Journal 2

Journal 2 - The Alpha

ENDING THE C R I SI I

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Kit Powell’s family runs a small clothes shop, people are buying less and increasingly use online services to buy clothes. As her parents are self-employed, they need to inElvis Lediņš’ father worked at a car compavest all their money into their business. ny when the crisis hit Latvia. In 2008, he got fired and three months later the company went bankrupt. Fortunately, they had unemployment insurance which enabled them to support a few friends financially.

Shiofra O’Toole’s mother lost her job when the recession hit Ireland three years ago. It was very difficult for her to start working as primary school teachers in Ireland again.

Patrick Koepsel is one of the delegates who experienced the consequences of the crisis in a very harsh way. His mother lost her job, and despite of her high qualifications, it was impossible for her to find a new one. They thus had to move to Germany, leaving their homeland Spain.

THE ALPHA

BACK TO THE PRINTING PRESS Sílvia Susach and Rónán O’Connor analyse the sources that delegates use to inform themselves about the crisis. e all know that there is a crisis, it is impos-

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It is clear that black and white print is by no means

sible to ignore the desperation enveloping

going out of fashion anytime soon. National news-

European nations. But how do we know all of this?

papers were the most popular selection amongst

Who informs us? It is a question we rarely consid-

the delegates. This serves as a testament for the

er, yet the way that it influences our perspective

quality and reliability that newspapers represent

on the crisis is undeniable. We inquired you, the

in reporting news. This reliability lacks in the ano-

delegates, to find out how you get in the know.

nymity of the internet, which is why delegates turn to the more reputable online resources of the large

National TV and radio are the prefered means

news corporations.

for 20% of the delegates. These rather traditional sources are surprisingly insignificant considering

There is no denying that online media is gaining

how accessible they are. Every household in Eu-

momentum. The ability to interact and debate on a

rope has on average two TVs, suggesting that new-

global scale is an asset that traditional media can-

er trends are overtaking the role of information

not compete with. Yet in times of crisis, it seems

transmission.

we are still drawn to the worthy tradition of hard copy. It seems that old-fashion is still in fashion.

Social media would appear to be the primary modern information source, yet only 13% of the delegates named this as their first one. It seems that social media remains a

Chart Title means of social interaction, HOW DO YOU OBTAIN INFORMATION ON THE CURRENT CRISIS?

because newspapers, one of

National news

the oldest medium of news, ac-

7% 8%

counts for nearly one third of the delegates’ responses. 15%

3%

16%

Online news National TV 16%

12%

of this was accounted for by online newspapers, suggesting a

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difference between the internet

Social media Frends and family

12%

13% 13%

European media School

and social media as an informa-

Radio

tion source.

Blogs

DE-TERMING THE CRISIS Panaghiotis P. Kalaïdhopoulos

pon-

ders the generalised fiscal turbulence and clarifies what some must-

that we are largely expected to – yet which we do not al-ways fully – comprehend. Even so, in a time that a shiny brand new crisis vocabulary is being compiled day after day, we can at least strive for a

know crisis terms are all about.

minimal familiarisation with the essentials of our

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The following table constitute an introduction to

calamity.

or no less than three (to five) years now, we have been incessantly inun-dated by terms

5 fancy crisis terms.

Also known as “exter-nal debt”, sover-

Sovereing

In order to raise money for domestic

eign debt is debt guaran-teed by a par-

Debt

development, a government issues

ticular government to inter-national in-

bonds (red bonds) in foreign currency

vestors.

and sells them to investors abroad. It is on this basis that the sovereign debt is usually external.

A large number of customers withdraw

Citizens withdraw their savings fear-

their deposits from a financial institu-

ing a col-lapse, but trigger in-solvency

tion at the same time, afraid that the fi-

Banking Crisis

exactly by this practice. A bank-ing

nancial institution is, or might become,

crisis is not to be confused with a

insolvent.

(sov-ereign) debt crisis.

