Monthly Archives: October 2012

What happened to the E.U.?

In the third quarter of this year, exactly one in four people in Spain are out of work with the unemployment rate still rising. And more government cutbacks are evident. Unfortunately, though an extreme, Spain is not an outlier in the European Union’s collapse.
So from an economist’s point of view, what happened? How did a cooperative system of developed states, collectively creating one of the largest world economies, fail so dramatically? And how are countries like Spain still feeling harsh repercussions from a crisis that started in late 2009?

A BBC News article written in June has one answer. Although it’s very difficult to identify all of the variables and conditions that cause an economic crisis, this article does a good job of articulating and diagramming the decisions that resulted in the huge amounts of debt. The short version is that the E.U. decided it would set a 3% borrowing limit for each nation. But many countries did not stay true on this promise, amassing large governmental deficits. In addition, investment in the private sector shot up due to extremely low-interest rates, adding to the “debt-fueled boom” and creating a trade surplus in Germany but trade deficits in the southern nations. Lastly, wages rose in some E.U. nations while others (Germany) kept the wage rates steady, resulting in a competitive price disadvantage for the rising wage nations. With a price disadvantage southern European countries found themselves in a hole, unable to make the capital needed to pay off their debts. Thus Spain and several other nations continue to have crippling unemployment today, and nations are asking for bailouts from the successful E.U. nations who arguably played a large role in their collapse.

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Brief Points on Debating Foreign Policy

Naturally, World on Safari has endless things to say about the Foreign Policy Presidential Debate last night. But to save time, this post serves to make just three points –
1. There has been too much focus on Libya. Needless to say the tragedy caused by the attack in Benghazi was nothing short of terrible. This attack, however, should not make the nation of Libya any sort of priority for the United States. The authoritarian government has already been overthrown. What remains in Libya are small rebel groups, already heavily armed, and discontent with going back to their former ways of life. The terrorist attack on the embassy was not a wide-scale, heavily planned assault, but one of these small rebel groups leftover from the revolution. Thus nothing more than perhaps tracking down this sole group should be discussed.
2. President Obama and Governor Romney generally agree on Foreign Policy. Sanctions on Iran should continue to deter nuclear capabilities. We should not get involved militarily with Syria. China has unfair protectionist policies, but we must maintain solid relations so as to benefit both our economies. Although it may have sounded like the candidates were arguing, the platform for debate made for most of the disagreement, not the questions themselves. You may have noticed that the candidates differed the most when the topic reverted back to the domestic sphere. But after all, this agreement a good thing. We don’t want any sort of extremism from the President on Foreign Policy.
3. The candidates shy away from discussing aid. You’ll notice that rarely if at all were Latin American, African, or Southeast Asian countries brought up in last night’s debate. But the U.S. is both directly and indirectly sending nations in all three of these regions significant amounts of aid to assist with economic development, healthcare, the spread of democracy, and to serve U.S. interests in these regions. Is this not brought up because American politicians or citizens believe that possible security threats and the heavily media-covered nations are more important to discuss? Is it because neither candidate wants to remind viewers that the U.S. government is still spending large amounts of taxpayer money abroad when we have serious domestic economic problems of our own? Is aid not still relevant when appointing a President, or do we now see it as a backdrop to the greater American picture?

Good on you if you watched the debate and agreed with or disagreed with the candidates’ policies. The United States still has one of the largest roles in the international community through its active foreign policy engagements and its permanent role in the U.N. Security Council, and the Commander-in-Chief and appointed Secretary of State make an incredible difference to many nations and people around the globe.

The Potential Conflicts of Climate Change

Climate Change is the single most important issue that the international world should be addressing right now. Unfortunately, national interests and institutions usually hinder any real progress to changing the human impact on our world. The Kyoto Protocol and the UNFCCC (United Nations Framework Convention on Climate Change) are two of the most promising international attempts at combatting global warming, but there have been enormous hindrances to carbon-reducing agendas. The United States is one of the worst offenders, refusing to adhere to some of the policies of carbon-reduction stated in the Kyoto Protocol. And since the United States has one of the highest CO2 emissions, (along with that of China and the collective EU), when the U.S. doesn’t adhere that’s a huge portion of the world’s emissions that are not reduced, and sets a standard that the world’s largest economy need not follow the rules, perhaps encouraging other countries to cut corners as well.

