativeeconomic gain and power; a concern withgaining control of resources; the enmeshingof state and business sectors; and the pri-macy of economic over other forms of se-curity. There is consensus that the ongoingeconomic crisis renders more pre-eminentthe geo-economic dimension to interna-tional power and presence. Refining its geo-economic focus is widely seen aspre-requisite to the EU recovering groundlost as a result of the crisis. Geo-economicsis also widely seen as a more central under-pinning of the emerging ‘non-Westernworld order’.
But what form of geo-economics will EUmember states pursue? It appears clear thatgeo-economics must be factored in as a sig-nificant influence over crisis-afflicted EUstrategy. But, geo-economics can assumedifferent degrees and shapes. Geo-eco-nomic power can mean different things todifferent actors What will be its definingcontours in European policies as 2012 un-folds? What exactly does geo-economicprevalence mean for EU polices in particu-lar regions and issue areas? What type ofgeo-economic power is the EU becomingand what type should it aspire to be?
European member states have becomestrikingly more active in chasing investmentdeals. This trend is likely to become evenmore marked in 2012. Several governmentshave explicitly committed themselves to amore assiduous pursuit of exports, invest-ment contracts and very direct national ma-terial interests. In several regions, European
external funding and development cooper-ation appear to be aligning more with theprivate sector. In at least some places, thedanger is emerging of the EU becoming amere supplicant for commercial contracts.This may produce important and immedi-ate material gains, but also breeds a percep-tion that the EU’s external vision isincreasingly and unduly constricted.
As a result of the crisis and intense com-petition from rising powers, in 2012 thefocus on geo-economics will tip the scaleseven more towards bilateralism and awayfrom common EU approaches. Competi-tion is increasing between member statesfor commercial access to emerging markets.This has not been accompanied by coordi-nation measures of equal weight at the EUlevel. Despite enhanced commercial diplo-macy, in most markets European companiesare struggling to hold-off stiff competitionacross all sectors from non-Western pro-ducers. In 2012 the EU will face decisionsover whether its plethora of initiatives –from outstanding free trade talks in Asiaand Latin America, to energy projects in theCaspian and recently formulated strategicpolicy frameworks in the southern Mediter-ranean and sub-Saharan Africa – can moveforward in more tangible and substantiveterms.
It would be premature to conclude thatgeo-economics are entirely suffocatingother dimensions of EU policy. Politicaland security policies in some circumstancesstill prevail. Relative to internal EU flows,
European global trade and investment re-mains modest. If there has been somethingof a geo-economic stampede to Asia, theeconomic aspects of EU policies have ifanything weakened in Latin America. Inthe Middle East and sub-Saharan Africa,trade and investment efforts have intensi-fied but still underplay these regions’ fullpotential.
The investment in security-related re-sources will follow a downward trajectory in2012 and the EU’s foreign policy centre ofgravity will tilt towards geo-economics.Nonetheless, in most areas the concern willnot be with economics completely emascu-lating politics, but with insufficient prioritybeing attached to conjoining these twostrands of policy. The need is for a changedapproach to diplomatic and security issuesas a means of underpinning geo-economicinterests. This is most clearly seen in the fe-rociously competitive energy politics of theCaspian region. Arguably, geo-economicsshould play to the traditional EU strengthof being an 'economic giant, but politicaldwarf '; but in many regions it also revealsits Achilles Heel of an abiding disconnectbetween economic and geopolitical inter-ests. It is emblematic that foreign ministershave been largely absent in the managementof the economic crisis.
Geo-economics does not mean the EUhas abandoned rules-based multilateralism.The EU is suspended somewhere in be-tween enthusiastic reliance on liberal inter-dependence and zero-sum survival mode.
While EU member states are more aggres-sively pursuing investment and bilateraltrade deals, they are not approaching geo-economics in the same kind of direct waythat China and, to a lesser extent, theUnited States plan for control over strate-gic resources and transport nodes of theglobal system. Yet, with most multilateralbodies struggling to retain traction, the EUwill need to boost its commitment to mul-tilateralism at key summits and key deci-sion-moments scheduled for 2012, if it is tohold geo-economics back from more dele-teriously eating into rules-based gover-nance.
European approaches to geo-economicsseem to take some of the priority away fromissues of political governance and multilat-eral cooperation, but without encouragingmember states to marshal all their resourcesto the purist form of realpolitik control. Thepositive interpretation is that this couldeventually constitute a well-balanced formof geo-economics: a firmer and more re-sults-driven search for commercial gain,without the excesses of rules-weakeningstatecraft. But this mix will need to be pur-sued in a far less ad hoc and expedient fash-ion in 2012. A long-term exit from crisiscan best be driven by external EU policiesbased on material interest but within aframework that dovetails far more tightlywith the broader gamut of geo-strategic ob-jectives. Key choices in 2012 will have abearing on how benign a form of geo-eco-nomics takes shape.
The investment
in security-
related resources
will follow a
downward
trajectory in 2012
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42 OUR WORLD IN 2012
- European beer is a diverse andtraditional product, rooted in agriculture. Infact, we shouldn’t really talk about beer, butbeers, with Europe being the home to a hun-dred plus different beer styles and forty thou-sand different beers. Brewing in every EUMember State, Europe’s three and a halfthousand breweries are rooted in their localenvironments, often producing a beer to meetlocal tastes and contributing socially and eco-nomically to their communities. Europeanbeers are also famous the world over, with notjust our products, but our brewing expertise,exported to all four corners of the planet. AsPresident Barroso stated in 2011: “More thanever the brewing landscape across Europecombines deeply rooted multinational com-panies as well as myriads of small andmedium sized companies sometimes at com-munity level. This combination is the keysource of dynamism for Europe's economy.”
Ernst & Young’s latest snapshot of the EUbrewing sector showed that approximatelytwo million jobs in the EU are created bybeer, whilst brewers contribute fifty billioneuros in taxes to EU governments each year.Brewers furthermore spend one billion eurosannually supporting activities in communitiesacross the EU. In the words of the Presidentof the European Council, Herman VanRompuy, addressing Beer Serves Europe2010: “Beer is part of our common Europeanheritage and culture. Beer is culture and tra-dition. But beer is also economy.”
However, the brewing sector has been hit
hard during the economic crisis, with knock-on effects notably on employment. For everyjob that we create in our sector, we generateeleven in the hospitality sector. Falling beerconsumption and particularly the increasingnumber of people put off by the costs of goingout, have had a major impact on the profits,jobs and taxes generated by beer sold in barsand restaurants. Whilst the declines werebiggest in the first two years of the crisis, 2012is looking like it will remain a very challeng-ing one for Europe’s brewers, particularly withfurther tax increases planned on beer. Whathas been shown is that these tax hikes evenlead to less government revenues. With taxespushing prices up in the hospitality sector,where the majority of the jobs and tax rev-enues are made, in just two years twelve per-cent of beer-generated jobs and six percent ofgovernment tax revenues from beer were lost.
In this regard it was heartening to hearPresident Barroso say to brewers in Novem-ber that “the Commission greatly values anopen dialogue with The Brewers of Europe,and fully recognises their important contri-bution to the European economy, both as jobproviders and as important revenue contrib-utors to national budgets.”
Of course, not all the challenges in 2012will be purely economic. With changing ex-pectations on business and diminishing nat-ural resources, Europe’s brewers are also keento reduce their impact on the environment.Also a clear business case can be made for re-ducing energy and water usage, with suchcosts and the price of raw materials increas-ing, whilst the economic crisis continues tobite. This will thus increasingly be an areawhere Europe’s brewers strive to do more, andbetter in 2012.
When the EU Strategy to Support MemberStates in reducing alcohol-related harm wasadopted in 2006, an Alcohol and HealthForum was set up to support it. Europe’s brew-ers over the past five years have come to the forecontributing, often in partnership with govern-ments, civil society and NGOs, over a third ofthe two hundred voluntary commitments toaction made by Forum members. The EUhowever faces a challenge in 2012 – assessingthe impact the EU Strategy has had on reduc-ing alcohol-related harm. Evaluations demon-strate not just a high level of local activity frombrewers, but also clear results from some of theactivities in terms of targeting and reducingharm. The Brewers of Europe will therefore as-
sist the Commission in demonstrating howthese activities have contributed to helping theEU achieve its aims, and how the Forum modelis one that should be further encouraged as ameans for fostering and sharing effective activ-ities, not just at EU level but also at nationallevel.
Undoubtedly, Europe’s 2020 GrowthStrategy and the way Europe’s brewers con-tribute to its success, are key to confrontingthe challenges in 2012 and beyond. Thisblueprint for growth and recovery offers anopportunity to further align the Europeanbrewing sector’s ambitions with the EU’s, cre-ating smart economic growth and jobs, re-sponding to consumer expectations andensuring a sustainable brewing sector. Presi-dent Barroso himself said in 2011 that hewishes the Commission and brewers to “workin close cooperation so as to face current chal-lenges and find appropriate responses to thecrisis which is affecting Europe.”
To meet the challenges in 2012 Europe’sbrewers will continue to pursue smart growththrough innovation in the sector and will fos-ter inclusive growth by boosting employmentas the sector recovers from the economic cri-sis, including in vulnerable communitieswhich often depend on the local brewery asthe primary employer. Brewers will pursuethese issues whilst also continuing to meet thegrowing expectations of policymakers andcitizens. The Brewers of Europe’s strong wishis that the beer sector can help to re-establishconfidence in European business in 2012.Beer serves Europe and The Brewers of Eu-rope is convinced that Europe can serve beer.
European beers are also famous the worldover, with not just our products, but our
brewing expertise, exported to all four corners of the planet
NEW EUROPE
OUR WORLD IN 2012
- It wasn’t supposed to happenthis way. For generations, a comfortablemarriage of convenience between politics,big business and entrenched institutions en-sured a playing field tilted in favour of therich, powerful and well-connected. Changewasn’t supposed to happen.
But it did happen. During the past year,millions have taken to the streets de-manding a fairer world and challengingthe people who misuse and abuse power.The actions of the Middle East andNorth Africa protesters, the anti-corrup-tion campaigns in India, China and othercountries, and the many ‘occupy’ move-ments have captured the world’s attentionand imagination. People across the world,particularly young people, have begun tobelieve the unbelievable. More impor-tantly, they have begun to hope again.
The growing clamour for a fairer system– one based on public human rights for all– seems to have caught the political andcorporate establishment by surprise. Gov-ernments have been left scrambling to re-gain both control and their moralauthority as old institutions crumblearound them.
Not surprisingly, they have dismissedcalls for change, disrupting demonstra-tions, often violently, by-passing demo-cratic processes through legislative fiat orby installing technocratic governments or
introducing draconian “emergency meas-ures”. But it has had little effect. Momen-tum is building. Things have changed.
During our 50-year history, AmnestyInternational has watched this happen be-fore. The collapse of Communism in thelate 1980s offered an opportunity to createaccountable governments and systemswhich respected the full range of civil, cul-tural, economic, political and social rights.That opportunity was squandered.
Instead, western governments promoted“the market” under the guise of promot-ing democracy. Strong trading partnersand resource-rich countries were valuedregardless of their human rights record.
Similarly, in the wake of the 9/11 at-tacks and revelations about the state-sanc-tioned atrocities committed during theso-called “war on terror”, the conduct ofcountries seen as strategic allies waslargely ignored.
This misjudged and myopic approach toworld affairs has eroded the West’s moralauthority to press for human rights andundermined its position in the politicalarena. In its place, a rising quartet of pow-ers – Brazil, Russia, India and China – isflexing its muscles, and a host of other na-tions – Turkey, South Africa, Indonesia,Mexico and Nigeria – are poised to fol-low. However, the human rights reportcards of these nations do not show uni-formly good scores.
There have been some huge steps for-ward since the Universal Declaration of
Human rights was adopted on 10 De-cember 1948, but many of the promisesand policies have since rung hollow. Sixdecades on, we live in a world where thedivide between rich and poor is widerthan ever.
More than 2 billion people are stilltrapped in a desperate, downward cycle ofmarginalisation, disenfranchisement andpoverty. Large sections of society are shutout of the political process. Women arestill seen as second-class citizens. Andmillions are dying every year because theycan’t access medical care, clean drinkingwater or cheap, life-saving drugs.
But this year has been different. Some-thing has changed. This year, there ishope.
From the streets of the Middle East andNorth Africa to city centres around theworld, people are demanding action. Theyare questioning the very foundations ofthe systems that have governed their lives.They are harnessing the power of tech-nology – mobile phones, social media,YouTube – to build solidarity. They aresensing that they hold the real power, and
that they can shape a better world.To reclaim their legitimacy as leaders,
businesses and governments – both in theWest and in emerging economies in LatinAmerica, Asia and Africa – must listen.They must cast aside the politics of thepast. They must rein in the unaccountablegovernance of countries and businesseswhich have blighted lives and left so manypeople behind. And they must put respectfor human rights, particularly of vulnera-ble groups, above political and economicgain.
As part of the growing people’s move-ment for public accountability, we haveseen protesters showing the world thatchange is possible. By bravely facing downrifles and tanks, by bringing down en-trenched regimes and by challenging pow-erful companies, they have shown thatordinary people can do extraordinarythings. They have shown that people domatter, and that treating others with dig-nity and respect is fundamental for a bet-ter world. Most importantly, they haveshown that hope can be re-born out of theashes of indignity, injustice and despair.
There have been some huge steps forwardsince the Universal Declaration of Human
rights was adopted on 10 December 1948, butmany of the promises and policies have since
rung hollow
43
NEW EUROPE
44 OUR WORLD IN 2012
- The New Year is above all acontract with our individual and collec-tive future. The future is not determinedby law but all of us have a strong respon-sibility in constructing the pillars of amore positive and innovative society.Back to the future, without forgetting theexperience of the past, we as individualsthat have a responsible role in a more de-manding society are giving a central con-tribution to a better world. This is themost interesting challenge we face thenext years. We must be able to have suc-cess in such a tremendous challenge.Today we are already the future.
Our contract with the future must besupported by the values of freedom, so-cial justice and development. This is thereason to believe that a new standard ofDemocracy, more than a possibility, is anindividual and collective necessity for allof us, effective global citizens. Karl Pop-per is more than ever present – the dif-ference of this new world will be in theexercise of the capacity of the individualparticipation as the central contributionto the reinvention of the collective soci-ety.
Our contract with the future is not de-termined by law. It is effectively con-structed by all the actors in a free andcollaborative strategic interaction. TheReinvention of the world is the reinven-tion of its people and institutions. An ac-tive commitment, in which the focus inthe participation and development ofnew competences, on a collaborativebasis, must be the key of the difference.This is purpose of the New frontiers.
Our contract with the future must alsobe developed by a permanent flow ofideas. Ideas demand a permanent colabo-ration between the different actors, withthe strategic challenge of reinforcing thecentral competences of society and qual-ifying them as the unique ways of cre-
ation of value and modernity. Europe isfacing also a unique opportunity. Theideas must be the difference of a proposalwe must be aware that is the best key forour ambition of excellence.
Our contract with the future demandsalso a commitment of partnership inorder to build a real Strategy of Confi-dence in the implementation of the dif-ferent policies.
The focus on Innovation and Knowl-edge as the drivers of creating addedvalue with international dissemination isa unique challenge that may be the an-swer to a new way of interaction betweenthose who have the responsibility ofthinking and those that have the respon-sibility of producing goods and services.
Our contract with the future demandsalso a new competitive attitude. We needpeople to have a new challenge. Societymust be able to be the real Platform of amore entrepreneurial attitude, centered innew areas of knowledge and new sectorsof value. In a Modern and Active Society,the key word is Co-creation.
To promote a dynamic and active cre-ation process involving each citizen is thebig challenge for the next years in the fu-ture. The future is the right place to saywe are in, we want to be in, we want tobe the right solution to the global prob-lems we face.
Our contract with the future must be aconfidence in Excellence. Excelence mustbe the new competitive advantage of anew society of the Ideas pushed by the“enablers” of Modernity, Added Valueand Excellence.
A very clear idea that suits the bigchallenge that our society really faces andthat requires new answers for differentquestions. The act of global participationin such a demanding society is an exer-cise of commitment between the individ-ual creativity and the collectivecooperation. This is our contract with thefuture.
Society must be able to
be the real Platform of
a more entrepreneurial attitude
NEW EUROPE
45OUR WORLD IN 2012
- The world we live in todayhas become high pressure and very fast-paced to the point where we need to opti-mize our way of managing our lives.People often forget that many of the ob-jects we use daily are less than 100 yearsold. The car started to replace the horsein the early 1900s. Another landmark inour history is the first commercial flightthat took place in the early 1930s only 80years ago. The first television broadcastwas only 70 years ago. Apple released itsfirst personal computer 30 years ago. Mo-bile phones started to become widespreadin the mid to late 90s at the same time asthe internet and this is only 15 years ago.Smart phones started appearing aroundthe year 2000 and now tablets are startingto become more popular. Can you imag-ine your life today without these inven-tions? In the last 100 years, society haschanged faster than ever before.
In many ways, these inventions have op-timized and accelerated mobility, flow,and quantity of information. The accel-erated rate of change has accelerated thepace of life in an exponential way and thistrend is expected to continue in the com-ing years. Aside from the many benefitsthese technological advances have offered,many have become overwhelmed and areunable to manage this very fast pace oflife.
This is true on at least two levels.Firstly, the pace of life is affected by thecompression of time. In the past onewould send a letter and the exchangewould take weeks. Today, we send anemail which is received within five min-utes and a response is often expectedwithin the hour, considering that the
email reaches the desired person anywhereand at anytime. This means that the pres-sure on people has increased due to theelimination of the time constraint. Sincepeople are no longer protected by the timeit took for things to get done, they are ex-posed to increased pressure which canlead to an array of anxiety disorders ifmismanaged. Today one needs to replacethe old time constraint with the recogni-tion of one’s own limits.
Secondly at a more cognitive level, sincemore is done in less time, many findthemselves overwhelmed by an accumula-tion of unaddressed thoughts thatspillover and create difficulties such as in-somnia, heightened stress levels, panic at-tacks, and burnout which aredemobilizing.
A good analogy of today’s society is the80s game of Tetris. This game consistedof the simple task of aligning blocks hor-izontally without gaps. When such a linewas created, it would disappear, and anyblock above the deleted line would fall.As one progressed through the levels, thegame would accelerate and this simpletask of aligning blocks would eventuallybecome unmanageable.
Being in-tune with the environment welive in is a statement that is not new, butthere is a big distinction that one canmake between today and 100 years ago.100 years ago, many aspects of the envi-ronment in which people lived in wererelatively constant with a very slow rate of
change. Today the rate of change is sorapid that the environment has become avery dynamic variable which leads peopleto seek other constants or anchor pointsto have a sense of security and stability.
The illusion of obtaining full controlover the outcome of things is a popularand an enticing belief to have. It givesshort-term reassurance but results inlong-term anxiety and helplessness as onerealizes that their ‘constant,’ their lifesaverin a sea of turbulent water is in reality notthere. Another important constant thatalso became a variable is the sense of fam-ily, community and the wider social net-work. A solid family and communitystructure creates an interdependencewhich leads to the creation of a mutualsupport network. When people findthemselves abroad away from their fami-lies this support network is very loose andsometimes even inexistent. This can leadto a feeling of loneliness and insecurity.
