Tag Archives: Italy

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?

Economic Globalization Meets Shaky Economies: Fasten Your Seatbelts

Traders on the floor of the New York Stock Exchange on Thursday, when the Dow plunged more than 500 points.

Dramatic developments over the last few days have once again highlighted the interconnectedness of the world’s economies and the ease with which economic problems in one corner of the globe can quickly spread to others. Globalization refers to the integration of markets, cultures, and information networks and it has accelerated in recent decades with advances in communication technologies and increased global trade.

As reviewed in this timeline from BBC news, the 2007-2008 global financial crisis began with the sub-prime mortgage collapse in the United States, but economic turmoil quickly spread to Europe and beyond as banks that had invested in mortgage-backed securities suffered serious losses.  Similarly, the debt problems of Greece, Ireland, and Portugal since 2009 led to a decline in the value of the euro and have thrown the entire 17-country eurozone into crisis.

On Thursday stocks plunged on Wall Street; the Dow fell over 500 points in the biggest single day loss since 2008. Interestingly, most analysts attributed the selloff not primarily to concerns about the American economy, but to fears about the solvency of Italy and Spain–the third and fourth largest eurozone economies behind Germany and France.  The threat of a “contagion” effect is highlighted in this explainer from CNN:

“…Anxieties over Italy’s economic future have led many to wonder what its default might mean for Europe and beyond, with the dreaded word ‘contagion’ on many lips. [Former IMF executive board member Domenico] Lombardi believes the current situation is serious. ‘If you affect Italy, you can really weaken the euro significantly,’ he says, describing it as the ‘weakest link’ among Europe’s big economies.  Worse, he says, the European Union, the IMF and the European rescue fund do not have enough money to bail it out as they did smaller European economies — sparking a potential domino effect. So far the crisis has been limited to Greece, Ireland and Portugal, he said.  ‘But of course if the crisis was to hit Italy, it would spread also to France, to the rest of the euro area, and of course you would have contagion to the U.S. through the banking system.’ The huge public debt held by the United States also would make it more vulnerable to speculators, he added.”

How Standard and Poor’s decision (announced late Friday) to downgrade the U.S. credit rating will affect the global economy is the subject of great speculation this weekend. Officials from the G-7 and G-20 groups of major economies are holding conference calls this weekend to plan for further turmoil in the financial markets.

Is there anything individual countries can do, in a globalized world, to limit the damage they may suffer from a possible global contagion, or are they and their citizens at the mercy of the world economy?  Could protectionist trade practices and other tools of economic nationalism safeguard the U.S. or would this only make problems worse?

Stemming the Tide of Globalization

Every now and then, an event comes along which exemplifies perfectly a concept in international politics.  Last week the city of Lucca, Italy, enacted a ban on non-Italian restaurants operating in the city center.  According to a widely circulated report, the new ban was intended to “protect” local specialties from the rising popularity of “different” (read: foreign) cuisines. The measure also bans fast food restaurants and hopes to reduce littering within the city’s ancient walls, a magnet for tourists.  According to city spokesperson Massimo Di Grazia, “By ethnic cuisine we mean a different cuisine…That means no new kebabs, Thai or Lebanese restaurants.”  It certainly means no McDonald’s or Pizza Huts as well.

A chorus of critics immediately raised concerns of “culinary racism.”  And the city did itself no favors when Di Grazia attempted to clarify the ban, stating that while it was unclear how “different” a restaurant would have to be to fall under the terms of the ban, a hypothetical French restaurant would be allowed to open but restaurants using “Middle Eastern ingredients” probably would not.

As a phenomenon, globalization is nothing new.  Marco Polo’s journey to China was but an early step in the process of increasing economic and cultural interconnections between countries and regions.  Ironically, Italian cuisine itself is the product of globalization.  Prior to the Columbian exchange in the early 1500s, there were no tomatoes in Italy.  It may be hard to imagine Italian food without tomato sauce, but prior to the 16th century, tomatoes were not part of the Italian diet.

Nevertheless, the increasing intensity of globalization today often sparks sharp responses.  Recall the purchase of American brewer Anheuser-Busch by the Belgian brewer In-Bev, which led to proposals to boycott Budweiser and “drink American.”  Political scientist Benjamin Barber analyzed the effects of globalization and cultural resistance in his seminal article “Jihad vs. McWorld,” which has increasingly become a must-read article for those interested in the topic.  Barber noted that responses to globalization often involve a strong affirmation of local identity-based politics, sometimes leading to increasing tensions.  In this sense, Lucca’s ban on foreign foods represents just another attempt to stem the tide of globalization.