Bonds are instruments of indebtedness

Bonds generally are certificates rep-

(i.e., being in debt) of the bond issuer to

resenting money that a government

the bond holders. Euro-bonds, moreover,

or corporation has borrowed from

constitute suggested government bonds

(Euro)bonds

other entities. The discussed issue

issued in euro jointly by all 17 Eurozone

of Eurobonds by the ECB common-

states. By Eurobonds (blue bonds) as

ly shared amongst Eurozone states

debt investments, a certain amount of

could bring money to the Eurozone as

money is loaned for a certain amount of

a whole to be then distributed to na-

time, with a certain interest rate, to the

tional governments in need.

Eurozone as a whole.

State of reduced spending. Austerity

State curtails on liter-ally everything,

measures generally refer to governmen-

widely employed as an anti-dote to

tal measures aiming at reducing expend-

Austerity

the crisis, di-rectly and radically af-

iture and, thus, minimising their growing

fecting citizens’ real-ity and everyday

budget deficits.

life.

3 The Alpha

THIS IS NOT OK Dignity in the Time of Insolvency; Tuna Dökmeci, Panaghiotis P. Kalaïdhopoulos and Stefan Zoričić trace the way back to an idealistic, truthful, humane Europe worthy of its people. nderstanding sophisticated economics is not

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the British National Party in the traditionally Euro-

really essential when it comes to synchronis-

sceptic United Kingdom, the worrying popularity

ing with the alarming social unrest around you. In

that the Dutch far-right, as well as the popu-list

a period of intense political change, when values

speeches of the European leaders are a clear sign

are broadly contested and, unfortunate-ly, rein-

of the harm done to both the image and the con-

vented, things are simply not fine. A lot of us do

tent of the European idea and dream.

suffer, whether this is understood or not, some very few believe to be profiting by riding the big-

After WWII, hardly anyone would have imagined

chance train of the crisis, while others yearn to

that political extremity would dominate Europe

make something out of it, too. It all started with a

ever again. Not surprisingly at all, the crisis and

bubble in 2008 and it does not seem likely to end

the discon-tent caused by the sharp decrease of

any time soon.

people’s life standards created distrust among the European people towards the EU and the very

It is allegedly because of the crisis that Europe fell

idea behind. This is not ok.

into recession and abso-lute economic instability; this consecutively led to an unstable European

At least on the premise that the EU is not built

soci-ety and people begging for their meal. What

on bullying, we should stop doing so; the strong

we now have is a widespread public consensus on

bully the weak, the xenophobic the vulnerable im-

failure and insecurity, a condition that has surely

migrant and the markets humanity as a European

not been the case with European nations before.

principle.

The mass loss of jobs is still leading to insurance

Instead, we should start thinking about where we

curtails, with what we knew as social welfare fad-

stand and find new ways how to get out of this

ing out. Even more, it once again is this turbulence

tunnel of uncertainty, shallowness, lost hope, hy-

that widened and highlighted the gap between the

pocrisy, deficient solidarity and irresponsibility.

rich and the poor. This is not ok.

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A lot of us suffer, some believe to be profiting As it has always been in the course of history,

from the crisis, while others profit from growing

such times greatly prove to make it difficult for

anti-EU sentiments. Can you recall the last time

people to think clearly. The support that the far-

that any-body took responsibility for all this?

right Na-tional Front received from the French dur-

It is more than enough. And this certainly is not

ing the elections, the growth of the popularity of

the Europe we have dreamt of, so let’s fix it.

THERE’S NO SUCH THING AS THE CRISIS Jonathan Piepers looks at the underlying problems of the crisis in the European Union and explains why he believes that there is indeed no such thing as the crisis. he doomsday headlines in the media and the

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Whilst the 2007-2008 financial crisis was the

gloom that permeates public opinion have

spark that ignited a whole firestorm of events, the

been dominated by what we know as ‘the crisis’.