Looking at the characteristics of societytoday, one quickly realizes that most peo-ple are not equipped to deal with today’sreality. In the past people naturallyadapted to their environment over time,today people need to actively adapt andre-adapt to the continuously changing en-vironment.
To accelerate adaptation one needs toconstantly expose themselves to the envi-ronment, so as to be up to date with itsfast changing characteristics as well as toaccept its features. Having discrepancies
between the environment and your beliefswill result in an anxious state caused bythis incoherence. Being in-tune with theenvironment also means developing skillsthat improve our management of life andtherefore improve our quality of life.
One such skill is learning to manageour thoughts. A thought is just a thoughtnothing more, nevertheless, a thought canhave a significant effect on our emotionswhether it is true or not. This is why it isso crucial to learn to evaluate thoughts, tosee if these thoughts are true or false, im-portant or not.
Not all thoughts deserve our full atten-tion; many thoughts do not deserve anyattention at all. Learning to filter and letgo of thoughts allows us to streamline ourthought process which allows us to func-tion in the fast pace world.
Just as we prioritize and filter thoughtswe also need to do the same with dailytasks while taking into account theamount of time we have at our disposal aswell as other constraints and limitations.This way we can defuse a significant partof the pressure we experience. In the past,the slower pace of life would forgive ourflawed way of managing things, today’sfast pace of life does not. When manag-ing one’s environment and self well, onefeels empowered and confident whichleads to feeling secure and stable.
This way, one becomes the constant andis able to live optimally in the rapidlychanging environment of our time.
In the past, the
slower pace of
life would forgive
our flawed way of
managing things,
today’s fast pace of
life does not
NEW EUROPE
46 OUR WORLD IN 2012
Three years after the launch of theWINE IN MODERATION programand the commitment to deliver the WIMmessage across Europe, the EU wine sec-tor has made recognized progress in im-plementing this ambitious contributionto the EU Strategy to support MemberStates in reducing alcohol related harm.The objective set in 2005 was to unite thewine filière in a project that would makea significant and measurable contributionto the reduction of alcohol related harm,and yet secure the future of the wine sec-tor through the development of respon-sible business.
The recognition that the EU Winesector had an important role to play inreducing alcohol related harm led to a co-operation between the three major winegrowing and making areas; -producers(Copa-Cogeca), independent growers(CEVI) and winemaking companies(Comite Vins) - formulated in theWINE IN MODERATION programlaunched in 2008 as the EU Wine sec-tor’s commitment to the European Alco-hol & Health Forum, which hasrecognized it as a significant contribu-tion. Taking the more than 3 million peo-ple involved in the growing and makingof European wine, the WINE IN MOD-ERATION–ART DE VIVRE programbuilds on three main pillars; educationabout moderate and responsible winedrinking, self-regulation of commercialcommunication and development andsharing of science based information.
There are two key underlying aspectsto the WIM program; it is based on theprinciples of the European wine culturewhich is inherently moderate and linkedto local gastronomy, and it respects localand regional culture and is implementedin line with this. This adaption to na-tional culture has the effect of givingWIM much greater relevance and impactin each area.
However the need for consistencyacross the Europe has also been re-spected. The creation of a single “WIMCommon Message” ensured that theprinciples of WIM were correctly inter-preted as the basis of each local program.The three support pillars were developedas independent, but interlinked, toolswhich could work at different speeds ac-cording to the national needs.
Thus, “WIM ART de VIVRE” pro-vided an educational tool based on thekey message of:
1. Savour the wine you drink : under-standing the distinctive flavours of yourwine, but never exceeding the guidelinesfor low-risk moderate consumption ofwine (or other alcoholic beverages)
2. Wine drinking requires maturity :consumers under legal age should notdrink
3. Women should avoid drinking wineand other alcoholic beverages duringpregnancy
4. If you drive avoid drinking. If youdo drink never exceed the legal BAC(blood alcohol concentration) set fordrivers
And, of course, consult your familydoctor in case of any doubts or questions
This key message is included in allWIM brochures, presentations, educationand information. In Portugal, where thereare 125 wine sector signatories of WIM,it is projected to tourists within the au-diovisual presentations when visiting thewinery. In Italy it included in a pilot proj-ect in cooperation with educational au-thorities in Verona.
Commercial communication and pro-motion must be responsible and honestand should not induce consumers to
abuse wine. The WIM WINE COM-MUNICATION STANDARDS areself-regulatory guidelines which mem-bers of WIM are committed to abidingby. In Spain they have become the offi-cial standards monitored by Autocontol,responsible for all types of consumer ad-vertising.
The importance of understanding thescience of moderation and abuse cannotbe underestimated as a tool. The com-mitment of WIM is to provide balanced,science based information which willallow consumers to make informed deci-sions. The WIM WINE INFORMA-TION COUNCIL (WIC) unites a poolof scientific experts under the chairman-ship of Prof. Nicolai Worm (Nutritionist)and the coordination of Germany’sDeutsche Weinakademie. The specificrole of WIC is to gather evidence-basedscientific information on wine and shareall ‘best-practice’ initiatives which havebeen shown to successfully promote re-sponsible drinking patterns.
An example of the cultural adaptationin implementation can be seen in France,where the WIM program appears withinthe VIN ET SOCIETÉ programlaunched by the sector to educate and fa-miliarize consumers, restaurants and re-tailers about moderation andresponsibility
The WIM Implementation Report2008-2010 details the results of the first3 years of the program, reporting on thework carried out in the 9 countries whereWIM has been introduced. The statisticscite that 100% of the relevant Europeanorganizations are committed to workingtogether on this first pan-European pro-gram to promote moderation and re-sponsibility, over 250,000 visits have beenmade to the WIM Website (over half amillion page views) and there have beenover 30 Million consumer impacts.
While the achievements to date are im-portant they are just the first steps. OnNovember 24th, the creation of a non-profit association Wine in Moderation–Art de Vivre (WIM) Aisbl, with thesupport of the national constituencies,took WIM into a second phase. Despitethe particularly difficult economic condi-tions, the wine filière is committed tobuild on the recognized success of WIMand meet the challenge of securing thecentral place of wine in European culi-nary and cultural heritage, reinforcing itslegitimate contribution across Europe
WIM’s future actions will focus on con-sumer communication, through traditionalmethods, through wine tourism, on la-belling and in the new social media to es-tablish moderation as a culture andresponsibility as a trend in support of theEU Strategy to reduce alcohol related harm.
European wine culture is inherently
moderate and linked to local gastronomy,
and it respects local and regional culture
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- Is there a risk of sports tak-ing a back seat in 2012? Amid pressing is-sues like the global financial crises, foodinsecurity in developing countries and cli-mate change, what role will sports play? AsCEO of the Sochi 2014 Winter Games, myexperience has shown me that the signifi-cance of sports grows in parallel to broaderchallenges. Sport is a fundamental way tolower social barriers and promote coopera-tion among nations. Indeed, over the pastyear, there were several examples of sportsbeing recognised and used at an interna-tional level as a tool for peace. The worldcommunity recognises sport as a universallanguage, which can be a powerful tool topromote tolerance and understanding bybringing people together across boundaries,cultures and religions. Its intrinsic valuessuch as teamwork, fairness, discipline, re-
spect for the opponent and the rules of thegame are understood all over the world andcan be harnessed in the advancement of sol-idarity and social cohesion.
In 2011, a significant agreement wasreached between 193 countries across theworld to cease hostilities and observe atruce during the 2012 Olympic Games inLondon. And in 2012 we will see theUEFA European Football Championshipin Poland and Ukraine, the first majorfootballing event held in Eastern Europesince Yugoslavia hosted the EuropeanFootball Championships in 1976. This willboost cooperation between the two coun-tries and help solidify their close relation-ship across borders. Similarly, holding theFIFA World Cup in Qatar in 2022, al-though a relatively small country with apopulation of just 1.7 million, will helpbuild bridges of understanding betweenthe Middle East and the rest of the world.
Advancing social goals through sports issomething we are driving in my home townof Sochi, Russia, as we prepare to greet theworld community at the next WinterGames. In 2011, for the second year in arow, we organised a camp for GenerationsFor Peace, an international non-govern-mental organisation founded by HRHPrince Feisal Al Hussein of Jordan. We wel-comed delegates and Peace Pioneers fromcountries around the world, includingGeorgia, Serbia and Zimbabwe, and pro-vided training modules for peace-buildingand working with youth. Volleyball, basket-ball and football skills were taught as a
means of strengthening cooperation, team-work and solidarity between groups.
In addition, I was proud to present theSports Event for Peace of the Year to theEast Africa Cup, a sporting event thatbrings together young people from 11 to16 years from eight countries in East andSouthern Africa. Through the organisationof football, volleyball and wheelchair vol-leyball tournaments, the East Africa Cupengaged young people in their communi-ties and provided information on topicssuch as HIV-AIDS and conflict resolution.
Building on this success, Sochi will hostthe 6th Peace and Sport Forum in 2012.And we will welcome Generations forPeace, which operates local sports-basedprojects in crisis regions around the world.These are both important platforms thatstrengthen cooperation between govern-ments, sports regulating bodies, interna-tional organisations, the private sector andinternational sports champions.
But much more can be done to advancesocial goals through sports. For example, theprivate sector should become more involvedby increasing their corporate social respon-sibility initiatives in this area. In line withthe concept of “smart philanthropy,” it is notthe amount of money or resources providedby a corporation – but instead having a clearstrategy, with measurable results and feed-back. This is often best carried out by work-ing with local associations that have relevantexperience with social, cultural and geo-graphical factors in order to maximise theresults of a peace through sports program.
Furthermore, and building on the suc-cesses of the 2011 European Year of Volun-teering, I encourage governments andinternational organisations to ensure thatvolunteerism remains high on the politicalagenda in 2012. Sports volunteering in par-ticular can transform the pace of peacefuldevelopment between communities, tran-scending language, cultural and financialbarriers. It is a unique and rewarding expe-rience for individual volunteers that theycan apply in their future personal and pro-fessional life. Certainly, the next twelvemonths will be busy for Sochi 2014 volun-teers, who are reaching out to the 2012Winter Youth Olympic Games in Inns-bruck and partnering with the London2012 volunteers to help with the organisa-tion of the Olympic and Paralympic games.
Lastly, I would highlight that investingin peace through sports programs makessense even in economically challengingtimes. Sports programs are a cost-effectiveway of bringing together marginalised andhard-to-reach groups in a fun and sup-portive environment, communicating keymessages and integrating them into theircommunity.
The founder of the InternationalOlympic Committee and pioneer of themodern Olympic Games, Pierre de Cou-bertin, noted on his travels through Eng-land in 1886 how “organised sport cancreate moral and social strength”. It is inthis spirit that we prepare for Sochi 2014.And, I hope, one that others around theworld will embrace.
Sports
programs are a
cost-effective way of
bringing together
marginalised and
hard-toreach groups
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– As 2011 draws to a close,there are growing signs that Asia is becom-ing caught up in the global slowdown,dashing hopes that the region’s economieswould “decouple” from the prolonged re-cession in Europe and America’s lacklusterrecovery. China’s export growth is slipping,owing to faltering demand in Europe,which has surpassed the United States asChina’s largest foreign market. Indeed,China’s manufacturing activity is contract-ing for the first time in almost three years.Reverberations are already evident in otheremerging Asian economies that depend onexports both to China-based manufactur-ers and to the US and Europe.
Decoupling did not occur in 2008, whenexports accounted for about 45% of pan-Asian GDP (excluding Japan) and everyemerging country in the region experienceda sharp contraction in growth as worldtrade plummeted. Nor is decoupling likelytoday, because exports still account forabout the same share of the region’s GDP,and about 50% of these exports are stillheaded to developed countries.
So the idea of decoupling appears to be achimera. Even if the euro crisis is resolved,austerity in Europe, along with anemicgrowth or worse in the US, will mean aslowdown in export-dependent Asia. ButAsia’s economies can still grow much fasterthan the developed West if they respond toprolonged stagnation by rebalancing theirgrowth toward internal demand, especiallyhousehold consumption. The good news isthat these economies have substantial roomfor such rebalancing, as well as the policyflexibility to accomplish it.
The share of consumption in GDP inthese economies fell from more than 60%in the early 1980’s to less than 50% today.In China, it is less than 40% – far below thenorm for the world’s major economies andfor other Asian economies at a comparablestage of development – despite nearly 7%annual average growth in China’s per capitaconsumption in recent years.
The Asian economies are home to 3.5billion consumers, but their share in globalconsumption remains small – much smallerthan their share in global GDP. Chinaalone accounts for 20% of the world’s pop-ulation, nearly 11% of global GDP, but only3% of global consumption.
China and most of the other emergingAsian economies have strong governmentbalance sheets – the GDP shares of theirbudget deficits and public debt are rela-tively small. As a result, they have the fiscalfirepower to boost consumption in order tomitigate the effects of declining exports.
True, many local governments in Chinaare saddled with debt, some of which mayneed to be restructured. But the centralgovernment enjoyed a 28% increase in rev-
enues over the last year, and has more than$3 trillion in foreign-exchange reserves. Inaddition, the moderation of inflationarypressure as a result of slower growth andcooling global commodity markets willallow Chinese and other Asian policymak-ers to shift their focus from containing eco-nomic overheating to rebalancing growth.In China, where inflation is falling sharply,monetary policy has already begun to ease.
Even with significant policy support,however, most of the smaller Asianeconomies – Taiwan, Thailand, Singapore,and even South Korea – will not be able toreplace external demand with internal de-mand to the same extent that China can.So, even with rebalancing, exports will re-main a significant determinant of theirgrowth, and China is already their majorexport market.
That is why China’s rebalancing is soimportant not only for its own economy,but for all of China-centric Asia. Intra-re-gional trade flows have surged during thelast decade, but they have been concen-trated in parts and components that gointo finished products assembled in Chinafor export to developed countries. Withdepressed markets in the developed world,intra-regional trade in the future will de-pend more on exports to satisfy Chinesedomestic demand. Again, there is cause foroptimism: China’s imports from Asia havebeen growing faster than China’s exportsto the US for the last several years.
China responded to the 2009 globalslowdown with dramatic fiscal and mone-
tary stimulus, which fueled a rapid invest-ment-led recovery at home and through-out Asia. Investment, mainly by localgovernments and state-owned companieswith easy access to bank financing, soaredto more than 45% of GDP, and, consistentwith China’s long-run urbanization strat-egy, was concentrated in infrastructure andproperty-development projects.
Over time, much of the expansion in ca-pacity will be absorbed, as an estimated 15million people move from rural to urbanareas each year over the next decade. But,for now, many investment projects are notyet generating enough income to servicetheir debts (some of them never will), andthere is significant spare capacity.
Confronted with another global slow-down that could depress its export mar-kets for years, China needs to boostconsumption even as it cools investment.And it needs to so in ways that do not relyon excessive credit expansion.
China’s 12th Five-Year Plan, which will
take effect in 2012, recognizes these policyimperatives and calls for several measuresto fulfill them, including wage increasesfor urban workers; income support forrural households; enhanced access to cap-ital for small businesses, especially in theunderbuilt services sector; and more gen-erous social-welfare programs, whichwould reduce Chinese households’ highlevels of precautionary saving. All of thesemeasures are already underway, and Chi-nese leaders appear committed to embrac-ing a new growth strategy that will benefitboth China’s population and Asia as awhole.
The Asian economies should not counton being able to decouple from the eco-nomic woes of Europe and the US in theshort run.
But there are promising signs that, overtime, the advanced countries’ difficultieswill trigger a healthy, if belated, shift inAsia’s development strategy, with Chinaleading the way.
China responded to the 2009 globalslowdown with dramatic fiscal and
monetary stimulus, which fuelled a rapidinvestment-led recovery at home and
throughout Asia
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– With economic globalizationand the advent of a multi-polar world,China and other emerging countries areclearly set to play much more importantroles not only in 2012, but in the comingdecades. As China’s economic power and in-fluence in the world economy have increasedfollowing the financial crisis of 2008, theidea has been floated that China and theUnited States should co-lead the worldunder some sort of “G-2” arrangement. Butsuch a G-2 framework is not consistent withChina’s independent foreign policy, nor withthe general trend towards wider dispersionof geopolitical power within the interna-tional community. Although China’s seniorleadership will change this year, this positionwill not change.
Indeed, when China’s Premier Wen Jiabaovisited Prague in May 2009 for the 11thChina-European Union summit, he ex-plained that China is opposed to the G-2concept. It is China’s firm intention never toseek hegemony, nor to support global dom-ination by a small minority of countries.
What China does believe in is deepeningcooperation with all of the world’s major re-gions. Consider Europe – a splendid andtime-honored civilization, and now a majorplayer on the world stage. The progressivedeepening of EU integration has broughtdynamic vigor to the European continent;despite Europe’s current difficulties, it stillboasts extraordinary overall strength and in-
ternational influence.China has always supported European in-
tegration, and hopes that the EU will be-come a pillar of international order. In thewake of the global financial crisis and theeurozone’s sovereign-debt crisis, China hasbought government bonds, made direct in-vestments, and sent business delegations toEurope. During Spanish Prime MinisterJosé Luis Zapatero’s visit to Beijing in April2011, Wen reaffirmed China’s willingness tocontinue purchasing Spanish governmentbonds as a further demonstration of our sup-port for Europe’s efforts to emerge from itscrisis. Moreover, China’s huge market andlabor pool have created important opportu-nities for Europe.
In this new multi-polar era, China andEurope must work together, and they arenow at a critical moment if they are todeepen their cooperation. What we do toshare opportunities, meet challenges, andpursue development will be directly relevantnot only to our own peoples’ welfare, but alsoto the world’s future. China-EU cooperationwill be essential to maintaining global peaceand stability. We share a commitment to re-solving international issues through politi-cal means, and both sides have alreadyplayed a constructive role in addressingglobal challenges such as climate change,terrorism, and the proliferation of weaponsof mass destruction.
The parallel launch of China’s 12th Five-Year Plan and Europe’s 2020 Strategy hasalso helped to deepen our cooperation.
China and Europe worked together after2008 to prevent a global financial meltdown,oppose protectionism, and promote reformof the international financial system, thus fa-cilitating worldwide economic recovery.
China also takes its relations with the USvery seriously. Indeed, our bilateral rela-tionship is among the most important inthe international community. That rela-tionship has gone through some roughpatches since diplomatic ties were estab-lished in 1979, but, overall, it has continuedto grow and benefit both sides. Today,China and the US share more intereststhan ever, and there are encouragingprospects for still broader cooperation.
When President Hu Jintao visited Wash-ington, DC in January 2011, he and Presi-dent Barack Obama agreed to build whatHu referred to as “a China-US cooperativepartnership based on respect and mutualbenefit.” They reaffirmed their deferencefor each other’s sovereignty and territorialintegrity, and reached agreements on majorstrategic issues, including efforts tostrengthen cooperation in the Asia-Pacificregion and in multilateral institutions, and
to respond jointly to regional and globalchallenges to peace and stability, for exam-ple, on the Korean Peninsula.
