The euro crisis has taken the form of a succession of national crises threatening the integrity of the monetary union. The response, each time, involves heads of European states meeting in Brussels or Berlin to agree on a rescue plan and hesitantly approving the necessary improvements in European governance. After Ireland, Portugal, Spain and Greece, does it even matter who’s next on the cliff’s edge?

It turns out the latest focal point in the currency area is not your run-of-the-mill European debt crisis, and involves one of the EU’s smallest members: Cyprus.

In addition to being a stunning mediterranean island, Cyprus, which joined the EU in 2004 and adopted the euro in 2008, has long been a political intrigue. Its contemporary history has been dominated by the struggle for sovereignty between Greek and Turkish Cypriots, the former having established de jure control over the island since the 1970s.

Today, against all odds, it finds itself in the spotlight of global financial news. On June 25, 2012 it became the fifth euro zone country to request an emergency bailout. Like Ireland and Spain before it, the Cypriot government faces the task of recapitalizing a collapsing financial sector. Indeed, Cypriot banks were heavily exposed to the Greek economy and held vast amounts of Greek government bonds, which were restructured last year as part of Greece’s own rescue plan. A nice, clean domino effect.

The Cypriot bailout negotiations have been dragging along ever since – surprised?

The government requires €17 billion, 10 of which would have to be injected into the country’s banks. This is a negligible amount when compared to the €500 billion European Stability Mechanism, not to mention the Euro Zone’s €10 trillion worth of annual output. However, considering that Cyprus’ GDP amounts to nearly €18 billion, this could be one of the largest bank recapitalization bills in history, relative to GDP, thus threatening to place the government in a debt overhang.

The central question in the current negotiations is over who will pay the bill: the banks’ depositors, government bondholders, or European taxpayers?

So far so good. A classic European sovereign debt crisis. But there’s more to the story.

A major obstacle in the negotiations is an ideological one. Brussels (not to say Berlin) and Nicosia aren’t on the same page when it comes to structural reforms and privatizations, which would help alleviate Cyprus’ impending deficit. It just so happens that Cyprus’ president, Dimitris Christofias, is the first and only communist leader in the European Union. A final agreement is to be reached only after the presidential election on February 17, in which Mr Christofias is not seeking re-election and will most likely be replaced by the center-right candidate.

The next complicating factor is Cyprus’ odd ties with Russia, where comrade Christofias studied in the early 1970s. In addition to receiving a low-interest loan from Russia last year, Cyprus is a well-known tax haven, in particular for Russians who reportedly hold one fifth of total bank deposits on the island.

This has serious political implications: a European-funded bailout would essentially cover the losses for Russian billionaires, a situation that European citizens and their politicians may feel somewhat uncomfortable with. In fact, the German foreign intelligence service has investigated the case and reported that the main beneficiaries of European taxpayer money would be “Russian oligarchs, businessmen and mafiosi who have invested their illegal money in Cyprus.” Germany itself is in the early stages of an election campaign – add to the “complicating factors” list – and Angela Merkel faces great political costs if she is too soft on Cyprus.

On the other hand, placing part of the burden on depositors would of course hurt ordinary Cypriot citizens as well as the Russian-held portfolios, many of which are disguised as domestic investments. In foresight it seems fair that investors who piled their money in Cyprus to escape taxes should bear part of the cost of Cyprus’ bailout. Yet targeting depositors could create a dangerous precedent and cause a bank run (with potential spillover effects) as well as a strong reaction from Moscow, turning a financial crisis into a geopolitical one.

Meeting between the European Parliament Conference of Presidents and the incoming Cypriot Presidency of the council of Ministers in Cyprus

What are the alternatives? Restructuring Cypriot government debt through haircuts would break the EU’s pledge that Greece was a unique case, and the risk of a bond market contagion would resurface. Moreover, more than half of the government bonds outstanding are held by Cypriot banks, which would merely add to the bailout tab. In addition, Cypriot bonds are governed by English law, which protects investors in such cases.

Another possibility would be to impose haircuts on bank creditors (“bailing-in” the banks). However, as an article from the Peterson Institute of International Economics points out, bonds represent only 1 percent of Cypriot bank liabilities (€1.8 billion), not to mention that many are held domestically.

