by Tomas Valasek
The Czech government floated proposals in May that would see the EU take a more active role in solving frozen conflicts in eastern Europe. The Czechs hold the EU’s rotating presidency next year, so their wish may become reality. But just what exactly can the EU offer? The four conflicts in Europe’s east, South Ossetia and Abkhazia, Nagorno-Karabakh, and Transdniestria, have been ‘frozen’ for so long that even hardened optimists have lost hope.
To investigate, I recently joined a German Marshall Fund-organised trip to one such ‘frozen’ place, Transdniestria. It’s a small, poor region, populated by ethnic Russians, Moldovans and Ukrainians. In 1992, it broke away from Moldova, which is only somewhat larger, equally poor, and populated by the same mix of Russians, Moldovans and Ukrainians (albeit in somewhat different proportions). The conflict over Transdniestria is a strange one indeed. There are no obvious ethnic cleavages. Its citizens mingle freely. Some 7,000 Transdniestrians study in Moldova, and 30,000 of them hold Moldovan transports. All major Transdniestrian businesses are registered in Moldova, which allows them to use Moldova’s privileged access to Russian and EU markets. The only person to die on the Moldova-Transdniestrian administrative border in recent years, the OSCE says, was a ‘visiting’ prostitute. She died when a patrolman accidentally discharged his rifle during the amorous act.
But there is no such thing as an ‘easy’ frozen conflict, and even Transdniestria, with its lack of obvious differences from Moldova, stubbornly resists re-integration. So what can the EU do to help? It turns out the EU has done much already: it helped bring about the relatively close business relationship that the two constituent parts of Moldova enjoy. But it could do more.
In November 2005 the EU launched a Border Assistance Mission to Moldova and Ukraine (EUBAM). The Moldovans deem it a massive success. The mission’s 120 customs and border experts trained officials working along the Ukrainian-Moldovan border. The EU-trained force has succeeded in seriously cutting smuggling from Transdniestria to Ukraine, effectively removing the breakaway republic’s major source of income. So Transdniestrian businesses have registered with Moldova in order to gain rights to export to Russia and the EU. This represents the most visible step towards re-integration of Moldova and Transdniestria to date.
More needs to be done to help nudge Transdniestria and Moldova together. In the long run, Moldova’s best hope for re-unification lies in making itself attractive to the Transdniestrians. It needs to become a much freer, more prosperous place. This would erode the authority of Transdniestria’s rulers, and entice the region’s population to support re-unification.
To this end, the Moldovans have launched drastic economic reforms. For example, they have cut corporate taxes to zero to entice foreign investors. But the economy is not picking up nearly as fast as it could. Moldova remains deeply corrupt, which discourages entrepreneurs and investors.
The country is not doing well on the political front either. It is a much freer society than Transdniestria (which is essentially a one-person fiefdom). But Moldova’s president, Vladimir Voronin, also has a serious authoritarian streak. He treats the opposition with disdain and arrogance. Worse, he rigs the system in his favour. His Communist party uses its control of public TV (the only source of news for about 80 per cent of Moldovans) to keep out ‘undesirable’ politicians and analysts. Voronin changed the election law in a way that will make it difficult for the (badly divided) opposition to form effective coalitions against him.
As a result, ordinary Transdniestrians do not see enough difference between Moldova and their own, even more corrupt and authoritarian leadership. Moldova is a freer and happier place than Transdniestria, but not dramatically so. It is not losing the battle for the hearts of the Transdniestrians, but it is not winning it either.
So the EU’s best contribution to solving Moldova’s frozen conflict lies in pressuring Chisinau to clean up corruption and keep society free. The EU has serious influence in Moldova. The country wants to join the European Union, and it has modelled its economic and political reforms after the new EU member-states. When the EU speaks, Moldova has a compelling reason to listen. What Brussels says, and what the Moldovans need to hear more often, is that the faster you grow and the freer you become the greater the chances of accession. Better yet: the freer and richer you become, the more attractive Moldova looks in the eyes of ordinary Transdniestrians. So Moldova would stand a better chance not only of joining the EU, but of joining it as a newly re-united state with Transdniestria.
Tomas Valasek is director of foreign policy and defence at the Centre for European Reform.
Monday, June 30, 2008
Thursday, June 19, 2008
Tough choices to avoid euro-paralysis
by Hugo Brady
The Irish did the wrong thing for the right reasons in their referendum on the Lisbon treaty. Voters rejected an international treaty, the benefits of which did not seem to merit a change to the country's constitution. Their politicians, on the other hand, failed outright. They ran a flaccid campaign and were out-thought and shouted down by a colourful assortment of scaremongers. By polling day, opportunists had convinced 70 per cent of No voters that the Lisbon treaty was wide-open for renegotiation and that Irish sovereignty and identity was in danger under the current text. In addition, the public were promised a No vote would be pro-European and have no negative consequences.
Given that the EU already faced a similar debacle when Ireland rejected the Nice treaty in 2001, commentators think that – as with Nice – the EU will now engage in some standard hand-wringing before graciously accepting an Irish offer to hold a second referendum before May 2009. That course of action is fraught with difficulty and danger, however not least because the Irish may well say No again or deliver a Yes on a turnout lower than before (53 per cent).
For starters, most have forgotten that the Irish held a general election in 2002, providing the government with the popular legitimacy to put the Nice treaty to the people a second time. In addition, the government carried out a wide-ranging reform of how EU matters were debated in public and the Dáil, the Irish parliament. The Irish constitution was changed to exclude future participation in an EU military alliance, a perennial concern of the public. Lastly, Ireland’s EU partners added a declaration that the Nice treaty would not affect Irish neutrality. Now, however, with another general election some years away, a second poll is only a possibility in the unlikely event that the government can get clear and widespread public support for such a move by other means.
Secondly, over the years Ireland has accumulated many specific exemptions and opt-outs from EU policy. A legally binding protocol from the time of the Maastricht treaty prevents any EU law from affecting Ireland’s constitutional position on abortion. In 1997, the country, along with the UK, decided to remain outside the EU’s passport-free travel area and participates in policies on immigration and asylum, on a case-by-case basis only, subject to the approval of the Dáil. The Lisbon treaty would extend that opt-out into crime and justice matters. Even supposing a second referendum is politically possible the list of policies that Ireland can choose to stand aside from is short.
Ironically, a second referendum was the logical position of many in Ireland's No campaign. According to them, a better deal for Ireland and for all Europeans was possible. (See one example, a list of demands from the Sinn Féin party, at http://www.no2lisbon.ie/media/SFsubmission_a_better_deal.pdf.) They invited voters to make the strategic move of voting down this particular version. Though it may be galling to its EU partners, the Irish government must now partially vindicate this claim by asking for a bi-lateral re-negotiation with the rest of the EU. There is no other way forward, assuming the Czech Republic, Germany, Poland and all others ratify.
Two changes could make the Lisbon treaty more palatable to Irish voters. First, the Irish government must negotiate an ‘Ireland in Europe’ protocol with the EU, codifying all existing guarantees and opt-outs on family law and justice issues into one document. (Many voters do not see the continuity between EU treaties and think that old guarantees are over-written by new texts.)The existing understanding on defence from the Nice treaty, plus a new clarification on corporate taxation, could be added as declarative text. The Irish constitution could be further amended with a clause forbidding the state to sign up to future EU tax harmonisation measures without a further referendum. This would be similar to the existing constitutional guarantee on joining an EU military alliance. This protocol should be deemed weighty enough to justify a second referendum, which could be held quite soon.
Second, the clearest institutional issue to emerge from the referendum campaign is public dissatisfaction that there will be no ‘national’ commissioner in Brussels for certain periods under the Lisbon treaty. The member-states should attach a declaration to the treaty, promising to restore the principle that each EU country will be represented in the European Commission from the accession of Croatia in 2010. This would not require a renegotiation of the Lisbon treaty since the principle can be re-inserted into EU law via Croatia’s accession treaty. No country is likely to object to having its own commissioner at all times. Therefore, this will not be a sole concession to Ireland. Whether the EU likes it or not, commissioners have popular legitimacy in many member-states as a link between the EU and their home country. Efficiencies in the Commission will have to be achieved in other ways.
Many will say that ungrateful Ireland has no right to such concessions when all countries have already made sacrifices to negotiate the Lisbon treaty. But since the EU is fundamentally a consensual body and Ireland cannot be made to leave (in any case another referendum would be required), political compromises will have to be made. The reality is that the Irish have already paid a bitter price: the country has lost the goodwill that came with its image as a successful and pro-active EU player. That was more important to its national interest than votes or commissioners.