China is the world’s largest developingcountry; Europe is the largest bloc of de-veloped countries; and the US is thelargest single developed country. Together,we account for nearly a third of humanityand two-thirds of the world economy. Asthe three major global powers, China, theEU, and the US must strengthen their co-operation, and must work with the rest ofthe world to face the complex interna-tional issues that challenge us all. To-gether, we must shoulder the great task ofupholding world peace and promotingcommon development.
While China is committed to its own in-dependent foreign policy, it cannot achievedevelopment in isolation. Likewise, theworld cannot develop without China. Huonce said that the twenty-first centuryshould be a century of peace, development,and cooperation. China is willing to joinwith the EU, the US, and the rest of theworld to realize the potential of a truly har-monious world.
It is China’s firm intention never to seekhegemony, nor to support global domination
by a small minority of countriesChina-EU cooperation will be essential to
maintaining global peace and stability
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– India’s Indira Gandhi, SriLanka’s Sirimavo Bandaranaike, Pak-istan’s Benazir Bhutto, Sheikh Hasina ofBangladesh, Corazon Aquino of thePhilippines, and Megawati Sukarnoputriof Indonesia – these women leaders dom-inated South and South East Asia formuch of the past four decades. Each be-longed to a special class of women whosehusbands or fathers were their country’srecognized founding father or longstand-ing political leader. But, while their dy-nastic links brought them to power, theywere not the sole factor keeping themthere.
When first elected, none of thesewomen had any serious professional orpolitical qualifications. For some, this“shortcoming” was seen as an advantage,enabling some of them to project animage of innocence and purity, even mar-tyrdom, as they stood in the place of theirdeceased husbands or fathers. None wasparticularly focused on a women’s agenda(at least not in their first terms in office),and studies show that rural women didnot fare particularly well under their rule.
But something very different emergedin Asia in 2011. We still have womenleaders who came to power at least partlybecause of their family ties. But they nowseem to use their positions with far moreconfidence in putting women and theirconcerns squarely at the center of theiragendas. And perhaps more importantly, agrowing number of women are reachingfor the highest political echelons in theircountries by dint of their political talentsalone.
Sonia Gandhi, the Italian-born wife offormer Prime Minister Rajiv Gandhi anddaughter-in-law of the late IndiraGandhi, became India’s most powerfulwoman for dynastic reasons but she hasconsistently demonstrated that she is ashrewd behind-the-scenes political oper-ator. For her, the main task at hand is tostrengthen the Congress Party, which inearly 2011 she was elected to lead for anunprecedented fourth term. But she hasalso expended considerable energy onpromoting women, particularly their rep-resentation in politics. Indeed, she pushed
hard in backing Pratibha Patil to becomeIndia’s first woman president.
Similarly Sheikh Hasina, Bangladesh’sprime minister, who carries the mantle ofher assassinated father, has become a keenadvocate of development issues, with aspecial emphasis on women and theirneeds. That agenda, missing in her firstterm, has dominated her current period inoffice.
In East Asia, too, women are on the risepolitically. Park Geun-hye, daughter ofPark Chung-hee, President of SouthKorea from 1961 to 1979, is now one ofthe two likely candidates to succeed Pres-ident Lee Myung-bak. While Park de-rives some of her power from her familypedigree, she has proven to be an astuteand seasoned politician – one whoclimbed the Grand National Party’s lead-ership ladder over the last two decades toemerge as a national figure. Her role inchampioning an inclusive agenda forwomen provides a new lens throughwhich to assess the power of Asia’s newleaders.
Compare Park to Corazon Aquino,who, when elected President of thePhilippines, famously remarked that shewas simply a housewife, not a professionalpolitician or an experienced leader. It wasclear that voters elected her because shewas the widow of the slain oppositionhero Benigno Aquino. By contrast, no onewould deny Park’s professional creden-tials. She is taken seriously more for herown experience and political power than
for her family connections.Even in Japan, a similar change is in the
air, but with no hint of dynastic trappings.Yuriko Koike, a former defense ministerand national-security adviser, is one of thecountry’s most powerful figures; indeed,she could become Japan’s next prime min-ister. Unlike many other leaders of herLiberal Democratic Party, Koike has noreal family connection to any major polit-ical figure. Instead, her standing reflectsher unique political talents: an academicbackground in Arabic studies (she stud-ied at Cairo University) and fluency inEnglish, which give her a global perspec-tive that most of her male colleagues lack.
Koike is not the only Asian womanwithout family ties forging a political ca-reer that may lead to the top. Indonesia’sSri Mulyani Indrawati, a former financeminister and currently a managing direc-tor of the World Bank, is often mentionedas a leading presidential candidate in hercountry. Indeed, a party has been formedspecifically to entice her to run for presi-dent in 2014.
In Taiwan, Tsai Ing-wen, is making asustained and powerful challenge to theincumbent president in the election duein January 2012. Having helped to draftTaiwan’s special state-to-state act thatregulates relations with China, and thenhaving headed the country’s Ministry forMainland Affairs Council, she is well po-sitioned to manage the thorniest issue anyTaiwanese leader will face: the relation-ship with China.
Another newcomer to political leader-ship is Yingluck Shinawatra, Thailand’sPrime Minister. Clearly, one reason sheswept to power this year were her ties toher brother, exiled former Prime MinisterThaksin Shinawatra, who controls thecountry’s strongest political party. But shemade it clear during the campaign thatshe is her own person, a seasoned businessleader with appropriate professional de-grees.
Then, of course, there is the BurmeseNobel Peace Prize laureate Aung San SuuKyi. The daughter of the founder of inde-pendent Burma, Suu Kyi is now engagedin perhaps the most delicate task of herremarkable political career – trying to en-gineer a true democratic transition fromdecades of military dictatorship.
Unlike the first generation of Asianwomen leaders, who gained power prima-rily because of their familial connections,the emerging crop are strong, confident, andready to take on the challenge of leadingtheir nations on their own terms. Their fol-lowers appear to see in them harbingers, un-jaded by history, of the change for whichtheir societies are clamoring.
At a time when, despite economicgrowth in Asia, there is much social andincome inequality, as well uncertaintyabout the durability of peace in the re-gion, the desire to find fresh solutions toproblems has given a powerful boost towomen leaders. They are poised to taketheir seats at the top table – and perhapsto change its shape.
Unlike the firstgeneration of Asianwomen leaders, who
gained power primarilybecause of their familial
connections, the emergingcrop are strong, confident, andready to take on the challenge
of leading their nations ontheir own terms
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- O ver the past tenyears, significant efforts have been madeglobally to identify and understand theroot causes of extremism. In Europe, na-tional governments and the EU institu-tions have worked closely withcounter-terrorism experts, law enforce-ment agencies, faith-based groups andMuslim community leaders with a viewto understanding and preventing thephenomenon of home-grown extremismand radicalisation leading to terrorism.
It has become increasingly evident thatrecruitment, particularly - but not exclu-sively - of young people, is often the re-sult of longer-term, and sometimesundetected, radicalisation processes.
The factors contributing to radicalisa-tion are manifold, complex and often notcompletely understood.
Extremist propaganda diffused throughthe media and particularly the internet,the preaching of radical individualswithin communities and the use of reli-gious-based arguments to foment vio-lence are contributing factors.
Additionally, discrimination and mar-ginalisation combined with the lack ofaccess to liberal religious and other role-model figures contribute significantly bycreating a fertile ground for extremism tospread and have an impact.
Within this context and as part of ourwork at the European Foundation forDemocracy (EFD) in Brussels, we havecome across a number of inspirational in-dividuals - European citizens of Muslimand/or immigrant backgrounds - con-cerned by the polarisation of the broaderdebate across Europe.
They are frustrated by the attention
and importance that both policy makersand the media continue to give almostexclusively to self-appointed “spokesper-sons” and radical elements who claim torepresent “Muslim communities” or tospeak in the name of Islam.
They feel equally threatened by thespread of extremist narratives withintheir own communities and witness first-
hand the way in which radical individualsand group pressure contribute to theemergence of virtual parallel societies inwhich a different set of values, freedomsand laws apply. In these societies, weoften see that the rights of individuals aresacrificed in the name of the “rights” ofcultures.
Some of these individuals work against
forced marriages, others on honourcrimes and honour violence; some arejournalists working on radicalisation is-sues and others are local government of-ficials, film-makers, academics andresearchers.
But they are all Europeans who firmlybelieve in the principles enshrined in theEU Charter of Fundamental Rights: re-spect for the rule of law and fundamentalrights.
All are united in their desire to changethe current status quo, as they see first-hand that the results of various govern-ment policies on integration over theyears continue to fall short.
The disconnect between governmentand citizens, particularly those withinimmigrant communities, has grown evergreater thus creating a gap filled by ex-tremists, who are connecting with and of-fering an alternative to disaffected youthin societies right across Europe.
It is through working with these peoplethat it has become increasingly evidentthat voices such as theirs are not beingheard mainly because they lack the meansand access to policy makers, media andfunding sources.
All of them are active in their respec-tive capacities in their own countries butthey work primarily alone, unaware thatthere are many like-minded individualsin other countries working on similar is-sues, sharing the same values and idealsfor a free, open and tolerant society.
They represent a significant opportu-nity as a resource for European and na-tional authorities in their efforts to fightand prevent radicalisation within immi-grant and Muslim communities.
They are true to the democratic valueson which Europe was founded and theyneed to be supported, nurtured and em-powered to ensure that they can developinto the alternative role models they areand inspire their peers within their com-munities.
They are passionate about playing astronger and more effective role in coun-tering extremist narratives and rhetoricthat for too long have been perceived asthe de facto views from their communi-ties.
They are a tremendously motivatinggroup of people and deserve to succeed.It will take a few years for their efforts tobear fruit though I am in no doubt thatthis will occur in the not-too-distant fu-ture.
With the support of institutions suchas the European Commission, these in-dividuals could make a hugely valuablecontribution by mobilising individualswithin their communities to help themtake control of their lives and those oftheir families and friends.
The successes of empowerment net-works such as this surely benefit all Eu-ropeans.
They work
primarily alone,
unaware that there are
many like-minded
individuals in other
countries working on
similar issues, sharing
the same values and
ideals for a free, open
and tolerant society
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- It is my belief that hatredhas become as global as positive activism.Globalisation has made it easier to hate aswell as to love. The fringe has become viral,and localised parochialisms are in dangerof becoming new inter-connected pocketsof the mainstream, through globally con-nected social movements. Though suchmovements heavily influence national po-litical agendas, by their very character, theytranscend politics.
Social movements are defined as an ideasbased phenomenon, are spread across soci-eties and connected via loose networks,and are needed as part of the global cultureto fight extremism. What is required areinter-connected democratic social move-ments akin to a democratic internationaleto act as a truly global phenomenon, to cre-ate a global culture with which to fight ex-tremism.
But social movements are not new. It issimply that western societies have so farnot actively helped to create organised de-mand on the ground for democratic cul-tures, even sensitively, because it has notbeen defined as a ‘good cause’.
Social activism is the idea that I believewill carve out not merely political change,but civilisational change in the near futureacross the world. Muslim-majority nationshappen to be those that currently sit on theprecipice of such change. Spreading posi-
tive ideas and combining them with pro-viding social services must be recognisedas a ‘good cause’ in itself, just as buildingschools and hospitals is. Policies, resourcesand focus must be invested in developingreal demand for democratic culture on-the-ground in the country, and it is thisthat sets these trends for the region, Egypt,and in the country that most needs thisnew trend for democratic youth activism,Pakistan. Indeed, for the last three years,my team in Pakistan has been slowly work-ing on beginning this process with as broadas possible a collation.
The recent success of the Arab uprisingsindicates that a new phenomenon is on therise. Egypt has tended to set the trend inArab social movements. In the 1950s and60s, Egypt witnessed the rise of Arab So-cialism, which then spread across theMENA region and beyond. The 70s saw adecade in transition. The 80s and 90s inEgypt were decades of Islamism whichagain spread across the region and beyond.
The 2000s saw a decade in transition.2010s and 20s could usher in a new era ofdemocratic aspirations in Egypt, whichcould also spread outwards. To get it there-fore right in Egypt is crucial, and perhapsa pre-requisite for this to succeed is fordemocratic youth to go through a periodof opposition facing Islamist regimes.
Though these Arab uprisings were nec-essary for the chances of a pro-democracysocial movement to emerge; though theywere indigenous; though they were notsparked by extremists; though they focusedon internal reform and not external con-spiracies, the uprisings themselves are noguarantee that the call for a democraticculture will take root in the form of atrans-national social movement. Transi-tioning from this loose coalition to a trans-national social movement will requiresome effort, and some civilisational – notpolitical – leaders to make this effort. But,without these uprisings, even this wouldhave been impossible to contemplate.
Unless a general agreement can beagreed upon in developing societies aboutthe civilisational direction they wish to seetheir nation headed in, these societies willbe unable to agree on the fundamental le-gitimacy of any system, and conflict willcontinue. It is my belief that the best civil-isational consensus that human kind has sofar arrived at is the democratic culture. Thedemocratic culture is necessarily more thanmerely elections. It entails a respect forhuman rights and the freedoms we take forgranted. Without freedom of speech, therecan be no free campaigning for votes;without freedom of belief, there can be nofree right to form parties and so on.
Our challenge is to help sow the seeds ofthese movements, and to make a transitionfrom their political goal or removing leadersto one where they strive in the long term intheir societies to create buy-in for the civil-isational choice of democratic culture.
We can only move forward when allforms of extremism are challenged by ac-tivists from across the political spectrum. Ibelieve it is important for pro-democracyand anti-extremism activists to build ef-fective trans-national networks in order tocounter the threat posed by all forms of ex-tremism. These networks should promoteliberal democratic values and an inclusivesense of citizenship, enabling people fromall backgrounds to feel accepted with theirrights and responsibilities respected andacknowledged.
Social activism is the idea that I believewill carve out not merely political change,but civilisational change in the near future
across the world
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New Europe’s online editorexamines, as the Eurozone’s financial crisislooks set to continue and even deepen dur-ing 2012, why citizens are responding byvoting for parties that seemingly only ap-portion blame and offer quick-fix solutions.
During only the past five years, ten mur-ders have been blamed on a neo-Nazi un-derground cell in Jamel, Germany and, justthis year, far-right extremist NorwegianAnders Behring Breivik went on a killingspree, shooting dead 69 people at a youthcamp near Oslo, Norway, in July.
The far-right is rising again in Europe,with a new generation of young, web-basedsupporters embracing hard-line nationalistand anti-immigrant groups, a recent studyby British think-tank Demos has revealed,after the group persuaded more than 10,000followers of 14 parties and street organisa-tions in 11 countries to fill in detailed ques-tionnaires on Facebook.
Of course, there are many precedents forsuch behaviour in Europe’s history, withAdolf Hitler’s exhortation of the Germanpeople to remove the ‘Jewish problem’ being
the most horrifying during the pastcentury.
Now as then, a deep cynicism concerninggovernments and their established leaderswould appear to be turning (mostly youngmen) against traditional society’s norms andvalues, and such direct action is further ac-centuated by more generalised fears focusedon cultural identity, with immigration –particularly the perceived spread of Islam –the leading concern.
Emine Bozkurt, a Dutch MEP whoheads the anti-racism lobby at the Euro-pean Parliament, told the BBC: "We're at acrossroads in European history. In five years'
time we will either see an increase in theforces of hatred and division in society, in-cluding ultra-nationalism, xenophobia, Is-lamophobia and anti-Semitism, or we willbe able to fight this horrific tendency."
And, while the mass-killer AndersBreivik was disowned by the parties withwhich he was affiliated, a police investiga-tion into his contacts highlighted the Eu-rope-wide online discussion ofanti-immigrant and nationalist ideas.
There can be no doubt that, during theEurozone crisis, there is a growing preva-lence of anti-immigrant feeling, whichmanifests itself in particular in suspicion ofMuslims, and parties that support anti-im-migrant and Islamophobic ideas and idealshave spread beyond their traditional estab-lished strongholds in France, Italy and Aus-tria to the traditionally liberal Netherlandsand Scandinavia, and now have significantparliamentary blocs in eight countries.Other nations have seen the rise of nation-alist street movements such as the EnglishDefence League (EDL).
On one side are political parties such asFrance's National Front, a significant forcein the country's politics for 25 years, whichis seen as being a realistic challenger in nextyear's presidential election, while on theother are semi-organised street movementssuch as the EDL, which struggles to mustermore than a few hundred supporters for oc-casional demonstrations, or France's Mus-lim-baiting Bloc Indentitaire, best knownfor serving a pork-based "identity soup" tohomeless people.
According to Demos, youth was a com-
mon factor – of the almost 450,000 sup-porters of the 14 organisations involved inthe survey, nearly two-thirds were agedunder 30. Three-quarters of respondentswere male, and more likely than average tobe unemployed.
So, what can be done? While the poll ap-pears to indicate that economics play a min-imal role, analysts nevertheless believe thatthe Eurozone crisis is likely to boost re-cruitment to anti-EU populist parties thatare keen to play up national divisions – evenin traditionally liberal countries, such asSweden and Finland, the Sweden Democ-rats and True Finns are growing ever-morepopular, and there is a resurgence in supportfor the radical right in the Netherlands.
Simply, this author believes that the onlyway to stem the rise of parties such as theBritish National Party and their ilk, whichhave seemingly ever-more candidates, in-creased media attention and rising numberof votes, and are capitalising on the disen-gagement, disenfranchisement and fear thatmany voters in more deprived communitiesfeel, is by progressive politics – the rabble-rousers and their supporters must be provento be nothing more than a temporary bloton the political landscape, one that can beeroded only by strict adherence to valuessuch as honesty, decency and non-violenceon the part of those who vehemently (andrightfully) oppose this disturbing trend.
History’s lessons demand that this is thepath that we take – or else the new year, andthe years to follow, may see brutality andpersecution on the streets of Europe that itwas long hoped had been banished forever.
The rabble-rousers and
their supportersmust be proven to
be nothing morethan a temporary
blot on the politicallandscape
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- Hoo-hah! Yet another yearwrapping up -- time for some Energy Crys-tal Ball Gazing for 2012: The Scent of Fear!There are ongoing issues: oil prices in thecontext of global recession and tensions inthe Middle East, the Russo-Ukrainian gastango and gas supplies to the EU as Russiatightens its grip on Ukraine’s transitpipeline. Oil prices for Brent crude in 2012are likely to remain around $100 a barrel ora little lower as the world economy slowsunless there is a major conflict in the Mid-dle East or elsewhere in the world that dis-rupts supply, and as the dollar becomesstronger compared to the euro the price ofoil will weaken.
Manouchehr Takin, Senior PetroleumUpstream Analyst with the Centre forGlobal Energy Studies (CGES) in London,told New Europe that, in general, oil would-n’t fall that much. “The average probablywould be something about $100 a barrel be-cause if it falls to $90 and below to $80, I’msure OPEC ministers would get togetherand they would do something to reduce (oilsupply),” Takin said, adding that oil wouldalso not climb above $110-120 a barrel be-cause of the economic slowdown around theworld.
Fadel Gheit, a senior energy analyst atOppenheimer in New York, told New Eu-rope that oil prices will be flat to slightlylower, barring any conflict in the MiddleEast or any event that will disrupt supply.“We think that there is ample supply and,believe it or not, led by non-conventional oilproduction growth in North America. Andthe resumption of drilling and productionin the Gulf of Mexico will accelerate in2012 to 2013-2014,” Gheit said. He citedan outlook from Oppenheimer, saying thatgovernments in OPEC fear the ArabSpring may also spread to their countries.He said increased social unrest in most oil-exporting countries, especially in the Mid-dle East, has forced many governments inOPEC to increase social spending, “whichwe think added about $10 to the $70 perbarrel price considered fair by OPEC onlytwo years ago”.
