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51. Is the Euro Ready for 'Prime Time'?

Author:
Benjamin J Cohen and Paola Subacchi
Publication Date:
07-2008
Content Type:
Policy Brief
Institution:
Chatham House
Abstract:
When Europe's Economic and Monetary Union (EMU) became effective nearly a decade ago, the euro was seen as having the potential to be the second pillar of the international monetary system. It was expected to share leadership in monetary affairs with the United States. Ten years later, however, the story looks quite different. Although the euro has firmly established itself as an international currency, the degree of change has been considerably less than expected. Europe's joint money remains at a distinct disadvantage in relation to America's greenback, limiting the role it can play in global monetary governance. The euro is not yet ready for 'prime time' and can at best play only a subordinate role to the dollar in the global system. This can be described as a one-and-a-half currency system – certainly not a two-pillar world. The problem lies in the governance structure of EMU. Because the euro is a currency without a country, based on an inter-state agreement, participating members find it difficult to speak with a single voice. The solution lies in a reform of EMU's governing rules and institutions that would put greater emphasis on the euro's external dimension. On the one hand this calls for more proactive management of the currency's exchange rate by the European Central Bank (ECB), together with an explicit commitment by the Eurogroup –the euro zone's informal committee of finance ministers – to undertake effective coordination of national fiscal policies. On the other hand it means designating a single representative of EMU with real authority to speak on behalf of members in international councils. Unless the euro zone can learn how to project power more successfully than it has until now, dual leadership of monetary affairs at the global level will remain out of reach.
Topic:
Foreign Exchange
Political Geography:
United States and Europe

52. EU Trade Policy: Approaching a Crossroads

Author:
Roderick Abbott
Publication Date:
07-2008
Content Type:
Policy Brief
Institution:
Chatham House
Abstract:
In an important shift, inspired partly by drift in the Doha Round negotiations, the EU announced in 2006 that it would seek new free trade area arrangements with fast-growing economies, particularly in Asia. The plan, which ended a moratorium on the launch of bilateral trade talks, in place since 1996, was billed explicitly as a contribution to the EU's own growth and jobs strategy as well as a market-opening exercise. However, the policy has so far been no more effective than multilateral negotiations in producing concrete results. Negotiations with South Korea and ASEAN have made only slow progress, while the state of talks with India remains unclear. The EU spent most of 2007 renegotiating long-standing agreements with African, Caribbean and Pacific (ACP) countries in an effort to satisfy WTO rules. Meanwhile, the EU's partnership agreements with China and Russia have expired, and appropriate successor arrangements are still being sought. In both cases, a number of important bilateral problems and strains will need to be dealt with. With its various trade negotiations treading water, the EU may need to review its options. One could be a more aggressive pursuit of market access, modelled on the US approach. Alternatively, the EU's traditional preference for multilateral engagement may reassert itself.
Topic:
International Trade and Finance
Political Geography:
Africa, Russia, China, Europe, Asia, South Korea, and Caribbean

53. Thinking About the Future of Food: The Chatham House Food Supply Scenarios

Publication Date:
05-2008
Content Type:
Policy Brief
Institution:
Chatham House
Abstract:
Demand for food is increasing because the global population is rising and major developing economies are expanding. Global supply capacity, meanwhile, is struggling to keep up with changing requirements. Four global food supply scenarios have been developed by the Chatham House Food Supply Project to consider the challenges created and their impact on the EU/UK: 'Just a Blip': what if the present high price of food proves to be a brief spike with a return to cheap food at some point soon? 'Food Inflation': what if food prices remain high for a decade or more? 'Into a New Era': what if today's food system has reached its limits and must change? 'Food in Crisis': what if a major world food crisis develops? Across the world the responses to change will be conditioned by uncertainties surrounding the availability of sufficient energy, water, land and skills. EU/UK stakeholders need to start planning now to develop new food supply systems that are up to the task.
Topic:
Agriculture, International Trade and Finance, Markets, and Population
Political Geography:
United Kingdom and Europe