Equally, the Irish government may be unwilling to damage Ireland and the EU further by risking a second vote. But throughout the referendum campaign, Yes activists and confused voters complained that the Treaty of Lisbon had no selling point or tangible basis on which to make a decision. Now, the extraneous arguments of the No side have created a situation where the public need reassurances that Ireland's EU membership is not leading them in a direction where they do not wish to go. A single document recognising Ireland’s sovereignty in key areas alongside a guarantee of representation on the European Commission for all EU countries would allow pro-campaigners to fight another referendum in terms that matter to voters. It could also be a way for Ireland to re-establish its pro-European consensus.
Hugo Brady is a research fellow at the Centre for European Reform.
The Irish did the wrong thing for the right reasons in their referendum on the Lisbon treaty. Voters rejected an international treaty, the benefits of which did not seem to merit a change to the country's constitution. Their politicians, on the other hand, failed outright. They ran a flaccid campaign and were out-thought and shouted down by a colourful assortment of scaremongers. By polling day, opportunists had convinced 70 per cent of No voters that the Lisbon treaty was wide-open for renegotiation and that Irish sovereignty and identity was in danger under the current text. In addition, the public were promised a No vote would be pro-European and have no negative consequences.
Given that the EU already faced a similar debacle when Ireland rejected the Nice treaty in 2001, commentators think that – as with Nice – the EU will now engage in some standard hand-wringing before graciously accepting an Irish offer to hold a second referendum before May 2009. That course of action is fraught with difficulty and danger, however not least because the Irish may well say No again or deliver a Yes on a turnout lower than before (53 per cent).
For starters, most have forgotten that the Irish held a general election in 2002, providing the government with the popular legitimacy to put the Nice treaty to the people a second time. In addition, the government carried out a wide-ranging reform of how EU matters were debated in public and the Dáil, the Irish parliament. The Irish constitution was changed to exclude future participation in an EU military alliance, a perennial concern of the public. Lastly, Ireland’s EU partners added a declaration that the Nice treaty would not affect Irish neutrality. Now, however, with another general election some years away, a second poll is only a possibility in the unlikely event that the government can get clear and widespread public support for such a move by other means.
Secondly, over the years Ireland has accumulated many specific exemptions and opt-outs from EU policy. A legally binding protocol from the time of the Maastricht treaty prevents any EU law from affecting Ireland’s constitutional position on abortion. In 1997, the country, along with the UK, decided to remain outside the EU’s passport-free travel area and participates in policies on immigration and asylum, on a case-by-case basis only, subject to the approval of the Dáil. The Lisbon treaty would extend that opt-out into crime and justice matters. Even supposing a second referendum is politically possible the list of policies that Ireland can choose to stand aside from is short.
Ironically, a second referendum was the logical position of many in Ireland's No campaign. According to them, a better deal for Ireland and for all Europeans was possible. (See one example, a list of demands from the Sinn Féin party, at http://www.no2lisbon.ie/media/SFsubmission_a_better_deal.pdf.) They invited voters to make the strategic move of voting down this particular version. Though it may be galling to its EU partners, the Irish government must now partially vindicate this claim by asking for a bi-lateral re-negotiation with the rest of the EU. There is no other way forward, assuming the Czech Republic, Germany, Poland and all others ratify.
Two changes could make the Lisbon treaty more palatable to Irish voters. First, the Irish government must negotiate an ‘Ireland in Europe’ protocol with the EU, codifying all existing guarantees and opt-outs on family law and justice issues into one document. (Many voters do not see the continuity between EU treaties and think that old guarantees are over-written by new texts.)The existing understanding on defence from the Nice treaty, plus a new clarification on corporate taxation, could be added as declarative text. The Irish constitution could be further amended with a clause forbidding the state to sign up to future EU tax harmonisation measures without a further referendum. This would be similar to the existing constitutional guarantee on joining an EU military alliance. This protocol should be deemed weighty enough to justify a second referendum, which could be held quite soon.
Second, the clearest institutional issue to emerge from the referendum campaign is public dissatisfaction that there will be no ‘national’ commissioner in Brussels for certain periods under the Lisbon treaty. The member-states should attach a declaration to the treaty, promising to restore the principle that each EU country will be represented in the European Commission from the accession of Croatia in 2010. This would not require a renegotiation of the Lisbon treaty since the principle can be re-inserted into EU law via Croatia’s accession treaty. No country is likely to object to having its own commissioner at all times. Therefore, this will not be a sole concession to Ireland. Whether the EU likes it or not, commissioners have popular legitimacy in many member-states as a link between the EU and their home country. Efficiencies in the Commission will have to be achieved in other ways.
Many will say that ungrateful Ireland has no right to such concessions when all countries have already made sacrifices to negotiate the Lisbon treaty. But since the EU is fundamentally a consensual body and Ireland cannot be made to leave (in any case another referendum would be required), political compromises will have to be made. The reality is that the Irish have already paid a bitter price: the country has lost the goodwill that came with its image as a successful and pro-active EU player. That was more important to its national interest than votes or commissioners.
Equally, the Irish government may be unwilling to damage Ireland and the EU further by risking a second vote. But throughout the referendum campaign, Yes activists and confused voters complained that the Treaty of Lisbon had no selling point or tangible basis on which to make a decision. Now, the extraneous arguments of the No side have created a situation where the public need reassurances that Ireland's EU membership is not leading them in a direction where they do not wish to go. A single document recognising Ireland’s sovereignty in key areas alongside a guarantee of representation on the European Commission for all EU countries would allow pro-campaigners to fight another referendum in terms that matter to voters. It could also be a way for Ireland to re-establish its pro-European consensus.
Hugo Brady is a research fellow at the Centre for European Reform.
Thursday, June 05, 2008
Humanising China
by Bobo Lo
An extraordinary thing happened to China the other week. Not the Sichuan earthquake, even though that was an enormous, catastrophic event. Nor even the phenomenal popular response to this tragedy. No, the most remarkable development was the recasting of the Chinese people in Western consciousness. In place of the previous image of a homogenous, often demonised, mass of humanity, there emerged a picture of the Chinese as individuals, with real feelings and vulnerabilities.
How did this happen? Certainly, human tragedy on such a vast scale invites sympathy even in the stoniest of hearts, although perhaps not in some Hollywood stars. Yet in the past the western media have assigned little importance to loss of life in the non-western world. The infamous headline ‘Boston man breaks arm, 250,000 Bangladeshis drown’ may be apocryphal, but the attitude behind it is all too common.
What makes the change in western attitudes all the more remarkable is that prior to the earthquake China was having a very bad year in PR terms. Western coverage of Beijing’s response to the Tibetan demonstrations in March was uniformly critical. The Olympic torch relay was a fiasco, in which blame shifted from violent demonstrators and inept security arrangements to Beijing’s excessive pride. More generally, China had become the scapegoat for many of the world’s ills. It was accused of hoovering up natural resources, pushing up oil prices to record levels, swamping the market with cheap (and sometimes toxic) goods, polluting the atmosphere, and supporting vicious regimes in Sudan and Zimbabwe. Even the Olympics were turning out to be a mixed blessing, with the promotion of a vibrant, technologically advanced nation being undermined by accusations over Tibet and human rights abuses.
The Sichuan earthquake changed everything. Suddenly, China became a victim rather than a perpetrator, the focus of worldwide sympathy instead of an object of fear and loathing. Four factors were critical to this transformation. The first was the Communist leadership’s almost instantaneous response to the crisis. Within hours, Premier Wen Jiabao was on a plane to the worst-hit areas. Within a day, some 100,000 soldiers had been mobilized. The government acted with an urgency lacking in other, more developed countries – most conspicuously the United States after Hurricane Katrina.
Second, the degree of transparency was unprecedented. National and foreign media were given maximum access to the earthquake region. They were also able to report on sensitive subjects, such as the shoddy building standards for schools that contributed to the particularly heavy death toll among the young. The Chinese government recognized from the outset that it had everything to gain from highlighting the scale of the tragedy and from allowing individual human stories to speak for themselves.
Third, the leadership revealed an unusual empathy with the victims. Wen Jiabao – ‘Grandfather Wen’ – not only reached the earthquake zone within hours, but once there acted in a way uncommon in Chinese leaders. He got his hands dirty, whether in helping to dig people out of the rubble or holding a saline drip for one of the injured. The subsequent declaration of three days of national mourning, during which all public and private entertainments were suspended, revealed a finely tuned sense of the national mood. The traditional divide between government and people – ‘the Emperor is far away’ – gave way to a genuine sense of common purpose.