London's Seven Investment Manage-ment Limited Director Justin A. UrquhartStewart told New Europe that political el-ements could increase oil prices. “Syria isthe biggest concern at the moment becauseif that turns unstable and that’s next toSaudi Arabia, then we could be having allsorts of other problems and if Iran has anyissues with Israel trying to do somethingabout their nuclear plants,” he said. “Butleaving those aside you should actually seean oil price at these levels, maybe slightlylower even if the world economy is slowingup – lower and slower is most likely.”
Chris Weafer, chief strategist at Moscow’sTroika Dialogue, told New Europe that he
sees an average oil price for 2012 at $120p/bbl for Brent. That said, he expects to seethe price drop back towards $90 p/bbl inthe first quarter before recovering stronglyin the late second quarter and through thesecond half of the year. “The oil market in2012 will face a conflict between the fear ofdemand decline and escalating political sta-bility risk across the Middle East and Iran.The reason for the first quarter weaknesswill be because of deterioration in Europe’seconomic outlook and the fear that a reces-sion in the eurozone might have a knock-on effect to Chinese economic growth. Thatwill raise the fear that China oil import de-mand will fall. But, I believe that China willbe able to manage a soft landing for itseconomy in 2012 especially because the rul-ing elite need to maintain stability ahead ofthe leadership changes in the autumn,”Weafer said.
He said he expects that there will be asteady increase in actual instability and thefear of even greater instability across theMiddle East and the Gulf countries. “Thereturn to prominence of the Muslim Broth-erhood in Egypt has clear stability concernsfor Israel. Syrian violence certainly has thecapacity to get much worse and to be adestabilising factor in the region,” Weafersaid. “Iran faces parliamentary elections inlate April and that may again be an oppor-tunity for a second attempt for a Persian
Spring.”Crude oil prices recently surged on
threats by Iran to block the Straits of Hor-muz. Gheit said any such action would trig-ger a severe response by the West that coulddestabilise the Iranian regime. Tehran needshigher oil prices to offset the impact of de-clining export as a result of declining do-mestic consumption which, coupled withthe lack of capital spending and economicsanctions, could cut Iran’s exports by half inseven years, the Oppenheimer analyst said.“Things are changing in my view in theright direction or more positively than wehad anticipated a few months ago in termsof supply and availability of oil. But in themeanwhile, we have increased tensionaround the world because of economicsanctions in Iran, because of threats by Iranto retaliate by blockading the Straits ofHormuz, which we don’t think is very likelyat all,” Gheit said.
But what happens if NATO, the US orIsrael attacks Iran? “Nobody is going to at-tack anybody in my view unless there isclear provocation,” Gheit said. “If Iran is at-tacked, obviously Iran will try to desperatelyretaliate by doing something that will hurtwhoever attacks it, but I don’t really thinkthat they have the means to exact any re-venge or to retaliate,” he said. “But it willdefinitely increase tension and would boostoil prices significantly and that is going to
sink the economy even further.”Regarding gas supplies, Russian gas mo-
nopoly Gazprom has ruled out signing upto new commitments on the supply of nat-ural gas to Ukraine before the New Year.Gazprom has been holding out the prospectof significant gas price cuts in exchange fora full control over Ukraine's gas transporta-tion system. Essentially, Gazprom has noother reasoning to lower the price forUkraine unless the country provides somebenefits or preferential treatment for acqui-sition of Ukraine’s gas transit system. “I seealmost zero chance of a material conflict, i.e.one that results in a disruption of gas flows,between Moscow and Kiev,” Weafer said.“Ukraine’s bargaining position is muchweaker today as a result of the opening ofthe Nord Stream pipeline and the convic-tion of former prime minister Yulia Ty-moshenko. The danger for Ukraine fromNord Stream, and especially as Russiapresses ahead with plans for South Streamis that it might end up with a very under-used rusting pipeline and a significant fallin income,” Weafer said. “The Tymoshenkocase has soured Ukraine–EU relations andmakes it difficult for Kiev to pursue its pre-vious ambition to create a closer economicand political relationship with Brussels.”
The Troika dialogue chief strategist saidthat he believes that a new deal over theownership of the Ukraine pipeline will bestruck in 2012. “I expect Gazprom to ac-quire a 25% stake and the EU (via somecorporate or state structures) to also acquirea 25% stake. The deal mechanism will allowGazprom to eventually raise its stake to50% over time. Allowing Gazprom a 50%stake upfront would not be politically ac-ceptable to Ukrainians,” Weafer said, addingthat the deal will be part of a new deal be-tween Russia, Ukraine and the EU to investin upgrading the capacity of the Ukrainepipeline to take both more Russian gas andalso gas from Azerbaijan via the Black Sealink. “That should then kill off both SouthStream and Nabucco. This is the sensibleoutcome and least expensive option, whichis also the flaw in the argument,” he said.
Overall, there are many areas now aroundthe world where there is a lot of uncertainty.“There is disruption in Kazakhstan, for ex-ample. Unrest in Kazakhstan is threateningoil supply so that could definitely push oilprices higher,” Gheit said, referring to un-rest in the former Soviet Republic where atleast 13 people were killed and another 86were wounded in clashes between strikingoil workers and national police. “Basicallyoil prices will continue to reflect global ten-sion and there is no shortage of global ten-sion. There is no shortage of oil but there isno shortage of global tension either.”Whoooaaaa!
Increased social unrest in most oil-exportingcountries, especially in the Middle East, has
forced many governments in OPEC to increasesocial spending
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55OUR WORLD IN 2012
- So much to do and so littletime. I am sure this is a problem for many peo-ple, but with environmental issues I am acutelyaware of the urgency of the need to put thingsright – or at least to stop things getting dra-matically worse. Our wildlife is disappearingbefore we can discover the full richness of it, weare using up precious resources at rates that willleave future generations deprived, and we areusing increasing areas of land to feed our grow-ing populations. And the climate is changingever faster. Fundamental changes in our atti-tudes and behaviour are needed quickly. It is notsurprising that I keep hearing clocks ticking!
When I became Environment Commis-sioner, five years seemed a generous period oftime to tackle Europe’s problems, but now thatthe halfway marker is in sight, I am very con-scious of how much there is left to do.
I am proud of what we have achieved to date,particularly this year's biodiversity strategy,which is designed to halt – and reverse – thedecline in the EU's natural heritage, and theRoadmap to Resource-Efficient Europe, whichplans out a route to long-term sustainability.But now we need to prioritise the areas wherewe will focus our attention.
Resource efficiency has been much in thespotlight this year. It's a broad theme that en-compasses all material and natural resources,from food, timber, and biodiversity in thewidest sense, to energy, metals, soil, water, min-erals, our atmosphere and land. All of these arebeing used up at an unsustainable rate. There isnow a clear need to move to a green economy,
decouple economic growth from the use of nat-ural resources and stimulate markets throughboth regulatory and market-based instruments.The private sector will have a key role to play,delivering green growth through trade, invest-ment, research and development, innovationand resource efficiency. If we can help them tobe more efficient in their use of resources it willquickly pay off: a one percent gain in resourceproductivity can save European businesses upto €23 billion a year and could help them cre-ate 150,000 jobs.
The agenda that we are pursuing internally inthe EU, with our Europe 2020 strategy forsmart, sustainable and inclusive low-carbongrowth and our recently adopted Roadmap onResource Efficiency, is particularly importantin this connection. It is an agenda for jobs andgrowth which deserves to be taken up with en-thusiasm by leaders everywhere to solve oureconomic problems. Resource Efficiency isn'ta choice – it's a necessity, around the globe. Theonly choice we really have is whether to changeour ways now, or wait until we are forced to.Not much of a choice really.
One essential resource that deserves specialattention is water, and I am making that mypriority for 2012. Nearly all member states suf-fer water stress, with shortages and droughts, orflooding, and climate change is making the sit-uation worse. Concerted action at Europeanlevel could actually save 40% of our waterthrough improvements in efficiency. We needto tackle production losses, leaks in supply sys-tems, and unnecessary waste by industry andconsumers. And this is a world-wide issue - therecent 'Resource Revolution' report by McK-
insey estimates that eliminating water leakagein towns and cities is worth $167bn by 2030.
My other big priority for the rest of my man-date is to improve implementation of our envi-ronment legislation. The EU leads the world insetting high environmental standards and wenow have the measures in place to ensure thatthey are met. However, performance in apply-ing those laws varies considerably across theEU, and our environment suffers as a result,with poor air quality in many cities and biodi-versity under threat. We also miss opportuni-ties: if member states just applied the currentrules on waste legislation, then they could makecost savings of €72bn per year and create400,000 jobs by 2020.
As I try to look ahead, I realise more andmore the price that our environment andeconomy pays for short-term decision-mak-ing in finance, industry, and politics. Majorenvironmental challenges require a sustainedeffort over a long period, yet politics has ahorizon only as far as the next election. Par-liaments have been reluctant to take actionthat will really last and benefit future genera-tions. But people are beginning to realise thatthe current financial and economic crisis wascaused by an extreme form of short-termthinking that we can no longer afford – sus-
tainability is coming back ! World leaders willget their chance to show long-term thinkingand vision at the Rio+20 Conference nextJune. This is the United Nations Conferenceon Sustainable Development, a unique op-portunity for countries around the world toaddress today's interlinked economic, envi-ronmental and social challenges, and to worktogether to achieve ambitious goals for sus-tainable development.
The EU set out its hopes for the conferencein a recent submission to the UN Secretariat.For the green economy theme, we are focusingon the sustainable management of key naturalresources like water, land, and biodiversity, onhelping countries to build capacity, and on de-vising indicators to measure progress towards agreener economy. The conference needs toagree on a number of global actions in theseareas to complement bottom-up actions at na-tional level.
We cannot accept that leaders decide to post-pone important decisions – or "try again nextyear". We have had our share of tough decisionswhile establishing our European Union, andthere have been critical moments when theonly way to break deadlock was to "stop theclock". But with the world environment, that isa luxury we cannot afford.
We cannot accept that leaders decide to
postpone important decisions – or "try again
next year"...with the world environment, that is a
luxury we cannot afford
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- With the end ofthe year approaching, it is time to take stock,look ahead and hope for a better future.
At a global level, 2011 will go down onhistory as the year we realised we couldno longer take energy for granted. Withthe United Nations poised to launch theInternational Year of Sustainable Energy,we can already foresee that in 2012 dis-cussions will focus on clean energy andsustainability. As we get closer to 2020,the need to cut down on energy expendi-ture mainly by increasing energy savingsis becoming even more pressing. If welook even further, we should already startlaying the foundations for smart citieswhich are able to maintain and increasethe level of comfort of their inhabitantswhile significantly cutting energy.
But the 20-20-20 reductions target isnothing new. In fact, that clock startedticking long ago.
However while the deadline may seemwell into the future, it is just eight yearsfrom now. Will the EU be ready toachieve a 20% cut in emissions of green-house gases, a 20% increase in renewablesand a 20% reduction in energy consump-tion in eight years time? If so, how? Thefuture lies partly in technology. In thiscase, however, there is one importantcaveat. The technology able to contributeto energy efficiency gains is not a thingof the future; it already exists. We justhave to implement it.
The energy citizenIn the quest to empower consumers to
control their energy consumption, weneed to provide them with the devicewhich will allow them to effectively un-derstand their use patterns and energyexpenditure. As Dr. Sarah Darby, re-
search fellow at the EnvironmentalChange Institute at Oxford University inthe UK said, we are saying goodbye to the‘energy consumer’ and encouraging the‘energy citizen.”
While consumers will be the bearers ofchange, if we are to achieve a safe, secure,sustainable and affordable energy supplyfor Europe regulatory support is para-mount. Europe will not unleash its fullenergy potential until Member Statesmodernise the energy infrastructure andtake concrete actions such as acceleratingsmart metering roll out. The reasoning issimple: the achievement of all of theseambitious energy and environmental pol-icy goals relies on the grid. The transfor-mation into a truly “smart grid” dependson inserting intelligence to those sectionsthat need it the most. Right now, the dis-tribution network is blind from the sub-station to the home or building, yeteverything that will allow us to achievethose 20-20-20 targets depend on havinginformation and control exactly there:micro-generation, electric vehicles, anddemand response
The Energy Efficiency Directive pro-posal is a good start, but it needs to bemore concrete in the areas of meteringand consumer information. The proposalsays that energy efficiency and consumerbenefits should be taken into considera-tion when establishing minimum func-tionalities and deploying smart meters,but this is still too vague. European pol-icymakers should take a practical ap-proach and remove ambiguity.Legislation ought to ensure that thesmart metering systems installed in Eu-rope have the appropriate functionalitiesto promote and achieve energy efficiencyincreases. Otherwise, the maximum ben-efits from deploying this technology will
never be achieved. That is the beauty ofsmart metering, that as long as the sys-tem is equipped with the appropriatefunctionalities, benefits occur all alongthe value chain, from the generator, thenetwork to the consumer.
Regulators should continue pressingfor technology which enables people totake an active role in controlling theirconsumption. Latest figures from aVaasaETT Global Energy Think Tankstudy on pilot projects around the worldindicate that the display of almost real-time energy consumption data on in-home devices led on average to an 8.7%reduction in energy consumption. Lowerbut still significant reductions of 5%-6%on average were achieved through en-hanced, more informative bills and accessto usage data on websites. The differenttypes of dynamic pricing mechanismsused in the pilots and roll–outs have allshown that energy loads up to 16% canbe shifted (“peak clipping”) for the ben-efit of consumers and utilities.
To make a real difference when itcomes to reducing consumption and em-powering consumers, the European Par-
liament and the Council should make thenecessary changes to make the energy ef-ficiency directive truly effective. Firstly,there should be a clear definition of smartmetering and the functionalities that“benefit consumers and facilitate energyefficiency.
The current EU legislation put re-quirements in place for Member Stateswith regard to smart metering, but lacksa clear definition of what exactly isneeded. Also, based on the informationgleaned from the VasaaETT study, therequirements for consumer feedback onenergy use and costs need to be sharp-ened. Feedback should be, as the EU reg-ulators recommend, from two sources,but one of these should be direct feed-back in the form of an In-Home Display,that gives accurate and timely informa-tion on energy consumption and costs.
All these changes will help towardsmeeting the 20-20-20 goals. If reducingenergy consumption is one of our NewYear resolutions, we need the necessarytools to keep them warm all year roundand not just when such pledges are inseason.
Legislation ought to ensure that
the smart metering systems installed in
Europe have the appropriate functionalities
to promote and achieve energy efficiency
increases
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57OUR WORLD IN 2012
Both the European Com-mission and the European Parliamenthave been very active this year in terms ofenergy policy. Numerous own initiative re-ports and Commission communicationsor legislative proposals were presented, de-bated and some, like REMIT, alsoadopted. Currently work is continuing onthe energy efficiency directive (more than1800 amendments have been tabled!), theinfrastructure package, external energypolicy, offshore oil and gas drilling, ITREwill draft an opinion to MiFID, we arestill awaiting the energy roadmap 2050.Next year we expect communications interalia on the completion of the internal en-ergy market and on renewable energies.
At the same time, with an ever increas-ing amount of EU legislation and EU reg-ulation, we need to pay more and moreattention to unintended side effects andinteractions between EU rules as well asbetween EU rules and national rules al-ready in place. Let me provide just two ex-amples. The Commission, in its reply toquestions raised by ITRE members on theimpact assessment admits that “the mod-elling exercises carried out in preparationof the [energy efficiency directive] (...)were not (...) conclusive regarding possi-ble impacts on the price of ETS al-lowances” and thus intends to furthermonitor the situation.
Thus we know that increasing energyefficiency will reduce energy consumption- and thus reduce CO2 emissions - but wedo not know to what extent this will in re-turn have an impact on emissions pricesunder the ETS directive. Indeed, onemodel comes to the conclusion that theimpact will be dramatic. But then, whatdoes “monitoring” mean? Does the Com-mission intend to set allowances aside andintervene in the market? Would such apolicy driven interference undermine thetrust into the Commission and the mar-ket instrument the EU has set up? Whatis the primary intention of the Commis-sion? Is it to lower CO2 emissions or tosecure high revenues for Member states?Such doubts of course have a negative im-pact on investment decisions in the EUand should therefore be dispelled as soonas possible.
The second example concerns the inter-actions between national policies and EUinstruments. The ETS directive allowstrading in CO2 certificates. Thus if aMember state reduces its emissionsquicker than others, it may sell the surpluscertificates to others. Thus the very suc-cessful and expensive German supportscheme for renewable energies has helpedreduce CO2 emissions in Germany - but,due to the tradability of certificates, notnecessarily in the EU! In a global ETS
system, that the EU is striving to, such in-teractions will be even greater. I firmly be-lieve that it will be essential in the futurethat the Commission pays more attentionto such interactions also with national oreven global instruments in the impact as-sessments.
Another question concerns the regula-tory depth of EU legislation. From thecurrent debate on the draft energy effi-ciency directive (EED) it is clear thatMember states are not willing to acceptmandatory targets and many also refuse toaccept mandatory instruments. The debateon the EED is far from over of course andit is impossible to predict the outcome.But one option might be to rather imposebinding targets and leave the choice of in-struments to Member states in accordancewith one of the main guiding principle ofthe EU: “United in diversity”.
One of the central questions remainsthe one of our future energy mix. I am cer-tain the energy roadmap will also touchupon this subject. Commissioner Oet-tinger, during his visit in the ITRE com-mittee on 23.11.2011 made it very clearthat increasing the target for renewableenergies under the current treaty wouldrequire unanimity between the Memberstates - and that this was not realisticgiven the large differences in their energymix and the different potentials. Gas thenis said to play a vital role in the transitionto a low carbon economy, replacing coaland oil. But without tapping the potentialsof shale gas, this is likely to further in-
crease our energy dependence. This leads me to another topic: Diversifi-
cation. Diversification is not only about en-ergy sources but also about supply routes.Now everybody has heard about Nabucco.The project has been advocated at EU levelfor many years and still encounters manyproblems, not least the unresolved conflictabout the status of the Caspian Sea. But feware aware of the fact that we are to precludethe import of oil from Canadian tar sands.Alberta has however the second largest oilreserves in the world. In terms of security ofsupply such a ban would be nothing lessthan a fiasco.
The completion of the internal energymarket also encounters numerous prob-lems that we need to tackle. The newCommission proposal on energy infra-structure for example foresees a dramaticreduction in time for authorisation proce-dures. Indeed, quite often they take morethen years, far too long given the manychallenges we face, not least the inclusion
of intermittent renewable energies. Fur-thermore many Member states have yetfailed to implement the third internalmarket package and thus deprive their cit-izen of numerous additional rights en-shrined in this package. Parliamenttherefore presses the Commission toclosely monitor the situation and, if nec-essary, to open infringement procedures.
