Monthly Archives: April 2009

Why the euro isn’t ready for a truly global role

April 29, 2009 11:55 am by Tony Barber

European Union policymakers like to make the point that, had the euro not existed, Europe would have suffered far more from the financial crisis and recession. Without the euro, there would have been a riot of competitive devaluations, causing angry recriminations among governments. Without the euro, countries such as Greece and Italy would have had nowhere to shelter from the storm. Without the euro, Ireland would have gone belly up and Dublin would be known as Reykjavik-on-the-Liffey.

All this is doubtless true. But if the euro is so successful, why is it unlikely to emerge from the economic crisis with an enhanced status in the global monetary order? This is a question asked, and answered very convincingly, in a new book, The Euro at Ten: The Next Global Currency?

“It is revealing that even in the midst of the worst financial crisis in 70 years, one widely and somewhat justifiably believed to have begun in the US economy and resulting from US policy mistakes, the flight to safety of world savings was to US treasuries, and not noticeably to the euro,” say the book’s authors.

They make four main points. First, the US has highly integrated financial markets, whilst those in Europe are fragmented. European banking and financial supervision is under national control. There is no single market for government bonds.

Secondly, the eurozone lacks the right rules and tools of governance. It does not have effective representation at global level in forums such as the International Monetary Fund. The area’s response to last year’s emergency in the financial sector was, to begin with, feeble and driven by national considerations. When it finally came up with some answers in October, the measures took the form of “ad hoc co-operation rather than of institutionalised co-ordination”.

Thirdly, eurozone governments have failed to make the euro an anchor of regional stability in eastern Europe. The crisis has made most EU countries outside the eurozone more eager than ever to adopt the euro, but eurozone leaders have rebuffed them.

Lastly – and, in my view, this is the killer argument – the size of the eurozone economy looks certain, in coming years, to shrink relative to the rest of the world. East Asia, the Gulf states and Latin America are all studying the possibility of regional monetary integration. That would leave the euro as a regional currency for Europe and not much more. China is calling for a new reserve currency to replace the dollar, but it’s certainly not thinking of the euro.

“There is no question this year will be a stress test for the European single currency,” Joaquín Almunia, the EU’s monetary affairs commissioner, said last week.

He was right – but the longer-term question is whether the euro’s international role is doomed to be permanently limited.

Posted in Euro | Permalink

How to ban seal products and shoot Europe in the foot

April 28, 2009 10:40 am by Tony Barber

The heady aroma of power without responsibility is wafting through the corridors of the European Parliament this week as legislators prepare to slap a blanket ban on the trading of seal products throughout the 27-nation bloc.

It seems little short of ridiculous that the assembly is poised to take this step just as the EU is about to hold a summit with Canada to mark the launch of negotiations on a comprehensive free trade agreement. If the European Parliament goes ahead with the ban, the Canadians have made it clear that they will start an action at the World Trade Organisation. Not exactly the best climate in which to pursue a liberalising trade deal, one might think.

The issue here is not so much the rights and wrongs of culling seals and making and selling seal products. I, for one, gave up boxing more than 30 years ago, and despite having lived in Rome for five years I have never ridden a motorbike, so I have no need of those special shiny gloves that are made partly out of seals. As for Omega 3 fatty acid supplements, it’s probably time I went on the wagon.

Rather, the point is that the EU is presenting a picture of itself that looks suspiciously as if the left hand doesn’t know what the right hand is doing. The EU’s member-states have led from the front in setting the goal of a free trade accord with Canada, knowing that it would be good for both sides and would send a positive signal to the rest of the world at a time of rising protectionist pressures.

The European Commission, which is the EU arm that negotiates trade deals, was to begin with perhaps not as keen as the member-states on an accord with Canada. But now it is publicly on board.

The Parliament, meanwhile, has gone its own merry way, taking a supposedly lofty moral stance in favour of seals’ rights. If it ends up in a trade war with Canada, we shall know who to blame.

Posted in EU Commission, EU Parliament, Foreign policy, Trade | Permalink

Lukashenko of Belarus steals a march on his EU critics

April 27, 2009 4:05 pm by Tony Barber

While European Union leaders fret about whether to shake hands with Alexander Lukashenko, Belarus’s authoritarian president since 1994, the wily 54-year-old leader himself stole a march on his critics on Monday by popping up in, of all places, the Vatican for talks with Pope Benedict XVI. What’s more, he was due later on to be welcomed for dinner by Silvio Berlusconi, Italy’s prime minister.

This is Lukashenko’s first official visit to a western European country since 1995 – although I am reliably informed that, since the EU suspended a travel ban on him last year, he may have made at least one private trip to western Europe. According to Franco Frattini, Italy’s foreign minister, the purpose of no longer treating Lukashenko as a polecat is to encourage democratic reform in Belarus and the gradual acceptance of EU norms of behaviour.