What options remain? As the PIIE article suggests, the solution will have to be acceptable to the euro area, Germany, and Russia, and will most likely combine various restructuring schemes with the usual set of IMF-imposed structural reforms. The Irish bailout involved contributions from non-eurozone countries that had large stakes in the Irish financial system. Such a plan could be replicated in Cyprus, with Russia providing direct contributions to alleviate the size of a Troika bailout. The risk here is giving Russia too great a say. This would damage the eurozone’s ability to enforce its legislation within its own borders.

The amounts in question are so small in absolute terms that there should be no doubt as to whether an agreement will be reached. Any talk of a Cypriot exit from the euro is nonsense. Moreover, Cyprus is endowed with positive growth prospects.

Still, if European taxpayers are involved in the rescue plan, as they probably will be, the least Brussels should do is bring Cyprus to comply with the EU’s tax legislation and to revisit its business model. In what appears to be the most politically complex bailout package since the beginning of the euro crisis, one should hope that Brussels comes up with a bold, decisive plan. If not, the dominoes will fall and more embarrassing national crises will be on their way.

(Featured photo: European Parliament. Creative Commons, Flickr)

(Photo Body 1: European Parliament. Creative Commons, Flickr)

Dis­claimer: This art­icle was ori­gin­ally pub­lished as ”Of German Spies, Russian Mafiosis and a Debt Crisis“ on January 21, 2012 on The Polit­ical Bouil­lon, EST cooper­a­tion partner.

Germany has taken the long road on its way to becoming the progressive force that it is today. Their recent election to the Human Rights Council of the United Nations underlines the level of trust and recognition Germany has earned from the international community. But despite the progress it has made, rightist extremism in Germany remains a matter of concern. It will take unity between all actors within German society in order to end the persistent problems of intolerance and hatred.

Right extremism is a very sensitive issue in Germany and, given its troubled past, it is very hard to distinguish between German patriotism and racism. Germans have continuously lamented that they wish to be proud of their ‘Vaterland’ again. They say they wish to exercise peaceful patriotism without being condemned right-radicals, or even Nazis. This makes extremism very difficult to quantify.

A study by the Friedrich-Ebert Institute has shown that 1 in every 10 Germans examined show ‘right-radical tendencies’. It is difficult to assess what to make of such information since ‘right radical’ tendencies could describe a patriotic German that thinks that German values should be protected, or it could also describe an extremist that actively tries to confront immigrants. The same study showed that in East Germany, which became part of the Federal Republic in 1990, every 6th citizen showed signs of these same ‘right-radical’ tendencies.

The right-radical National Democratic Party (NPD) has had electoral success in Eastern Germany, having surpassed the five percent threshold needed in order to enter the parliaments in two Eastern states. Right radicalism offers a new home to those unhappy with Germany’s increasingly costly role in the European Union. Germany’s transition into to a multicultural society, and the abandonment of German values are two other key factors for the rise of rightist extremism. It is especially attractive to East German youth who face higher unemployment rates than their counterparts in the West and have, historically, not been exposed to the same levels of immigration prevalent still today in West Germany.

Right wing extremism is a multi-dimensional issue. Its most common form of expression in day-to-day life is the blaming of immigrants for criminal and unemployment problems. Yet it can also occur in the most extreme cases as exemplified by the recent actions of the NSU (Nationalsozialistischer Untergrund), which recently conducted a series of crimes and murders on mostly Turkish-owned businesses and families.

The actions of the NSU sparked  a scandal in German domestic politics. To many, it was shocking that German investigators had not been aware of the NSU’s serial rampage until 2011. The fact that an NSU bomb containing 800 nails, injuring 22 civilians in a Turkish neighborhood, did not incline the police to investigate a right-extremist terror attack raises questions about how serious the authorities take right extremism in Germany. German policymakers now suggest broadening and enforcing the mandate of the ‘Verfassungsschutz’, which observes all organizations suspected to be undemocratic, as well as conducting an investigation into how it has been possible for terror groups like the NSU to operate without being suspected. Policymakers have been eager to remove any institutional safeguards for right extremist groups. The most ambitious multi-partisan initiative to ban the right-radical NPD has continuously resulted in failure because Germany’s constitutional court may only ban undemocratic parties. The NPD continues to successfully deny any allegations of being connected to extremists groups.