Consistency in energy regulation, a vi-sion of the future that leaves room for newtechnologies, an open and rational debateon energy issues are key to ensuring an af-fordable and reliable energy supply in thefuture. Energy policy will surely con-tribute to climate protection but it is by nomeans a subtopic of climate policy. Secu-rity of supply issues and an affordable en-ergy supply for example are core elementsof energy policy at all levels. And their im-portance will grow in the future.
Consistency in energy regulation, a vision
of the future that leaves room for new
technologies, an open and rational debate on
energy issues are key to ensuring an affordable
and reliable energy supply in the future
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58 OUR WORLD IN 2012
- One of the defining chal-lenges of our century is how to achievenew and better economic growth whichsignificantly reduces social, economic,ecological deficits, in particular by cut-ting resource use and GHG emissions.The EU has gone some way to reduce itsGHG emissions, but this is not sufficientto tackle the deficits. It is importing overhalf of its energy and wasting about a ¼of the energy it consumes. This comeswith considerable costs: every year, theEU spends over €350bn on energy im-ports while wasting more than €110bnworth of energy [Note: EU is halfway].
The EU decided that by 2020 it wouldget 20% of its energy from renewablesources and save 20% of its energy. Bind-ing targets help focus policy makers’ at-tention and shape investment behaviours:they can be true engines of economicgrowth. The European renewable energysector with its binding target and com-prehensive regulatory framework cur-rently employs over 1.5 million people,annual investment in the sector averages€35bn and represent over 60% of invest-ments in new power installations. Thiscontrasts with the energy efficiency sec-tor: with no binding target and a piece-meal regulatory framework, the sector’sgrowth potential remains largely un-tapped and the EU is currently on trackto achieve less than half of its energy sav-ings target.
In an effort to address this situationand make the case for an EU energy pol-icy that puts equal weight on reducingenergy use, energy efficiency stakehold-ers decided to join forces. They createdThe Coalition for Energy Savings , agathering of 23 business, professional andenvironmental organisations. The Coali-tion believes that stepping up energy ef-ficiency policy to deliver substantialenergy savings is long overdue, and seesthe new Energy Efficiency Directive as aunique opportunity for Europe to bringits 20% energy saving target within reach,putting it on course for a sustainable, ef-ficient and renewable energy vision for2050.
Indeed, the Energy Efficiency Direc-tive proposal, which tackles many of thebarriers that stand in the way of energyefficiency, is the right place to do so. Butas the Coalition’s assessment of the en-ergy saving impact of the proposed effi-ciency measures, the Gap-o-meter,shows, the Directive as it stands wouldonly close part of the remaining gap tothe energy savings target (delivering upto 114.5 Million tonnes of oil equivalents(Mtoe) while the gap is 190 Mtoe).
The Coalition believes that closing thegap is possible and that the energy sav-ings target can be achieved if measuresthat will unlock investments arestrengthened and binding national en-
ergy saving targets that provide pre-dictability and investment certainty areset.
There is often talk of energy efficiencybeing the ‘low hanging fruit ’ of thebroader energy debate. While it is true,non-market barriers, like split incentivesand perceived risks of upfront invest-ments prevent energy consumers to pickthe fruits Publicly organised financingand regulatory interventions have provensuccessful to overcome such barriers andleverage private investment. Efficiencyobligations on energy suppliers as pro-posed in the EED generate stable invest-ment and guaranteed energy savings bycreating a market for energy efficiency
services and energy efficient goods. Theyare already being successfully imple-mented in 5 EU Member States, 3 Statesin Australia and 24 States in the US.
The Coalition will build on its uniquepolitical and technical credibility pro-vided by the cross-cutting nature of itsmembership to convince decision makersof the many benefits of energy savingsand support policy makers in the designof policies that will save energy whilestimulating growth. Throughout the leg-islative process around the Energy Effi-ciency Directive, The Coalition willorganise a number of high-level eventsnotably on the employment benefits andfinancial incentives of energy efficiencypolicies. It will act as a catalyst on behalfof its EU wide Members by raisingawareness and building capacities tostimulate targeted regulatory action atEU level.
Not only is energy efficiency the sensi-ble thing to be focusing on at times ofeconomic hardship thanks to the savingson energy use and energy bills, but it isalso a key to stimulating the economythrough investment and job creation.Earlier this year, the European Commis-sion estimated that achieving the EU’s20% energy savings target by 2020 wouldgenerate financial savings of up to € 1000 per household every year, create upto 2 million jobs, and reduce annualgreenhouse gas emissions by 740 milliontonnes.
Not only is energyefficiency the sensible
thing to be focusing onat times of economic
hardship thanks to thesavings on energy use and
energy bills, but it is also akey to stimulating the
economy throughinvestment and job creation
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59OUR WORLD IN 2012
– As we all reflect on whatwe've learned in 2011, let me share withyou three things I've witnessed this year,and why, even today, they give me hopefor the future.
First, I've seen some of the amazingpeople in Europe. A new generation ofworld class entrepreneurs, full of newideas to make our lives better, fairer, moreconnected. People who know there are nolimits to how modern technology can beapplied; people who aren't afraid to tryout innovation in every area, and see fail-ure not as a deterrent, but as a way tolearn.
Meeting those people really inspiredme. With a resource like this, I know wecan innovate our way out of the currentcrisis.
Second, I've seen some of the manyways that applying new technology canmake our lives better. Helping peoplesave money through instant access toprice comparisons, and benefit from tai-lored, on demand service.
Helping you to improve your publicadministrations whether it's crowdsourc-ing to tell your council about a pot-hole,or finding out about and accessing gov-ernment services. And helping health and
social care - from social media platformsto show wheelchair accessible buildings,to technology that helps people with se-vere motor disabilities interact, commu-nicate, and lead independent lives.
Third, I've been all around the world,and seen how powerful and flexible a toolInformation and Communications Tech-nology can be; flexible enough to helppeople of all backgrounds.
In Nairobi, Kenya, in some of the poor-est slums in the world, I saw computersoffered by private initiatives opening newhorizons for the most disadvantaged chil-dren. People without bank accounts usingmobile phones to transfer money cheaplyand easily. Software used to train ruralnurses - in a country plagued by medicalshortages, HIV and malaria.
All of this made me hopeful that In-formation and Communications Tech-nology can give everyone, everywhere, thetools to change their lives for the better.
Every person is unique, with uniquehopes, and unique aspirations. But who-ever you are, whatever you do, remember:you can achieve what you want toachieve.
Technology does not achieve thatdream for you, but it can help you getthere. Because Information and Commu-nications Technology gives you not just
new products, and new gadgets. But newtools to share, to refine, and to marketyour ideas. In every walk of life, any fieldyou want. Not just information and en-tertainment, but education, transport, en-vironment, or supporting democracyitself, you name it! I know that peoplehave fears for the future.
For the younger generation, the fearthat the future will not offer high-qualityjobs. While others may fear other thingsas they age - the prospect of isolation,loss of function, loss of independence.You can use Information and Communi-cations Technology to overcome all theseissues. To build future growth and jobs.And to develop smart care and inde-pendent living solutions, solutions capa-ble of coming to market and makingpeople's lives better.
Next year I will be continuing my work
to ensure we get this right. I want to de-liver real innovations for the health andsocial care sector. I want to open up Eu-rope's public sector, to unlock the treas-ure trove of public data. And I want tomake the most of our single market. Bothso our entrepreneurs can market to 500million without dealing with 27 rule-books.
And so our citizens can use their mo-bile devices wherever they travel in Eu-rope, with fair roaming prices. Because Iwant to put the powerful tool of Infor-mation and Communications Technologyin your hands: so you can help change theworld for the better. Even in this difficulttime, we should not shield ourselves fromthe future, but embrace it, and invest init. So wherever you are, whatever yourambitions in life, I know you can find thetools to achieve them.
Information and Communications
Technology can give everyone,
everywhere, the tools to change their
lives for the better
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- Everyone is asking what's‘trending’ in the tech world, what thenext big thing is. How technology willchange in the year ahead and how theworld will shape up in the next 12months. Traditionally, this is the time ofthe year for your annual prediction fix.Well, not this time. Well, I’ve got newsfor you. You know what's coming, be-cause YOU are the most advanced andmost powerful of any gadgets, the mostamazing piece of technology.
Year 2012 is going to look a lot likeyear 2020 or even 2050, and that's be-cause YOU and I will still be around, ma-niacally trying out all sorts of gizmos.Like it or not, this is going to happen.The question is how much you are will-ing to blend with this kind of technology.
Your phone is already called a smart-phone. Not because it's particularlysmart, but because the term ‘smartphone’sounds a whole lot better than computer.Can you imagine carrying a computer inyour pocket or trying to make a phone-call using the computer? No one wants
to drop his computer but scratching aphone's screen is something else.
And, no one wants to wait for 45 sec-onds for the computer to boot up andmake a call, but you've probably usedSkype on your phone to call someone,right? Funny thing is, the dial-tone thatyou hear every time you call someone onSkype is actually a hoax. It's a pre-
recorded digital audio file planted therefor no other reason than to make you feellike you're using a real phone – it's justan illusion that everyone buys because itmakes them feel better.
Now that you know your phone is acomputer, it's time to realise that thisparticular computer is nothing more thana gateway to the internet. It might bepowerful enough to do all kinds of crazythings like 3D graphics and play gameslike Angry Birds and send messages onFacebook and read real-time news onTwitter, but think about it. How smart,really, is your phone without a connectionto the internet? Smarter than a €500brick, say?
With the introduction of the iPhone4S and Siri intelligent assistant, Applehas made it crystal clear as to what therole of smartphones will be. Siri is a pieceof software that the user talks to in orderto get things done. Instead of typing andlooking into maps, Siri tracks your cur-rent position via GPS and answers ques-tions such as ‘Is there a Greek restaurantnearby?’
Although Siri is still available in betaand not advanced enough to answer morecomplex enquiries, this is the first main-stream example of humans connectingwith machines using the most natural ofall tools, the thing we all carry with us,our voice. Be sure that more companieswill follow this example and start loadingtheir devices, be it a smartphone or what-ever, with software as smart as or even
smarter than Siri. There’s no questionabout it.
In the meantime, all sorts of gadgetswill start flooding onto the market, meas-uring and monitoring the human body.Stuff like Fitbit, which counts steps andsleep patterns, Withings WiFi BodyScale, which tracks weight and body fatand monitors blood sugars.
It's this kind of technology and con-nectivity that ’s going through yoursmartphone to the internet and beyond.It's the status updates on Facebook, the‘Likes’ and the photos combined withphysical locations and soon other vitaldata from the human body. This hugeamount of data will be analysed, put to-gether and will represent our digital ego,which can be enhanced every day.
Your house will know when you'reabout to arrive and if you need a cold orhot shower. Breakfast served will be high
in carbs to kick off the day. Same withlunch, because your agenda will be full ofmeetings until eight in the evening, whileat nine you are celebrating three yearswith your significant other.
Be prepared to argue with your houseabout the shower's temperature. Getready to eat veggies rather than your fa-vorite rib-eye steak. In the distant future,all things will be connected to the net-work – your shower, your food, your car, apen, a bottle of water.
Your digital ego will access everythingyou relate to – it's up to you to decide ifyou are going to enjoy the ride or fightback with the most extreme technologyever, namely yourself.
Between now and then, tech’ storiesfrom Google, Microsoft, Apple, Amazonplus a few shiny new products and serv-ices will keep you busy…and it all startswith a phone.
Your digital ego will access
everything you relate to – it's up to
you to decide if you are going to enjoy
the ride or fight back
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61OUR WORLD IN 2012
While the debt crisis hasclearly dominated headlines over the past year,from a technology point of view Europe sawits fair share of milestones and breakthroughswhich have the potential to greatly contributeto the European economy. In 2011, the firsttwo satellites in Europe's Galileo global posi-tioning system (GPS) were successfullylaunched, marking the start of a high-preci-sion positioning system independent from theUS and Russia, which could bring in an extra€90 billion to the EU economy over the next20 years. Also, the take-off of cloud comput-ing, a technology solution that gives everyoneaccess to scalable computing power and re-sources, was given a boost by Vice-PresidentKroes, who promised to make Europe ”cloud-active”. In January 2012 Vice President Kroesis expected to come back with her cloud com-puting strategy for Europe. This strategy iseagerly awaited since research estimates thatcloud computing in the EU could generateover 400,000 new SMEs, reduce the unem-ployment rate and increase GDP. But for thatto happen, remaining barriers need to be re-moved. So in light of this potential- how willtechnology feature on the 2012 Europeanagenda? I see the use of information commu-nication technology (ICT) by governmentsduring 2012 as a key factor in achieving Euro-pean economic growth. As the largest con-sumers of IT services in Europe, governmentagencies and departments can lead by example.Europe is already reaping some of the dividends
of a decade of ICT investment, with ICT nowdriving 25% of GDP growth in the EuropeanUnion (EU) and 50% of EU productivitygrowth, and seven of the ten most innovativeICT economies in the world operating here inEurope. In February 2011 a prominent studyfrom the Centre for Economics and BusinessResearch estimated that cloud computingcould contribute €736 billion to major EUeconomies over the next five years. Through asmooth transition to the cloud the public sec-tor can provide a blueprint for private sectorcounterparts, showcasing the cost savings, flex-ibility, productivity, and new means of commu-nication and collaboration offered. Specialattention here must also be paid to SMEs.They account for 99% of businesses and 80% ofemployment in the EU, but only use cloudservices for 25% or less of core business appli-cations. Establishing suitable framework con-ditions for the creation of a strong cloudeco-system for start-ups and SMEs in Europewill provide them with access to state-of-the-art software and data storage, originally onlyavailable for large companies.
In light of the potential for cloud technologyto boost the European economy, the continueddeployment of broadband infrastructure acrossEurope in 2012 is crucial. McKinsey & Com-pany estimates that a 10 percentage point rise inbroadband household penetration increases acountry’s GDP from 0.9% to 1.5%. Likewise, aquantitative analysis conducted by the OECDindicates that the expansion of broadband sig-nificantly improves labour productivity. One ofthe reasons for this is “remote working”- where
companies can source the best workers regard-less of their location, whilst workers find it eas-ier to balance their work and family life. Andfor those in the creative industries, ultrafast in-ternet access through broadband will offergreater opportunities to generate content whichcan ultimately become a source of income. Assuch, the European Commission report onMember State progress in developing nationalbroadband strategies that meet the coverageand speed targets defined in the Europe 2020Strategy, due in 2012, will be a significantbenchmark to assess future economic growthopportunities in Europe.
Overall, I want to highlight the amazingchanges to our everyday lives that have been in-troduced by the ICT sector. Taking just one ex-ample, in the last twenty years the mobilephone has progressed from a clunky means ofmaking a phone call on the move, to secondgeneration devices which could take photos andaccess media content, to the third generationwhich incorporated broadband high speed in-ternet access, to the fourth generation whichhandles voice calls as just one data streamamong many. During this technological jour-ney, sectors have found innovative ways to bringtheir benefits to the widest audience- such as
mobile banking and mHealth applications,while the devices themselves can improve theway we enact with our environment throughRFID tags. Indeed, at the current rate of salesgrowth the expectation is that smartphones willbe in use by half of the European populationby the middle of 2012.
I see a similar journey for cloud computing,though the trust and awareness factors relatingto new technologies must be addressed. Dataprotection is among the key concerns. Mi-crosoft believes that strong data protection anddata security will build up consumer trust andtherefore greatly benefit ICT growth in gen-eral and the uptake of cloud computing in par-ticular. The EU Data Protection Directiverevision, to be presented in January by Com-missioner Reding, will go a long way to answerprivacy concerns raised by consumers and busi-nesses alike. Citizens want to be in charge oftheir personal data and we at Microsoft cer-tainly support that.
As history has shown, opportunities canemerge in times of crisis. My hope is that 2012will be the year that the potential benefits ICTinnovations can bring to society will be recog-nised and realised as a critical solution for sus-tained economic growth in Europe.
Citizens want to be in charge of their
personal data and we at Microsoft
certainly support that
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Advances in our society duringrecent years have been largely boosted bygreat leaps in technological innovation, espe-cially in the ICT sector. The technologicalrace has proved to be catalytic for economicdevelopment and has transformed traditionalbusiness models; in addition, it has influencedour lives extensively.
Certain technological breakthroughs fromrecent years will continue to drive businesstransformation during 2012. Indicative ex-amples are cloud computing ̶ now entering amore mature phase ̶ the proliferation ofbroadband, the extensive use of smart devicesgathering real-time data from ‘the field’, andthe evolution of Human-Computer interac-tion involving new and innovative means anddevices, such as mobile phones and TV sets.When brought together creatively, these in-novations provide new applications that em-power users in various domains andcontribute to a more connected, digital world.
One could consider these technologies asenablers for a leap forwards. They offer an op-portunity to gather, transmit, store and ma-nipulate vast amounts of heterogeneous datain a way that was previously unthinkable. Butit is the utilization and efficient handling ofthese data that can give business insight, cre-ate substantial value and refuel technologicaladvancements in a different context. Based onenabling technologies, the efficient use of datacan make our world smarter, leverage knowl-edge and offer completely new opportunitiesin almost every individual economic sector.
Nowadays, digital data is everywhere. Everysingle company is able to produce and storeenormous quantities of information that ex-ceed in size even the biggest traditional li-braries. For instance, the healthcare industryand financial institutions are among the heav-iest producers of digital data. Moreover, indi-viduals are creating user-generated content atever-increasing rates; it is worth mentioningthat 35 hours of video are uploaded toYouTube every minute, while over 35 billionphotos are added to Facebook each year. Onthe other hand, digital sensors, smart appli-ances and other ‘end’ devices gather data ‘fromthe field’ ceaselessly; manufacturing (e.g. pro-duction & supply chain) and utilities (e.g.smart metering) are indicative examples. Lastbut not least, public administrations andagencies are sitting on an unexploited wealthof digital information created every daythrough their transactions with citizens, aswell as internal operations.
Despite the vast amount of data being pro-duced, human beings have definite limitationsregarding their ability to combine them tocreate meaningful information and conse-quently turn diverse information into knowl-edge. Thus, being able to automate gathering,storing, aggregation and combination of hugequantities of data and then use the results toperform deep analysis will become a key dif-
ferentiator in everyday business. It can sub-stantially improve decision-making, mini-mize risks, and unearth valuable insights thatwould otherwise remain hidden.
In order to reach this target, a whole newworld of technologies and practices is alreadypresent and continuously evolving; new formsof file systems and non-relational databases,distributed storage and computing tech-niques, in-memory computing, content ag-gregators and mush-ups, business intelligenceand analytic tools, as well as deep verticalbusiness knowledge are joining forces to ‘tamethe beast’ of large-scale data. It is hugely fas-cinating how many technological break-throughs and discrete elements are needed asprerequisites, in order to effectively exploit allthese data and produce meaningful results.
But the results are compensation for the ef-fort. Consider for example the new paradigmof computational biology: analyzing and un-derstanding the patterns of the humangenome is expected to soon offer new inroadsto predicting diseases and providing a per-sonalized, preventive and well focused treat-ment to every individual. Another impressiveexample comes form the energy domain: realtime sensing and analysis of various parame-ters from the electricity network, as well asdata related to weather conditions and con-sumer demand, will allow the seamless inte-gration of Renewable Energy Sources intomicro-grids. On the other hand, in the retailsector, segmentation and analysis of customerdata from various transactions could providevaluable insight into price optimization, crossselling, location-based marketing etc.