Finally, the humanisation of China benefited from the country’s growing prominence in a globalised world. The Sichuan earthquake brought raw human emotion into our living rooms, proving that some things are truly universal. Who can forget the sight of rows of parents holding up pictures of their only children – the ultimate victims of China’s ‘one-child’ policy? Such images transcend even the starkest of ideological and political differences.
The question now is whether this new image of China can be sustained. What would it take for the Western commentariat to revert to type and indulge in further China-bashing – over Tibet, climate change, Darfur, lost industrial jobs, or democratisation? Probably not much at all. The humanisation of China is a fragile and perhaps transient phenomenon. A swathe of Chinese gold medals at the forthcoming Beijing Olympics could trigger a new wave of Sinophobia. But whatever happens a very different China has emerged, far from the one-dimensional economic machine and totalitarian state of Western imagination. This China is a complex and contradictory entity, but whose resilience in times of crisis speaks of a profound sense of national unity.
Bobo Lo is director of the Russia and China programmes at the Centre for European Reform.
An extraordinary thing happened to China the other week. Not the Sichuan earthquake, even though that was an enormous, catastrophic event. Nor even the phenomenal popular response to this tragedy. No, the most remarkable development was the recasting of the Chinese people in Western consciousness. In place of the previous image of a homogenous, often demonised, mass of humanity, there emerged a picture of the Chinese as individuals, with real feelings and vulnerabilities.
How did this happen? Certainly, human tragedy on such a vast scale invites sympathy even in the stoniest of hearts, although perhaps not in some Hollywood stars. Yet in the past the western media have assigned little importance to loss of life in the non-western world. The infamous headline ‘Boston man breaks arm, 250,000 Bangladeshis drown’ may be apocryphal, but the attitude behind it is all too common.
What makes the change in western attitudes all the more remarkable is that prior to the earthquake China was having a very bad year in PR terms. Western coverage of Beijing’s response to the Tibetan demonstrations in March was uniformly critical. The Olympic torch relay was a fiasco, in which blame shifted from violent demonstrators and inept security arrangements to Beijing’s excessive pride. More generally, China had become the scapegoat for many of the world’s ills. It was accused of hoovering up natural resources, pushing up oil prices to record levels, swamping the market with cheap (and sometimes toxic) goods, polluting the atmosphere, and supporting vicious regimes in Sudan and Zimbabwe. Even the Olympics were turning out to be a mixed blessing, with the promotion of a vibrant, technologically advanced nation being undermined by accusations over Tibet and human rights abuses.
The Sichuan earthquake changed everything. Suddenly, China became a victim rather than a perpetrator, the focus of worldwide sympathy instead of an object of fear and loathing. Four factors were critical to this transformation. The first was the Communist leadership’s almost instantaneous response to the crisis. Within hours, Premier Wen Jiabao was on a plane to the worst-hit areas. Within a day, some 100,000 soldiers had been mobilized. The government acted with an urgency lacking in other, more developed countries – most conspicuously the United States after Hurricane Katrina.
Second, the degree of transparency was unprecedented. National and foreign media were given maximum access to the earthquake region. They were also able to report on sensitive subjects, such as the shoddy building standards for schools that contributed to the particularly heavy death toll among the young. The Chinese government recognized from the outset that it had everything to gain from highlighting the scale of the tragedy and from allowing individual human stories to speak for themselves.
Third, the leadership revealed an unusual empathy with the victims. Wen Jiabao – ‘Grandfather Wen’ – not only reached the earthquake zone within hours, but once there acted in a way uncommon in Chinese leaders. He got his hands dirty, whether in helping to dig people out of the rubble or holding a saline drip for one of the injured. The subsequent declaration of three days of national mourning, during which all public and private entertainments were suspended, revealed a finely tuned sense of the national mood. The traditional divide between government and people – ‘the Emperor is far away’ – gave way to a genuine sense of common purpose.
Finally, the humanisation of China benefited from the country’s growing prominence in a globalised world. The Sichuan earthquake brought raw human emotion into our living rooms, proving that some things are truly universal. Who can forget the sight of rows of parents holding up pictures of their only children – the ultimate victims of China’s ‘one-child’ policy? Such images transcend even the starkest of ideological and political differences.
The question now is whether this new image of China can be sustained. What would it take for the Western commentariat to revert to type and indulge in further China-bashing – over Tibet, climate change, Darfur, lost industrial jobs, or democratisation? Probably not much at all. The humanisation of China is a fragile and perhaps transient phenomenon. A swathe of Chinese gold medals at the forthcoming Beijing Olympics could trigger a new wave of Sinophobia. But whatever happens a very different China has emerged, far from the one-dimensional economic machine and totalitarian state of Western imagination. This China is a complex and contradictory entity, but whose resilience in times of crisis speaks of a profound sense of national unity.
Bobo Lo is director of the Russia and China programmes at the Centre for European Reform.
Friday, May 23, 2008
Let's hear it for the Transatlantic Economic Council
by Philip Whyte
Some institutions get less attention than they deserve. Arguably, one of these is the Transatlantic Economic Council (TEC). On May 13th it met for the second time since its launch in 2007. Its existence is still only known to a small group of initiates. Its obscurity is partly a reflection of its youth. But the TEC’s profile is not helped by the perception that its agenda is dull and that transatlantic relations are no longer as important as they used to be. The TEC’s agenda may be unglamorous. But the transatlantic axis remains as important as ever: it is still the world’s pivotal economic relationship. As protectionist sentiment rises on both sides of the Atlantic, the TEC deserves both greater visibility and political support.
The purpose of the TEC, a biannual summit of US government officials and EU Commissioners, is to deepen transatlantic economic integration. Its main focus is on lowering regulatory barriers – a reflection of the fact that the main impediments to transatlantic commerce are no longer instruments such as tariffs, but regulations ‘behind’ national borders. It is important to understand the limits of the TEC’s ambition. The aspiration is not to create a wider version of the EU’s single market. There is no prospect of goods, services, capital and people moving as freely between the EU and the US as they do within the EU. Even so, the OECD estimates that the economic gains from removing some of the more irksome restrictions to commerce across the Atlantic could be substantial.
If the potential economic gains from deepening the transatlantic economy are marked, why is the TEC’s agenda not better known? The (largely justified) perception that it is dull does not help. Let’s face it: the mutual recognition of GAAP and IFRS accountancy standards, or, for that matter, the transatlantic dimension of the EU’s chemicals directive, are not the sorts of subject that most normal people are inclined to discuss when they kick back and relax after work. Nor do those who are paid to take an interest in these matters find it easy to do so: the eyelids of even the most conscientious and determined policy nerds can start to feel just a little heavy as they grapple with putative regulatory obstacles such as certification rules for new aircraft or detailed prior approval procedures for low acid canned foods.
But there is another reason why the TEC is failing to attract as much interest as it deserves. It is the increasingly widespread view that the economic rise of Asia is loosening economic ties between the US and the EU and condemning the transatlantic axis to obsolescence. Superficially at least, this account seems plausible: after all, both the EU and the US now trade more with Asia than they do with each other. Nevertheless, it is misleading. For one thing, it neglects foreign direct investment (FDI). Yet EU and US firms invest far more on each others’ territories than they do in Asia – and FDI is a far deeper form of economic integration than trade. For another, changing patterns of international trade in goods say little about the EU or US, where services represent 70 per cent of GDP.
So next time you read a story about globalisation and the rise of Asia, remind yourself (1) that the EU and the US are the world’s largest economies and will remain so for some time yet; (2) that the US and EU share by far and away the largest two-way investment relationship in the world economy; and (3) that the world is not nearly as ‘globalised’ as is often portrayed – even the world’s most integrated bilateral relationship is riddled with non-tariff barriers that need to be removed. Finally, be thankful that somewhere deep in the entrails of the Brussels and Washington machineries, public-spirited bureaucrats are busy, on all our behalves, trying to sort out US gripes about EU registration fees for bull semen.
Philip Whyte is a senior research fellow at the Centre for European Reform.
