Week of Notes 12
Week of Notes 12 403-2B
Popular in International Relations Seminar
Popular in Public Relations
verified elite notetaker
This 6 page Class Notes was uploaded by Dora Notetaker on Thursday November 12, 2015. The Class Notes belongs to 403-2B at University of Alabama at Birmingham taught by Nikolaos Zahariadis in Summer 2015. Since its upload, it has received 37 views. For similar materials see International Relations Seminar in Public Relations at University of Alabama at Birmingham.
Reviews for Week of Notes 12
Report this Material
What is Karma?
Karma is the currency of StudySoup.
You can buy or earn more Karma at anytime and redeem it for class notes, study guides, flashcards, and more!
Date Created: 11/12/15
PSC 403: Seminar in International Studies Dr. Zahariadis Notes Set 12 Week of Nov. 9 Tue, Nov 10 EMU ● Addressed monetary but not fiscal issues 2008 Crisis ● Not Europe’s doing, but from real estate bubble that burst in the US ● Banks went under in Europe because they did not have money available to loan out ● Governments started pumping money into banks to save them ● They needed a coordinated effort since they all have the same currency, but this did not work 1st example: Ireland ● It started putting money into failed banks ● But if one country starts doing this, others will have to do it too ● But if everyone starts to pump money into their banking system, what does that say to potential investors? ○ That there is a serious problem that you’re trying to fix it ○ So investors will take their money out ● So they were precipitating the problem by bailing out their banks ● But if they did not bail out banks? ○ Banks would have went under, which means you have the same problem Tbills What is it? ● It is an IOU ● A government bond from the U.S. government that is issued to investors ● It has a maturity of 2 years and an interest rate of 5% Eurobond ● Same thing but in Europe ● The kinds of Eurobonds are called sovereign bonds ● Traded on the open market ● It is a way for governments to finance their deficits ● They carry a particular interest rate, and the moment the interest rates start going up, it signals trouble Greece in trouble ● Irish bonds were originally going up because it was openly bankrupt, but it began going down in 2009 ● Greek bonds are were going up as Irish bonds going down because Greeks were not open about it, they didn’t know yet ● 2009: New elections and a new government in Greece ○ They blamed the last government about the financial problems realized that they messed with the books and the numbers ○ The previous annual budget deficit of 6%, but the new governments said it was actually more like 13.6% ■ Investors took their money out ■ Investment bankers began betting against Greece ● Greece began doing better ○ But investors were not convinced, and this led to a cycle of misery ● Austerity measures were imposed in Greece Before this, didn’t think members of the EU could go bankrupt ● There was no mechanism of bailing out other countries ● But this tells investors that they were right all along, so it means members are really bankrupt, so they’ll start demanding more ● This psychology leads to higher interest rates The cavalry needed to come in and save Greece ● And the cavalry was Angela Merkel ● But this was a bad political move, because German voters were not going to like this ● She thought she needed to get away from EMU rules in order to do this ○ Remember, EMU rules say members don’t need to take on debt of other members ○ Moral hazard: the dilemma that Merkel faced: ■ If you bail the Greeks out, you’re encouraging the behavior that led Greece to trouble; if you don’t bail them out, you’re creating big problems for the Eurozone the investors would think that if you let the Greeks go under, you’d let other weak links go under: Ireland, Spain, Italy, etc. ○ What did she do? Nothing ■ Investors forced her hand Greek bailout: May 2010 ● 110 billion Euros ● This was the first crisis in a series ● The Eurozone was designed not to deal with these problems, but they realized they had to ● So this money did not bail out Greece because the changes they needed to make were just too drastic ○ The political will was not there ○ And austerity means you’re artificially creating a recession ● 2011 Talks began by about a new bailout 2012 2nd bailout: 130 billion Euros ● largest bailout in history ● Greece’s problem: their public sector was going bankrupt while the banking sector was OK because it had not bought toxic assets ○ But they started going under because they had investments in their own (Greek) government ○ The idea is that governments can always pay bank their investors because govts can print money ○ But what happens if you print more money? Inflation destroys the value of your currency ○ But governments did not have that option because they were not in control of it ● They needed money to prop up their banking sector ○ If the banking sector goes, there goes your economic growth So the bailout had a requirement ● Germans said Greece had to get a “haircut” ○ They had to differentiate between junior and senior investors ○ Junior investors had to take a 53% loss ○ This devastated the economy ● It made the entire external debt to be held by the public sector ● Nobody knew this: by law, every public agency that has excess reserves above their operating costs had to invest those amounts in the Central Bank of Greece ○ Which it had invested in government bonds Who came next: Ireland, Portugal and Cyprus declared bankruptcy ● Austerity was imposed on all of them to get finances back up 2012: Fiscal Pact on the entire Eurozone ● Official EU policy now ● National budgets have to be scrutinized by the Commission and by their peers ● So you propose the budget, send it to Brussels, they decide what they want you to change ● So now the Commission has considerable power ● It made matters worse because it has promoted fiscal integration but there is no accountability ○ Voters want politicians to do what they want ○ But now national politicians are accountable not to the voters but to Brussels and other politicians ○ Voters have no say in the Fiscal Pact The system is now far more interlinked ● They now have a fiscal union ● Which makes politicians lie