Regarding Europe, apart from any privateinitiative, the largest and perhaps the mostvaluable source of information is the public
sector itself. Public data are produced at alllevels of government national and at EU level.Examples are geographical information, sta-tistics, weather data, data from publiclyfunded research projects, and digitized booksfrom libraries.
This information has a significant, cur-rently untapped potential for re-use in newproducts and services, and for efficiency gainsin administrations. In fact, Europe’s publicadministrations are sitting on a goldmine ofunrealized economic potential: the large vol-umes of information collected by numerouspublic authorities and services. According tothe Commission, opening up this resourcecould amount to an economic gain of €40 bil-lion per year.
In order to exploit this potential, the Com-mission has launched an open data strategyfor Europe. The strategy is three-fold: firstlythe Commission will lead by example, open-ing its vaults of information to the publiccost-free through a new data portal. Secondly,a level playing field for open data across theEU will be established. Finally, these newmeasures are backed by the €100 millionwhich will be granted in 2011-2013 to fund
research into improved data-handling tech-nologies. Through these initiatives, it is ex-pected that the public sector will graduallyundertake the role of content provider, whilemore and more private initiatives will emergeto carry out the role of service provider basedon public content. When this comes true, itwill have a remarkable impact on the overalle-Government landscape, transforming busi-ness models and the ‘value chain’ of G2B andG2C services.
I strongly believe that unveiling theprospects of large-scale data utilization rep-resents a major challenge for the years tocome. It constitutes an untapped potential forthe European economy, which can providesubstantial competitive advantage both for itsbusinesses and for its administrations. It isquite impressive that ̶ even today ̶ digital dataare not yet widely recognized as a key com-petitive asset by many business leaders andpolicy makers. As technology evolves andcontent is generated at even higher rates,more and more enterprises will understandthe assets that they hold, or which they couldhave access to, and will adapt their strategyrespectively.
Unveiling the prospects of large-scale datautilization represents a major challenge for the
years to come. It constitutes an untapped potentialfor the European economy, which can providesubstantial competitive advantage, both for its
businesses and for its administrations
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- It’s after midnight and I’mwaiting to board my flight from Beijing toBrussels. Despite the hour, the airport is ahive of activity. All around me are peoplewith smart phones arranging their lives –at home, at work and on the move – withthe press of a button.
I’ve worked as an electrical engineer forlonger than I care to reveal and have wit-nessed first-hand the ICT (r)evolution,but even I can’t help but marvel at how farwe have come from the first portable com-puters or mobile phones, or even since theworld wide web emerged.
In recent years, the world has seen arapid convergence of media, models andbehaviour governing the ICT sector, andthe internet in particular. Indeed, 2012 isshaping up to be a big year for broadband.Super-fast and ‘always on’, broadband roll-out has rightly been targeted by govern-ments around the world as a way ofboosting employment and economicgrowth.
Broadband is an unparalleled equaliserof people, empowering everyone from vil-lage shop-keepers in Botswana to mega-factories in Belgium. In a spirit ofpublic-private partnership, ICT compa-nies have invested time and effort intohelping states realise their national broad-band plans.
The European Union recognised theimportance of broadband a long time ago.It is a pillar of the EU’s Digital Agendawhich has set targets to be attained by2020, such as broadband of at least30Mbps for everyone. The developingworld is also aware of the power of broad-band and in many ways benefits from nothaving to deal with the diverse legacy sys-tems in place throughout the industri-alised world.
My company, Huawei, is a technologycompany so our broadband initiativesmake good business sense, but we also seeit as an important tool for bridging thedigital divide between the ‘haves’ in muchof the developed world and the ‘have nots’everywhere else. As a Chinese multina-tional company, it means more to us thansimply exercising corporate social respon-sibility. China’s rapid emergence as aglobal market player is living proof of thepower of technology to create new oppor-tunities.
Just looking at our own portfolio, I seetwo products with the potential to begame-changers for the developing worldin 2012: our ‘Single RAN’ (radio accessnetwork) and IDEOS smart phone. Tele-
com operators in emerging economiesstruggle to afford the latest networkequipment, but Single RAN is simple toinstall and maintain even in remote loca-tions, and because it allows operators toreceive and transmit across all mobile gen-erations (2G, 3G and even 4G) it offersbackward and forward compatibility forthe price of one installation. We con-sciously developed a feature-rich but sub-$150 smart phone (released in 2010) tostimulate take up in the developing worldwhich, due to lack of telecom infrastruc-ture, jumped straight to mobile broadbandsolutions. Access to low-cost smartphones has spearheaded a wave of inno-vative micro-businesses, micro-creditprojects and apps.
But providing the technology is onlypart of the contribution that ICT compa-nies can make in emerging markets. Ithink we also have a responsibility to setup and run training programmes, like our‘Telecom seeds for the future’ scheme,which nurture talented youngsters in theirquest for innovative solutions to theircountries’ challenges.
ICTs are also the backbone supportinge-government developments, which I be-lieve are fundamental to bridging the dig-ital divide. Through their policies,procurement and services, governmentsplay a huge role in promoting develop-ment, in particular as a ‘first adopter’ of in-novative technologies that drive change.In today’s financial situation, Europe and
elsewhere will really benefit from the sortof streamlined internal processes and costsavings enabled by ICTs.
There are many other hot topics for2012 which can have a development di-mension, too. Cloud computing, for ex-ample, is a paradigm shift in the notionsof IT ownership. With broadband inplace, any sized organisation, anywhere inthe world can do serious computing taskswithout expensive servers and IT teams.They just need a ‘dumb terminal’ andsomething like our ‘cloud office’ networksolutions and the rest is downloadable oroutsourced at a reasonable cost.
Open source (OS), interoperability andstandards are also important so thatpoorer countries don’t get unfairly lockedinto a cloud silo, especially on the termi-nal/operating system side. Here, I’m infavour of the market finding the most ef-ficient solutions on a fair playing fieldalong the whole value chain, backed bylong-term vision and policy guidancefrom governments. Right now, the OS
market is fragmenting between threemain players. The Commission may seekindustry agreements on a system of ‘func-tional interoperability’ between these OSsystems.
Security is big challenge in the contextof broadband, cloud computing and indi-rectly the digital divide. The benefits ofICTs and the whole notion of a ‘future in-ternet’ of things all linked up through sen-sors and smart ‘mobile’ devices can comeunstuck if security holes aren’t plugged.The internet is geographically agnostic sothe developed world could find itself justas exposed. But Huawei believes thatthrough regulation, standardisation andtechnological collaboration solutions canbe found.
I could also talk at length about theChina/India equation and their emer-gence as major players in the IT worldand how this works as a blueprint inspir-ing greater ‘ICT literacy’ and take-up inthat region and beyond. But that’s perhapssomething for a future contribution!
China’s rapid emergence as a globalmarket player is living proof of thepower of technology to create new
opportunities
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– December 1964, the FreeSpeech Movement (FSM) at the Univer-sity of California at Berkeley was startedby students who had participated in Mis-sissippi's "Freedom Summer," and it pro-vided an example of how students couldbring about change through organisation.February 1965, the United States beginsbombing North Vietnam. Students for aDemocratic Society (SDS) organisedmarches on the Oakland Army Terminal,the departure point for many troopsbound for Southeast Asia. April 1965, be-tween 15,000 and 25,000 people gatheredat the capital, a turnout that surprisedeven the organisers.
Early 1976, several teachers ignored alaw requiring that secondary education beconducted only in Afrikaans and werefired, prompting staff resignations. Thestudents of one school after another wenton strike. A protest march was organisedin the black Soweto township just outsideJohannesburg in June 1976. Over 20,000students turned up to the march, alwaysfollowed closely by police.
December 2010, Mohamed Bouaziziself-proclaimed that there was police cor-ruption and ill treatment in Tunisia. Thissparked revolutions well into 2011 inTunisia and Egypt, a civil war in Libya re-sulting in the fall of its government; civiluprisings in Bahrain, Syria, and Yemen,major protests in Algeria, Iraq, Jordan,Kuwait, Morocco, and Oman, and less inLebanon, Saudi Arabia, and Sudan.
The parallels between all three of theseiconic uprisings are that the protests haveshared techniques of civil response in sus-tained campaigns involving strikes,demonstrations, marches and rallies. Allof them were based on a common ideal orsymbol that led the way for organisation.All were themselves the epitome of theprinciple of freedom of expression.
The difference among the three restswith the tools used to mobilise and or-ganise. As the former two were based onword of mouth and media such as news-papers and TV, the latter one saw thelargest uprising to have used the socialmedia to communicate and raise aware-ness in the face of state attempts at re-pression and Internet censorship. It wastruly a behemothic moment for the Inter-net, as its potential was finally reached.
The Internet has become a phenome-non; a wave of untamed power that stillhas not revealed its full force. And, aspeople have increasingly turned to the In-ternet to conduct important aspects oftheir lives, the fundamental principle offreedom of expression with Internet cen-sorship have become ever so delicately in-tertwined. The line between governmentcensorship and respecting the right to ex-
press oneself online has become blurredon the cyberworld battleground. How-ever, as Justice John Paul Stevens oncesaid: “..the interest in encouraging free-dom of expression in a democratic societyoutweighs any theoretical but unprovenbenefit of censorship.”
Activists are no longer only fighting forhuman rights on the ground, but now alsoonline. Internet freedom goes beyondfighting for only a platform to freely ex-press, practice one's faith, or peacefully as-semble, but the benefits of the networkitself grow as the number of users onlinegrow. More and more now, governmentsare increasing their efforts to help andpromote internet freedom throughout theworld, but especially in regions wherecyber dissidents and bloggers are beingsuppressed and persecuted. Take a look inRussia where prominent anti-corruptionblogger Alexei Navalny was jailed for 15days after taking part in anti-governmentprotests over ballot-stuffing and other ir-regularities in the parliamentary elections.
The Internet is currently on a trajectoryof salvation. Although there are still pathsthat lead to dead-ends, users have found away to band together, through new tech-nologies and models that are used to con-nect to one another in a meaningful way.Even governments have seen that theusers have become ubiquitous, and theythemselves are the tools to take the Inter-net to a different path than it was heading.Ideas and ideals are now being formu-lated, discussed and defended online;
there are no social barriers. The usershave created online social structures thatare being formed to provide solutionsthrough true collaboration and creativity.
This trajectory will continue in 2012but with greater force. The scope of it willwiden, bringing unprecedented change toour way of lives. With a year full of gov-ernmental elections globally, the Internetwill provide a platform to influence ourpolitical outlook in the years to comethrough a steady stream of information;this may mean an increase in online or-ganised and mobilised revolts.
We will see less ground wars beingwaged on countries for the sake of impos-ing democracy. Although war will not beeradicated, governments, like the US andEU, which see the potential of making theInternet free in repressive locations, willuse the citizens to instil democratic idealsand empower the people to demand forchange.
We may also see a major altering of ourglobal economic system through onlineactivism. The Internet will become thebattleground of 2012; the new crude oil.The war will wage against the technologycompanies and repressive governmentsagainst online activists and supportivegovernments. The fight will be for con-trol versus freedom, and we will see moreblurring of the lines between the protec-tion and violation of fundamental rightsonline.
A friend told me that I was extremelyfortunate to be able to share my thoughtsand speak out without being restrictedfrom any outside forces. Man's creativeinstinct yearns to break the chains of re-striction on his very core of being. I havebeen given a key to unlock and free my-self from these chains, and that is why myvoice will join millions of others onlinespeaking for those who have not yet beengiven a key.
The fight will be for control versus
freedom, and we will see more
blurring of the lines between the
protection and violation of
fundamental rights online
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- The key instrument of the cur-rent EU legal framework for Data Protectionand Privacy - the general Data Protection Di-rective 95/46/EC - was without any doubt agreat achievement. It has an impressive history,building on human rights' protection. But, thetruth is now that the Directive is starting toshow its age. It is approaching its "final con-sumption date" and clearly not sustainable fora longer period. When the Directive wasadopted in 1995, the Internet was still hardlyvisible and in any case far from its presenthighly dynamic reality. We now live in a worldthat is increasingly global, internet driven anddependent on the wide spread use of ICT in allareas of life, including the most private and in-timate ones. That means that there is not onlya need for modernisation, but also an urgentneed to ensure that the principles of data pro-tection continue to be fully effective in a chang-ing world. "Effectiveness" is not only requiredin a legal sense, but also and most of all, in apractical sense: legal safeguards are only effec-tive if they are applied in practice, and providethe required protection where it is really needed.Data protection has now become such a rele-vant factor for other important policy fields thatit can somehow be described as a critical successfactor for those other policies. Data protectionplays a key role as a vital source of legitimacy,trust and confidence.
It should be clear that this is not the time toreinvent data protection. It has been inventedand is now recognised as a fundamental right in
the Lisbon Treaty. Instead, much attentionshould be given to making data protectionmore effective in practice. This means a greaterfocus on implementation and enforcement ofdata protection principles and on the delivery ofdata subject’s rights. A related concern is thatsome existing formal requirements should besimplified or abandoned, if they are no longerneeded for effective data protection.
Another point in this context is the need forgreater harmonisation of rules across the EU.The present diversity of national rules is nothelpful for effective data protection, and evencounterproductive. A strong emphasis on the"internal market" perspective is not only goodfor international business and cooperating gov-ernments, but also for data subjects that in-creasingly move around the EU, and for theeffectiveness of data protection in general.
More effective data protection also requiresthat data subjects should be enabled to exercisetheir present rights more easily and should begiven a few additional rights to protect their in-terests where needed. An interesting exampleis the right to require that personal data aredeleted or transferred to another provider – the"right to be forgotten" or the "right to data
portability" – which might be particularly use-ful in the context of social networks or otheronline services. Strengthening the rights of datasubjects would also require a clarification of thesituations where consent is required and theconditions that have to be met for valid con-sent. A lack of clarity about this often leads toa weaker position of data subjects, particularlyin the online environment.
Data controllers are now responsible forcompliance with data protection rules, but inpractice this often only leads to formal arrange-ments and responsibility "at the end" if some-thing goes wrong. Instead, they should bemandated to be more active and to take allthose measures which are necessary to ensurethat data protection rules are complied with.This is referred to as the principle of "account-ability" that would require data controllers tobe able to demonstrate that they have taken allappropriate measures to ensure compliance.The principle of "privacy by design" would fit inthe same approach: controllers should be able todemonstrate that appropriate measures havebeen taken to ensure that privacy requirementshave been met in the design of their systems.
Last but not least, supervisory authorities
should be given adequate resources andstronger powers of enforcement that are equiv-alent in all member states. They should also beallowed to use these powers more strategically,including the possibility to be more selective, inthe case of substantial risks or systematicwrongdoing. At the same time, the conditionsfor "complete independence" should be equiv-alent in all member states. This means that dataprotection authorities should be free from anyinfluence in the exercise of their duties. It isclear that complete independence is not incon-sistent with the principles of democracy and le-gality. It only requires transparent proceduresfor appointment and annual reporting on ac-tivities, so as to ensure a structured dialogue be-tween independent authorities andgovernments or parliaments.
A legal framework that would provide allof the above elements would be much betterin the position to deal with the challenges ofnew technologies and globalisation. At thisstage, it is also important to clearly define theexternal scope of EU data protection law. Theconcept that EU law should not only applywhen the responsible data controller is estab-lished in Europe, but also when EU con-sumers are "targeted" - regardless from whereover the Internet - seems to attract more andmore support. All this will be on the agendaof the European legislator further to a pack-age of proposals from the Commission to beexpected early in 2012. The results should beavailable by 2014, towards the end of the cur-rent mandates for the Commission and theEuropean Parliament
The present diversity of national rulesis not helpful for effective data
protection, and even counterproductive
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- “The most urgent issue in fi-nance today is the ethical dimension of therecent failure of financial markets”, to quoteJakub Kuriata, a Credit Analyst with BNPParibas, London, and the winner of the 1stprize in the 2011 global Ethics in FinanceRobin Cosgrove Prize competition.
Robust ethical standards are critically im-portant for the success of the finance sector,in Europe and throughout the world. Doingthe right thing because it is the right thingto do may seem simple, but in complex fi-nancial transactions, all too often consider-ations of ethics and integrity may besqueezed. Ethics and integrity are the twopillars of trust – and without trust, no fi-nancial organization can command confi-dence. We have seen the disasters thanensue when financial enterprises lose trust– witness the collapse of Northern RockBank in England and before that, LehmannBrothers in New York.
The Ethics in Finance-Robin CosgrovePrize launched a global debate on the roleof ethics and integrity in all aspects of fi-nance. Managed in Geneva at the Obser-vatoire de la Finance and by myself, thegoal is to use the fresh ideas and discussionthat result from this dialogue to inspire theyoung finance community and to re-inspirethe broader finance, regulatory and aca-demic communities to respond in more sus-tainable ways to promote a healthy financesector, so essential to economic growth anddevelopment. The Prize reflects the ideas ofRobin Cosgrove, a successful young invest-ment banker, who sadly died at age 31.
Since 2005, well before the current finan-cial crisis swept across the world, the RobinCosgrove Prize has stimulated a global re-flection on the role of ethics, integrity andtrust in financial transactions and the means
to reduce corruption in financial firms andorganizations. The first global Prize waslaunched in 2006, with money from Robin’sfamily, friends and former employers , withthe goal of prompting focused debateamong young finance professionals and ad-vanced students of financial issues, encour-aging them to submit their ideas for“Innovative Ideas for Ethics in Finance”.Papers were submitted in either English orFrench. In 2007 the Prize was divided be-tween three young finance professionalsfrom Australia, Singapore and Egypt.
The initial success of the project led tothe launch of a second edition of the globalPrize in 2008 which was awarded in 2009.In addition, a regional Ibero-AmericanPrize, supported by MAPFRE of Madrid,was launched to encourage contributions tothe ethics in finance debate from youngprofessionals writing in Spanish or Por-tuguese. These two editions of the Prize to-gether truly ensured a global impact andduring the increasingly rough financial cri-sis of recent years, more and more young fi-nance professionals turned to the websiteand responded to the competitions. In 2009the global Prize was divided five –ways be-tween young professionals from France,Singapore, USA and Ghana. The Ibero-American Prize was divided between win-ners from Spain and Brazil.
The third edition of the global Prize forEthics in Finance was launched in April2010 in London, at a ceremony hosted byBarclays Bank Plc .The second edition ofthe regional Ibero-American Prize waslaunched in May 2010 in Madrid, hosted by
MAPFRE, on the same theme as the globalPrize but with a Latin American focus. ThePrizes were awarded in November 2011 at aceremony hosted by the State of Geneva,Switzerland.
The Prize Winners in 2011 came fromPoland, Madagascar, Germany and Argen-tine in the case of the global Prize, and fromArgentina, Uruguay, and Mexico for theIbero-American Prize. The exciting rangeof subjects addressed by the winning papersshowed the depth of intellectual reflectionstimulated by the competition, which at-tracted Expressions of Interest from morethan seventy countries. [Copies of the bestpapers submitted for the Prizes are pub-lished by the Observatoire de la Finance,Geneva, in its Journal, Finance & the Com-mon Good/Bien Commun, see www.obs-fin.ch and are also available on the websiteof the Prize.]