54. An EU-Korea Free Trade Area: Playing Catch-Up or Taking the Lead?

Author:
Jim Rollo
Publication Date:
05-2008
Content Type:
Policy Brief
Institution:
Chatham House
Abstract:
Both Korea and the EU are pursuing free trade areas (FTAs) aggressively as part of their trade policy strategies. Korea is much further down the road. There are strong incentives on both sides to conclude an agreement. However, specific issues and EU's desire to do at least as well as, and preferably better than, the Korea–US FTA may delay or even preclude success. Korea and the EU are not principal suppliers to each other, so while an agreement is predicted to be economically favourable to both sides, the effects are not expected to be very large. Korea has the higher barriers and is expected to make the bigger economic gains. There are sensitive sectors on both sides, notably automobiles for the EU and services and processed foods for Korea. Both sides have important agricultural constituencies to protect. Korea's key role in the East Asian production system suggests that rules of origin could be an area of particular difficulty in the negotiation.
Topic:
Agriculture and International Trade and Finance
Political Geography:
United States, Europe, East Asia, Asia, and South Korea

55. Prospects for an EU-Gulf Cooperation Council Free Trade Area: The World's First Region-to-Region FTA?

Author:
Jim Rollo
Publication Date:
04-2008
Content Type:
Policy Brief
Institution:
Chatham House
Abstract:
The EU and the GCC have seemed close to an agreement on a region-to-region Free Trade Agreement (FTA) – possibly the first in the world between customs unions – for the last two years. The EU seems keener on an agreement than the GCC. An FTA is an element in the EU's Global Europe trade policy strategy and is explicitly linked to energy security concerns. The EU is the GCC's main supplier of goods and services, and since the completion of the GCC Customs Union tariffs are low and the economic effects of an FTA are likely to be small, on goods at least. There may be economic barriers to the final signing of an FTA on both sides: resistance by GCC states to services and investment liberalization; and resistance in the EU over access for GCC refinery products and chemicals. Commentary from the Gulf itself suggests that the EU practice of including clauses on human rights and labour market and environmental regulation may be at the heart of the slow progress from the GCC side.
Topic:
Environment, Human Rights, and International Trade and Finance
Political Geography:
Europe, Middle East, and Arabia

56. Stress-Testing the Regulators: Market Risks and the EU Economy

Author:
Max Watson
Publication Date:
04-2008
Content Type:
Policy Brief
Institution:
Chatham House
Abstract:
Today's market turbulence and global imbalances prompt the question whether economic and regulatory policies are poorly designed or just badly implemented. The question is urgent for Europe, which has its own asset booms and imbalances to worry about as well as the backwash of US problems. The imbalances in Europe's economies in large part reflect favourable shocks, such as falling interest rates and growing financial integration. But the 'growth crisis' in Portugal underscores the fact that there can be hard landings, even without a financial crisis, if fiscal policy is unwise and if productivity fails to take off. The current global imbalances and turbulence also have a common backdrop in the long period of unusually easy liquidity and low risk premia during which today's problems built up. This suggests that central banks should be prepared more often to 'lean against the wind' in times of asset price exuberance, and that politicians should not cut taxes or boost spending permanently on the back of revenue gains that result from transient financial booms. Banks and supervisors have many lessons to draw. Some involve going 'back to basics' on issues such as liquidity, off-balance-sheet operations, and the ability to close and reopen banks. Others require a careful look at incentives – in executive pay, rating agency roles and loan production systems. Supervisors also need to take better account of boom-bust cycles when they assess risks, and address cross-border issues in EU banking. Moral hazard has been partly addressed by pain inflicted on bank managements and shareholders. But at the macro level it may be building up as policy-makers act to limit losses in a setting where they cannot trace the ultimate fallout from risks. In future, their discretionary interventions need to be truly exceptional and much more symmetrical, or the money supply and the public debt will ratchet up amid serious resource misallocation.
Topic:
Economics, Government, and Financial Crisis
Political Geography:
United States and Europe

