The following list provides summaries of the events that Streit Council Interns have attended from June - December 2012. They cover topics related to the Streit Council and the work we do, which includes everything from the EU’s foreign policy, to testimony before the House Foreign Affairs Committee, and ending with the ailing euro. These summaries are prepared for our Facebook webpage, which is updated regularly, but are provided here for easier access to those of you not visiting Facebook on a regular basis.
The events are:
The Greek Election and the Future of the Euro, June 17, 2012
Europe After the Greek Election, June 19, 2012
Is there Smart Defense without Smart Integration? The Impact of the Eurocrisis on NATO and EU Cohesion, June 23, 2012
TEDx Binnenhof Catwalk for Innovation: 10 Ideas Worth Spreading, June 25, 2012
Fannie Mae and Freddie Mac - Turning the American Dream into a Nightmare, June 27, 2012
Pondering Greece’s Future
The Greek Election and the Future of the Euro, June 17, 2012
Europe After the Greek Election, June 19, 2012
As European officials continue to search for a resolution to the ongoing Eurozone crisis, the Brookings Institution recently hosted a panel of top economists on June 14th to discuss the political and financial situation in Greece at an event entitled “The Greek Election and the Future of the Euro.” Held a few days before the actual elections, panelists were asked to give their perspective on the current crisis, offer possible solutions, and give their opinion on the outcome of the public vote.
Douglas Elliott, an Economic Studies Fellow at Brookings and former researcher for the Center on Federal Financial Institutions, spoke first, outlining the potential consequences of the elections. Sketching two equally likely outcomes, Elliott first described what would happen if the conservative New Democracy Party won. According to Elliott, a New Democracy victory would produce a working government with a thin margin, relying on the strength and support of a coalition formed with the socialist PASOK Party to achieve its goals. Unable to meet the bailout conditions, a government led by New Democracy would work to persuade the troika to relax the terms of the financial agreement. Throughout the tense negotiations, Elliott predicted that Greece and the Eurozone would suffer against volatile, rollercoaster market conditions. Unable to meet its financial obligations, Elliott stated, “Greece will likely run out of money shortly after the election, forcing the new government to pay its bills with IOUs, leading the troika to deny them more help, and ultimately resulting in a banking crisis.”
Moving on to the second possible outcome, Elliot explained that if the leftist Syriza party won the elections, Greece would demand dramatic changes in relations with Europe. Running on the platform that the bailout terms and increased austerity are economically harmful to the country, Syriza would completely reject the Memorandum of Understanding and its standing financial obligations. Given this course, Elliott stated that negotiations between Greece and EU banking institutions would be minimal and largely inconclusive. Elliott also left open the possibility that no clear majority would emerge from the elections, in which case the Greek government would continue to remain stalemated until another vote. Prompted by a question from the audience about the possibility of a Greek exit from the Eurozone, Elliott believed that Europe would be able to pull together to prevent the scenario. All in all, Elliott remained cautiously optimistic, envisioning intense brinkmanship pushing European leaders toward mutualizing risk and creating a banking union at the end of June summit.
Kermal Derviş, the Vice President and Director of the Global Economy and Development Program at Brookings, also presented his view on Greece’s debt crisis and mentioned several important solutions. Referring to the banking failure in Italy, Spain and Greece, Derviş started by asserting that “setting up a monetary union with the European Central Bank at the center robs countries of their own central banks.” Since Eurozone member states are unable to construct their own national central banks, he added, Europe needs a much more tightly integrated Eurozone with the ECB willing and ready to step into action during fiscal crisis. As Derviş continued to talk about the Greek crisis, he insisted upon the need for long-term structural reform in the country, a lifting of current austerity measures and a renegotiation of bailout conditions. Addressing these points, he declared that “the corrective fiscal measures in Greece need to be retooled because the idea that you can have growth while implementing extreme austerity measures is simply wrong.” As a solution, Derviş recommended that the ECB take immediate action by purchasing Greek bonds on the secondary market and allowing for massive debt relief. In response to the question about a Greek exit from the Eurozone, Derviş commented that only if Syriza won the election would Germany and other member states try to manage the country’s gradual exit from the monetary union. If New Democracy won, however, he said it would be difficult for Europe not to help and expel Greece. Derviş appeared hopeful that these proposals would help stabilize Greece and lead the Eurozone out of monetary disaster.