The vision of the Prize to stimulate aglobal reflection on ethics in finance throughthe competition and the website has re-sulted in the Prize is making a significantcontribution to the sustainable future of theinternational finance sector based on strongethical awareness and commitment to in-tegrity among all stakeholders. The Interna-tional Monetary Fund (IMF) promotes thePrize through its training programmes andsome major banks (including Barclays, BNPParibas, BNP Paribas Fortis, Citi) encour-age their staff to take an interest in theglobal ethics in finance debate and the com-petition for the Prize., reinforcing greaterconfidence amongst stakeholders- investors,shareholders, customers, regulators – and
hopefully creating dynamic corporate cul-tures based on honesty, mutual respect, andthe added value of a clear commitment toethics in finance.
The Prize administration hopes that fi-nancial firms from across a broad spectrumwill use the Prize as a tool to develop greaterawareness of Ethics in Finance, and en-courage their young professionals to submitpapers for future editions of the Prize.
As Clare Payne, then at the Integrity Of-fice of Macquarie Bank, Sydney, wrote inher 1st prize winning paper in 2007: “Forethics to catalyze and enliven the financeindustry- essentially for ethics to become aliving concept- the industry must move be-yond viewing ethics as a matter for compli-ance and good marketing. Ethical thinking…needs to be woven into corporate cultureand hence the day-to-day business of the fi-nance industry”.
Future editions of both the global Prizeand the Ibero-American Prize, hopefully tobe launched during the first half of 2012and awarding the Prizes in fall 2013, willencourage young finance professionals tointernalize their commitment to ethics infinance.. The International Jury will main-tain the topic of “Innovative Ideas forEthics in Finance” and the Prize Winnerscould gain USD20,000 for the global Prizeand USD15,000 for the Ibero- AmericanPrize for Ethics in Finance.
Robust ethical
standards are
critically important for
the success of the
finance sector,in
Europe and
throughout the world
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- Drama and tragedies have beenwritten and played for centuries. Many ofthem focus on scrutinizing the inner life ofheroes thorn between conflicting loyalties andpassions. Most of these heroes experiencedsolitude, confronted with impossible under-standing by an external observer of the intri-cacies of their sentiments and emotions.Conflicting passions and emotions seem thusto be the daily bread of human being, andeven more so in the era of almost absolute in-dividualism.
But neither economic life nor finance aresupposed to be about sentiments, about pas-sions, about loyalties but only about interests– however difficult it might be to define whatis precisely an « interest ». According to Al-bert Hirschman – author in 1977 of the fa-mous book « Passions and Interests » - twoelements are present in any « interested ac-tion » : self-centredness and rational calcula-tion in the sense of a cost-benefit analysis.Today, interested action is received by many asa dominant part of the ultimate genome andthus a major component of human nature, asepitomized by homo oeconomicus.
If this anthropological vision is acceptedwithout major qualifications, as it is the case inmost of legal and regulatory discussions, themeaning of « conflict of interests » is very nar-row. If, in any situation every agent is entitledand enabled by nature to take the decision thatgrants him the highest possible material bene-fits, the « conflict of interests » is reduced sim-ply to a question of more or less informedchoice. In case of asset management and in-vestment advise the question thus is simply arethe actors aware – all along the chain – from fi-nancial engineering centres and distributors ofproducts to the ultimate holders of wealth – ofthe incentive schemes under which the otherparty is acting in his or her rational interest. The« conflict of interests » issue boils then down toquestion of information. Is everyone in thechain in possession of all required elements toreach a rational, self-centred decision. In thecase of retrocessions, it may be easily arguedthat the ultimate investor (holder of wealth)does not have all the relevant information tomonitor if the asset manager or investment ad-visor is acting in the owner’s best interest. Atthis stage compulsory disclosure, transparencyand additional information may then be calledin by regulations in order to reduce this « asym-metry of information ». However, addressing «conflicts of interest » in fund management in-dustry only through additional information re-quirements or through remunerationsstructures better aligned without tackling theethical dimension of the problem is profoundlyinadequate.
Indeed « asymmetry of information » ar-guments stand on a major fallacy : the ulti-mate holder of wealth is seen as having allthe professional competence, all the knowl-edge and all time required to cross-check
and verify the advice he is being given. Inthe last analysis, he does not – in fact - needany advice at all. This may be true for insti-tutional professional investors but, as weknow from countless anecdotes, most of pri-vate clients of asset management boutiquesare, to a large extend, persons only moder-ately illiterate in finance, as is the majorityof adult population in OECD countries.Flooding these clients with additionalhighly technical information will not alle-viate, but may even deepen the « asymmetryof understanding ». In other terms, in situ-ations where « advise », i.e. expert knowl-edge, is called in – the diagnosis inspired bythe « asymmetry of information » paradigmis either insufficient or simply irrelevant.
If we consider that the investment advisoris client’s only gateway to an alien field of ex-pertise, then like in case of legal or medicaladvise, only the respect of his fiduciary obli-gation towards the client can prevent the ad-visor from exploiting his superiority. Money,and financial wealth unlike non-liquid assetsand possessions, has a psychological, or evenexistentialist, dimension which relates – onthe client’s side - more to passions and emo-tions that to cold rationality of interest. In thisrespect too, financial advise to private clientsis similar to medical and legal practice. In allthese decisions where emotions, not only in-terest, matter, trust in the practitioner’s skillsand his professional agility is the client’s re-sponse to the advisors’ fiduciary obligation.On such crossed « loyalty » architecture can –in theory - a sane and balanced relation un-fold based on the bilateral acknowledgment
of asymmetry of understanding and asym-metry of emotions. In such a balanced rela-tion there in no room either for « conflict ofinterests » as the advisor is being remuneratedby the client to act fully in his best interest.
Why is this idyllic picture of the client-advi-sor relation often contradicted by the every daypractice of investment advice? One of the an-swers may be that the economic status of in-vestment advisors is far from clear : are they a «profession » or are they just practitioners of avariety of business or trade ? Are they simpledistributors or tradesmen or are they advisorsin the noble and disinterested sense of theword.
he term of « profession » is often used torefer to clearly defined activities that (1) arerooted in a specific knowledge transmitted bydedicated training institutions and sanctionedby relevant diplomas ; (2) are linked to «higher (altruistic) aims » such as health, jus-tice or – possibly in the case of financial ad-visers – prosperity of the client; (3) have arather strict deontology which also precisely
defines their remuneration scheme (4) possi-ble have a strong organisational base that isable to enforce discipline and deontologyamong its members. This being sad, such aprofession may also be tempted to exert amarket entry control and limit competition.In case of a « profession » potential conflicts ofinterest are supposed to be controlled by the «higher aims » deontology and the discipliningpower of the professional organisation.
If investment advisors do want preservetheir « trust capital » which the retrocessionstory has undermined, they have the optionto seek a public – not necessarily official - ac-knowledgment of their « professional status». This however may imply non-ambiguousdeontology in terms both of fiduciary dutyand remuneration and internal discipline.Possibly, practitioners may split on these is-sues which would leading to a double stan-dard which will, undoubtedly, be properlyadvertised and exploited as an competitiveadvantage by those who will opt for tighterethical standards.
Conflicting passions and emotions
seem thus to be the daily bread of
human being, and even more so in the
era of almost absolute individualism
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- The most recent financialcrisis and the subsequent recession, whichprompted a sovereign debt crisis in Eu-rope, triggered a fresh wave of discussionsabout the failures of financial markets. Inthis context, it is particularly difficult totalk about ethics and finance. On the onehand, the financial sector and the majorityof economists tend to see the crisis as atechnical issue and underestimate its ethi-cal dimension. On the other hand, thewidespread moralistic narrative reduces,incorrectly in my view, to the greed of fi-nancial markets the crisis and its undesir-able economic consequences. During thetimes of economic hardship, we forget thatthe consensus among the economists isthat the development of financial marketshas a statistically significant and positiveimpact on the pace of economic growth.
In order to have a sound debate, weneed to establish a common philosophi-cal ground to think about the role of fi-nancial markets in the society. I arguethat some essential building blocks ofAristotelian virtuous would acceptablefor the largest possible audience. That is,each object/action must have a goal(telos) and life according to certainvirtues is the definition of human flour-ishing. Economic theory provides us with
a definition of what the goals of financialmarkets are, namely the distribution ofavailable resources to their most produc-tive uses and the redistribution of risks.Only markets fulfilling these objectivesefficiently can make positive contributionthe common good by enhancing eco-nomic growth and prosperity. Therefore,the application of teleological approachto judging the financial markets boilsdown to a response to the question: ofwhether or not the markets are fulfillingtheir economic objectives.
I think that the short answer today is asimple “no” and that there is a broadagreement about the main fallacies of fi-nancial markets. The list may be longer,but should include disproportionate
leverage, excessive risk taking and narrowfocus on short-term profitability as itskey issues.
How to incorporate ethics into the re-form of financial markets is a far moredifficult question. Aristotle emphasizedthe need to exercise virtues because no-body is born with perfect moral charac-ter. Adopting an Aristotelian approachmeans primarily promoting virtuous be-haviour among the market participants.This implies a major shift in the para-digm of thinking about ethics in finance.It would require from all the participantsto think actively about the moral conse-quences of their actions instead of simplycomplying, with rules prescribed by reg-ulators and lawmakers and as enforced by
compliance officers. I believe that finan-cial institution should, in particular, en-courage working on an adequateincentive structure by promoting respon-sible risk taking rather than short-termprofit seeking and spend more on teach-ing risk-awareness to its employees.
However, this is a long-term task andstrong regulations of the financial mar-kets are probably still essential to quicklyaddress the most urgent issues. To cite animportant example, the regulatory frame-work for banks, known as Basel III, is astep in the right direction but it is tooprudent in terms of capital requirementsand may not be enough to substantiallyreduce leverage. Another important areathat needs further enhancements is to en-sure that financial products are accord-ingly to the client’s needs and that clientshave an adequate level of understandingof the products. Although financial illit-eracy is an important issue, it is ulti-mately the responsibility of financialinstitutions given the asymmetry ofknowledge between them and theirclients. These are not revolutionary solu-tions, but what financial markets do notneed is a shock therapy which may sparkanother period of instability, but rather acareful treatment in which ethics may bethe key ingredient.
How to incorporate
ethics into the reform
of financial markets is a
far more difficult question
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- During his keynote addressat the Robin Cosgrove Prize ceremony,Lord Griffiths of Fforestfach, ViceChairman of Goldman Sachs interna-tional, made a comment that caught myattention. He said “We have the unfortu-nate tendency to tackle complex prob-lems in a technical manner”.
His comment resonated with what Itried to convey in my entry for the Prize:during the last three centuries, we havecome to master the exterior or technicaldimension of reality at the expense of theinterior dimension.
Indeed, while we have no problemsspeaking intelligently about the quantifi-able, we have not reached the same levelof complexity in our interior dimension.To this day, we finance professionals lackwords for these kinds of conversations.We are reduced to using terms such as“life planning” or “soft side.”
My central argument is that this stateof affairs – the collapse of our financialsystems, our focus on the exterior dimen-sion – can be traced back to what someprominent philosophers call the Disasterof Modernity.
But before we investigate modernity’sdisaster, let us first acknowledge its dig-nity.
The abolition of slavery, the rise of lib-
eral democracy, and the ecological sci-ences, are all part of the dignity ofmodernity.
And this dignity is the direct conse-quence of the differentiation of art,morals, and science, because each domainwas able to pursue its own knowledgewithout being oppressed by the other do-mains, meaning, that you were able tolook through a telescope and pursue yourscientific endeavours without being liter-ally burned at the stake.
Karl Popper refers to these domains asthe Three Worlds: The physical or objec-tive world investigated by science; thepsychological or mental world of feelings,perceptions, and thoughts; and the cul-tural world of stories, myths and lan-guages. Jürgen Habermas also dividesreality into three worlds: the subjectiveworld, the social world, and the objective
world. However, at some point, the dignity of
modernity began to turn into a disaster:The Three Worlds didn't just differenti-ate, they started to dissociate.
And by the end of the eighteenth cen-tury, the spectacular development of sci-ence – ignited by the discoveries ofKepler, Galileo, Newton et al. – began toovershadow, and then to actually negate,the artistic and moral domains. TheThree Worlds collapsed into a single flatworld, the world of empirical sciencewhich proclaimed itself as the only validview of reality. Linking back to LordGriffiths comment, all problems in theaesthetic and moral domains were turnedinto technical problems. Science wouldliterally solve everything.
Unfortunately, this is where our mod-ern civilisation still rests: a fragmented
world with art, ethics, and science at eachothers' throat.
And so the task that lies ahead of us isnot merely to promote ethics in finance.Our task is to reconcile these ThreeWorlds, thereby putting as much atten-tion on ethics as we do on finance in theprocess.
In practical terms, it means firstly thatother kinds of talent than, say technicalproficiency, need to be rewarded, and thatother kinds of measures than, say prof-itability, need to be recognized in themarketplace.
Secondly, business leaders and financeprofessionals need to revisit their terri-tory of expertise, by complementing theircore technical expertise with practices –such as action inquiry – designed to helpthem foster their ethical intelligence.
And finally, it means that we have tolook beyond rules and regulations to fos-ter the development of ethical behavioursin the marketplace by investigating othertools of change such as inclusive decisionmaking, organisational learning, trustbuilding approaches, cooperative partici-pation, and collective introspection.
Only when our civilisation has accom-plished the integration of the ThreeWorlds of art, morals, and science willwe be able to weave ethical thinking intothe day-to-day business of the financeindustry.
We have the unfortunate
tendency to tackle complex
problems in a technical manner
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- The derivative market isone of the biggest in the world. At theend of June 2011, OTC (over thecounter) contracts with a face value of$708 trillion were swirling around theworld’s financial system, amounting toabout $100,000 in derivatives contractsfor every person on the planet (source:BIS).
These numbers seem to speak forthemselves. Financial derivatives serveseveral useful functions. They are, as thename suggests, derived from the value ofother assets, historically commodities butalso corporate shares, currencies, interestrates, etc. Derivatives such as futures, for-wards, options and swaps (or a mixture ofthem) can be used for insuring against,transferring and dispersing financial risk.Thus, they give corporations and banksan ability to manage their business effec-tively by making decisions on risk. In ad-dition to that, derivatives are often acheaper alternative to investing in theunderlying asset.
Individual traders, companies andbanks may benefit from derivate instru-ments. However, the impact derivativeshave on the aggregate level of risk mustbe taken into account as well. From a sys-
temic perspective, the risk transformedand transferred by individuals maythreaten the whole financial infrastruc-ture of the economy. As leverage is a keycomponent of systemic risk, derivativesplay their part in it.
Derivative innovations make it possibleto hedge risk, but they also make it pos-sible to engage in highly leveraged spec-ulation. In the boom preceding thefinancial crisis 2007/08, leverage in-creased massively along with the supplyof illiquid high-risk derivatives.
Derivatives also tend to strengthenlinkages between market segments andinstitutions. With that, disruptions inone market are more likely to spill overto and affect other markets which mayresult in a domino effect. Additionally,banks have a strong incentive to createproducts so complex that they can’t be
sold on exchanges at all. Eighty percentof derivatives are now sold over-the-counter in non-transparent private deals.Concealing the risks that traders take anddisperse adds opacity to the market andposes an unseen risk to the functioningof the financial system should the tradersfail. When the risk materializes it maynot be possible to prevent a system col-lapse. Therefore, we need to take over re-sponsibility for the risk itself before it istoo late – before the risk materializes.
We need guidelines which help preventsystemic crises by implementing precau-tionary methods – both for the micro-and the macro-ethical level.
First, we need macro-prudential in-sight which should focus on the financialsystem as a whole and which seeks toavoid and at least to minimize system-wide distress. We need to understand that
systemic risk can be catastrophic for aneconomy and for society as a whole. Awell-functioning financial market ismorally relevant as it is an indispensableelement for the provision of basic goodsand welfare.
Therefore, the avoidance of systemicrisk is of capital importance. Secondly, weneed to develop methods to distinguishrisk-generating from risk-dispersing de-rivative instruments. Whereas carefullychosen derivative deals may reduce therisk inherent in doing business, there aretransactions which can provide powerfulleverage mechanisms for creating riskwith a negative influence on economicstability. Thirdly, we need to establishtransparency through regulatory over-sight. There is an ethical imperative togather and share information and to setup regulatory institutions charged tomonitor systemic risks.
All in all, to fulfill these guidelines maynot be an easy task. Still, this must notprevent us from trying. We need to ex-amine these issues closely and developdifferentiated regulatory strategies to ad-dress them properly. A framework fordealing responsibly with financial risk –especially with derivative risk – is indis-pensable for a healthy and stable finan-cial market and for society as a whole.
We need guidelines which help prevent systemic
crises by implementing precautionary methods
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- The financial systememerged as the major player because it isdue to its disorders that international so-ciety had to face numerous difficulties.The separation between ethics and fi-nances is largely responsible for theseproblems. But this separation is not ex-clusive of the financial sector, rather it re-flects the view that the economy ingeneral has on ethical matters.From Aristotle to the first classical econ-omists, matters of morality were alwaysvery closely linked to economy. However,the mainstream of modern economicalthought expelled ethics from its field ofstudy because it considers that an assess-ment of what is good, bad and mandatorygoes against its scientific pretenses.
By lacking ethical grounds, the domi-nant economic model built a biased viewof man and how he relates to his peers.The basic message is that individuals,acting according to their own interests,find in the free market an efficient mech-anism which is mutually profitable foreverybody. This view exempts peoplefrom acting responsibly, worrying aboutothers, since the market manages to au-
tomatically channel individual intereststowards the improvement of the commonwell-being.
From here we can deduce that a bigpart of the recent economic crisis re-spond, first and foremost, to a moral cri-sis. By internalizing the previouslydescribed view, people placed an excessiveamount of trust in the markets, withouttaking into consideration that the actionsperformed there are not purely mechani-cal or technical. The excessive instru-mental rationality of individuals endedup destroying the trust, which was thefoundation of the initial progress, affect-ing not only economical issues, but alsodifferent areas of common good. Someauthors call this situation the “paradox of
trust”.The defenders of the current model af-
firm that financial markets are workingwell and that the crisis constitutes only acyclic fall. They predict a “rebound effect”that, through the right economic policies,will bring the economy back to its nor-mal growth tendency, along with arestoration of trust. Therefore, there is noneed for any substantial changes to thesystem.
However, the true solution to the prob-lems of the financial system requires deepchanges. The challenge lays in being ableto maintain trust in the long term, evenwhen the market seems to work perfectlyand without any risks. In order to do this,there is only one alternative: that the fi-
nancial system (and the economy as awhole) acts on an ethical basis. A tran-scendental and responsible view abouthow our actions have an impact on thecommon well-being is necessary. Thismeans to start incorporating other mo-tives for action beyond personal benefit,like solidarity and gratuity.
In a globalized world, the logic of twotimes where the market produces in anefficient way and the state equitably dis-tributes, does not work anymore. Besidesefficiency, individuals in the market mustgo after other objectives such as equityand social cohesion. Many current exam-ples, such as the Economy of Commun-ion companies, are proving that themarket can start being distributive fromits own functioning without losing eco-nomical efficiency.
