The Future of Britain and the European Union

Britain’s Prime Minister David Cameron

The hostage crisis in Algeria forced British Prime Minister David Cameron to delay a long-awaited speech outlining his government’s view of the future of British involvement in the European Union. Nevertheless, in a truncated address over the weekend, Cameron asserted that the European Union is undergoing a process of “fundamental change,” and that a central component of that change must be addressing the “gap between the EU and tis citizens which has grown dramatically in recent years and which represents a lack of democratic accountability and consent that is—yes—felt particularly acutely in Britain. If we can’t address these challenges,” Cameron stated, “the danger is that European will fail and the British people will drift toward the exit.”

Cameron stopped short of calling for a referendum on British membership in the European Union, as some in his party had been calling for. Nevertheless, the thought that a sitting British Prime Minister would contemplate leaving the E.U. has caused concern on both sides of the Atlantic. According to the British Mail Online, President Barack Obama called Prime Minister Cameron, urging him to express his commitment to British membership in the EU and noting that the European Union has spread “peace, prosperity and security” around the world.

The idea that the European Union suffers a democratic deficit is longstanding. A democratic deficit occurs when organizations (like the United Nations or the European Union) fall short of living up to the principles of democracy and representation to which they are ostensibly committed. In the case of international organizations like the EU, the relative weakness of popularly-elected institutions (the European Parliament) vis-à-vis the power of the major players (the European Commission and the European Council) often lead to assertions of a democratic deficit. Yet the structure of the European Union privileges the position of Member States relative to the position of European citizens. The most powerful institutions within the European Union, in other words, are beholden to the governments of Europe rather than directly to its people.

So why all the fuss?

Cameron is likely responding more to domestic British politics than to changing dynamics or concerns at the European level. Certainly the ongoing economic crisis in Europe is a reason for concern. The threat of a Eurozone meltdown (led by Greece, but fueled also by Spain, Portugal, and perhaps even France) give reason for pause. But Britain is not a member of the Eurozone and consequently maintains considerable economic and fiscal policy autonomy.

Rather, the growing influence of euroscepticism on the domestic British political scene likely plays a greater role. More specifically three trends are driving policy reform. First, the traditional pro-free trade elements of the Conservative party have increasingly been challenged by more Eurosceptic elements, including the Cornerstone Group, which claims some fifty conservative MPs as members, including several members of the cabinet. Second, the rise of several small parties, including the UK Independence Party and the British National Party, have exacerbated these concerns. Finally, a broad level of euroscepticism appears to be gaining support among the British electorate. According to recent public opinion polling, half the British population now supports British withdrawal from the European Union.

Importantly, the United Kingdom is not alone in this respect. Eurobarometer polling data show that popular support for EUY membership was waning across many EU member states, most notably in Latvia, Hungary, and the UK, in which all are home to a majority population opposing EU membership. Every EU member state now has at least one political party with an anti-EU platform.

All of this raises questions about the future of the European Union. What do you think? Does has European integration hit is high water mark? Are we now witnessing the beginning of the end of the EU? Or does all this talk of withdrawal merely represent politically maneuvering and bluster? Take the poll or leave a comment below and let us know what you think.

The Greek Option: Monetary and Fiscal Policy

German Chancellor Angela Merkel meets with Greek Prime Minister Antonis Samaras in August.

The Greek government met with the European Union, the European Central Bank, and the International Monetary Fund over the weekend. The meeting between Greece and the troika was intended to clarify requirements to qualify for the next round of bailout funds. Greece has already committed to more than 11.5bn euros in spending cuts and another 2bn euros in tax revenue. But Prime Minister Antonis Samaras concedes Greece is unlikely to meet expectations imposed by international lenders.

The challenge for Greece is that the plan is highly unpopular, and the country has been rocked by several rounds of widespread protest. The Greek economy has collapsed, contracting by 20 percent over the last year alone. Yet absent external relief from the IMF and EU, Greece faces the prospect of bankruptcy and potential expulsion from the eurozone. And outside of Greece, observers in Spain, Portugal, and other troubled eurozone economies are watching developments closely.

The current conundrum in Greece illustrates some of the economic challenges of the common European currency. In normal times, a common currency presents clear benefits. It facilitates closer and more efficient management of the economy, reduces transaction barriers and cost of trade between countries sharing the currency, and can help to reduce economic uncertainty.   Indeed, when the euro was adopted as the exclusive currency in the eurozone in 2002, it was highly popular, and many eurozone members enthusiastically embraced the new currency.