Some institutions get less attention than they deserve. Arguably, one of these is the Transatlantic Economic Council (TEC). On May 13th it met for the second time since its launch in 2007. Its existence is still only known to a small group of initiates. Its obscurity is partly a reflection of its youth. But the TEC’s profile is not helped by the perception that its agenda is dull and that transatlantic relations are no longer as important as they used to be. The TEC’s agenda may be unglamorous. But the transatlantic axis remains as important as ever: it is still the world’s pivotal economic relationship. As protectionist sentiment rises on both sides of the Atlantic, the TEC deserves both greater visibility and political support.
The purpose of the TEC, a biannual summit of US government officials and EU Commissioners, is to deepen transatlantic economic integration. Its main focus is on lowering regulatory barriers – a reflection of the fact that the main impediments to transatlantic commerce are no longer instruments such as tariffs, but regulations ‘behind’ national borders. It is important to understand the limits of the TEC’s ambition. The aspiration is not to create a wider version of the EU’s single market. There is no prospect of goods, services, capital and people moving as freely between the EU and the US as they do within the EU. Even so, the OECD estimates that the economic gains from removing some of the more irksome restrictions to commerce across the Atlantic could be substantial.
If the potential economic gains from deepening the transatlantic economy are marked, why is the TEC’s agenda not better known? The (largely justified) perception that it is dull does not help. Let’s face it: the mutual recognition of GAAP and IFRS accountancy standards, or, for that matter, the transatlantic dimension of the EU’s chemicals directive, are not the sorts of subject that most normal people are inclined to discuss when they kick back and relax after work. Nor do those who are paid to take an interest in these matters find it easy to do so: the eyelids of even the most conscientious and determined policy nerds can start to feel just a little heavy as they grapple with putative regulatory obstacles such as certification rules for new aircraft or detailed prior approval procedures for low acid canned foods.
But there is another reason why the TEC is failing to attract as much interest as it deserves. It is the increasingly widespread view that the economic rise of Asia is loosening economic ties between the US and the EU and condemning the transatlantic axis to obsolescence. Superficially at least, this account seems plausible: after all, both the EU and the US now trade more with Asia than they do with each other. Nevertheless, it is misleading. For one thing, it neglects foreign direct investment (FDI). Yet EU and US firms invest far more on each others’ territories than they do in Asia – and FDI is a far deeper form of economic integration than trade. For another, changing patterns of international trade in goods say little about the EU or US, where services represent 70 per cent of GDP.
So next time you read a story about globalisation and the rise of Asia, remind yourself (1) that the EU and the US are the world’s largest economies and will remain so for some time yet; (2) that the US and EU share by far and away the largest two-way investment relationship in the world economy; and (3) that the world is not nearly as ‘globalised’ as is often portrayed – even the world’s most integrated bilateral relationship is riddled with non-tariff barriers that need to be removed. Finally, be thankful that somewhere deep in the entrails of the Brussels and Washington machineries, public-spirited bureaucrats are busy, on all our behalves, trying to sort out US gripes about EU registration fees for bull semen.
Philip Whyte is a senior research fellow at the Centre for European Reform.
Wednesday, May 21, 2008
What Arab countries think of democracy
by Clara Marina O'Donnell
Earlier this month, the Arab Reform Initiative (ARI) presented its first report on the state of democratic reform in the Arab world. ARI is a consortium of a dozen leading Arab research institutes which try to promote peaceful democratic reform across the Middle East (CER and a few other non-Arab think-tanks are associated with the initiative).
The report is a groundbreaking venture. It is the first collective and coordinated effort by Arab research institutes to evaluate the state of their political systems. By highlighting the progress towards democracy, or more to the point, the lack thereof, ARI hopes to pressure Arab governments into further reforms.
Launched at a conference in Alexandria, the report looks at eight Arab countries – Jordan, ‘Palestine’, Lebanon, Egypt, Algeria, Morocco, Saudi Arabia and Yemen from July 2006 to June 2007. The report’s ‘democracy index’ measures progress towards democracy on the basis of four criteria: strong public institutions, respect for rights and freedoms, the rule of law, and equity and social justice. The results will open a few eyes. Jordan ranked first, ahead of Morocco. And Palestine came third, ahead of Egypt.
Unfortunately, the rankings don’t give us the full picture on the ground. Most such indices are somewhat arbitrary but this one will be particularly controversial. The choice of criteria and how they are assessed explain the surprising results. For example military conflict is not taken into account, which partly explains Palestine’s good marks. Wage equality is used as an indicator for democratic progress, allowing poverty-ridden Yemen to score top marks in that category and increase its overall performance. For future ARI reports to make real difference, the authors will need to refine the methodology (something they recognise).
The Alexandria conference was remarkable as much for the conversations that took place as for the long-awaited report. Rami Khouri from the American University of Beirut argued that the push towards democratic reform has slowed down, and in some places collapsed, over the last few years because of wars and foreign influence (in particular the US ‘war on terror’); ideological conflicts; and the resistance of the ruling regimes. Democratic rights have become less important compared to security and stability. This is particularly the case for countries in conflict such as Lebanon, Iraq and Palestine. But the current situation is also being exploited by some governments, such as in Syria and Jordan, where authorities justify postponing reforms by the need to maintain stability.
Khouri also argued that the arrival in politics of Islamic parties, the strongest opposition movements in most Arab countries, has been a double-edged sword. On the one hand, it has increased the amount of people calling for democracy. But at the same time it has reduced the desire for reform from the governing elites and western powers, who do not want to see Islamists in government.
Professor Mustapha Kamel Al Sayyid from Egypt lamented the lack of links between Arab movements for democratic reform and European and American civil society. Most Arab groups are averse to Western assistance because they perceive it as neo-colonial. But Kamel argued that European civil society groups had been a valuable source of support during the transitions to democracy in Latin America and that Arab movements were losing out.
While taking into acount the many obstacles, the conference and the report concluded that the Arab region ‘showed an initial disposition towards democratic transformation, albeit a still embryonic one’.
But even the conference itself was full of reminders of how difficult the current situation is. One ARI member has been inactive for a year because it is being hassled by its government. And the Lebanese participants could not get home as Hezbollah had cut off access to Beirut airport.
Clara Marina O'Donnell is a research fellow at the Centre for European Refom.
Earlier this month, the Arab Reform Initiative (ARI) presented its first report on the state of democratic reform in the Arab world. ARI is a consortium of a dozen leading Arab research institutes which try to promote peaceful democratic reform across the Middle East (CER and a few other non-Arab think-tanks are associated with the initiative).
The report is a groundbreaking venture. It is the first collective and coordinated effort by Arab research institutes to evaluate the state of their political systems. By highlighting the progress towards democracy, or more to the point, the lack thereof, ARI hopes to pressure Arab governments into further reforms.
Launched at a conference in Alexandria, the report looks at eight Arab countries – Jordan, ‘Palestine’, Lebanon, Egypt, Algeria, Morocco, Saudi Arabia and Yemen from July 2006 to June 2007. The report’s ‘democracy index’ measures progress towards democracy on the basis of four criteria: strong public institutions, respect for rights and freedoms, the rule of law, and equity and social justice. The results will open a few eyes. Jordan ranked first, ahead of Morocco. And Palestine came third, ahead of Egypt.
Unfortunately, the rankings don’t give us the full picture on the ground. Most such indices are somewhat arbitrary but this one will be particularly controversial. The choice of criteria and how they are assessed explain the surprising results. For example military conflict is not taken into account, which partly explains Palestine’s good marks. Wage equality is used as an indicator for democratic progress, allowing poverty-ridden Yemen to score top marks in that category and increase its overall performance. For future ARI reports to make real difference, the authors will need to refine the methodology (something they recognise).
The Alexandria conference was remarkable as much for the conversations that took place as for the long-awaited report. Rami Khouri from the American University of Beirut argued that the push towards democratic reform has slowed down, and in some places collapsed, over the last few years because of wars and foreign influence (in particular the US ‘war on terror’); ideological conflicts; and the resistance of the ruling regimes. Democratic rights have become less important compared to security and stability. This is particularly the case for countries in conflict such as Lebanon, Iraq and Palestine. But the current situation is also being exploited by some governments, such as in Syria and Jordan, where authorities justify postponing reforms by the need to maintain stability.
Khouri also argued that the arrival in politics of Islamic parties, the strongest opposition movements in most Arab countries, has been a double-edged sword. On the one hand, it has increased the amount of people calling for democracy. But at the same time it has reduced the desire for reform from the governing elites and western powers, who do not want to see Islamists in government.