Education constitutes a fundamentaltool in order to accomplish this human-ization of economics. The challengetoday is to give back to people their socialdimension, their concern for others, andto reevaluate the importance of civilvirtues. This is the only way to accom-plish an economical, environmental, andabove all, humane development that canbe maintained in time.
The defenders of the current
model affirm that financial markets are
working well and that the crisis constitutes
only a cyclic fall
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- We are convincedthat Community Banks are a powerfultool of Solidarity Finance, because theypropose a comprehensive system forwomen and men from poor neighbor-hoods to decide how to manage the sur-plus of the household economy.
Many times we heard that impover-ished communities rely exclusively onState funding, on international organiza-tions, social organizations, and even onchurches. That is true, but it is only oneside of the complex and diverse reality.We believe that lower-income people alsohave the possibility of financing them-selves through their savings. In general,the greatest difficulty is to count on a ro-bust system for generating and managingthose savings. As we do not want to re-produce an exclusionary and dehumaniz-ing financial system, the challenge thatwe face is to ensure this system to be eth-ical and solidary: two values that mayseem general and abstract, but that in theCommunal Banks are critical to definecriteria and modalities.
If we believe that impoverished com-
munities have the possibility to financethemselves through savings, we have togo a step further and believe that they arecapable of manage their own resourcesindependently. That is why financeshould leave its position of unfathomablecomplexity to translate itself to the lan-guage and codes of those people, protag-onists of their own decisions.
We find three values that are central tothe arduous task of autonomy:
First, transparency, which is the onlyway to generate trust and that people beton collective construction.
Secondly, democratic participation, be-cause we know that in the spaces wherewe feel that our voice is heard and takeninto account we can build the commongood, the collective over the individual.
Thirdly, the group monitoring, i.e., theneed that each member of the Commu-nity Bank be responsible for constantlyvigil for the values and practices that havebeen agreed, knowing that the naturaltendency is to return to the old, knownthings.
What is the place of organizations suchas Nuestras Huellas in this process? Webelieve that two things should be very
clear. The first is that we facilitate theprocess, i.e., we cannot offer formulas orrecipes to the people, asking them to takeand implement them, regardless of theirhistory, their culture, their times andprocesses.
The second is the responsibility of cre-ating innovative mechanisms and tools,not adapting old recipes to the world ofthe poor, as we have often heard. It'sabout being bold, uniting all the effortsand expertise to take one more step in theinnovation of social technologies.
To conclude I want to echo the voice ofso many women and men that daily seekeconomics and finance be at the serviceof the reproduction of life and not the re-
production of capital. We all shouldsweep away the lie that the unlimitedsearch for growing capital will lead us toa happier life. We have the challenge ofmaking the capital, the fruit of labor, atool for life to grow and multiply in all itsaspects, in all its dimensions and expres-sions.
As we have strongly spoken in the re-cent International Forum on the Socialand Solidarity Economy, which tookplace in Montreal, Canada, that AN-OTHER ECONOMY IS POSSIBLE,today we want to reaffirm here thatOTHER FINANCES ARE POSSIBLEand we are willing to invest all our ener-gies to make them a reality.
We have the challenge of making
the capital, the fruit of labor,
a tool for life to grow
and multiply in all its aspects
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- The title of this ar-ticle is the title of the essay that I wroteto participate in the Second Iberoameri-can Edition of the Robin Cosgrove Prizeheld on 2010/2011. The essay wasawarded with the Second Prize ex-aequowith other two essays.
This article is a short comment of theessay and highlights the main findingsand conclusions.
First of all I may say that the essay waswrote on December of 2010 when the ac-tual financial crisis was not in its worststage but all the conclusions fits very wellto some of the events that have happenedin the last months and actually continuehappening nowadays in financial institu-tions.
My approach to this topic is made asan outsider actor of the financial sectorsince I do not work in a financial institu-tion but during the exercise of my workas accountant in Guyer & Regules I havebeen advising many financial institutions(banks, stock brokers, representative of-fices of foreign financial institutions, andsecurities dealers) for many years and Ifound some issues related to the dynam-
ics of the financial sector and some be-haviors of financial institutions that af-fects the behavior of people and lead tothe occurrence of unethical behavior ofpeople.
For instance I noted that some strate-gies of recruitment and reward, which arevery common in the financial sector, mayaffect the behavior of the employees. Re-garding the recruitment strategy, when aninvestment bank has the intention to ex-pand its operations is very usual to hirebrokers with portfolio that are workingin other financial institution. They en-courage employees of other institutionsto join them with the promise of hugeamounts in rewards, annual bonus, orpromotion opportunities if they achievesome goals previously set by the institu-
tion. That issue is a part of the rewardstrategy that I understand leads to theoccurrence of unethical behavior becauseif for any reason the employee do notachieve that goals perhaps this make theemployee to lose the bonus or in theworst case he has to leave the company.There is no doubt that this behavior ofthe institutions affect the behavior of theemployees and sometimes push them tobehave wrong from an ethical point ofview.
Moreover, in recent years the behaviorof individuals of the financial sector hasbeen much questioned because some-times they have acted improperly from anethical point of view and motivated bypersonal interest against the institutionsfor which they work for and also against
the common good. Actually, the behavior of the people is a
consequence of the behavior of the fi-nancial institutions, hence, it is very im-portant for the employees to know thevalues of the institution that they workfor and if they do not agree with this val-ues they have two options: accept therules or not, and in the last case theymust get out or not even join the institu-tion. Obviously is desirable that beforebeing in an objectionable situation theperson must prevent it and perhaps findsan alternative route that does not involveunethical behavior.
At the end, let me say that financial in-stitutions are the ones who must tacklethe problem and lead the war against un-ethical behavior because themselves arethose that, in one way or another, definethe conditions which sometimes can en-courage people to behave unethically.
So, what to do? Once again let mehighlight the importance of the personand his values as an essential element todeal with temptations and unethical be-havior that the financial sector allows andeven sometimes seems to encourage, andinvite the institutions to take care of theproblem.
Actually, the behavior of the people is a
consequence of the behavior of
the financial institutions
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74 OUR WORLD IN 2012
- The financial crisis andfrauds that have occurred in the lastdecade have inspired an extraordinarywave of regulatory reforms and changesin corporate governance structures. How-ever, I consider that all policies, proce-dures, controls and systems that mightexist count for nothing if a decisionmaker doesn’t know how to make consis-tent good decisions and continuouslylearn from them.
Before going into details about how toimprove decisions, it is important not toconfuse good decisions with good results.None of us can know the future, whichmeans that we can take a good decision thatresult in a bad outcome. A good decisionqualifies as such when it carries out a pro-cedure of analysis that takes into accountcertain principles. Therefore, having a toolwhich allows the analysis and comparisonof information in a systematic way is of fun-damental importance for decision-makers.
After being immersed for almost a yearin many decision making processes I’verealised that despite the amount of dataand facts, most of the times decisionmakers need to make judgments based onintangibles values such as reputation, fu-ture product potential or customer satis-faction. These are the really good but
really elusive stuff that makes decisionscomplicated. Ethics is of course one ofthese values, isn’t easy to measure, moni-tor or evaluate. Therefore who can besurprised that this is an issue whichmakes directors and senior managementface constant dilemmas?
This kind of pressures could be allevi-ated if corporate employees had a tool toshow to managers in a frank way thechallenges involved in making decisions.My proposition is the use of Multi Cri-teria Decision Analysis (MCDA) to ad-dress these challenges faced whilemaking strategic decisions, particularlywhen business need to decide where toallocate resources or prioritise projects.The methodology main features are : firstit enables the inclusion of «soft» criteriatranslating ethics into meaningful values
and it answers key questions such as:what you value and how much you valuethe difference between alternative’s,bringing to light the true motivation be-hind the investments.
The first step required in the MCDA isto give clear meaning to ethics and translatethis universal concept into a value or valueswhich should be real business goals and ex-plicitly relevant for the investors. “Ethics” isa wildly popular but vague term and deci-sion criteria setting demands clarity aboutwhat a business mean by ethics. Since ethicsmeans different things to different peoplein different contexts it is fundamental getthis first step right.
The rest of the MCDA steps allowscapturing the context of each decision,and permits decision makers to look backand compare information, perceptions
and understanding of the reasons whycertain courses of action have been cho-sen. This learning and continuous im-provement cycle is achieved because thereis real transparency in the evaluation ofthe options, and this goes beyond thesimple formulation of possible businessoptions. It means transparency in theparticipants, the inclusion of differentpoints of view, trade-offs made and theinformation used to inform the decisions.
The use of MCDA makes sure that theprocess which in many occasions takesplace unconsciously it is done explicitlyand following a defined sequence ofsteps. From this sequence is whereEthics can be promoted. The crucial fac-tor is that the integrity of decision mak-ers will emerge in the repetition of theserules, the result being a pattern of ethicaldecisions, while behaviour is not achievedby thinking or writing codes of ethics,but through actions.
It is true that the learning and im-provement of decision-making takestime, but it will not take place if the firststep is not taken. Similarly to any addic-tion, the essential step is to accept theproblem and recognize that “ethical” val-ues are not very often put into practiceand that for example, short term in-vestor’s interests are consistently put inthe first place.
It is true that the learning and
improvement of decision-making
takes time, but it will not take
place if the first step is not taken
NEW EUROPE
75OUR WORLD IN 2012
– Soon after the financialcrisis began in 2008, I was at a meetingin the United States where a seniorWhite House economic adviser put aquestion to me: “Do you think banks canbe good citizens?”
As I started to answer “Yes,” he inter-jected: “If your answer is ‘yes,’ think aboutthe fact that no one will believe you.”
His follow-up gave me pause. I’vethought a lot about it over the past threeyears, which have been so difficult for theworld economy.
The economic environment in whichwe are all living and working nowadays isparticularly challenging. In Europe, theUnited Kingdom, and the US, we arefeeling the effects of the unsustainablelevels of public and private debt accruedin the years before 2008. Spending cutsare being put in place by governmentsand households alike, with varying de-grees of public acceptance and social un-rest.
The single most important issue forbanks and other businesses to focus on in2012 is economic growth and job cre-ation. But, to play their proper role ingenerating employment, banks need torebuild the trust that has been decimatedby the events of the past three years. Thatrequires bankers to use the lessonslearned from the crisis to become betterand more effective citizens.
Simply put, the private sector has an
obligation to be the engine of growth andemployment, and banks have a vital roleto play in achieving that end. Frankly,though, banks have done a very poor jobof explaining how we contribute to soci-ety. We need to fix that as part of theprocess of restoring trust in what we do.
At the most fundamental level, banksare entrusted with deposits from individ-uals, businesses, and governments. Weput that money to work by helping peo-ple to buy homes, for example, or bylending to growing companies.
Banks also provide critical services togovernments and business, by providingdirect access to global buyers of debt andequity, and by establishing large, consis-tent markets of buyers and sellers. Somecharacterize these activities as speculativetrading, and even caricature financialmarkets as casinos. In fact, these marketsserve a fundamental client need.
Of course, to meet these needs, banksmust be safer and stronger than they wereprior to the crises. The reality is thatmuch is different in today’s financial sec-
tor. Banks are not borrowing as much;they have more capital; and they have farmore stable and liquid sources of funds tolend.
Strong banks want strong regulation,and we believe that no taxpayer moneyshould ever again be put at risk to rescuea failed or failing bank. But, three yearson from the 2008 financial crisis, we stillface considerable challenges, as the con-tinuing eurozone crisis demonstrates. Soit ’s not surprising that many peopledoubt that anything has really changed.
The only way that banks will win backthe public’s trust is to become better cit-izens. That starts with how banks behave,and in demonstrating that we act withtrust and integrity. This means that theinterests of customers and clients must beat the very heart of every decision wemake.
In 1970, the Nobel laureate Milton Fried-man – one of my favorite economists –wrote an influential article arguing that theonly social responsibility of business is to in-crease its profits. On that point, I disagree
with him.Businesses must increase profits in a way
that creates sustainable shareholder value,not just short-term gain. This applies acrossindustries, not just in banking. One sees thebenefits of this approach in the paths thatcompanies like Unilever, PepsiCo, and Nes-tle are forging.
Banks can and should do the same byfocusing on the interests of the cus-tomers, clients, and communities thatthey serve. The challenge is to balanceour obligations to all of our stakeholders,both customers and shareholders, includ-ing the pension funds that help millionsof people around the world save for re-tirement.
That is not always easy, and the deci-sions that we – just like any other busi-ness – make every day are imbued withinherent dilemmas. But doing what’sright for customers, clients, shareholders,and communities will ensure that we getthose judgments right much more oftenthan we get them wrong.
That is why the answer to the questionposed to me three years ago is that banksmust be good citizens.
I appreciate that persuading people ofthat concept will require that they see avisible difference in the way that banksparticipate in society. People may not rec-ognize any difference right now; thechange that is now taking place is in itsearly stages. But we are determined tokeep working at it, and I am committedto making it happen.
Businesses must increase profits in a way
that creates sustainable shareholder value,
not just short-term gain
KASSANDRADear President Viktor Yanukovych,former Prime Ministersdo not go to jail, they go home!
NE | OUR WORLD IN 2012
Once Upon A Time in Ukraine ...
Follow me on twitter @Kassandra_NE
The Greek tragedy is about to reach the'point of no return', and all attempts toavoid the worst-case scenario have sofar have proven to be futile. On the con-trary, any new effort made to rescueGreece seems to bring the countrycloser to collapse.
A few months ago the George Papan-dreou government, desperately in need ofcash, introduced another new tax onproperty based on immovable propertysurfaces and, since it was accepted thatmost people would not be able to pay be-cause they were unemployed or their in-comes were halved, the government ruledthat the tax was to be collected via elec-tricity bills; then it prohibited the partialpayment of electricity bills (i.e. the userpaying only for the electricity consumedand not for the new tax). Therefore, peo-ple were put into a situation in which ei-ther they paid the new tax, thus reducingtheir available income for food other es-sentials, or the power company would cutoff their electricity. It should be notedthat normally in Europe, if a consumerdoes not pay for electricity, the powersupply is not cut off but reduced to aminimum to cover lighting and refriger-ation needs.
It is worth noting that this new tax wasgiven a particular name, 'charatsi', a wordthat was used during the Ottoman domi-nation for capital tax imposed in all citi-zens (harac). This was a tax that all Greekcitizens had to pay, regardless of their in-come, for 400 years to the Sultan. Thosewho failed to pay the harac, regardless ofthe reasons, were decapitated. The Ot-toman term is now in use in Greece forthe new tax by all citizens, including MPs,the cabinet and even the prime ministerhimself, whatever it implies.
Greece's new Prime Minister LoukasPapademos, when asked what would hedo about the “harac” since most of hispeople cannot pay it, simply said that itmust be paid, full stop. Of course, Pa-pademos could have gone the other wayaround in taking the political decision toabolish the “harac” and instead reduce thesalaries of state companies' staff byaround 20%. These people, the crème dela crème of the political nomenclature ofthe country, number around a few hun-dred thousand, and mostly do nothing.Despite the fact Greece is one step awayfrom a total catastrophe, these lucky fewstill enjoy high salaries, but nobody daresto touch them because they are primarilyactive members of the Socialist party.
So, what exactly is Greece's new 'coali-tion' government, and why it is behaving
just like the previous Papandreou admin-istration? It is the same old Socialist gov-ernment, in which the foreign affairs anddefense ministries (which are not relatedto business) were given to leading NewDemocracy opposition party (EPP) whilethe public works ministry (which has nomoney for public works) was given to thegovernment's third, far-right party. Pa-pademos was until the day before his ap-pointment the key economic advisor toformer Prime Minister Papandreou so,for all practical purposes, nothing haschanged in Greece except that the So-cialists have managed to squeeze into thegovernment with two conservative par-
ties. Just how long this trap will work isdifficult to say, but certainly not for long.Indeed, the two parties that recently en-tered the socialist government have bynow well understood and they alreadyundermine the government in which theyparticipate, to the best of their abilities.
Under the circumstances, the coalitiongovernment is proving a failure. Pa-pademos's 90% score in the popular pollsthat he received upon his appointment on11 November has dropped to around 20%in just one month, the country's twomajor parties are totalling less than 30%in the polls, the leftist parties led by thecommunists total more than 40% and
both the popular party and the far rightparty have been in decline since they en-tered the coalition government. In thiscontext, unemployment is growing,salaries are being reduced every day andin many instances are not even paid, themiddle class is rapidly being depleted andno government services work. This meansthat, among other things, no taxes arebeing collected, no social security contri-butions are being paid, nothing is payingfor the medicines of insured employees orpensioners and the security of citizens isbeing dramatically reduced with thegrowing number of robberies and mur-ders by the flourishing domestic and for-
eign gangs. All this has happened in just two years
of Socialist administration. Indeed, twoyears ago, then-prime minister KostasKaramanlis lost the election when, in hiselectoral campaign, he said that the eco-nomic situation of the country was diffi-cult and in order to secure jobs, salariesand pensions, sacrifices had to be madewith a reduction in public-sector spend-ing and the freezing of salaries. Papan-dreou won the elections, claiming thatthere was enough money for salary in-creases and that no sacrifices were re-quired. At the same time before theelection, Papandreou had confidentiallyagreed with former IMF director Do-minique Strauss-Kahn to bring Greece tothe IMF. After making such promises
snd with Karamanlis speaking the truth,Papandreou easily won the election andwent on a 'road-show' around Europeclaiming that he ruled a 'corrupt' coun-try. As a result the markets to increasespreads and Greece end up underIMF/EU control as Papandreou hadcommitted with Strauss-Khan. Then Pa-pandreou turned Greece into Guinea pigexperimenting on a rescue mechanismthat would be an efficient model for Eu-rope in the future.
It is worth noting that it is not onlyGreece that is responsible for its pan-demic corruption - a substantial share ofthe responsibility should be attributed tothe European Commission, which en-couraged corruption in order for majorco-financed projects to be assigned at ex-orbitant costs to selected companies andin return ignored the false figures sub-mitted to Eurostat in order to maintainGreece within the limits of the stabilitypact and enter the Eurozone.
As an example, under the tolerance ofEurostat and with no consequence forGreece, between 2001 and 2009, the'final' figures submitted to Eurostat forthe Greek deficit and the Greek debtwere revised 70 times while the entry ofGreece into the euro, was allegedly basedon incorrect assumptions, with fullknowledge of Eurostat and happenedwhen the present Greek Prime MinisterLoukas Papademos (former deputy gov-ernor of the European Central Bank) wasgovernor of the Central Bank of Greeceand prepared all documentation for theacceptance of Greece into the Eurozone.
Under the circumstances, it is highlylikely that a general election will be calledin Greece, soon. Such an election cannotprovide anything else but a fresh coali-tion government, which will most proba-bly be led by conservative leader AntonisSamaras. Yet all other parties, even beforetaking over, will undermine this govern-ment. At that point, Greece will have twooptions. Either the situation will spiraltotally out of control and a far-left ex-tremist government will emerge from thebarricades leading Greece into chaos(with possible collateral damages to Eu-rope), or a new election will be called be-fore the collapse and from the newparties that will be formed, a strong cred-ible leader accepted by all Greeks willemerge as the Deus ex Machina to safelynavigate Greece to calmer waters.
K