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211. 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

212. Finance and the Macro-economy: The Politics of Regulatory Reform in Europe

Author:
Sofía Perez and Jonathan Westrup
Publication Date:
01-2008
Content Type:
Working Paper
Institution:
Minda de Gunzburg Center for European Studies, Harvard University
Abstract:
This paper analyzes major changes in the regulation of the financial sector in Europe over the last three decades. Focusing on the pattern of change across five countries (Britain, France, Germany, Italy and Spain), the paper identifies two major periods of regulatory change: first, the shift away from postwar patterns of credit regulation in the 1970s and 1980s, and second, the intensification of state supervisory powers and the introduction of new regulatory structures from the 1990s to the present. In both cases, the authors point to the way in which different models of financial sector regulation affect the political consequences of macro-economic policy for political elites as an explanation for choices that governments have made in the regulatory arena. More specifically, while regulatory change in the first period may be largely explained by the way in which different postwar models of credit regulation impinged upon a government's political ability to impose disinflation, choices in favor of different regulatory structures in the second period (single regulator in Britain and Germany versus multiple regulators in the other countries) can be related to differences in the area of pension reform. By focusing on the political implications that different modes of financial regualtion can have for elected officials in the context of different macroeconomic scenarios, the authors offer an explanation of regualtory change that differs from accounts which emphasize the primacy of financial market forces in driving such change.
Topic:
Economics and Government
Political Geography:
Britain, Europe, France, Germany, Spain, and Italy

213. The Negotiated Nordic Labor Markets: From Bust to Boom

Author:
Jon Erik Dølvik
Publication Date:
01-2008
Content Type:
Working Paper
Institution:
Minda de Gunzburg Center for European Studies, Harvard University
Abstract:
This paper provides an overview of the negotiated Nordic labor market regimes and their various paths of adjustment from bust to boom in recent decades. Developed in small, open economies, the Nordic labor regimes are often associated with strong centralized agreements and associations, high union density, and extensive worker representation, which have been embedded in social models based on close interaction between working life policies, the welfare state and macroeconomic policies. In leaner forms these features have undoubtedly contributed to the high Nordic levels of mobility, equality and employment in recent years (“flexicurity”), but an often overlooked part of the story is the increased scope for product market competition and the supply-side reforms undertaken in the Nordic countries since the crises in the 1980-90s. Another distinction of the revitalized Nordic models is the growing importance of management-union negotiations and dialogue at the company level. A key argument in this paper is thus that the capacity for negotiated flexibility and adjustment in Nordic labor markets has been critically reliant on the multilevel, single-channel pattern of articulation between centralized coordination and decentralized negotiations linking restructuring, training, productivity and pay issues.
Topic:
Development, Government, and Markets
Political Geography:
Europe, Finland, Norway, Denmark, Sweden, and Iceland

214. European and American Roles in Nation-Building

Author:
James Dobbins
Publication Date:
12-2008
Content Type:
Journal Article
Journal:
The International Spectator
Institution:
Istituto Affari Internazionali
Abstract:
Contrary to popular belief, the number of conflicts and the number of casualties, refugees and displaced persons resulting from them has fallen dramatically since the end of the Cold War. Previously, with neither superpower wanting a dispute to be settled to its disadvantage, conflicts dragged on indefinitely or were permanently frozen. After 1989, dynamics changed and international interventions began to pursue more far-reaching objectives: to disarm combatants, promote civil society, restore the economy, etc. Nation-building thus replaced inter-positional peacekeeping as the dominant form of international intervention with such missions becoming larger, longer and more frequent. The UN's success rate, as measured in enhanced security, economic growth, return of refugees and installation of representative governments meets or exceeds that of NATO- and EU-led missions in almost every category. It is time, therefore, for Western governments, militaries and populations to get over their disappointment at the UN's early failures and begin once again to do their fair share in these efforts.
Topic:
NATO, Cold War, and Government
Political Geography:
America and Europe

215. Not a Zero-Sum Game: Atlanticism and Europeanism in Italian Foreign Policy

Author:
Osvaldo Croci
Publication Date:
12-2008
Content Type:
Journal Article
Journal:
The International Spectator
Institution:
Istituto Affari Internazionali
Abstract:
In Italy, Atlanticism and Europeanism should not be seen as two alternative and therefore mutually exclusive policies. Strengthening Atlanticism, for instance, does not necessarily correspond to an equal weakening of Europeanism, as implicitly assumed by those who expect a tilt one way or the other each time a centre-right government replaces a centre-left one or vice versa. Rather, the two policies are hierarchical and constitute a "nested game", with Europeanism nested, as it were, in Atlanticism. Italy's foreign policy choices thus result from a double constraint, one of which, Atlanticism, is more important than the other, Europeanism. More precisely, Italian foreign policymakers have traditionally regarded Europeanism as a policy aimed at reinforcing Atlanticism.
Topic:
Foreign Policy and Government
Political Geography:
Europe