Professor Mustapha Kamel Al Sayyid from Egypt lamented the lack of links between Arab movements for democratic reform and European and American civil society. Most Arab groups are averse to Western assistance because they perceive it as neo-colonial. But Kamel argued that European civil society groups had been a valuable source of support during the transitions to democracy in Latin America and that Arab movements were losing out.
While taking into acount the many obstacles, the conference and the report concluded that the Arab region ‘showed an initial disposition towards democratic transformation, albeit a still embryonic one’.
But even the conference itself was full of reminders of how difficult the current situation is. One ARI member has been inactive for a year because it is being hassled by its government. And the Lebanese participants could not get home as Hezbollah had cut off access to Beirut airport.
Clara Marina O'Donnell is a research fellow at the Centre for European Refom.
Friday, May 02, 2008
France finds a friend in Ukraine
by Tomas Valasek
The government of Nicolas Sarkozy has launched a charm offensive towards Ukraine. French diplomats in Brussels have begun saying that Ukraine should have a ‘privileged’ status with the EU. And, instead of an ‘enhanced agreement’, which the EU has been busy negotiating with the Kyiv government, France now wants a ‘super-enhanced’ agreement. In the arcane world of Euro-speak, these are loaded terms – what the French are doing is blurring the line between Ukraine being seen as a neighbour and as a potential member.
This is quite a leap for France, which has been better known for its scepticism towards further enlargement. The French rejected the European constitution in 2005, partly because they did not like the ‘new’ European Union born in the 2004 round of enlargement (the newcomers from Eastern Europe tended to be too pro-American to French tastes). And cynics might say that even today, France is only pushing Ukraine’s membership case as a way of blunting its controversial stance on Turkey’s membership (Sarkozy opposes that, and has done his best to slow down Turkey’s accession talks).
Whatever its motives may be, France is doing the right thing. Ukraine matters to European security – it is a large, booming country, right on the EU’s eastern borders. It is culturally and geographically European, and most of its citizens genuinely want to be a part of the EU. It may be years away from attaining anything like European standards of stability, prosperity and governance – but if and when it does, it should be able to join the EU.
Ukraine is also a fragile place politically – constitutional court decisions are routinely ignored, while the parliament has gone months without passing any laws because of a stalemate between the opposition and the government. But that only makes a clear prospect of EU membership all the more important. In all the Central European states that joined in 2004, the prospect of EU membership had a stabilising effect. Politicians become more reluctant to carry on fratricidal arguments when to do so might put the chances of membership at risk.
All in all, the new French stance on Ukraine is welcome news. President Sarkozy has also made it clear that he would like to remove the constitutional provision that any country seeking to join the EU after Croatia cannot do so unless the French vote Oui in referendum. This, too, sends a signal to Ukraine that the EU is becoming a more open and welcoming place. Already, the new French stance on enlargement is percolating through the EU institutions. European Commission experts working with Ukraine report hearing the ‘A’ word, accession, in the corridors and meeting rooms of Brussels. The EU should bring the debate out from behind closed doors. Sarkozy should convince other European leaders that they should send a signal to Ukraine: when it meets the criteria, the EU will welcome it as a member.
Tomas Valasek is director of foreign policy and defence at the Centre for European Reform.
The government of Nicolas Sarkozy has launched a charm offensive towards Ukraine. French diplomats in Brussels have begun saying that Ukraine should have a ‘privileged’ status with the EU. And, instead of an ‘enhanced agreement’, which the EU has been busy negotiating with the Kyiv government, France now wants a ‘super-enhanced’ agreement. In the arcane world of Euro-speak, these are loaded terms – what the French are doing is blurring the line between Ukraine being seen as a neighbour and as a potential member.
This is quite a leap for France, which has been better known for its scepticism towards further enlargement. The French rejected the European constitution in 2005, partly because they did not like the ‘new’ European Union born in the 2004 round of enlargement (the newcomers from Eastern Europe tended to be too pro-American to French tastes). And cynics might say that even today, France is only pushing Ukraine’s membership case as a way of blunting its controversial stance on Turkey’s membership (Sarkozy opposes that, and has done his best to slow down Turkey’s accession talks).
Whatever its motives may be, France is doing the right thing. Ukraine matters to European security – it is a large, booming country, right on the EU’s eastern borders. It is culturally and geographically European, and most of its citizens genuinely want to be a part of the EU. It may be years away from attaining anything like European standards of stability, prosperity and governance – but if and when it does, it should be able to join the EU.
Ukraine is also a fragile place politically – constitutional court decisions are routinely ignored, while the parliament has gone months without passing any laws because of a stalemate between the opposition and the government. But that only makes a clear prospect of EU membership all the more important. In all the Central European states that joined in 2004, the prospect of EU membership had a stabilising effect. Politicians become more reluctant to carry on fratricidal arguments when to do so might put the chances of membership at risk.
All in all, the new French stance on Ukraine is welcome news. President Sarkozy has also made it clear that he would like to remove the constitutional provision that any country seeking to join the EU after Croatia cannot do so unless the French vote Oui in referendum. This, too, sends a signal to Ukraine that the EU is becoming a more open and welcoming place. Already, the new French stance on enlargement is percolating through the EU institutions. European Commission experts working with Ukraine report hearing the ‘A’ word, accession, in the corridors and meeting rooms of Brussels. The EU should bring the debate out from behind closed doors. Sarkozy should convince other European leaders that they should send a signal to Ukraine: when it meets the criteria, the EU will welcome it as a member.
Tomas Valasek is director of foreign policy and defence at the Centre for European Reform.
Wednesday, April 23, 2008
Lessons from the credit crunch
by Philip Whyte
The world economy is going through its greatest financial crisis since the 1930s Great Depression. Who – or what – is to blame for the credit crunch? And what are the lessons to be learned? The arguments are still filling newspaper column inches, but a consensus has yet to emerge.
Some observers have blamed central banks – particularly the US Federal Reserve under Alan Greenspan’s stewardship. The main charge against the Greenspan Fed is that it pursued an excessively loose monetary policy following the bursting of the ‘dotcom’ bubble in 2000. Persistently low US interest rates, it is argued, were the proximate cause of the housing market bubble whose bursting has resulted in the current credit crunch. Low real interest rates do seem to have been a contributory factor, but they cannot be the only explanation. Some countries with lower real interest rates than the US did not experience house price bubbles (eg Germany and Japan). And some countries with higher real interest rates than the US experienced even greater house price bubbles than the US (eg the UK).
A second explanation might be financial innovation – particularly securitisation, the practice of packaging loans as securities that can then be sold on and traded in the open market. Until recently, securitisation was often praised for spreading risk. The trouble is that it also seems to have ratcheted up the overall amount of risk in the system. Since the originators of loans did not bear the ultimate risk, securitisation gave them every incentive to generate fees without considering whether borrowers had any chance of repaying their loans. This process might have been mitigated if credit rating agencies had done their jobs. But whether because of negligence or conflicts of interest – they are paid by sellers, not buyers – credit rating agencies dished out investment grade ratings to poor quality securities.
Banks are never popular even at the best times. So it comes as no surprise that they have also been in the line of fire. The case against them is that they allowed their greed to get the better of their judgement – resulting in irresponsible behaviour. Some observers believe that banks’ recklessness was encouraged by compensation structures that reward short-term performance. Banks have already owned up to some mistakes. An interim report by the Institute of International Finance (IIF), an association of bankers, admitted that banks were guilty of a ‘decline in underwriting standards’; had been too reliant on inadequate ratings; and had had trouble identifying where exposures resided. Intriguingly, the IIF report also concluded that banks should reconsider incentives and compensation structures.
Perhaps the most satisfying explanation involves some combination of all these factors. The credit crunch did not result from any of these factors in isolation, but from the way in which they interacted. Credit growth, for example, would not have been so buoyant had real interest rates been higher. A backdrop of unprecedentedly cheap money almost certainly encouraged banks to under-price risk. Banks’ reckless behaviour may also have been encouraged by the actions of central banks, such as the Fed’s decision back in 1998 to rescue Long Term Capital Management (LTCM), a hedge fund. By signalling that irresponsible institutions and managers could count on being bailed out by public money, critics claim, the US Fed created ‘moral hazard’ – laying the foundations for subsequent excesses.