Institutional reforms by Berlin’s policymakers  cannot be the only means of confronting  rightist extremism. Civil society has to actively oppose such currents by promoting transparency through educational and multi-cultural events but also by making it clear to the rightists that they are not welcome to march in their cities. Although some Neo-Nazi demonstrations remain uncontested, a recent counter-demonstration of civil activists in the South-Western German city of Göppingen forced 400 right extremists to change their march route and time and ultimately abandon it.

Civil initiatives like this make it clear that Neo-Nazis are not welcome in Germany and civil initiatives like ‘Stoerungmelder’, one of the most well-organized initiatives against right extremism, show that there is a will to tackle this issue seriously. Unfortunately, civil society engagements are not constantly strong in all parts of Germany. German Social-Democratic politician Wolfgang Thierse argues that the higher rates of right-extremism in Eastern Germany is linked to the weakness of its civil society (this is surely connected to the suppressive nature of the communist East German regime after WWII). The German government has to finally make fighting radicalism a priority and strengthen more civil initiatives through financial support.

Germany is inevitably becoming an increasingly diverse society, having always relied on immigration to fill the employment gap in her booming export economy. The first sentence of Germany’s constitution states that human dignity is inviolable;  underlining that radicalism shall never undermine civil rights in Germany again. Germany’s policymakers and its civil society have to work hand-in-hand to show the world that the Federal Republic of Germany upholds tolerance and successful integration by actively fighting right extremism.

-  George Kibala-Bauer

(Featured photo:  Stephen Mackenzie, Creative Commons, Flickr)

Dis­claimer: This art­icle was ori­gin­ally pub­lished as ”‘Tode dem Faschismus’: Germany’s struggle against Right Extremism’“ on Novem­ber 25, 2012 in The Polit­ical Bouil­lon, EST cooper­a­tion partner.

Figuratively speaking, the young generation, which enters the workforce, is walking on a boulevard of broken promises. Most likely, this generation will witness a substantial delay in their retirement. Furthermore, the working generations to be will contribute from their meager incomes to the existing pension funds to support the next and existing retiring age groups. In addition to such unsustainable investment schemes, which have been based on rhetorical promises rather than real quantitative calculations, young people have little chances of accumulating similar wealth due to the lack of jobs and issues in the housing markets. Unfortunately, the burden will get even heavier. As the population of the Western world ages and consequently exits the labor force, the shrinking workforce must support the expanding number of unproductive retirees.

Pointing the blame on the retirees would be both foolish and unfair. Author David Willett asked if the Baby Boomers are a lucky generation or just a selfish one. Drawing conclusions on assumptions or backing up claims using bitterness cause further tensions in the existing debates. However, it must be noted that the retiring generation is at least a careless one. Assuming that long economic growth makes future generations richer is a hasty generalization and such reasoning ultimately has led to the diminishing contributions to the younger generations from the soon-to-retire generation. For example, currently working generation, who is going to retire in soon, is not going to contribute to the future generations or open opportunities for them, rather pay to the deficits of the current system. At the same time the younger generations must face their shortcoming. Gaining education, for example in creative writing, (least likely to find a job upon graduation) until the age of 28 is utterly pernicious to the economy in the long- run, because the average time spent in the workforce ultimately decreases as time in education and retirement increased. Below is a rather pessimistic, yet truthful representation of the dependency ratio, which illustrates the current situation. During the 1950’s, time spent in education was lower than in 2004, which may propose an argument that longer education with longer life-expectancy can decrease the time spent in workforce. This pattern is also exhibited in the graph when time spent in labor has decreased during this period by close to 6 years. On top of this the time spend in retirement has increased due to the improvements in standard of living, hence people live longer and enjoy the benefits of pension funds. An increase of over 9 years spent in retirement in addition of 6 years decrease in labor is by every measurement unsustainable scheme, which is more of a ticking time bomb than severe bubble.

Myth 4: Turkey is not in Europe.