At the same time, though, the common currency presents a key challenge, particularly during economic downturns. Traditionally, governments have two economic toolkits available to them. Fiscal policy, advocated most famously by John Maynard Keynes, focuses on the use of government revenue (taxation) and expenditures (spending) to influence economic activity in the country. Keynes argued that in good times, governments should run a budget surplus so that during poor economic times, it would have ample revenue to spend, including running a deficit, and prevent a deep recession or depression.

Monetary policy, on the other hand, focuses on manipulation of the money supply, often through interest rates, to promote economic growth and stability. Monetary policy, which was most famously promoted by Milton Friedman, provides that governments should lower interest rates to promote economic growth, but should engage in contractionary policies (including raising interest rates) to prevent the economy from overheating. Above all, monetary policy focuses on maintaining a stable money supply and money value, and keeping inflation as close to zero as possible.

In practice, governments regularly use a combination of both monetary and fiscal policy to manage economic growth and stability. However, the eurozone encompasses a wide range of countries and economies, ranging from the economic powerhouse of Germany to the crisis-ridden economies of Greece, Spain, and Portugal, to a large number of smaller economies somewhere in the middle. The question of how to balance competing demands across all eurozone economies presents a challenge. The monetary policies that would maintain economic stability and growth in Germany are different from the monetary policies that might be used to prevent economic collapse in Greece. Consequently, the European Central Bank faces the challenge of finding a fine line to walk between the two.

The other challenge, of course, is that because Greece is a member of the eurozone, it effectively has cut off one of the two primary economic policies governments might use to address the economic crisis. While the Greek government can continue to use fiscal policy, its ability to use monetary policy to address the crisis is sharply limited by the fact that the Greek government does not control the Greek currency.

Not that leaving the eurozone would make things better for Greece. For now, it appears the Greek government is committed to remaining in the seventeen nation eurozone, and the German government is committed to helping Greece remain there. But if Greece is unable to reach agreement with the troika, exiting the eurozone, either on its own terms or aftering being forced out by the other members, may be Greece’s only option.

What do you think? Do the benefits of eurozone membership outweigh the costs for the Greek government? Should Greece make the sharp spending cuts demanded by the international community to remain part of the eurozone? How would Greece leaving the eurozone affect future economic developments in other troubled European economies, like Spain and Portugal? Let us know what you think by leaving a comment or answering the poll question below.

Greece, Israel, and the Peculiarities of Parliamentary Politics

Alexis Tsipras, the leader of the rising Coalition of the Radical Left (Syriza) in Greece, has refused to join a coalition with the political parties responsible for Greece’s bailout deal, which came with harsh austerity conditions.

Parliamentary democracies (e.g., Greece, Israel) are different in several respects from presidential systems (e.g., France, the U.S.). They have different rules for government formation, elections, and frequently party representation, with important implications for the process and substance of policy.  Events in Greece and Israel over the past week provide good examples of the distinctive strengths and weaknesses of parliamentary systems.

In parliamentary systems the executive branch (led by the prime minister and cabinet) relies on a parliamentary majority for its selection and retention in power.  This means that the government must have the consent of a relatively broad coalition of parliament members–typically coming from a range of parties who don’t see eye to eye on all issues but have some basic goals or principles in common.  This system often makes it easier to pass legislation and get things accomplished, since the executive and the legislative branches are not working at cross-purposes (as can happen with “divided government” in presidential systems).  But it also means that when members of parliament are themselves divided or fragmented into polarized groups, forming a government–and keeping it in power–becomes a real challenge.  Greece’s recent parliamentary elections produced a parliament severely divided on issues such as Greece’s adherence to the austerity measures imposed by its creditors, which has made it extremely difficult to form a government.  If a government is not formed soon, new elections will be called.