Recent events have not cast the financial sector in a good light. The IIF believes that a regulatory clampdown is unnecessary, and that banks can learn from their mistakes. This is wishful thinking. A regulatory clampdown now looks inevitable – on both sides of the Atlantic. At this point in the game, the key must be to ensure that changes in financial sector regulations are sensible, well-designed and proportionate to their objectives. But there may also be lessons for the monetary authorities. For much of the past decade, the conventional wisdom, particularly in the Anglo-Saxon world, was that central banks could (or should) not target asset prices. The time may have come to revisit the subject. Alan Greenspan remains to be convinced. But do not be surprised if you come across more column inches arguing in favour of the need for central banks to ‘lean against the wind’.
Philip Whyte is a senior research fellow at the Centre for European Reform.
The world economy is going through its greatest financial crisis since the 1930s Great Depression. Who – or what – is to blame for the credit crunch? And what are the lessons to be learned? The arguments are still filling newspaper column inches, but a consensus has yet to emerge.
Some observers have blamed central banks – particularly the US Federal Reserve under Alan Greenspan’s stewardship. The main charge against the Greenspan Fed is that it pursued an excessively loose monetary policy following the bursting of the ‘dotcom’ bubble in 2000. Persistently low US interest rates, it is argued, were the proximate cause of the housing market bubble whose bursting has resulted in the current credit crunch. Low real interest rates do seem to have been a contributory factor, but they cannot be the only explanation. Some countries with lower real interest rates than the US did not experience house price bubbles (eg Germany and Japan). And some countries with higher real interest rates than the US experienced even greater house price bubbles than the US (eg the UK).
A second explanation might be financial innovation – particularly securitisation, the practice of packaging loans as securities that can then be sold on and traded in the open market. Until recently, securitisation was often praised for spreading risk. The trouble is that it also seems to have ratcheted up the overall amount of risk in the system. Since the originators of loans did not bear the ultimate risk, securitisation gave them every incentive to generate fees without considering whether borrowers had any chance of repaying their loans. This process might have been mitigated if credit rating agencies had done their jobs. But whether because of negligence or conflicts of interest – they are paid by sellers, not buyers – credit rating agencies dished out investment grade ratings to poor quality securities.
Banks are never popular even at the best times. So it comes as no surprise that they have also been in the line of fire. The case against them is that they allowed their greed to get the better of their judgement – resulting in irresponsible behaviour. Some observers believe that banks’ recklessness was encouraged by compensation structures that reward short-term performance. Banks have already owned up to some mistakes. An interim report by the Institute of International Finance (IIF), an association of bankers, admitted that banks were guilty of a ‘decline in underwriting standards’; had been too reliant on inadequate ratings; and had had trouble identifying where exposures resided. Intriguingly, the IIF report also concluded that banks should reconsider incentives and compensation structures.
Perhaps the most satisfying explanation involves some combination of all these factors. The credit crunch did not result from any of these factors in isolation, but from the way in which they interacted. Credit growth, for example, would not have been so buoyant had real interest rates been higher. A backdrop of unprecedentedly cheap money almost certainly encouraged banks to under-price risk. Banks’ reckless behaviour may also have been encouraged by the actions of central banks, such as the Fed’s decision back in 1998 to rescue Long Term Capital Management (LTCM), a hedge fund. By signalling that irresponsible institutions and managers could count on being bailed out by public money, critics claim, the US Fed created ‘moral hazard’ – laying the foundations for subsequent excesses.
Recent events have not cast the financial sector in a good light. The IIF believes that a regulatory clampdown is unnecessary, and that banks can learn from their mistakes. This is wishful thinking. A regulatory clampdown now looks inevitable – on both sides of the Atlantic. At this point in the game, the key must be to ensure that changes in financial sector regulations are sensible, well-designed and proportionate to their objectives. But there may also be lessons for the monetary authorities. For much of the past decade, the conventional wisdom, particularly in the Anglo-Saxon world, was that central banks could (or should) not target asset prices. The time may have come to revisit the subject. Alan Greenspan remains to be convinced. But do not be surprised if you come across more column inches arguing in favour of the need for central banks to ‘lean against the wind’.
Philip Whyte is a senior research fellow at the Centre for European Reform.
Thursday, April 10, 2008
Turkey’s turmoil, the EU’s reaction
by Katinka Barysch
Political turmoil is nothing new in Turkey. After six years of unusual stability, tensions have mounted since early 2007. The army threatened to topple the AKP government in case it made Abdullah Gul president. Gul did become president, and the AKP emerged strengthened from an early election. Now the chief prosecutor has pushed a case in front of the constitutional court that threatens to ban the AKP because of its alleged anti-secular activities, most notably ending the ban on women wearing headscarves in universities.
So far, the EU has tried to stay out of Turkey’s battle between the mildly Islamist AKP and the increasingly desperate secular establishment. But last week Olli Rehn said that the court case was a mistake. Both he and Javier Solana have indicated that if the constitutional court banned the AKP, the accession negotiations would be off – or at least that is how the Turkish press have interpreted their statements.
A number of the people I spoke to during a Turkey visit last week were unhappy about the EU apparently taking sides. They say that Turkey’s West European friends underestimate the threat of creeping Islamisation. They worry about what Commission President Barroso will say when he arrives for his first official visit to Turkey this week.
The AKP and its supporters have a point when they say that this case is political and therefore merits a political response. They say that the 160-page indictment is based more on past statements by AKP politicians than on their actions. Yet not one of the 11 constitutional judges voted against accepting the case. To many, this indicates that the outcome is a foregone conclusion.
The AKP would not be the first party to be banned for allegedly violating the constitution: 24 have been shut down since the 1960s, including the AKP’s predecessors. But the circumstances have changed. The AKP has built up an impressive track record of reforms and modernisation during its seven years in office. It is popular enough to rule without a coalition partner. If it were closed down, it would reappear in a different guise and probably win another election. However, its top leadership, including Prime Minister Erdogan and President Gul, would most likely be banned from politics for years. For an organisation as hierarchical as the AKP this is hardly an acceptable outcome.
Instead, the government is thinking about pushing through a constitutional amendment that would make it harder to ban political parties. AKP leaders refer to the Council of Europe, which has said that only parties that support violence should be outlawed. The AKP does not have quite enough votes in parliament to change the constitution. It would need some support from the opposition, which would come at a hefty price. Alternatively, the AKP could put any amendment to a referendum, which it would presumably win.
Such a strategy may work, in the sense that it would prevent a ‘judicial coup’ against the government. But it would hardly assuage the concerns of those who suspect the AKP of using democracy as a means to pursue a hidden agenda of Islamisation.
That is why the European Stability Initiative – in a scary report about Turkey’s ‘deep state’ released last week – is calling on the government not to amend the old constitution but adopt an entirely new, more modern one. The ESI is right that a move to make it harder to ban parties would be more acceptable if it was part of a wider reform package.
It is also true that Turkey needs a new constitution: the current one dates back to the last military coup in 1982. However, the draft that legal experts wrote for the AKP last year has disappeared from view. Promises of a nation-wide debate have so far remained unfulfilled. Instead, the AKP has started doing constitutional change ‘a la carte’, especially by ending the headscarf ban. That was a mistake. But a constitution that was hastily adopted in an attempt to ensure the AKP’s political survival would lack legitimacy. Turkey first needs a wider debate about individual rights and a suitable systems of checks and balances. Constitutional change is simply too important for the future stability of Turkey to be rushed (see also
More than just a debate about the headscarf, article by Katinka Barysch, Financial Times, 7 November 2007).
There are other steps the AKP can take to bolster its reformist credentials; and it is taking some already. Erdogan now talks more about the government’s commitment to EU accession than he has done in a long time. After years of delay, a group of MPs has finally submitted amendments to the controversial article 301, under which the likes of Orhan Pamuk have been prosecuted. There is much more that the AKP could do, from liberalising rules for other religions to promoting women’s rights and making it easier for smaller parties get funding and parliamentary representation.
Barroso and other EU politicians should explain to Turkey that, unfortunately, the EU cannot offer an easy way out of the current dilemma. But that whatever the AKP decides to do would be more acceptable if the AKP restarted the modernisation and EU accession efforts that it has been neglecting over the last two years.
Katinka Barysch is deputy director of the Centre for European Reform.
Political turmoil is nothing new in Turkey. After six years of unusual stability, tensions have mounted since early 2007. The army threatened to topple the AKP government in case it made Abdullah Gul president. Gul did become president, and the AKP emerged strengthened from an early election. Now the chief prosecutor has pushed a case in front of the constitutional court that threatens to ban the AKP because of its alleged anti-secular activities, most notably ending the ban on women wearing headscarves in universities.