Resident Fellow at the American Enterprise Institute, Desmond Lachman, offered his take on the Greek situation as the last panelist at the event. Opening his presentation with a blunt observation, Lachman stated: “I don’t think we should overstate the outcome of the elections; it doesn’t matter who wins the elections, Greece is still about to default on its debt.” Viewing the country’s current debt crisis as a solvency, rather than liquidity, problem, he suggested that Greece would not be in this situation if French and German banks had not over-lent to the country in recent years. Alluding to European officials’ mismanagement of the crisis and ineffective austerity measures, Lachman offered a metaphor for Greece saying that “a patient’s primary diagnosis is extremely important and bloodletting is never a good method; furthermore, if you can see that a patient’s prescription is patently not working, you do not double up on the dosage.” Outwardly pessimistic about Greece’s future, he advised for the renegotiation of the bailout package and claimed there was no reason for the country to continue implementing fiscal austerity policies that had failed to produce any positive results in the past two years. Though he did not imagine a Greek exit from the Eurozone to be likely, Lachman considered the idea as a potential “Grexodus,” stating that “Greece’s only salvation is to get out of the euro crisis, out of the straightjacket.”
Following up on the latest political developments in Greece, the American Enterprise Institute hosted a panel on June 19th to discuss “Europe After the Greek Election.” Shifting their focus away from the internal Greek political environment, panelists examined what steps Europe and international financial institutions would take to help resolve the Greek and larger Eurozone debt crisis.
Bruce Stokes from the Pew Research Center spoke first, presenting data on European public attitudes toward Greece and the Eurozone crisis. According to surveys, only 27% of Germans held a positive view of Greece, while just 14% of Greeks believed that German Chancellor Angela Merkel has been doing a good job of handling the economic crisis. Investigating public opinion on financial and political institutions, only 15% of Greeks held a favorable view of the ECB and just about 18% of the people believed that their country had been strengthened by EU integration. Stokes elaborated on the implications of these findings, stating that “concern among the elites is not the failure of the euro, but disillusionment with the EU.” Although he believed that Merkel would eventually “do the right thing” by supporting Greece and the Eurozone, Stokes wondered if leaders might decide to abandon the common currency in order to save the European project. He remained pessimistic about the consequences of a potential Greek exit from the Eurozone, predicting restrictions on the free movement of people, goods and capital in direct opposition to core EU tenets should the country leave the group.
The second speaker, Alessandro Leipold from the Lisbon Council, began his speech by asserting that the current Greek debt crisis has challenged basic EU principles, specifically the idea that any kind of integration is permanent and irreversible. While he noted that the recent parliamentary elections have provided a temporary calm, Leipold claimed that “Europe’s management of the crisis has been inept, always late and certainly never preemptive.” Envisioning further brinkmanship between Greek and European officials while renegotiating bailout terms, Leipold believed that the IMF-ECB-Commission troika would start to promote structural, instead of simply fiscal, reforms. Acknowledging plans for the European Stability Mechanism as positive steps forward, Leipold ultimately remained skeptical of the ESM’s operational capacity, timing and amount of funding. Though he did not see the country’s exit from the Eurozone as beneficial or probable, Leipold commented that Greece would be unlikely to thrive whether or not it remained in the group. Foreseeing a tough road ahead for the country, Leipold remained cautiously optimistic that structural reforms and a relaxation of bailout conditions would help stabilize the Greek financial situation.
Next, Philip Suttle of the Institute of International Finance talked about the broader consequences of the Greek debt crisis and its effects on the economies and banking systems of Italy and Spain. Evaluating the outcome of the elections, Suttle maintained that there is “very little option except for the euro-partners to grant concessions to Greece,” including lower interest rates and extended maturity terms. Like the panelists before him, Suttle also supported the call for long-term structural reforms in the country to improve financial regulation. While officials and other experts have suggested the creation of both a fiscal and banking union to help resolve the crisis, Suttle considered fiscal union a “sound concept” but an impractical and unlikely development. With the massive tightening of monetary conditions only contributing to the Greek debt situation, Suttle affirmed the need to reestablish nominal growth through expansive fiscal policy and to weaken the euro as the best ways of fixing the crisis.
The last panelist at the event, John Makin, represented AEI as a resident scholar at the organization. Makin opened his speech by announcing plainly that “we have moved beyond Greece and are looking now at the spread of the crisis.” Focusing on the larger, macroeconomic implications of the Greek debt situation, he explained two possible outcomes for Europe. Given the current financial conditions, Makin asserted that either the Eurozone would collapse as a whole, or only the strongest members (France and Germany among others) would remain as a smaller common currency group. Viewing increased austerity as politically unviable and structural reform as a non-immediate solution, Makin questioned whether any course of action would not prolong or intensify the crisis. At the end of his presentation Makin ultimately concluded that the Eurozone would collapse, stating that “Europe is not a coherent actor, so maybe we cannot have a single currency.” With a negative outlook towards Greece and the Eurozone, Makin closed his speech by suggesting that Europe “push the reset button” and start from scratch with a fiscal union that would one day evolve into a deeper monetary union.