Is Turkey in Europe? If you ask Turko-skeptics, it definitely is not. The popular rhetoric is that only 3% of the Turkish land mass is in Europe and that does not qualify it as a “European” country. It is true that the percentage of Turkish territory on “European continent” is relatively small. However, if a country’s right to EU- membership would be based on territorial grounds than there would be even less justification for the membership of Cyprus, which has no land connection to “the continent”. However the problem with this argument – Turkey not being in Europe- is not about the percentages. The problem is limiting “Europe” to geography whereas ignoring political, economic, cultural, social, educational Europe and the Europe of values. In the following parts let us look at the reasons why a geographical approach to Europe is especially popular when it comes to countering the Turkish bid to the EU and then move on to the discussion whether Turkey is in Europe, or in what kind of Europe.

European Geography

The geographical frontiers of Europe have always been indeterminate and arbitrary. One historical geographer actually notes that the very term, the “Continent of Europe” is a misnomer, because according to the most recent, that is nineteenth century, recognized definition of ‘continent’, it should be a mass of land surrounded by seas: ‘The notion of a “continent” was formed in that Mediterranean civilization (The ancient Greeks and the Romans etc..) but does not fit its own self-description as the ‘‘continent of Europe’’.[1]

For the European political project which we now call the EU, geography is not irrelevant but as we have witnessed throughout its 60 years of history, it is not strict either. Starting with a limited number of core states, the project has expanded to include almost the entire “Continent” and even an island state with which it does not share any land connection at all. This is a clear indication that geography is a part of our understanding of Europe yet it does not have as clear and well defined criteria as in the case of the political, financial and normative aspects of the EU. Does this answer whether Turkey is in Europe or not? Not entirely, but when one asks if Turkey is in Europe the answer should include geography but should not be limited to it. Otherwise it will clearly underestimate the vision and true meaning of Europe and the Union. 

Popularity of geography

Why is the geography argument popular? The answer is simple: this is the least favorable criteria for Turkey. Furthermore, unless they decide to “invade” (!) new territories in “Europe”, the Turks cannot solve this territorial problem. Naturally, even the Turks understand that this would not be a very bright idea.

It is true that Turkey does not lie at the heart of “European “geography” but it is equally true that when Cyprus, Estonia or Moldova received the ticket to the EU, the geography argument was not of great importance. There are various aspects of Europe and the new or potential members are expected to uphold certain criteria to be able to become a part of this community. 

On the other hand, as Europe is an entity larger than the territorial understanding it entails, the involvement of Turkey in various complementary aspects of Europe are different. In other words, Turkey is a part of economic Europe, social Europe, educational Europe and it is trying to become a part of political Europe and Europe of values.

Many Europes

Without going into detail, I would say that it is a well established fact that Turkey is already an integral part of Economic Europe. Customs agreement, high volume of tourism industry and constantly increasing levels of trade has already made Turkey a part of Europe.  Moreover, it could even be argued that Turkey is even ‘more part’ of Economic Europe than several members of the Union.

Every year thousands of European students come to Turkey and an even higher number of Turkish students go to various EU countries. Exchange programs, different EU-funded education projects that take place at various education levels, visiting and permanent scholars on each side, all  strengthen the ties created via education and proof the fact that Turkey is already very much part of educational Europe.

When it comes to values, the reformation process which achieved significant progress during early 2000s, yet faltered in the last couple years due to issues and problems on both sides, provides the key for Turkey to improve its place in Europe of values. Turkey wants to be an inseparable part of the European values system and it has taken initial steps toward it even though significant issues are awaiting attention (Armenia, Cyprus, Kurds and other minorities). However, European ambivalence about the Turkish membership and the anti-Turkish rhetoric of the leading EU members cause fluctuation in Turkish governments’ efforts. It is diminishing the very much needed political morale to continue reforming the problematic areas.

Finally, Turkey is not entirely in political Europe but that is the point of aspiring to be an EU member anyway. Until a country is a member of the Union, its involvement in political Europe will be limited. The Turkish government is participating in various bodies of the European political system, the final step being full membership.