In contrast, in Israel this week Prime Minister Benjamin Netanyahu averted the need for new elections and achieved a “master stroke” by inviting the opposition Kadima Party into his ruling coalition, thereby “creating the largest and broadest coalition government in recent memory, one that no single faction can topple.”  While a government needs only a simple majority of the Israeli parliament’s (Knesset’s) 120 seats, this new super-coalition boasts 94 seats.  This deal simultaneously buys time for Kadima, which would have lost seats if elections were held soon, and helps to strengthen Netanyahu’s power.  While this new government does not give Netanyahu a “blank check” (since coalition members can always withdraw), some analysts believe this move may be calculated to allow–or at least credibly threaten–bold action such as a preventive strike on Iran’s nuclear capabilities.

What do you think the politics of parliamentary systems will mean for Greece’s future in the eurozone?  For Israel’s willingness to take military action against Iran?  Would a presidential system be better able to deal with the domestic and foreign policy challenges facing Greece or Israel today?

Greece, France, and the Perils of State Sovereignty

President-elect Francois Hollande will become France’s first Socialist president in nearly two decades.

Sunday’s elections in Greece and France have sent shockwaves through Europe. The election of candidates who reject austerity (tax increases and painful spending cuts) as the path out of Europe’s financial crisis will affect Greece’s ability to make good on the conditions of its bailout and herald a clash between German leader and austerity champion Angela Merkel and the newly elected French president, Francois Hollande.

There is even talk of Greece leaving the eurozone. As reported in the LA Times today, Alexis Tsipras of the Radical Left Coalition, or Syriza, “called on other political forces in the country to ‘end the agreements of subservience’ threatening more job cuts in the coming weeks. ‘The bailout parties no longer have a majority in Parliament to vote for measures that plunder the country,’ Tsipras told reporters in Athens after laying out a five-point plan for a new government he hopes to form with other leftist forces. It includes ‘immediate cancellation’ of further public spending cuts and a moratorium on debt servicing…Those cancellations would include the 150,000 state job cuts and $14 billion in new austerity measures expected next month in order for Greece to get the latest tranche of a bailout deal reached last year.”

The reason why the European Union, the International Monetary Fund, and other International Governmental Organizations (IGOs) cannot just impose their will on member states and force them to abide by their commitments is the continued dominance of state sovereignty in world politics. Sovereignty has been a bedrock principle of the international system since the Treaty of Westphalia in 1648, and it allows states’ governments to rule as the ultimate authority within their borders. While sovereignty protects states’ independence and helps to minimize external interference, it plays havoc with attempts to create authoritative supranational rules and bodies to deal with issues including human rights, trade, and arms control.

What do you think? Does the public rejection of austerity measures in Greece, France, and elsewhere make the end of the 17-member eurozone inevitable? Take the poll below and let us know your thoughts.

Levels of Analysis and the Euro Crisis

The decisions of German Chancellor Angela Merkel have emerged as a key individual-level driver of outcomes in the eurozone financial crisis.

The financial crisis unfolding in Europe provides a stark illustration of the complex interactions between system-level, state-level, and individual-level variables in contemporary world politics. Political scientists employ these three (and sometimes more) levels of analysis as an analytical device to categorize the causal “drivers” that produce outcomes in international relations.  This framework might shed light on the current Eurozone crisis as follows:

(1) The system level of analysis includes attributes of the international system and supranational actors.  The power imbalance between the wealthier and more financially secure European states, such as Germany, and those needing bailouts, such as Portugal and Greece, can be viewed as a system-level factor placing pressure on weaker states to abide by the stronger countries’ demands.  The same could be said of the “top-down” pressure from International Governmental Organizations (IGOs) such as the European Union and the International Monetary Fund on countries such as Greece and Ireland to enact austerity measures in exchange for bailouts.

(2) The state or domestic level of analysis includes factors such as political institutions, interest groups, public opinion, and political parties.  The ease with which governments can fall in parliamentary systems (as opposed to presidential systems) helps to explain the events of the past week in Greece and Italy.  The anti-austerity attitudes of public opinion and labor unions have led to political instability and a reluctance by some policymakers to agree to the harsh terms imposed by external actors.

(3) The individual level of analysis focuses on the choices, perceptions, and personalities of individuals (normally political leaders and other influential individuals).  The critical decisions by former Greek Prime Minister George Papandreou to (a)  call for a referendum on the bailout plan, and then (b) to withdraw this request and hand over power to an interim government are causal drivers located at the individual level of analysis.  The perceptions and choices by other key players such as German Chancellor Angela Merkel and European Central Bank Chairman Mario Draghi are also important individual-level factors that have shaped, and will continue to shape, the course of this crisis.