Comparing both the remarks and attitudes of the panelists at the two events, there has been a perceptible change in the tone and commentary about the debt crisis since the outcome of the Greek elections. At the Brookings event, before the Greek elections, the experts spoke almost exclusively about the situation in Greece, focusing on how increased austerity or exit from the Eurozone would affect the country. Panelists discussed the influence of Greek politics on the negotiation process and considered how government and society might change under increased austerity. Evaluating the panelists from the Brookings event, Elliott and Derviş remained optimistic that Greece would slowly work towards achieving financial stability, while Lachman appeared pessimistic that troika negotiations would help pull Greece out of the crisis. By contrast, experts at the AEI event held after the elections spoke mostly on the external consequences of the Greek debt situation, considering how the country’s financial downturn would affect the Eurozone and the EU. Worried panelists offered suggestions on how to contain the Greek contagion, articulating fears about an increasing lack of confidence in the Eurozone project and growing disillusionment toward deeper EU integration. The panelists promoted technocratic solutions for the debt crisis, debating the effectiveness of EU financial assistance, Eurobonds and budgetary restructuring. Experts at the AEI event had moved on from the question of Greece, with Suttle, Makin and Stokes largely pessimistic about the future of the Eurozone. Only Leipold appeared cautiously optimistic that structural reforms and renegotiations could stabilize Greece and other failing member states. Though attitudes toward the ongoing Eurozone crisis have deteriorated since the Greek elections, positive results from the upcoming EU summit at the end of the month hold the potential to reinvigorate public opinion and help steer Greece and the Eurozone back toward stability.
Is there Smart Defense without Smart Integration? The Impact of the Eurocrisis on NATO and EU Cohesion
SAIS Center for Transatlantic Relations, June 23, 2012
The discussion among five panel experts at this event outlined potential effects of the Eurocrisis on European defense and transatlantic security. The discussion started with the question of why the United States should care about transatlantic security? A remark was made that “the great repository in the world to do what America wants lies in Europe.” Furthermore, Europeans want Americans in Europe and Americans need them in the rest of the world.
The idea underpinning NATO’s Smart Defense initiative is not a novel one and people have been talking about it for years as a cost saving measure. One of the panelists expressed his opinion that the Eurocrisis has exacerbated the decline in defense cooperation in Europe, as currently, most countries dealing with economic distress are unlikely to participate in this. In the past couple of years, particularly the smaller countries of the European Union have made significant cuts in defense spending. This includes, among others, Latvia, Lithuania, Portugal, and Greece. The positive side of this is that even after these cuts, the European Union countries in NATO constitute the second largest military in the world. Furthermore, despite the decline in EU defense as a whole, Germany has successfully improved military efficiency and surveillance methods. Unfortunately, however, there is a big discrepancy in the amounts being lost and gained.
Smart Defense in Europe has already failed on some levels as a lack of trust makes it difficult for Europeans countries to cooperate. In 2010, there was a Franco-British attempt at such cooperation; however there were obstacles on how to go about it and how to raise enough funds. Finally, the United Kingdom backed out when France started to move toward wider cooperation within Europe. Britain’s isolation from Europe is one of the reasons Franco-British cooperation cannot work. Furthermore, Francois Hollande’s recent election has pushed France further toward a social democratic coalition rather than one with isolationist Britain, or Merkel’s Germany. Basically, as one of the panelists put it, “when was economic hardship a time for solidarity?”
Finally, the panelists touched upon the question of NATO in European integration. A panelist concluded that the Alliance plays an important role in European integration as political trust is a necessary component of it. He also debated the more complex topic of European integration’s role in the Alliance.
The topics from this discussion are explored more extensively in CTR’s new publication entitled “Dynamics of Alliance Cohesion and Integration: The Implications of the Eurocrisis on the European Security Architecture.”
TEDx Binnenhof Catwalk for Innovation: 10 Ideas Worth Spreading
June 25, 2012
This independently organized TEDx event focused on several Dutch individuals who are revolutionizing the international community in the areas of technology and agriculture. The Netherlands is a global leader in the area of clean energy technology, so naturally this field was a major topic of conversation at the TEDx event. In particular, three speakers discussed sewage mining, tidal energy and portable well drills.