So far, the EU has tried to stay out of Turkey’s battle between the mildly Islamist AKP and the increasingly desperate secular establishment. But last week Olli Rehn said that the court case was a mistake. Both he and Javier Solana have indicated that if the constitutional court banned the AKP, the accession negotiations would be off – or at least that is how the Turkish press have interpreted their statements.
A number of the people I spoke to during a Turkey visit last week were unhappy about the EU apparently taking sides. They say that Turkey’s West European friends underestimate the threat of creeping Islamisation. They worry about what Commission President Barroso will say when he arrives for his first official visit to Turkey this week.
The AKP and its supporters have a point when they say that this case is political and therefore merits a political response. They say that the 160-page indictment is based more on past statements by AKP politicians than on their actions. Yet not one of the 11 constitutional judges voted against accepting the case. To many, this indicates that the outcome is a foregone conclusion.
The AKP would not be the first party to be banned for allegedly violating the constitution: 24 have been shut down since the 1960s, including the AKP’s predecessors. But the circumstances have changed. The AKP has built up an impressive track record of reforms and modernisation during its seven years in office. It is popular enough to rule without a coalition partner. If it were closed down, it would reappear in a different guise and probably win another election. However, its top leadership, including Prime Minister Erdogan and President Gul, would most likely be banned from politics for years. For an organisation as hierarchical as the AKP this is hardly an acceptable outcome.
Instead, the government is thinking about pushing through a constitutional amendment that would make it harder to ban political parties. AKP leaders refer to the Council of Europe, which has said that only parties that support violence should be outlawed. The AKP does not have quite enough votes in parliament to change the constitution. It would need some support from the opposition, which would come at a hefty price. Alternatively, the AKP could put any amendment to a referendum, which it would presumably win.
Such a strategy may work, in the sense that it would prevent a ‘judicial coup’ against the government. But it would hardly assuage the concerns of those who suspect the AKP of using democracy as a means to pursue a hidden agenda of Islamisation.
That is why the European Stability Initiative – in a scary report about Turkey’s ‘deep state’ released last week – is calling on the government not to amend the old constitution but adopt an entirely new, more modern one. The ESI is right that a move to make it harder to ban parties would be more acceptable if it was part of a wider reform package.
It is also true that Turkey needs a new constitution: the current one dates back to the last military coup in 1982. However, the draft that legal experts wrote for the AKP last year has disappeared from view. Promises of a nation-wide debate have so far remained unfulfilled. Instead, the AKP has started doing constitutional change ‘a la carte’, especially by ending the headscarf ban. That was a mistake. But a constitution that was hastily adopted in an attempt to ensure the AKP’s political survival would lack legitimacy. Turkey first needs a wider debate about individual rights and a suitable systems of checks and balances. Constitutional change is simply too important for the future stability of Turkey to be rushed (see also
More than just a debate about the headscarf, article by Katinka Barysch, Financial Times, 7 November 2007).
There are other steps the AKP can take to bolster its reformist credentials; and it is taking some already. Erdogan now talks more about the government’s commitment to EU accession than he has done in a long time. After years of delay, a group of MPs has finally submitted amendments to the controversial article 301, under which the likes of Orhan Pamuk have been prosecuted. There is much more that the AKP could do, from liberalising rules for other religions to promoting women’s rights and making it easier for smaller parties get funding and parliamentary representation.
Barroso and other EU politicians should explain to Turkey that, unfortunately, the EU cannot offer an easy way out of the current dilemma. But that whatever the AKP decides to do would be more acceptable if the AKP restarted the modernisation and EU accession efforts that it has been neglecting over the last two years.
Katinka Barysch is deputy director of the Centre for European Reform.
Thursday, April 03, 2008
Eurozone economic outlook: Too much complacency
by Simon Tilford
A year ago the prospect of the dollar falling to 1.60 against the euro would have brought on cold sweats across Europe. Yet, here we are and there is no sense of crisis. Indeed, business confidence remains strong across much of the eurozone, credit is expanding rapidly, and exports are holding up well. On the face of it, the eurozone really does seem to be shaking off the recession in the US and the steep rise in the value of the euro. A closer look, however, reveals a less rosy picture.
It is true that credit growth remains robust, but this is a backward looking indicator. A lot of these loans will already have been in the pipeline. Higher money market rates and the delayed impact of last year’s interest rate increases by the European Central Bank (ECB) will slow credit growth over the coming months. Moreover, domestic consumption is weakening across the eurozone. Crucially, German consumers remain as cautious as ever, despite employment having boomed in the country over the last two years. German retail sales were lower in February than a year earlier, with people particularly keen to avoid large purchases. The German car industry may be flourishing, but this is despite, rather than because of, what is happening in Germany: car sales were down 14 per cent year on year in March. This was an even bigger decline than in the US.
The ECB will not ride to the rescue. Despite the strength of the euro (which lowers the price of imported goods), eurozone inflation hit a record 3.5 per cent in March, over one and a half percentage points above the ECB’s inflation target of “close to but less than” 2 per cent. The strength of inflation is largely down to rising energy and food prices, but it also reflects a pick-up in “core” inflation pressures. With the ECB worried about rising wage settlements in Germany and elsewhere in the eurozone, it is very likely that there will no easing of monetary policy in the eurozone this year.
Nor can eurozone firms look to exports for support, especially if, as appears likely, the euro is set for a period of prolonged strength. The high-flying currency is already hitting exports from the Mediterranean countries hard, and will soon have a similar impact further north. There is little empirical basis for the widespread belief in Germany that demand for that country’s exports is largely unrelated to price. The strength of the global economy is important of course, but there is a close correlation between demand for German exports and the exchange rate.
Of course, there are some exporters for whom the strength of the euro is not a pressing issue. Demand for certain very specialised equipment, such as printing presses or mining machinery, probably varies little by price, because there are few makers of such equipment. Buyers expect the machine to last a long time and are hence more concerned about servicing and reliability than price. But the majority of exporters do not operate in such markets. For example, makers of white goods such as dishwashers and washing machines as well as office equipment and cars – all big German exports – operate in very price-sensitive markets.
The eurozone as a whole is certainly better placed than the US, but Europeans are too complacent about the ability of their economies to ride out the current storm. First, the sensitivity of exporters to the strength of the euro is greater than many believe. Even the eurozone economies most confident about their export prospects – Germany, the Netherlands and Finland – will experience a sharp slowdown in external demand. Second, rising inflation all but rules out cuts in eurozone interest rates in 2008.
Simon Tilford is chief economist at the Centre for European Reform.
A year ago the prospect of the dollar falling to 1.60 against the euro would have brought on cold sweats across Europe. Yet, here we are and there is no sense of crisis. Indeed, business confidence remains strong across much of the eurozone, credit is expanding rapidly, and exports are holding up well. On the face of it, the eurozone really does seem to be shaking off the recession in the US and the steep rise in the value of the euro. A closer look, however, reveals a less rosy picture.
It is true that credit growth remains robust, but this is a backward looking indicator. A lot of these loans will already have been in the pipeline. Higher money market rates and the delayed impact of last year’s interest rate increases by the European Central Bank (ECB) will slow credit growth over the coming months. Moreover, domestic consumption is weakening across the eurozone. Crucially, German consumers remain as cautious as ever, despite employment having boomed in the country over the last two years. German retail sales were lower in February than a year earlier, with people particularly keen to avoid large purchases. The German car industry may be flourishing, but this is despite, rather than because of, what is happening in Germany: car sales were down 14 per cent year on year in March. This was an even bigger decline than in the US.
The ECB will not ride to the rescue. Despite the strength of the euro (which lowers the price of imported goods), eurozone inflation hit a record 3.5 per cent in March, over one and a half percentage points above the ECB’s inflation target of “close to but less than” 2 per cent. The strength of inflation is largely down to rising energy and food prices, but it also reflects a pick-up in “core” inflation pressures. With the ECB worried about rising wage settlements in Germany and elsewhere in the eurozone, it is very likely that there will no easing of monetary policy in the eurozone this year.
Nor can eurozone firms look to exports for support, especially if, as appears likely, the euro is set for a period of prolonged strength. The high-flying currency is already hitting exports from the Mediterranean countries hard, and will soon have a similar impact further north. There is little empirical basis for the widespread belief in Germany that demand for that country’s exports is largely unrelated to price. The strength of the global economy is important of course, but there is a close correlation between demand for German exports and the exchange rate.