What do you think?  Do causal drivers at one level of analysis seem to be particularly influential in the current European financial crisis?  How are variables from different levels interacting to shape outcomes?  Is it possible to model these interactions and predict how all of this will end, or is such a feat beyond the skills of even our best political scientists?

Two-Level Games and the Greek Financial Crisis

Violence erupts on the streets of Athens in response to the Greek parliament's approval of harsh austerity measures demanded by the EU and IMF.

The financial crises that have gripped debt-ridden countries in the eurozone in the last year offer some excellent examples of the challenges and complexities of “two-level games.” A two-level game, as defined by political scientist Robert Putnam, refers to a common situation faced by political leaders when negotiating agreements such as trade deals with foreign states. To reach an acceptable agreement a leader must take into account the demands of actors at two levels: the domestic level and the international level. For example, in negotiating a trade deal with China, President Obama would need to try to balance the demands of China’s government with the demands of domestic actors such as Congress and business or labor interest groups. These demands restrict the set of acceptable outcomes at each level, and the final agreement must therefore be located within that window of overlap where both domestic and international actors would find an agreement acceptable. The absence of an overlapping set of acceptable options would ordinarily produce a negotiating failure (examples might include the Kyoto and International Criminal Court Treaties, which President Clinton favored but could not get the U.S. Senate to ratify). The theory of two-level games also highlights the fact that leaders can use constraints at one level to gain leverage at the second level. So Obama might tell China’s leaders that he can’t budge any further on trade concessions due to American business demands, or he might tell Congress this is the best deal they’re going to get from an intransigent Chinese leadership.

What does all of this have to do with the eurozone financial crises? Debt-ridden countries such as Ireland, Portugal, and Greece have sought emergency loans from the European Union and the International Monetary Fund in order to stay afloat financially, but the EU and IMF have attached strict conditions to these loans. Recipient countries have been required to enact harsh austerity measures designed to correct the problems that necessitated the emergency bailouts. These unpopular measures include raising taxes, slashing welfare spending, and cutting government jobs and pensions. Leaders such as the Prime Ministers of Ireland and Greece have faced strong opposition to these internationally imposed demands from a range of domestic actors (the general public, interest groups, and some members of parliament). George Papandreou, the Greek Prime Minister, narrowly survived a no confidence vote in parliament on June 22, and violent protests have erupted in the streets of Athens in response to the proposed austerity measures. Papandreou succeeded in holding together enough domestic support to get these measures approved by parliament, although clashes between riot police and protesters escalated after the vote.

But this isn’t the end of the story. As Foreign Policy blogger David Rothkopf notes in a post entitled “15 Things the Greek Austerity Vote Won’t Accomplish,” the parliament’s decision to approve the controversial measures “won’t guarantee that Greece sticks with the plan that’s approved. Riots in the streets illustrate that the people of Greece are deeply unhappy with what they perceive as a foreign-imposed squeeze. They can force a political reversal that leads to a policy reversal.” In other words, round one of this two-level game may have been won by actors at the international level, but the game continues…and domestic actors in Greece, Portugal, and elsewhere may yet be able to exert sufficient pressure on their leaders to change the game decisively in their favor.

Five Stories You Might Have Missed

There have been several interesting developments in European politics over the past few days. Final results were released Saturday from the Irish referendum on the Lisbon Treaty. The Irish approved the treaty by a wide margin (with 67.1% of voters in favor) after defeating the treaty in June 2008 by a 53.4 percent majority. Ireland’s approval of the treaty represents an important step forward in approving a restructuring of the European Union; a restructuring that would expand the influence of the European Parliament, establish a full-time presidency for the EU (a position for which former British Prime Minister Tony Blair may be tapped), and limit the ability of national governments to veto EU legislation in certain areas. But despite the approval by Irish voters, Czech President Vaclav Klaus tempered expectations, stating that he may delay signing the treaty until a Czech appeals court can review the treaty and assess its implications for Czech sovereignty.

Two important elections also took place recently. In Germany, Angela Merkel won reelection as Germany’s Chancellor. The victory of her center-right coalition promises to continue her emphasis on greater openness for the German economy. Preliminary results from Greek elections on Sunday suggest that the Socialists will soundly defeat the ruling New Democracy party, possibly securing a legislative majority in the national parliament. The contradictory results suggest an interesting restructuring of European politics.

