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711. U.S. European Command and NATO'S Strategic Concept: Post-Afghanistan and Beyond

Author:
Harlan Ullman
Publication Date:
07-2011
Content Type:
Policy Brief
Institution:
Atlantic Council
Abstract:
Regardless of how the conflict in Afghanistan (along with NATO's role, presence, and draw down) is resolved, one consequence will be to increase the importance of U.S. European Command (EUCOM) both in Europe and for the entire transatlantic community. Whether Operation Enduring Freedom and International Security Assistance Force (ISAF) produce a stunning victory in which Afghanistan emerges as a stable state under the rule of law with a viable government or a rocky withdrawal in the midst of continuing violence with no clear solution in sight, NATO nations will have long tired of that war. Fortunately, the Lisbon Summit with a 2014 end date has eased domestic political pressures over Afghanistan. However, that relief is by no means permanent.
Topic:
Defense Policy, Economics, International Cooperation, Military Strategy, and Reform
Political Geography:
Afghanistan, United States, and Europe

712. US Lessons for the Eurozone: Restoring Confidence through Transparency

Author:
Julie Chon
Publication Date:
12-2011
Content Type:
Policy Brief
Institution:
Atlantic Council
Abstract:
When it comes to resolving financial crises, size matters, but so does transparency. In both the US and European crises, the drive for size—firing off enough public funds to plug the hole in the financial system—has proven to be self-defeating as markets raise ever higher, unrealistic, and inappropriate expectations for government policy. This strategy addresses some of the economics and none of the politics of crisis management. The race to meet the size test distracts policymakers from addressing the real impediment to restoring investor and public confidence: the inherent uncertainty and lack of transparency associated with extraordinary government actions in times of crisis. The absence of transparent decision-making inflicts a costly blow to the credibility of policymakers because markets and citizens cannot see or believe what leaders are doing to stabilize the financial system.
Topic:
Debt, Economics, International Trade and Finance, and Financial Crisis
Political Geography:
United States and Europe

713. China and Global Mega Trade Deals

Author:
John Whalley, Chunding Li, and Jing Wang
Publication Date:
07-2011
Content Type:
Working Paper
Institution:
Centre for International Governance Innovation (CIGI)
Abstract:
The term "mega deal" has been widely used in relation to two large prospective trade deals between the United States and Europe – the Transatlantic Trade and Investment Partnership (TTIP) — and in Asia and the Pacific — the Trans-Pacific Partnership (TPP). This paper starts by exploring a possible description of trade mega deals by making an inventory of mega deals in place, under discussion or negotiation, and deals yet to be considered under different criteria. This paper also calculates the trade volume coverage and trade barrier coverage for potential mega deals, and the results show the potential impact of mega deals on trade and growth performance is large.
Topic:
Development, Economics, and International Trade and Finance
Political Geography:
United States, Europe, and Asia

714. Is the recovery sustainable in the US and Europe?

Publication Date:
02-2010
Content Type:
Working Paper
Institution:
Oxford Economics
Abstract:
Following the worst recession since the 1930s, the US, UK and Eurozone economies have all now returned to positive growth. With the boost from policy stimulus and the inventory cycle peaking, however, this raises questions about the sustainability of the current rebound. The analysis presented here suggests that the recoveries in both the US and Europe will be relatively muted compared to recent historical experience. The US is likely to be the growth leader, reflecting the more dynamic nature of its economy and financial sector. A key uncertainty relates to how labour markets will perform during the recovery phase. To date, the rise in US unemployment been particularly severe when compared to the experience of Europe. In light of the sharp falls in European productivity, we expect employment gains in Europe to be more muted in the recovery phase than in the US. The performance of residential real estate markets also remains important. Home prices in the US are now close to fair value by most metrics, suggesting that the correction in prices is likely to be bottoming out. In Europe, only Spain and Ireland appear to be in the midst of substantial housing market corrections. Commercial real estate markets are also facing ongoing corrections in many countries. While conditions in the US and Eurozone may deteriorate further, commercial property values appear to be stabilising in the UK following earlier sharp declines. The ability of the banking sector to finance the economic recoveries in the US and Europe remains a key risk to the growth outlook. As the process of absorbing credit losses and rebuilding capital is likely to be protracted, the normalisation of lending standards is likely to take longer than following recent recessions. This is a particular concern for the Eurozone, where bank funding is more important for companies. Whether domestic demand in the US and Europe recovers will also depend on whether private sector deleveraging has further to run. The destruction of household net wealth in the US suggests that the personal savings rate has further to rise, whereas there no longer appears to be a pressing need for households in the UK and Eurozone to consolidate their balance sheets. In contrast, non-financial corporations in the US are in a stronger financial position than their European peers, having not increased debt levels as rapidly during the credit boom. Risks around public finances have received the most attention in recent weeks. In particular, the adjustments underway in Greece pose a risk of potential contagion from sovereign credit risk that could threaten growth on both sides of the Atlantic.
Topic:
Economics, Markets, and Financial Crisis
Political Geography:
United States, United Kingdom, and Europe