Of course, there are some exporters for whom the strength of the euro is not a pressing issue. Demand for certain very specialised equipment, such as printing presses or mining machinery, probably varies little by price, because there are few makers of such equipment. Buyers expect the machine to last a long time and are hence more concerned about servicing and reliability than price. But the majority of exporters do not operate in such markets. For example, makers of white goods such as dishwashers and washing machines as well as office equipment and cars – all big German exports – operate in very price-sensitive markets.
The eurozone as a whole is certainly better placed than the US, but Europeans are too complacent about the ability of their economies to ride out the current storm. First, the sensitivity of exporters to the strength of the euro is greater than many believe. Even the eurozone economies most confident about their export prospects – Germany, the Netherlands and Finland – will experience a sharp slowdown in external demand. Second, rising inflation all but rules out cuts in eurozone interest rates in 2008.
Simon Tilford is chief economist at the Centre for European Reform.
Friday, March 28, 2008
The new politics of EU internal security
by Hugo Brady
EU interior ministers are racing to finish a raft of new legislation on terrorism, crime and illegal immigration by the end of the year. One reason for their sudden sense of urgency is politics. Interior officials are anxious to make the most of the last few months of an old regime. If ratified as expected, the EU’s new rulebook, the Lisbon treaty, will give the European Parliament powers for the first time to amend future EU laws in these areas from 2009 onwards.
This is area of international co-operation that has long been the exclusive domain of national governments. For over 20 years, interior ministries – meeting in the EU, UN and Council of Europe – have quietly agreed and implemented inter-governmental agreements on internal security and judicial co-operation between themselves. There was little need to accommodate outside views and concerns. Now officials look nervously to 2009 when euro-parliamentarians should begin to use their new authority.
The ministries are right to be anxious. The European Parliament’s civil liberties and justice and home affairs (JHA) body – known as the LIBE committee – has made no secret of its intention to exercise the new powers to the full. The committee wants to reverse a trend in EU decision-making on terrorism, crime and immigration that many parliamentarians feel is wrongly skewed towards state security at the expense of civil liberties. For example, MEPs have been wary of the member-states’ eagerness to create databases and new information-sharing arrangements for terrorism and other cross-border crimes. They complain that the member-states are conspicuously less interested in reaching an agreement on data protection legislation needed to ensure such data is not mis-used.
The parliament has already demonstrated that it is not afraid to cause the member-states real headaches in internal security co-operation, in order to advance its views. In 2006, MEPs successfully applied to the European Court of Justice to quash an EU-US agreement on the sharing of airline passenger data. (The agreement was rapidly re-negotiated.) The member-states fear similar upsets that could hamper other types of co-operation against terrorism, crime and illegal immigration, if the LIBE committee pursues an agenda defined in outright opposition to the governments’. Some form of rapprochement between the parliament and the governments is needed to avoid a gridlock.
The chief divergence between the two on security matters is really more a problem of style than substance. The language the member-states use to present JHA initiatives to the public is couched almost exclusively in terms of the need to protect citizens from cross-border threats. The language used by the LIBE committee on internal security issues emphasises the need to protect the citizen from the state. Hence their future working relationship must involve a new modus vivendi, one where MEPs learn the language of state security and where the member-states show greater respect for the language of liberty.
The MEPs should bear in mind that their electorates mostly expect JHA co-operation to make them safer. Arguably, they look more to their national parliaments and judiciaries to safeguard their civil liberties. The parliament stands a better chance of achieving its goal of a more balanced justice and security agenda if it can show the EU governments that it is serious about working with them to pass laws that enhance the individual’s security as well as liberty. One idea, symbolic but also highly resonant, would be for the parliament to change the name of the LIBE committee simply to the ‘committee for justice, liberty and security’. Another useful step would be to significantly boost the resources the parliament gives to the analysis of JHA issues. Most proposals in this area are so highly technical in nature that they can only be credibly influenced by those with a full mastery of the issues at hand.
The parliament already enjoys some power over EU policies on border controls, immigration and visas. It has shown itself a perfectly credible partner on security issues linked to these and other areas so long as its role is respected. For example, in 2005 the LIBE committee was successfully wooed by the EU presidency to allow single market rules to be tweaked to allow for the retention of telecoms data for use in terrorism investigations.
EU governments have been dismissive of the parliament’s civil liberties concerns in the past. This is partly because interior ministries believe that it is their responsibility to ensure cross-border security co-operation does not infringe the civil liberties of their own nationals. They should now recognise that MEPs too have a legitimate part to play in this process. A good start would be for officials to involve the LIBE committee fully in the security-related legislation they are currently rushing through. This would be less cynical than waiting until legally obliged to do so under the new treaty. It would also be good politics, setting the tone for a more constructive working relationship in future.
Hugo Brady is a research fellow at the Centre for European Reform.
EU interior ministers are racing to finish a raft of new legislation on terrorism, crime and illegal immigration by the end of the year. One reason for their sudden sense of urgency is politics. Interior officials are anxious to make the most of the last few months of an old regime. If ratified as expected, the EU’s new rulebook, the Lisbon treaty, will give the European Parliament powers for the first time to amend future EU laws in these areas from 2009 onwards.
This is area of international co-operation that has long been the exclusive domain of national governments. For over 20 years, interior ministries – meeting in the EU, UN and Council of Europe – have quietly agreed and implemented inter-governmental agreements on internal security and judicial co-operation between themselves. There was little need to accommodate outside views and concerns. Now officials look nervously to 2009 when euro-parliamentarians should begin to use their new authority.
The ministries are right to be anxious. The European Parliament’s civil liberties and justice and home affairs (JHA) body – known as the LIBE committee – has made no secret of its intention to exercise the new powers to the full. The committee wants to reverse a trend in EU decision-making on terrorism, crime and immigration that many parliamentarians feel is wrongly skewed towards state security at the expense of civil liberties. For example, MEPs have been wary of the member-states’ eagerness to create databases and new information-sharing arrangements for terrorism and other cross-border crimes. They complain that the member-states are conspicuously less interested in reaching an agreement on data protection legislation needed to ensure such data is not mis-used.
The parliament has already demonstrated that it is not afraid to cause the member-states real headaches in internal security co-operation, in order to advance its views. In 2006, MEPs successfully applied to the European Court of Justice to quash an EU-US agreement on the sharing of airline passenger data. (The agreement was rapidly re-negotiated.) The member-states fear similar upsets that could hamper other types of co-operation against terrorism, crime and illegal immigration, if the LIBE committee pursues an agenda defined in outright opposition to the governments’. Some form of rapprochement between the parliament and the governments is needed to avoid a gridlock.
The chief divergence between the two on security matters is really more a problem of style than substance. The language the member-states use to present JHA initiatives to the public is couched almost exclusively in terms of the need to protect citizens from cross-border threats. The language used by the LIBE committee on internal security issues emphasises the need to protect the citizen from the state. Hence their future working relationship must involve a new modus vivendi, one where MEPs learn the language of state security and where the member-states show greater respect for the language of liberty.
The MEPs should bear in mind that their electorates mostly expect JHA co-operation to make them safer. Arguably, they look more to their national parliaments and judiciaries to safeguard their civil liberties. The parliament stands a better chance of achieving its goal of a more balanced justice and security agenda if it can show the EU governments that it is serious about working with them to pass laws that enhance the individual’s security as well as liberty. One idea, symbolic but also highly resonant, would be for the parliament to change the name of the LIBE committee simply to the ‘committee for justice, liberty and security’. Another useful step would be to significantly boost the resources the parliament gives to the analysis of JHA issues. Most proposals in this area are so highly technical in nature that they can only be credibly influenced by those with a full mastery of the issues at hand.
The parliament already enjoys some power over EU policies on border controls, immigration and visas. It has shown itself a perfectly credible partner on security issues linked to these and other areas so long as its role is respected. For example, in 2005 the LIBE committee was successfully wooed by the EU presidency to allow single market rules to be tweaked to allow for the retention of telecoms data for use in terrorism investigations.
EU governments have been dismissive of the parliament’s civil liberties concerns in the past. This is partly because interior ministries believe that it is their responsibility to ensure cross-border security co-operation does not infringe the civil liberties of their own nationals. They should now recognise that MEPs too have a legitimate part to play in this process. A good start would be for officials to involve the LIBE committee fully in the security-related legislation they are currently rushing through. This would be less cynical than waiting until legally obliged to do so under the new treaty. It would also be good politics, setting the tone for a more constructive working relationship in future.
Hugo Brady is a research fellow at the Centre for European Reform.
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