“Why Climate Change has not led to Conflict” is the sub-heading for No Wars for Water, the latest in published Foreign Affairs articles. The article covers the facts on how climate change has and will affect the world’s fresh water supplies, and focuses on the Nile and the Aral Sea in North Africa and Central Asia as bodies of water that have already seen very minor conflicts over availability and may see more as the rivers are affected by global warming. Notice how these are some of the more unstable regions of the world, turning conflicts more probable. But what the article states is that it is not the case that countries or regional groups have been actively violent over water disputes. “If the past is any indication, the world probably does not need to worry about impending water wars. But they must recognize how tensions over water can easily fuel larger conflicts and distract states from other important geopolitical and domestic priorities.” Though lack of fresh water may not be the reason for fighting a war, it can easily be a factor into international conflicts. Thus the authors suggest that preemptive water treaties over access to the water get drawn up now before the conflicts arise. Overall, it would be, “wise for the involved governments as well as the international community to negotiate sufficiently robust agreements to deal with impending environmental change.”

Iran Under Pressure from Oil Sanctions

Today’s Morning Brief on Foreign Policy Passport gave insight to how Iran’s oil industry has been affected by Western sanctions in a response to Iran supporting Syria’s government in the Syrian Civil War. The IEA (International Energy Agency) has released information showing that Iran’s exports on oil have been cut by nearly a third, which has severely impacted Iran’s overall economy. The brief also states that the rial, the currency of Iran, has lost 40 percent of its value in this past month. That’s a devastatingly large hit to a currency, and the continued loss of value to the rial will certainly cause problems to trade and purchasing power in Iran for the near future.
EU foreign ministers have also agreed to impose separate sanctions on additional sectors of Iranian industry. Banking, shipping, and energy sectors are also going to be being targeted, ensuring that a widespread audience in Iran will be feeling the international pressures to end its support of the Syrian government.

Will these sanctions be successful? They have already proved to be successful in making clear to Iran what the western powers are opposed to. What is left to see is if Mahmoud Ahmadinejad and the other leaders of the Iranian government will change policies in order to loosen the sanctions imposed on them, or if they will stay stubborn to outside pressures and readily take the hit to the economy.
What was not mentioned by the IEA was the impact these sanctions have had on the United States and EU domestic oil prices, and if the sanctions on Iran are hurting consumers of the policing nations as well.

South Africa’s Fragile Economy

Africa’s biggest economy is struggling. Miner strikes weeks several ago demonstrated worker frustration with the government, followed by a trucker strike. While striking is a more common way of showing discontent in South Africa than most nations, experts in the country believe that these are not ordinary demonstrations. On the contrary it seems like this time severe unrest is building among South Africa’s citizens.

The NY Times published an article yesterday about hope fading for the lower and middle classes in the nation. It highlights how currently the rand is at a three-year low, and there have recently been hundreds of thousands of disappearing jobs. Meanwhile, the government is spending millions on the real-estate and private enterprises of the politicians who control South Africa, infuriating those suffering who the money could support. As with many big economies, one of the largest concerns for South Africa is the disappearance of the middle-class and the growing income-gap. The super-rich have been emerging from entrepreneurial opportunities and international trading, and whispers of an apartheid-like economic structure are emerging from this still raw country. Race is no longer the underlying symbol of economic division in the “new” South Africa, but the unfairness felt by the under classes is familiar all the same.
The question remaining is where is this unrest taking the nation? It’s fair to say that we haven’t yet seen the tip of this iceberg, and what will determine the future is most likely how the government responds to its citizen calls for attention and change. If nothing is done from the higher-ups, there may be serious consequences. Riots in Greece may be a carnival compared to a nation learned in revolution.

Trinidad and Tobago withhold Statistics

Trinidad and Tobago’s National Security Minister banned the released information on murder rates and statistics in the nation a few days ago, in fears that the released figures will actually cause an increase in the number of violent crimes. He is worried about what he calls a “domino effect,” in where when high crimes rates are made available to the public, people may perceive these crimes as acceptable, low-risk, or so common that they are a norm. A lot of violence in Trinidad and Tobago is drug and gang related, and Jack Warner (Security Minister) believes that the release this may, “inflame additional crime,” when dealing with gangs especially. Do public homicide rates actually increase the crime in a country under the domino effect? Most likely not. Are some nations conscious of their crime statistics on the international level, and how they can be disadvantageous to the country’s tourist rates, economy, and legitimacy on input of international issues? Definitely.