715. Is Greece heading for default?

Publication Date:
02-2010
Content Type:
Working Paper
Institution:
Oxford Economics
Abstract:
Greece has slid into a serious fiscal crisis over the last few months. A ballooning budget deficit and high levels of government debt have raised questions in the minds of investors about the sustainability of the country's public finances. The level of concern among investors can be seen from developments in Greek borrowing costs relative to those in Germany. At the beginning of 2008, the yield on Greek 10-year bonds was only around 0.3% higher than on equivalent German securities, but this gap has now risen to over 3%. This yield spread is at its widest for more than a decade and is by far the largest within the Eurozone. The root cause of Greece's problems is a long period of fiscal indiscipline. In 2009, after years of heavy spending, the budget deficit rose to almost 13% of GDP and the public debt to GDP ratio is set to reach 125% this year. The deteriorating fiscal position has led to a slew of ratings downgrades, and outside the Eurozone Greece's credit rating would probably be in 'junk' territory. On top of the fiscal problems, Greece also suffers from weak external competitiveness. The real exchange rate has appreciated substantially since Greece joined the Eurozone, contributing to a sharp widening in the current account deficit to around 12% of GDP last year. On some estimates, the real effective exchange rate is now around 20% overvalued. As a result Greece now faces a series of policy choices all of which look unpalatable. Within the Eurozone, the only realistic orthodox option is a combination of massive fiscal retrenchment and 'internal devaluation' – forcing down costs relative to those of Greece's competitors. But fiscal cutbacks and cost deflation on the scale required could plunge the country into a deep and prolonged recession and might prove politically and socially unsustainable. The Greek economy is already showing signs of serious stress, with GDP down 2.6% on the year in 2009Q4. The extreme alternatives are default and/or leaving the Eurozone and enacting devaluation. But the political barriers to such moves are immense, and while default and devaluation could ease budgetary and external imbalance problems, they would also cause massive economic and financial disruption and probably a deeper recession in the near-term. Default and devaluation would also risk huge negative contagion effects on the Eurozone and the wider global economy. With Greece's debt approaching €300 billion a default would be the largest sovereign collapse since WWII, dwarfing those in Russia and Argentina. Eurozone banks could face losses of up to €100 billion on top of the heavy writedowns already suffered, risking a renewed Europe-wide credit squeeze. There could also be collapses in demand for the debt of other weaker Eurozone members such as Spain, Portugal and Ireland. World markets for equities, corporate bonds and emerging market debt would also likely be badly affected. There could also be pressure for the major economies to accelerate their fiscal adjustment efforts, given the impact on investor confidence and the scale of their budget deficits. Our estimation results suggest that a Greek default could be a real threat to the progress of the global recovery, cutting growth in the major economies by around 1% per annum compared to our baseline forecast and world growth by 0.6%. Given the potential massive consequences of a Greek default, the pressure for a bailout has been growing. Although there are questions about the legality of such a move, we believe it is possible if the political will exists. Estimation results using the Oxford Model suggest a bailout would be likely to be less economically damaging than a default, even assuming some negative impact from higher bond yields in the core Eurozone countries. The costs of a bailout could rise rapidly, however, if it extended beyond Greece to other troubled countries. A bailout would create a big risk of moral hazard, perhaps inducing fiscal misbehaviour among other Eurozone members or being used by Greece to sidestep the necessary adjustment. To avoid this, any bailout would have to incorporate strict conditionality, perhaps raising serious questions about fiscal sovereignty within the Eurozone. Over the last two weeks, the other EU countries have taken a relatively hard line with Greece, stopping short of announcing explicit financial support and pushing for strong fiscal adjustment measures. Although a bailout remains the most likely outcome if Greece struggles to refinance its debts, there are some signs that political resistance to such a move is growing. The key risk period could be April-May, when a large volume of Greek debt matures.
Topic:
Economics, Markets, and Financial Crisis
Political Geography:
Europe, Greece, and Argentina

716. Civilizing the World Order? The Scope and Potential of Transnational Norm-building Networks

Author:
Robert Kappel, Ulrich Mückenberger, and Cord Jakobeit
Publication Date:
01-2010
Content Type:
Working Paper
Institution:
German Institute of Global and Area Studies
Abstract:
Civil society organizations, epistemic communities, and lobby groups—what we call transnational norm-building networks—are influencing the global economy and global politics more than ever before. We argue that such transnational norm-building networks, in contrast to the dominating executive intergovernmental elites and democratically deficient supranational bodies, hold the scope and potential for a more civilized world order. They are—together with states and international governmental organizations—creating new norms; they are setting standards. They associate the voice of stakeholders with decision-making processes, thus leading to an increase in legitimate world governance.
Topic:
Civil Society, Economics, Globalization, and International Organization
Political Geography:
Europe