There are other aims, of course. The main one is to keep alive the very idea of Belarusan independence and to stop Belarus from slipping completely into the clutches of Russia, which is the country to which Belarus is closest in economic, cultural and historical terms. EU policymakers are particularly keen that Lukashenko should not bow to Russian pressure to recognise Abkhazia and South Ossetia, the two separatist Georgian enclaves whose “independence” Moscow proclaimed after its triumphant military campaign against Georgia last August.

These considerations explain why the EU has offered Lukashenko the opportunity to attend its “Eastern Partnership” summit in Prague on May 7, an event that will launch the bloc’s latest attempt at stabilising half a dozen ex-Soviet states situated between the EU’s eastern border and Russia. Will Lukashenko show up in Prague? It’s not clear. EU diplomats say there are doubts about the participation of both Lukashenko and President Vladimir Voronin of Moldova, where the recent post-election unrest has prompted EU criticism.

Meanwhile, the Vatican has no qualms at all about hosting Lukashenko. From its point of view, there is every reason to cultivate relations with the leader of Belarus, a country whose Roman Catholic minority is well-treated in terms of religious freedom and which, indeed, is growing steadily in influence. Democratic reform may have made modest progress in Belarus – that was my own assessment when I visited the country in February - but the Vatican’s contacts with Lukashenko show that the Holy See has distinctive foreign policy interests all its own.

Posted in Foreign policy | Permalink

European Parliament: Highlight of the Week (10)

April 24, 2009 2:13 pm by Tony Barber

The European Parliament adopted a report calling for tougher action to crack down on the millions of infections that are picked up every year by patients in European hospitals. Among the measures proposed in the report, which was passed by a vote of 521 to 6 with 5 abstentions, are the recruitment of specialised nurses and more widely available information for patients.

The parliament’s vote expands on a previous initiative of EU governments by setting a target of a 20 per cent reduction in hospital-related infections, or 900,000 cases a year, by 2015 in EU member-states.

Posted in EU Parliament | Permalink

Montenegro’s hopes of joining the EU get a (strange) boost

April 24, 2009 12:16 pm by Tony Barber

The European Union is truly a weird and wonderful thing. Take the question of enlargement into the western Balkans (an area once known as Yugoslavia and Albania).

As is well-known, France, Germany and other western European countries have been reluctant to move the enlargement process forward as long as the EU’s Lisbon reform treaty remains blocked. Among their concerns is the fear that their electorates will not take kindly to the prospect of yet more eastern Europeans piling into the EU at a time of extraordinary economic crisis.

And yet Montenegro, which submitted an official application in December to join the EU, got an important boost this week. EU governments agreed to ask the European Commission to provide an opinion on Montenegro’s application. This is a crucial technical step forward in the process that leads to full EU membership.

But the western European governments that are nervous about enlargement were so anxious that this step should receive no publicity that the ministerial council which approved it was none other than … a meeting of EU fisheries ministers!

This is perfectly permissible under EU rules, by the way. But usually the Brussels-based media that cover the EU are not keeping their eyes peeled for this kind of artful manoeuvre.

So, on the one hand, one can say: “Well done, the EU, for helping to keep the enlargement process in motion.”

And on the other hand, one can say: “What pure political cowardice – no wonder the EU is in such trouble with its national electorates.”

Tags: Balkans, France
Posted in Enlargement | Permalink

Hands up if you’d like to use the euro!

April 23, 2009 2:03 pm by Tony Barber

If you think the economic news is grim in the US, the UK or Germany, spare a thought for the small Baltic states of Estonia, Latvia and Lithuania. All face the prospect that their gross domestic product will collapse this year by 10 to 12 per cent. Moreover, all operate a so-called currency board regime, or peg, which restricts the movement of their currencies against the euro and prevents them from stimulating economic recovery by means of exchange rate depreciation.

One answer, as the International Monetary Fund pointed out a few weeks ago, would be for the European Union to relax its rules and let the Baltic states swap their currencies for the euro without formally joining the eurozone. This would in principle ease their foreign debt problems and restore confidence among foreign investors. The alternative – severe government austerity programmes, followed by a sharp drop in living standards, social unrest and political instability – seems far too harsh and risky a solution.

But the EU’s authorities, especially the European Central Bank, are dead against unilateral adoption of the euro by any EU member-state. One can see why. If the experiment went wrong, there would be a danger of contagion spreading to the 16-nation eurozone itself. The guardians of European monetary union, a project only 10 years old and one that is central to the notion of ever closer European integration, are simply not prepared to take the risk.

