Monthly Archives: November 2010

The Irish Crisis

Irish PM Brian Cowen

Irish PM Brian Cowen concedes Ireland requies assistance.

Once the “Celtic Tiger,” the envy of most other European (and indeed global) economies, the economoy of Ireland now lies in tatters. The economic crisis in Ireland reached boiling point over the weekend, as the government announced it would accept loans from the European Union. The Irish government had been resistant to the idea, believing that the conditions imposed on Ireland as part of the relief package were too strict.

According to a statement released Monday by European finance ministers, Ireland will now undertake dramatic “fiscal adjustment” and “structural reform” in order to receive EU and IMF assistance, amounting to some €80bn-€90bn. The proposed relief package covers just a small portion of the bailout needed to pay off foreign banks and keep the Irish economy afloat. Kan Kees de Jager, the Dutch finance minister described the cuts as “fast and deep.” The cuts will likely have profoundly negative effects on the people of Ireland. Already, dramatic cuts in the country’s minimum wages and reductions to universal child benefits have been proposed. Apparently off the table, at least for now, are tax increases. Ireland currently has a corporate tax rate of 12.5 percent and is among the lowest in the world. In many ways, the conditionalities imposed as a part of receiving the relief package echo the era of structural adjustment in the global south.

The package has already provoked considerable discussion in the blogosphere. The FT’s Brussels Blog offered extensive analysis. Also blogging at the Financial Times, Gideon Rachman explores the possible effects on the Euro, while the bloggers at Baseline Scenario point to the moral hazard of socializing the risk associated with investment decisions onto the backs of Irish taxpayers. 

Politically there are costs as well. According to the New York Times, the government of Prime Minister Brian Cowen will likely collapse as a result of the bailout package, forcing new elections early next year. By that time, however, the rescue package will be done, and the new government will be bound by the conditions it imposes.

The Irish crisis certainly raises questions about the viability of the Euro and the strength of the Eurozone economies. While Germany appears to be humming along, many other Eurozone members, including Greece, Portugal, Spain, and Ireland are in the doldrums. Greece has already accepted a EU/IMF rescue package, and investors widely believe that Spain and Portugal will also be forced into austerity. Can the Euro survive such a widespread crisis?

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More Better Research

A protestor at Jon Stewart's Rally to Restore Sanity asks for sane research.

 

A protestor at Jon Stewart's Rally to Restore Sanity asks for sane research.

Duncan Green

has a great entry this week on the need to rethink development research. Noting that every development report (not to mention every student thesis) seems to end with a call for more research, he asks if such a call is justified. Is there any area, he rhetorically asks, where we need less research? He offers  an interesting proposal, though, to rethink where we need more research. Rather than focusing on specific issue areas, he suggests we develop more thematic approaches that cut across traditional issue areas.

Meanwhile, Texas in Africa raises some great questions over the nature of research and proof, asking do social scientists think? The debate, which centers on the nature of proof in development planning, provides useful advice for all social scientists. Both are recommended reading for students of political science.

Quantitative Easing and Global Hyperinflation

Street cleaner sweeps worthless German Marks into the gutter.

Street cleaner sweeps worthless German Marks into the gutter.

Apart from the U.S. elections, the news last week was heavily focused on the decision of the U.S. Federal Reserve to inject some $600 billion into the economy by purchasing treasury bills. The policy, referred to as quantitative easing, is a tool of monetary policy [glossary] intended to address the ongoing economic malaise in the United States. Because interest rates are already near zero, the traditional monetary policy of reducing interest rates is not viable.

The move has provoked considerable discussion, not least because it risks stimulating inflation, as Alex Evans at the Global Dashboard notes. The policy will certainly cause a decline in the value of the U.S. dollar, promoting U.S. exports and encouraging greater investment. The broader challenge, as Robert Reich observes, is that a dual economy system is emerging in the United States. On the one hand, the financial economy is doing well. The Dow has had its ups and downs, but the sharp declines of 2008 appear to be in the rear view mirror. On the other hand, the economy of American workers continues to be in the doldrums. Unemployment appears to be stuck at just under 10 percent, real wages are frozen, and workers continue to be skittish about future employment prospects. Will Bernanke’s efforts to stimulate the economy work? It depends on who you are. Financial markets may worry about the inflationary effects of quantitative easing, but the policy of keeping interest rates near zero has certainly been positive. For workers, however, monetary policy may not be as effective as fiscal policy [glossary]. Sustaining unemployment benefits, for example, may be more effective as an economic stimulus. But such a policy is politically untenable, particularly after the mid-term elections. However imperfect, quantitative easing may be the only policy tool left to address the ongoing economic crisis in the United States.

Elections and U.S. Foreign Policy

U.S. President Barack Obama and Indian Prime Minister Manmohan Singh

U.S. President Barack Obama and Indian Prime Minister Manmohan Singh

There was a great deal of virtual ink spilled last week to discuss how the midterm elections would affect U.S. foreign policy. Bruce Stokes, Richard Haass, Steve Walt, and Daniel Drezner, among others, all chimed in. The emerging consensus seems to be that it will make little difference. As Daniel Drezner pointed out, the election his neither about foreign policy nor has foreign policy been a central—or even a tangential—concern. A former professor of mine once said that foreign policy will never win an election for you, though it can certainly lose one. This year, it did neither.

In general, there’s a great deal of wisdom here. President Obama still controls the foreign policy apparatus of the United States, and Congress has long been hesitant to intervene. But despite assertions that Republican control of the House and their increased minority in the Senate will make little difference, there are a couple of areas where change may be afoot.

First, the START Treaty—the new arms control agreement between the United States and Russia. The agreement would replace an arms control agreement that expired in December, and would impose new limits on the number of warheads and launchers possessed by both countries. The Senate Foreign Relations Committee approved the agreement by a 14-4 vote in September, which cleared the way for a vote by the Senate as a whole. Harry Reid has previously indicated that a vote on the treaty was unlikely before the end of the session, which forces the ratification vote into the new Congress. Ratification would require 67 votes—a tough feat in a Senate suspicious of administration efforts in this area.

Second, climate change. In June, the House narrowly approved a climate change bill that would develop a version of cap-and-trade in the United States. The initiative stalled in the Senate, and now appears unlikely to receive a vote before the end of the session. Given the lack of support for climate change legislation among Republican lawmakers, efforts to develop a comprehensive policy governing greenhouse gas emissions in the United States appears to be ever less likely. And with that decline, U.S. initiatives to address climate change at the multilateiral level also appears increasingly bleak.