57. European Multinationals: A Globalization Scorecard

Author:
Stephen Thomsen
Publication Date:
03-2008
Content Type:
Policy Brief
Institution:
Chatham House
Abstract:
Global competition requires a global response, and European firms are now at the forefront of attempts to become internationally diversified multinational enterprises. European firms have been accused at various times of being too focused on their integrating regional market or too tied by historical links with certain countries or regions to develop a genuinely global strategy. Yet figures for foreign direct investment suggest not only that European firms have invested far more abroad than their American and Japanese rivals, but that they have also done so in far more countries. Of particular relevance for long-term profitability, European enterprises have a much stronger presence in emerging markets than either US or Japanese firms. Europe has in turn received more inward investment from those countries than either the United States or Japan. These growing links between Europe and emerging economies could provide European firms with a competitive edge in what are the most promising markets of the future.
Topic:
Globalization and Markets
Political Geography:
United States and Europe

58. Exploiting Europe's Strong Potential: Governance, Institutions and Policies

Author:
Paola Subacchi, Benedicta Marzinotto, and Vanessa Rossi
Publication Date:
01-2008
Content Type:
Policy Brief
Institution:
Chatham House
Abstract:
With the euro approaching the tenth anniversary of its establishment, this is a timely as well as critical moment to review policies and performance. Enough experience of the convergence and adjustment processes has been gained to better understand how they work and what problems have been created rather than solved. As the strengths – and the success – of the euro become more visible, so too do its weaknesses and the conflicts it creates. Are the appropriate mechanisms and governance in place to help manage Europe's economy so that it can realize its potential? Governance is critical because of the institutional complexity of the monetary union. Independent policy targets and policy instruments not only have to be consistent with each other, but also need to be integrated in a nonconflicting framework. There are two threads to this debate: convergence and adjustments across the euro area, and how the region as a whole is performing with regard to the rest of the world. Both imply a new approach to governance. When EMU was established, the euro area comprised 11 founding members. Now it comprises 15 and is slowly expanding. Ten years ago the emergence of China was more a possibility than a reality, while the 'Asian Tigers' were coming to terms with a devastating financial crisis. Now the rise of the emerging market economies and the enlargement of the global economy's playing field pose significant challenges to the competitiveness of the euro area. With the euro now becoming the second pillar of the international monetary system, EMU's external dimension has become very relevant. The way forward needs to blend the traditional concerns for macroeconomic stability and competitiveness with the more recent concern about the role of Europe in the global economy. All these dimensions need to be organized into a coherent agenda. The right policy should be implemented at the right time.
Topic:
Economics and Foreign Exchange
Political Geography:
Europe

59. A British Agenda for Europe: Designing Our Own Future

Author:
Stephen Wall
Publication Date:
09-2008
Content Type:
Working Paper
Institution:
Chatham House
Abstract:
Fifty years after the founding of the European Community, an enlarged EU has moved far away from the notions of creating some form of European super-state that have dominated the British debate over its EU policy. If anything, as the results of recent referenda on the EU in France, the Netherlands and Ireland have revealed, British scepticism towards complex institutional reforms is increasingly shared across Europe. Far from taking advantage of this pivotal moment to help drive the EU's future development, much of the popular and political debate in Britain questions whether it is worth being a member of the EU at all.
Political Geography:
Britain and Europe

60. Iran: Breaking the Nuclear Deadlock

Author:
Richard Dalton(ed.)
Publication Date:
12-2008
Content Type:
Working Paper
Institution:
Chatham House
Abstract:
The dispute over Iran's nuclear programme is deadlocked. Five years of negotiations, proposals, UN resolutions and sanctions have failed to achieve a breakthrough. As diplomacy struggles and Iran continues to advance its nuclear capabilities, the issue becomes ever more grave and pressing.
Topic:
International Relations, Foreign Policy, Oil, Weapons of Mass Destruction, and International Security
Political Geography:
United States, Europe, Iran, and Middle East