Across central and eastern Europe, however, the voices speaking up in favour of a rapid, unorthodox switch to the euro are getting louder. Today it’s the turn of Ludek Niedermayer, a former deputy governor of the Czech central bank, who writes: “Unilateral adoption of the euro would be extraordinary. But so too is the economic crisis. Tolerating such a move would not reduce, but rather boost, the EU’s credibility.”

What almost no one has bothered to mention so far in this debate is that two places in central and eastern Europe already use the euro without being formal eurozone or even EU members. They are Montenegro and Kosovo, which unilaterally adopted the euro on January 1, 2002, at the same time as France, Germany and other founder-members of the eurozone. This has given Montenegro and Kosovo some protection against the whirlwinds whipped up by the world economic crisis.

Amazingly, though, Montenegro’s authorities – or, at least, the chief economist at its central bank – do not recommend unilateral adoption of the euro by the Baltic states and others. Such a step would risk incurring the wrath of EU policymakers and even the denial of various EU funds and grants, the Montenegrins caution.

To summarise: a country that is outside the EU and outside the eurozone, but uses the euro, is telling countries that are inside the EU but outside the eurozone not to use the euro, while the EU and eurozone let countries that are outside themselves use the euro but won’t extend the privilege to countries inside the EU but outside the eurozone.

There are the makings of a good farce in this – if we weren’t all losing our money.

Tags: Baltic states
Posted in Euro | Permalink

Vaclav Klaus: the EU’s naughty boy who won’t grow up

April 22, 2009 9:56 am by Tony Barber

Vaclav Klaus, the Czech president, sounds like a man who intends to enjoy the next two months. In an interview last week with the Czech newspaper Mlada fronta Dnes, he merrily poured scorn on US and European Union measures to fight the world financial crisis and recession by suggesting that they drew on the spirit of 20th-century eastern European and Soviet communism.

Last month, he grabbed the headlines by engineering the downfall of Prime Minister Mirek Topolanek’s government right in the middle of the Czech Republic’s six-month EU presidency. In February, he prompted a walk-out by angry members of the European Parliament when he told them in a speech that their assembly did not encourage freedom of thought. As for his opinions on climate change (misplaced alarmism), they are quite simply unrepeatable in polite European society.

Like a naughty child who leaves the fridge door open, kicks a football around the house, feeds the cat orange peel and questions every instruction he receives, Klaus just never gives up. Now his sights are set on the EU’s showpiece summit of heads of state and government on June 19-20 in Brussels. With Topolanek out of the way and the new interim government to be led by Jan Fischer, the worthy but politically faceless head of the Czech national statistical office, Klaus fancies the idea of chairing the EU summit.

The prospect of the super-eurosceptic Klaus taking charge of such an important event is causing sweat to break out on the brow of many a Eurocrat. For the summit must address two crucial issues: the guarantees to be promised to Ireland in return for another Irish referendum on the EU’s Lisbon reform treaty, and the question of whether to reappoint José Manuel Barroso as the European Commission president for a second five-year term.

Klaus is such a vociferous opponent of the Lisbon treaty that some in Brussels are wondering whether he is cooking up a plan to derail the summit by obstructing approval of the guarantees Ireland is seeking (the right to an Irish EU commissioner, pledges of non-interference in matters concerning taxation, neutrality and family law). Perhaps he also plans to disrupt the process by which EU leaders pick the next Commission president?

In reality, Klaus is nothing like as strong as the turbulent state of Czech politics and the EU’s frequent institutional paralysis make him appear. For one thing, the upper house of the Czech parliament is due to hold a vote in early May on ratifying the Lisbon treaty. It looks close, but the odds are that it will go through. If it does, Klaus will be powerless to stop the Irish getting their guarantees. Indeed, he will sooner or later have to add his presidential signature to the treaty, completing the process of Czech ratification.

In the second place, if there were even a hint that Klaus was planning to disrupt the June summit, other EU leaders could simply postpone the meeting until Sweden replaces the Czech Republic in the EU presidency on July 1. The same applies to the issue of Barroso’s renomination (though the real problem here may come from other leaders, not Klaus).

Klaus has had plenty of fun at the EU’s expense over the past four months, and he may yet have some more. Some of his ideas about puncturing the pomposity and self-delusion of the EU are on target. But in EU terms he is the naughty boy who will never grow up. The EU itself will move on and pretty quickly forget all about him.

Tags: Brussels, Lisbon Treaty
Posted in EU Parliament | Permalink

Will US ride to the rescue of Europe and Nabucco?

April 21, 2009 10:09 am by Tony Barber

For anyone interested in European energy security, and especially the long-suffering Nabucco gas pipeline project, there was a fascinating piece of news on Monday. The Obama administration appointed Richard Morningstar, a former US ambassador to the European Union, as its special envoy for Eurasian energy issues.