politicians’ positions do not depend entirely on voters ● Voters may want them to spend but Brussels is telling them to raise taxes Greater integration has led to the ESM European Stability Mechanism ● A bailout mechanism ● Legally, bailouts are not allowed, but now you have a mechanism to do that Ireland, Portugal, Cyprus were all able to repay their loans and bailouts But Greece needed a 3rd bailout ● Greece had a public debt of 125% of GDP ● 3 bailouts and a recession later, Greece has a worse 177% debt of GDP ● Problem 1: are we pouring money down the drain? ● Problem 2: how to fix this? ● Politicians have to start taking the blame, but they won’t do that because they are masters at deflecting blame onto creditors Germany, Finland, other countries ● Even German politicians will do this it is easier to blame Greeks than self To add to all of this: Refugee crisis of 2015 Thurs. Nov 12 Accountability and Legitimacy of the EMU ● The refugee crisis has raised the issue of accountability and legitimacy 2 ways to understand democracy and accountability (in general not just EU) 1. Accountability by process a. Elections (we equate elections with accountability) i. But even if elections are open and competitive, you still have issues of accountability because elections are held only every 4 or 5 years ii. A lot of things can happen during that time iii. It’s problematic, because you get 1 chance in 1 point in time iv. And the individual you vote for comes with a package party b. Participation i. Other forms of voter participation besides elections ii. Politicians have to make people feel like they're part of the process iii. Politicians have to go to people and campaign c. Problems with this: elections are problematic, they are costly In this aspect, the EU fails 2. Accountability by result a. You hold people accountable as long as they have produced desirable results b. But problem: voters can only know that politicians produce desirable results if they pay attention, and we tend to tune out we only intervene when something really bad happens The EU uses this more but as long as politicians are doing the right thing, they don’t get voted out Popular discontent of the EMU ● The EMU has produced significant austerity ● Because the EMU externally imposes things on members ● Which allows members to blame the EMU about external impositions ● Even if the EMU does not do things The EMU fails at accountability ● It does not allow accountability by process (no elections) ● It does not allow accountability by results (can’t intervene) ● Makes people feel like they have no choice in the system ● They have not been able to fix accountability problem This tends to encourage questions of efficacy ● People tend to think “my vote doesn’t count” ○ So we tune out, we don’t get involved ● But when you start tuning out that’s when democracy suffers ● If you don’t put anything into the system, you won’t get anything out of the system ● This encourages autocratic systems, not democracy This is happening in Europe people are not getting involved ● So a significant amount of votes are going to radical right wing parties Agriculture Agriculture and agricultural policy are very important in the EU ● Until 1980’s, 70% of EU budget went to agriculture 1960’s DeGaulle was upset that the EU was not doing more to promote France’s national interests ● He boycotted meetings until he got what he wanted ● “Empty chair policy” French representative would not take part in the meetings ● He wanted more stuff out of the EU ○ Because the EU was originally created to facilitate trade ○ Trade creates winners and losers ● He thought France was losing, Germany was winning ● So he wanted to creation of the Common Agricultural Policy Common Agricultural Policy (CAP) ● It is a policy of farmers that helps (on a European level) produce more and better quality ● And to do that, we are going to subsidize farmers ● Countries had decided long ago to produce their own food, because in times of war, you don’t want to rely on others to sustain yourself ○ France had the largest agricultural sector with the most people employed in it ● It was conceived as a way to protect farmers by securing prices for them What is subsidized farming? ● The government will guarantee a certain price for production ○ So if the price of the commodity goes down (if the market is flooded with it), the government will step in ● Another way to subsidize: Production quotas ○ Govt will guarantee price as long as yield falls between a certain minimum and maximum amount ○ This encourages farmers to produce more of some things, less of others ● So essentially, the govt will pay farmers to not grow certain things ● It gives incentives for farmers to overproduce some things and they will still get the same money ● But if there is a flood in the market, the govt has to buy it and store it somewhere ● It was too expensive 1980’s: Needed to reform of the system ● It was costing way too much ● Subsidies became linked to social objectives ● The CAP became a way to subsidize farmers to pay them so they’ll have an income and not about what/how much they produce ● This led to many people becoming farmers Social cohesion/ regional development funds ● Agriculture started getting social components ● If you lived in rural area, you were by definition considered a farmer ● But this meant that the EU was not producing as much and it was still spending a lot on farmers ● Now: the CAP has gone below 50% ● But why have they done this for so long? How agriculture policy is made in the EU: ● Decisions made in these 2: 1. CoRePer a. There is a special CoRePer for agriculture 2. Council of the EU a. There is a council for agriculture b. If they don’t agree on things, last year’s price is valid c. So incentive: don’t change anything and the money will come d. It is designed to promote stability ● It came back to haunt them ● The only way they agreed to changes to agriculture policy is because other councils/sectors came to them and made deals
Are you sure you want to buy this material for
You're already Subscribed!
Looks like you've already subscribed to StudySoup, you won't need to purchase another subscription to get this material. To access this material simply click 'View Full Document'