717. Adjustment Difficulties in the GIPSY Club

Author:
Daniel Gros
Publication Date:
03-2010
Content Type:
Working Paper
Institution:
Centre for European Policy Studies (CEPS)
Abstract:
This paper describes the key economic variables and mechanisms that will determine the adjustment process in those euro area countries now under financial market pressure. (Greece, Ireland, Portugal, Spain and Italy = GIPSY) The key finding is that the adjustment will be particularly difficult for Greece (and Portugal) because these are two relatively closed economies with low savings rates. Both of these countries are facing a solvency problem because they combine high debt levels with low growth and high interest rates. Fiscal and external adjustment is thus required for sustainability, not just to satisfy the Stability Pact. By contrast, Ireland and Spain face more of a liquidity than a solvency problem. Italy seems to have a much better starting position on all accounts. Fiscal adjustment alone will not be sufficient to ensure sustainability. Without significant reductions in labour costs, these economies will face years of stagnation at best. Especially in the case of Greece, it is imperative that the cuts in public sector wages are transmitted to the entire economy in order to restore competitiveness, and thus ensure that export growth can become a vital safety valve. Without an adjustment of wages in the private sector, the adjustment will become so difficult that failure cannot be excluded.
Topic:
Debt, Economics, Monetary Policy, and Financial Crisis
Political Geography:
Europe, Greece, Spain, Italy, Portugal, and Ireland

718. Restoring Investor Confidence in European Capital Markets

Author:
Diego Valiante
Publication Date:
02-2010
Content Type:
Working Paper
Institution:
Centre for European Policy Studies (CEPS)
Abstract:
Investors have a longer memory than the sell‐side of the market. To regain their trust, intensive work needs to be done in the coming years. The new European Commissioner of the Internal Market, Michel Barnier, will play a pivotal role here. In the area of capital markets, he will need the support of a determined European Parliament, a strong commitment from the Council and Member States, as well as active contributions from the CESR/ESMA , other Level 3 Committees/Authorities and national supervisors. We believe that participants in capital markets share the same goal: to make them as efficient and effective as possible. The ability to collect savings and allocate them to investment, and to allow all participants to defray risk, is at the heart of any successful modern economy. This requires effective regulation that not only mandates common standards, but also promotes accountability, responsibility and transparency, while at the same time encouraging innovation. Effective regulation must not impose undue costs, if markets are to remain efficient and effective. However, we should be conscious that the crisis has been so deep that there is a collective need to go back to the basic principles of financial regulation and supervision.
Topic:
Economics, International Trade and Finance, and Financial Crisis
Political Geography:
Europe

719. Information Sharing and Cross-Border Entry in European Banking

Author:
Caterina Giannetti, Nicola Jentzsch, and Giancarlo Spagnolo
Publication Date:
02-2010
Content Type:
Working Paper
Institution:
Centre for European Policy Studies (CEPS)
Abstract:
Asymmetries can severely limit the cross-border border expansion of banks, if entering banks can only obtain incomplete information about potential new clients. Such asymmetries are reduced by credit registers, which distribute financial data on bank clients. Asymmetrically distributed information and adversely selected pools of borrowers constitute severe barriers for foreign banks when they enter new markets. In many instances, these problems force banks to either form 'alliances with incumbents' or simply enter through mergers and acquisitions (M). Yet such entry modes do not automatically lead to intensified competition as they may leave the number of competitors unchanged. Thus, institutions that reduce information asymmetries in credit markets (thereby encouraging entry through branches) may be very important if the objective is strengthening competition in addition to market integration. Recently, these institutions – credit registers – have received greater attention among academics and policy-makers in Europe, although there is still a remarkable lack of understanding of their empirical impact on banking.
Topic:
Economics, International Trade and Finance, Markets, and Monetary Policy
Political Geography:
Europe

720. Crisis in the eurozone and how to deal with it

Author:
Paul De Grauwe
Publication Date:
02-2010
Content Type:
Policy Brief
Institution:
Centre for European Policy Studies (CEPS)
Abstract:
The crisis that started in Greece culminated into a crisis of the Eurozone as a whole. How did we get into this mess? To answer this question it is useful to distinguish the three actors that have played a role in the development of the crisis: Greece, the financial markets (including the rating agencies) and the eurozone authorities. Let us analyse the role of these three actors in the drama.
Topic:
Economics and Markets
Political Geography:
Europe and Greece