Charlotte Van Erp Taalman, an expert in environmental technology who currently works for the Dutch national water authority, discussed how sewage is one of the world’s largest untapped resources. She suggested that, by treating sewage water, the world could gain back vast amounts of useful elements, energy and nutrients that it had once believed were used up and lost. Allard Van Hoeken highlighted the potential to utilize ocean and sea water. He is one of the primary engineers behind Bluewater Energy Services’ underwater turbines that will attempt to harness the energy exerted by tides. He explained that this is essentially the same idea and design as a windmill, but underwater. Lastly, Floris de Vos, the creator of the “flo flo” portable water drill, discussed how his technology brings fresh water to hundreds of people all over rural Africa. His simple water drill technology, which only weighs about 150 pounds, is user-friendly and has stimulated the African economy and society in ways that typical international aid has not.
The Netherlands also has a large agricultural sector which the international community often looks to for inspiration. Hayo Canter Creemers is one of many Dutch agricultural trendsetters. Creemers discovered the power and usefulness of duckweed, an abundant natural resource in Holland and most other European nations. Duckweed can be used as feed for farm animals and, once the animals have eaten the duckweed, they naturally produce manure. Duckweed then grows on the manure, so we have a full cycle of clean and natural renewable energy. Rob Baan is another Dutch leader in the field of horticulture and health. He suggested that drastically changing our eating habits towards more of a focus on raw fruits and vegetables may result in substantial increases in life expectancy and decreases in serious illnesses like cancer.
TEDx Binnenhof also brought attention to some new technological breakthroughs that may greatly impact the fields of medicine and digital communication in the coming years. Maarten Beelen, co-founder of Medical Robotic Technologies, helped develop and design a robot that performs precision eye surgery. Before the existence of this technology, surgeons had to perform delicate needle point eye surgeries by hand – an incredibly dangerous procedure considering that it’s almost impossible for any human to keep their hand completely still. By utilizing robot technology, eye surgeries that have the potential to correct blindness can be performed more frequently and under much safer conditions. Also revolutionizing the health industry is Niki Fens, a graduate of the University of Amsterdam who is working to promote breathonomics: a type of non-invasive technology that only requires human breath to diagnose illnesses. Claire Boonstra, on the other hand, has produced a smart phone app called “layars” which creates interactive online environments from capturing a picture in a magazine or other print source. She hopes this technology can be used in school books to help children learn and retain more while reading required texts.
Those who wish to get more information on the individuals or technologies discussed above can visit TEDx Binnenhof’s official website at http://tedxbinnenhof.com/.
Fannie Mae and Freddie Mac - Turning the American Dream into a Nightmare
On June 27th, The American Enterprise Institute (AEI) hosted a book presentation of Oonagh McDonald’s newly published analysis of the banking crisis and the failure of Fannie Mae and Freddie Mac. The presentation included an elaboration on the author’s book and research methodology, and was followed by additional presentations by Edward Pinto, Lawrence White, and Josh Rosner. All of the panel contributors are authors of analyses of the current banking crisis.
Former British politician Oonagh McDonald outlined her finding that the banking crisis had already been propounded through implementation of policies, such as the Community Reinvestment Act of 1977, that made mortgage underwriting possible, and President Clinton’s National Homeownership Strategy, which lowered lending barriers. Over time, a large amount of independence and power was also given to Government Sponsored Enterprises (GSEs). It was clarified that there were numerous mistakes made along the way before the real danger of subprime lending and low credit standards had been realized.
AEI Research Fellow Ed Pinto presented his data, which ranged from 1962 up to 2007 and illustrated that the leverage ratio had been rising over the years as a result of housing and lending policy changes. A graph was also shown illustrating the competition between Federal Housing Administration (FHA) and GSEs for low down payment loans in a market where “demand from marginal buyers determined market value.” GSEs have obviously gained the majority share of mortgage provisions, and it was the leverage increase that created the boom which was later revealed as a bubble that would result in high debt.
Josh Rosner from Graham, Fisher & Co showed that the National Homeownership Strategy of 1994 had aimed at expanding creative financing and facilitating private home purchasing. Additionally, Rosner showed that predictions for a “turning of the cycle” had been made in 2005, and that the immense effects of an “imploding growth cycle” were likely to result in major losses and great negative impact on US’ economic performance (stated in 2007). According to the data, security ratings have not been correct and the rising trend of securitization itself was ignored by Washington policymakers.
New York University Business Professor Lawrence White was the last to present his research. White emphasized the cumulative default rate increase of Fannie Mae and cumulative foreclosure transfer rate of Freddie Mac; both had reached their highest in 2007. It was illustrated that the government’s contribution to the crisis through large housing subsidies had affected home ownership rates minimally but attracted leveraged mortgage borrowers to a high degree. Lawrence White concluded that good policies are able to make a big difference in the housing market. His point of view was shared by the rest of the panel and it was added that more restrictions and better supervision would be needed to control the lending and borrowing of this sector efficiently.