216. Gordon Brown Comes to Brussels (Reluctantly)

Author:
Brendan Donnelly
Publication Date:
03-2008
Content Type:
Journal Article
Journal:
The International Spectator
Institution:
Istituto Affari Internazionali
Abstract:
Despite the belief of some that British Prime Minister Brown's attitudes towards the European Union could not be predicted, much in his period as Chancellor of the Exchequer suggested that Britain's role within the European Union would not be a high priority of his premiership. Early indications bear out this expectation. There will probably not be a British referendum on the Reform Treaty, but the rhetoric employed by Brown's government to describe the Treaty will be negative and minimalist. Although no significant body of British opinion favours with-drawal from the European Union, British popular resentment towards the Union is unlikely to disappear under Brown's leadership.
Topic:
Government and Reform
Political Geography:
Britain and Europe

217. Ireland and the Lisbon Treaty: Quo Vadis?

Author:
John O'Brennan
Publication Date:
10-2008
Content Type:
Policy Brief
Institution:
Centre for European Policy Studies (CEPS)
Abstract:
The rejection of the Lisbon Treaty by the electorate on 12 June 2008 has presented the Irish government with the most serious crisis in external relations since the Second World War. This was the third such referendum on Europe held in Ireland since the millennium and the second plebiscite in three to result in a rejection of an EU Treaty following the failed Nice poll in 2001. There is no obvious solution to the dilemma the government faces and no obvious pathway to achieve ratification. There is however a clear consensus amongst the political parties that ratification constitutes both a clear political priority and a fundamental national interest. At the October European Council summit in Brussels, Taoiseach Brian Cowen promised to come back to the December meeting “with a view to our defining together the elements of a solution and a common path to follow”. But the external context is now clear – EU leaders indicated an unwillingness to re-negotiate any part of the Treaty: it will be up to Ireland to find an Irish solution to this European problem. Thus the opportunity cost of the No vote has become somewhat clearer: Ireland faces marginalisation and isolation in Europe if a solution to the Lisbon dilemma is not found. The domestic context is also somewhat clearer now that we have access to extensive data that sheds light on the reasons for the No vote in the 12 June poll. In assessing the options for ratification this paper draws upon that data, presented in among other sources, the post-referendum Eurobarometer survey and the government-commissioned Millward Brown IMS research findings.
Topic:
Government, International Organization, and Treaties and Agreements
Political Geography:
Europe, Lisbon, and Ireland

218. Democracy and Human Rights in the European-Asian Dialogue: A Clash of Cooperation Cultures?

Author:
Howard Loewen
Publication Date:
12-2008
Content Type:
Working Paper
Institution:
German Institute of Global and Area Studies
Abstract:
Whereas the European Union (EU) favors a formal, binding, output-oriented, and to some extent supranational approach to cooperation, the Association of Southeast Asian Nations (ASEAN) is based on informal, non-binding, process-oriented intergovernmental forms of cooperation. This article addresses the question of whether these differences between European and Asian cooperation norms or cultures can account for interregional cooperation problems in the areas of democracy and human rights within the institutional context of EU-ASEAN and the Asia-Europe Meeting (ASEM). The author argues that a clash of cooperation cultures basically occurs in both forms of interregional collaboration between Asia and Europe, with slight differences due to the institutional context: while disagreements over the question of democracy and human rights between the EU and ASEAN have led to a temporary and then a complete standstill in cooperation, the flexible institutional mechanisms of ASEM seem, at first glance, to mitigate the disruptive effects of such dialogues. Yet informality does not remove the issues from the agenda, as the recurrent disputes over Myanmar's participation and the nonintervention norm favored by the Asian side of ASEM clearly indicate. Antagonistic cooperation cultures thus play a significant role in explaining the obstructive nature of the interregional human rights and democracy dialogue between Asia and Europe.
Topic:
International Relations, Government, Human Rights, and International Cooperation
Political Geography:
Europe, Asia, and Myanmar