All in all, Europe is much bigger than the geography argument entails and Turkey is a part of different faces of Europe at different degrees. The geographical argument against Turkey is popular as it is more visible and more fixed yet it is also an area where in Europe has been relatively flexible in the past. What Turkey needs to do is to maintain and strengthen its position in economic, social, educational and especially normative Europe to pave the way to its integration in political Europe.

On February 25, 2011, French president Nicholas Sarkozy spent “300 minutes” in Turkey. He became the 3rd French president that visited Turkey in the last 100 years, even thought he was not in Ankara as French president since he visited Turkey as the chairman of the G20. His visit took place after a hiatus of 19 years since François Mitterrand came to Turkey in 1992, toward the end of his tenure. What does this “300 minutes” Sarkozy spent in Ankara mean for Turkey, for France and for the rest of the EU?

The visit did not start well nor did it end promising. Shadowed by the bitter taste of the last visit of the Turkish president to France, the visit turned into a diplomatic battle field where we have seen further retrenchment of already unfruitful approaches to Turkish-EU relations in general, and Turkish-French relations in particular. In a nutshell, nothing new was said by any side and the president’s visit to Turkey was far from being productive neither for France nor for the EU. On the contrary, the dominant view in diplomatic and political quarters of Ankara was that the president Sarkozy did not need to come all the way down to Ankara to play the same song he has been playing for quite a while.

While the “300-minutes-visit” was announced as a working visit to Turkey as the Term Chairman of the G-20, the main focus of it remained Turkish-EU relations. The French president used every opportunity to tell the Turks that they do not belong to Europe for various reasons. Sarkozy reiterated his views on the nature and future of Turkish EU relations, which he shares with German Chancellor Merkel: privileged partnership or expanded cooperation. The Turks however, kept reminding him of the fact that Turkey is in the accession process only to attain full membership. Despite the similes to the cameras and the happy-warm handshakes, Sarkozy’s insistence to keep the visit short, excluding any social-cultural program, refusal to name and conduct the visit as an official visit of the French president instead of G-20 chairman, and on top of that signaling the fact that France wants a piece of the Turkish Nuclear energy pie, turned the already cold atmosphere to freezing.

The Turks: What to do with them?

When one looks at Turkey from a Sarkozian window, one sees that Turkey is that alien organism foreign to European habitat (which is ironic for cultural, historical and political reasons and this irony becomes even more obvious if we look at the gift the Turkish premier presented to president Sarkozy at the end of his visit[1]). The organism is not an insider of the system yet, but it provides various benefits for the system. Sarkozian view calculates that we cannot make it an insider for better or for worse, for rational or irrational reasons. However, we cannot reject it either, as the repercussions of such a decision are difficult to grasp and probably won’t be productive neither for French nor EU interests. What Sarkozy, Merkel and the rest of the “privileged partnership coalition” dream of is the third option. There may be 300 implications of the visit that lasted 300 minutes but the most important for the Turks is the fact that if they want to be a member of the EU, they have  work harder as. Turkey doesn’t not only have to improve its scores on various fronts ranging from human rights, minorities, role and status of women, to political freedom, economic stability and so on, but also find ways to effectively deal with anti-Turkish membership initiatives.

What should France expect?

The implications of this visit are no less disturbing for France than it is for Turkey. The bilateral relations were not balmy before the visit and no one really expected a miracle within 300 minutes, yet the attitude of president Sarkozy and the way he formulates his Turkish policy keeps taking a toll on French political and economic interests. French companies are excluded from military deals and now it seems that France will have to gaze from a distance at the huge investments the Turkish government is making in nuclear energy. Considering the unrest and recent elevated instability in the Middle East and North Africa, France would significantly benefit from a political and diplomatic cooperation with the Turks. In any case, French need to carefully calculate the costs and “benefits” of the current tense relations with Turkey.

The European Question

For the EU, the problems are far more complicated. Who belongs to Europe is not possible to answer when there is unclarity and confusion on what ‘Europe’ is. What makes us European or non-European? To what extent religion plays a role in terms of being or not being European in secular Europe? What the citizens of the member states and the governments need to figure out is who and what Europe is, and if Turkey does not fit in to this picture, what is the alternative scenario for Europe once the Turks receive the stamp of rejection?