Morningstar has a career background not only in EU affairs but in the energy diplomacy of the Caspian Sea area. As such, there is no one better placed to give the Europeans the benefit of US advice on Nabucco, a project some energy analysts think may be doomed to failure unless resolute action is taken soon to finance it, secure the necessary gas supplies and get it up and running.

The basic idea behind Nabucco is to reduce the EU’s growing dependence on Russian energy by importing gas along a proposed 3,300km-long pipeline from the Caspian, and later from central Asia, through Turkey to Europe.

But it is a project that is of more interest to the EU’s eastern European member-states, many of which were severely affected by last January’s abrupt cut-off of Russian gas deliveries, than to western European countries such as Germany and Italy, which were not affected and which invest a lot of time and effort in securing bilateral energy deals with Moscow.

Moreover, it has never been entirely clear where all the gas for Nabucco is going to come from. Azerbaijan, which the EU has identified as the key supplier in the first instance, has never made a whole-hearted commitment to the project. Russia’s military triumph over Georgia last August raised security questions about Nabucco.

Another problem concerns Turkey, which is withholding its support from Nabucco because the Greek Cypriot-controlled government of Cyprus is blocking the start of talks on the energy section of Turkey’s EU membership negotiations. The Turks are not wholly innocent, though. They see Nabucco as an opportunity to leverage their favourable geographical location to buy gas from the Caspian and elsewhere and sell it on to the EU at a profit. This vision of Turkey as a middleman enriching itself at Europe’s expense infuriates some western Europeans who have never wanted Turkey in the EU anyway.

At a EU summit last month, the tensions were temporarily defused when German chancellor Angela Merkel lifted her objections and agreed that the EU could earmark €200m of seed money for Nabucco. At a time when it is by no means easy to secure funding for any big-ticket investments, let alone one with as many question marks hanging over it as Nabucco, this was undeniably a step forward for the EU. But the total cost of Nabucco is officially estimated at €7.9bn (the final cost will surely be higher), so an awful lot remains to be done.

Meanwhile, the head of Azerbaijan’s state-owned energy company was in Moscow last month to sign a memorandum of understanding that pledges the gas from Azerbaijan’s two big new fields to Russia. The deal, though not yet irreversible, could sound the death knell for Nabucco.

Clearly, Morningstar and the Europeans have much hard work ahead of them.

Tags: Russia, Turkey
Posted in Energy | Permalink

The EU, the US founding fathers and the “last word”

April 20, 2009 12:05 pm by Tony Barber

There can be few more terrifying sentences in contemporary English than: “The Treaty of Lisbon is not the last word.”

The sentence appears in “Saving the European Union”, a new book by Andrew Duff, a British Liberal Democrat who sits in the European Parliament. It’s certain to raise the hackles of anti-Lisbon campaigners, who have said all along that the EU can never resist the temptation to keep tinkering with its institutional arrangements, no matter how strong the evidence that European voters are thoroughly turned off by the whole process.

Before I develop this point, let me note that Duff’s short book is an excellent introduction to the Lisbon treaty and to the challenges facing today’s EU. Friends and foes alike of the EU will benefit from reading it. Duff is one of the European Parliament’s top constitutional affairs experts, and he writes clean, crisp prose.

The Lisbon treaty’s fate hangs mainly on the outcome of a referendum, expected to take place in October, in Ireland, whose electorate rejected the document in June 2008 by a 53.4 to 46.6 per cent margin. If the Irish reverse their verdict and Lisbon comes into effect, EU leaders have solemnly promised us that there will be no more institutional tinkering, no more inter-governmental conferences, no more constitutional conventions – in short, no more attempts to ape Alexander Hamilton, Thomas Jefferson, James Madison and the other US founding fathers – for a long time to come. “We’re in tune with the voters,” is the message. “We know they wouldn’t forgive us.”

The institutional reform efforts that are encapsulated in Lisbon began as long ago as 2001 and have been plagued with embarrassing setbacks, so it is understandable that most EU leaders have little appetite at the moment for yet more self-punishment. Still, I have always had a sneaking suspicion that the adoption of Lisbon would in fact serve as a prelude to another bite at the institutional cherry.

Duff’s book strengthens this suspicion. “The founding fathers of the United States admitted from the outset that the Constitution as drafted was not the final word. Far from over-selling the text as the ultimate settlement, as some Europeans have done with Lisbon, the Americans were bold enough to admit that further amendment would be both desirable and necessary…”

Duff continues: “So the Treaty of Lisbon is not the last word… Europe can decide whether it wants to be more united or more divided: it neither can nor will stay as it is. The challenge is to manage this federalisation process with similar skill and boldness to that evinced in their time by Messrs Madison, Hamilton and Jefferson.”

Well, there you have it. Lisbon isn’t the last word. Europe must move on with its “federalisation process”. You can’t say you haven’t been warned.

Tags: Brussels, Lisbon Treaty
Posted in EU | Permalink