In news from outside of the European Union last week:

1. Government ministers at the annual meeting of the International Monetary Fund in Turkey this week rejected warnings by the banking sector that new financial regulations could undermine economic growth. Representatives from the United States, Italy, and the United Kingdom all rejected claims by the global bankers association that regulatory overkill could undermine global economic growth and result in the creation of fewer jobs. But despite apparent agreement on the need for new financial regulations, considerable debate over the exact nature and structure of those regulations remains, and an agreement on the details appears to be a ways off.

2. The International Olympic Committee granted Rio de Janeiro the right to host the 2016 Olympic Games on Friday, making Rio the first South American city to host the Olympics. A last minute visit by President Barack Obama to Copenhagen was unable to convince the IOC to grant the games to Chicago, which was also bidding to host. Several observers have raised concerns that Obama’s unsuccessful campaign to win the games may undermine his ability to deliver on health care reform and foreign policy objectives.

3. A massive earthquake in Indonesia resulted in the deaths of an estimated 1,100 people last week. The tragedy follows a tsunami in the South Pacific that killed more than 100 people. Concerns that another, larger quake could strike soon were also raised on Saturday. International aid campaigns have begun delivering supplies to the region, but the widespread devastation of government facilities in the region could hamper aid efforts.

4. The President of Burkina Faso has been dispatched to meet with the military rulers of Guinea to address the emerging crisis in the country. More than 100 people have been killed in Guinea in the past week, as the county’s military government has moved to quash opposition protests. On Thursday, Cellou Dalein Diallo, former prime minister and current opposition leader, was forced to flee the country, as Captain Moussa Dadis Camara, who came to power as the country’s leader in a December coup, has attempted to solidify his hold on power.

5. On Sunday, the government of Iran agreed to permit International Atomic Energy Agency inspectors to visit a secret uranium enrichment facility made public by the United States last week. The discovery of the site led the Russian government to concede the possibility of United Nations sanctions on the Iranian government—a proposal which both Russia and China have long opposed. The Iranian decision comes ahead of scheduled six-party talks, involving the United States, Russia, France, China, Britain, Germany, and Iran, at the end of the month.

Five Stories You Might Have Missed

It’s been a bad week for economic news.  Both the United States and Canada posted record job losses, home foreclosures continue to rise, and Congress is at an impasse on how to (or if to) bail out the U.S. auto industry.   Here’s five stories you might have missed amid all the bad economic news coming out this week.

1. Massive riots rocked the Greek capital of Athens on Sunday, as young Greeks took to the streets to protest the killing of teenager by police.  The center-right Greek government has been under pressure amid the spread of the financial crisis to Greece.  It currently holds a narrow two-seat majority in the country’s parliament, but the protests—the largest in Greece since World War II—may force some concessions on the part of the government.

2.  Amid news that the global economic crisis is taking a severe toll in Asia, both China and India are seeking to limit the spread of the crisis by instituting Keynesian-style economic stimulus packages.  India has announced a $4 billion package while China is seeking to boost domestic consumption.  Both plans have been criticized for being too small in the face of the current crisis.

3.  The Israeli closure of the Gaza Strip continues.  According to Palestinian officials, the impact of the closure is so severe that the Gaza’s financial institutions have run out of money.  The lack of cash has affected nearly all aspects of daily life in Gaza, as families lack the cash to purchase basic supplies and relief agencies have been forced to suspend their work.  Israel maintains the closure is necessary to prevent the Hamas government in Gaza from attacking Israeli settlements near Gaza. 

4.  Elections are being held in Ghana, one of Africa’s most longstanding and stable democracies.  Sunday’s presidential election is projected to be very close, potentially triggering a run-off election later this month.  Many are looking to Ghana to illustrate the potential of peaceful political transitions to countries like Kenya, Zimbabwe, and Nigeria, which experienced violence surrounding recent elections.

5.  Regional economists are raising concerns that Latin American governments may be crowded out of international credit markets due to barrowing by the United States and other developed countries.  The Latin American Shadow Financial Regulatory Committee, comprised of former finance ministers and central bank governors from the region, are warning that the loss of access to credit could have severe consequences in the region, potentially forcing countries to undertake painful fiscal adjustments or detrimental import restrictions and capital controls.