219. A Call To Be Listened To

Author:
Jacqueline Grapin
Publication Date:
09-2008
Content Type:
Journal Article
Journal:
European Affairs
Institution:
The European Institute
Abstract:
We recently lost one of the most respected figures in Europe, just at a time when he would have been most needed. Bronislaw Geremek, who died in a car accident in Brussels in July, was a former Polish foreign minister and then a distinguished member of the European Parliament. Historically, he was a pivotal figure in the fight of the Solidarity movement to end Communist rule in Poland and one of the leading statesmen of the democratic era that followed. A professor of history who had become Minister of Foreign Affairs of Poland before being elected to the European Parliament, at 76, Geremek was in full stride as a man who had distilled personal and political wisdom from his involvement in history both as an historian and as an actor in European developments. He was a friend of the United States and one of the most ardent supporters of the European Union, who was Chairman of the Jean Monnet Foundation in Lausanne. I remember meeting him by chance as we were both literally running down the street in the center of Warsaw on the 14th of July 1997, trying to reach in time the place where President Bill Clinton was going to address a huge crowd a few minutes later. All the buildings were decorated with American flags, and the crowds were full of excitement. It struck me that this high official - recognizable to everyone with his white beard - could walk freely in a public street, without a limousine or bodyguards: at every corner in the old city, people of all walks of life greeted him naturally. On his visits to The European Institute in Washington, he always conveyed his dedication to the goal of turning politics into a noble art. A difficult challenge, but perhaps not impossible. At this juncture, amid confusion about how to surmount the crisis for the EU caused by the negative vote of the Irish electorate on the Lisbon Treaty, it is worth remembering the advice given by Professor Geremek in an article that appeared in Le Monde almost simultaneously with his death.1 He stressed that every effort should be made to ensure that the treaty be ratified in all the other EU countries where it is signed. Don't ask the Irish people to vote on this again, Geremek said in substance, because the outcome of the Irish referendum should be respected and governments should not try to bypass the popular will. He recommended that the other 26 governments should do their best to ratify the treaty: whatever else, the result will be a text signed and ratified in a majority of the other 26 member states. In effect, a majority will have approved the Lisbon treaty, and that will add legitimacy for the European Council to proceed, together with the European Commission and the European Parliament, to implement some measures which do not require changes in the existing treaty. For instance, the Council can decide that the High Representative for the Common Foreign and Security Policy (now Javier Solana) will from now on permanently chair the Council of Foreign Ministers and be responsible for a newly created European Foreign Service. Similarly, the European Council could decide that the President of the European Commission will chair the meetings of the European Council. While not fully representing the EU abroad, the President of the European Commission would represent the European institutions. The European Council could also propose that the European Parliament be recognized as having the right to propose legislative initiatives on the basis of public petitions (that garner, for example, one million signatures). The European Parliament could also be encouraged to take initiatives to reinforce its cooperation with the national parliaments in preparing European legislation. Increasing the rights of the European Parliament could be done by unanimous decisions of the European Council. Of course, there are changes that cannot be accomplished without a new treaty, particularly with regard to the voting system in the Council. Geremek was particularly firm that the principle of unanimity should be changed. It reminded him of a similar historical disposition in 18th-century Poland, the liberum veto that had led the country to political disaster. For the EU now to produce a new, more practical majoritysystem and to decide one or two questions that cannot be settled with the existing treaties, he suggested a new approach. Instead of bundling texts of existing treaties into a complex new proposal to be put to the public, two or three clear questions should be submitted to voters in all 27 EU member countries at the same time - for instance, on the election days for the European Parliament in June 2009. Such a process would be consistent with democratic principles. Moreover, at a moment when Russia's actions press the Old Europe and the New Europe to agree among themselves and with the United States, the West cannot afford to cling blindly to institutional arrangements that everyone knows are inadequate to the needs of the situation. Enlargement has not reduced the EU's ability to make decisions as much as many expected, but the rules of the treaty of Nice from 2001, which was supposed to be temporary and short-lived, must be improved. Both Europe and the United States feel the need for an efficient decision-making machinery in the EU at a juncture when both face the same challenges - defining relations with Russia, China, and the emerging economies; ensuring energy security; boosting economic growth; fighting terrorism and poverty; stabilizing the Middle East. It is tempting for sovereign European nations and for the powerful United States to let the role of the European institutions be minimized. But Europeans and Americans would be better served if they sought to share an ambitious vision of what the European Union should be able to provide - and how.
Topic:
Foreign Policy and Government
Political Geography:
Europe, Middle East, and Lisbon

220. Old Paradigms, Challenging Realities, New Interpretations

Author:
José A. Montero
Publication Date:
06-2008
Content Type:
Journal Article
Journal:
Georgetown Journal of International Affairs
Institution:
Georgetown Journal of International Affairs
Abstract:
Parag Khanna delivers an account of the current contest among America, Europe, and China through the lens of the subjects of the contest—the "Second World."
Topic:
Civil Society, Globalization, Government, and International Affairs
Political Geography:
China, America, and Europe