European Student Think Tank

The cur­rent global fin­an­cial crisis has iron­ic­ally pro­duced a rather sur­pris­ing and benign unin­ten­ded con­sequence. Since fin­an­cial glob­al­iz­a­tion has shaped the world’s mac­roe­co­nomic paradigm after the Bretton Woods sys­tem, the cur­rent status quo has come under fierce cri­ti­cism. More spe­cific­ally, the dollar’s “exor­bit­ant priv­ilege” is no longer con­sidered to be a gran­ted right, in par­tic­u­lar after the reck­less­ness of U.S eco­nomic activ­it­ies prior to the fin­an­cial melt­down has become evident.

The European eco­nomy is in the midst of the deep­est reces­sion since the 1930s. Although its size and extent are excep­tional, the crisis has many fea­tures in com­mon with sim­ilar financial-stress driven reces­sion epis­odes in the past. Signs of improve­ment have appeared recently, but recov­ery remains uncer­tain and fra­gile. For­tu­nately, the EU’s response to the down­turn has been swift and decis­ive. At present, gov­ern­ments
and cent­ral banks are well aware of the need to avoid the policy mis­takes that were com­mon at the time of the Great Depres­sion, both in the EU and elsewhere.

Recently Prof. Joseph Stiglitz, one of the world’s most fam­ous and pop­u­lar eco­nom­ists presen­ted his latest best­seller “The Price of Inequal­ity” at an event of the Ger­man Coun­cil on For­eign Affairs. EST’s Stylia Kam­pani was around and presents a sum­mary and some thoughts on its content.

While the rampant inferno of the fin­an­cial crisis has been tem­por­ar­ily con­tained, Fin­land has recently stunned EU lead­ers, who have been pro­mul­gat­ing the import­ance of the fin­an­cial bail­outs for both Greece and Spain by con­tem­plat­ing a Finnish exit from the euro­zone. Henri Erti explains why Hel­sinki believes this might be wise.

The pos­sible imple­ment­a­tion of a com­mon sys­tem on tax­ing fin­an­cial trans­ac­tions on EU level in the middle of the loom­ing euro crisis may seem to some like a res­cue plan, but for oth­ers is simply reck­less. Opin­ions about the fin­an­cial trans­ac­tions tax (FTT) pro­posed last Septem­ber by the European Com­mis­sion not only diverge drastic­ally, but argu­ments evoke a whole wide vari­ety of geo­graph­ical asso­ci­ations, from the French Tobin tax to the UK City of London.

The fin­an­cial mar­kets have been sub­ject to con­sid­er­able cri­ti­cism in the last weeks; ana­lysts are wor­ried that fin­an­cial con­sid­er­a­tions will dic­tate decisions that should be taken via a demo­cratic pro­cess. By ana­lyz­ing the reas­ons and the effects of the cri­ti­cized beha­vior the con­clu­sion must be drawn that Europe in the long term should be grate­ful for the present warn­ings of the market.

Euro­zone lead­ers have agreed to boost the European Fin­an­cial Sta­bil­ity Facility’s lend­ing capa­city to one tril­lion euro, believ­ing that this should calm mar­kets and pre­vent the “con­ta­gion” from spread­ing to Italy or Spain. How­ever, there’s neither an agree­ment yet on how to “lever” the EFSF, nor on who is going to pay for it. A short over­view might shed some light on the issue.

In the tur­moil of the European fin­an­cial crisis, the pro­ject of European integ­ra­tion seems to have lost its appeal­ing attract­ive­ness. Our politi­cians are not con­sidered to be the lead­ers Europe needs. The European Court of Justice how­ever con­tin­ues to stress the import­ance of the European pro­ject and its approach towards Europe and its import­ance provides some use­ful les­sons for our politi­cians in order to become true leaders.

At times it feels like the story is repeat­ing itself over and over again: The EU helps Greece re-finance its loans, and in return asks the coun­try to reform and mod­ern­ise. Then Athens announces that meas­ures will fail to bring about the desired res­ults and the EU urges the gov­ern­ment to take even more drastic actions. To no avail. It’s time to let Greece default. Any other solu­tion will fail and be more costly.

The EU stands at a his­tor­ical cross­roads today and it has to make a dif­fi­cult choice. Its decision could send it on the path of ever-closer cooper­a­tion and prosper­ity, or ini­ti­ate a very slow pro­cess of dis­sol­u­tion. The prob­lems Greece faces today are thus much more sig­ni­fic­ant than they seem ini­tially and require more than a tech­no­cratic approach to be solved. What Europe needs is some­body with a vis­ion, a truly European leader.