2008-2012 global recession showed that there was

But what should we get from this mysterious no-

a more systemic problem than just some defaulted

tion? The man on the street tends not to be eco-

banks. The recession affected the world economy,

nomically literate, but we expect better of the var-

in some countries more heavily than in others. The

ious media that report on ‘the crisis’. Sadly this

greater financial and economic structures seemed

has not always been the case. Roughly speaking,

to be affected by the aforementioned practices of

we can divide our walkthrough into three main

derivatives and mortgage-backed securities, testi-

parts. These are the global financial crisis of 2007-

monial for a lack of a sustainable long term view

2008, the worldwide 2008-2012 recession and the

on public monetary policy and private financial in-

European sovereign debt crisis. These three stages

stitutions. This global recession is leaving its trac-

in the development of what is generally spoken

es up until today as the economic side effects of

‘the crisis’ are all of a seemingly similar, yet rad-

the European sovereign debt crisis, accompanied

ically different, nature. It is true that the afore-

with slowing US and Chinese growth figures con-

mentioned stages are not strictly cleavable, yet

tinue to provide severe obstacles to global eco-

causally linked, which makes this overview only

nomic growth.

an attempt to materialise the reality.

The European sovereign debt crisis, generally The starting point, if there truly is one, of the

known under the more common denominator ‘the

2007-2008 global financial crisis that dominated

Eurozone crisis’, is one of those nasty crises that

the world’s news can be put in August 2007. In

was cracked open by the 2008-2012 global reces-

this month the first signs of a budding crisis start-

sion. Through this recession, the lingering prob-

ed to surface when the British branch of BNP Par-

lem of great public debt in the EU suddenly turned

ibas and Northern Rock, signalised “a complete

into a crisis on its own with Greece as a prime

evaporation of liquidity”. This lead to one of the

example.

first ‘bank runs’ since the 1929 Great Depression.

With this being said, my hope is that the stere-

All of this had been caused by overstretching the

otypical bar discussion on ‘the crisis’ suddenly

practice of ‘leverage’, where a company funds its

reaches new heights of nuance. The financial and

activities with money from loans or mortgages.

economic problems that the world is facing at this

Normally this can be conducted without huge

very moment have an unseen complexity that is

risks, if it was not for these interbank loans being

hard to grasp for even the brightest among us, but

resold in the form of intricate (later ‘toxic’) finan-

at least now we can conclude that there is no such

cial derivatives and mortgages being refinanced

thing as ‘the crisis’.

causing the so called housing bubble.

5 The Alpha

1929

A LESSON TO BE LEARNED? Camille Dugay Comencini clarifies whether a comparison between The Great Depression and the economic crisis in 2008 could have led to better solutions to the current economic crisis. ince 2008 the world has faced the most severe

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crisis turned into a global stock market crash. In

economic crisis since The Great Depression.

October the global interbank system ceased func-

The attempt of a comparison between the two

tioning and the crisis spread to Europe and emerg-

events seems obvious. Let us stop for a moment

ing markets. We all what happened from there on.

and ask ourselves if there is a lesson to be learned

There definitely seems to be a pattern: in both

from the crisis in 1929?

cases a period of economic boom and general

On the one hand, we have economists and aca-

well-being is followed by a crash and a virulent

demics saying that this crisis is almost identical

crisis; in both cases the global crisis is triggered by

to the crisis in 1929. Some on the other hand

a crash in the US financial market. In fact, the cur-

claim they cannot be compared as the world has

rent crisis seems to fit very well into the cycle de-

changed too much; we are now working within the

scribed by Irving Fisher in 1933. According to Fish-

structures of more globalised and interdepend-

er, the business cycle is driven by an exogenous

ent international governance. The media and the

event that provides new profitable opportunities

policy makers talk about an unprecedented event

for investments leading to an investment boom

that reaches levels never attained before. Some go

financed by banks. Investors have a hard time

further saying that there is an effort to make this

distinguishing between sound and unsound pros-

crisis look worse, talking about a ‘big conspiracy’.

pects. In this climate, a crisis is easily triggered by

What should we believe?

errors in judgement as the environment changes

Trying to analyse the crisis in a historical perspec-

from monetary ease to monetary tightening, lead-

tive might help us in looking for differences and

ing to bankruptcies, failures and recession.

similarities with the ‘Great Slump’.

Nothing seems too different so far. It is true, how-

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ever, that the current crisis shows a series of modThe current crisis linked to the financial crisis in

ern twists, such as the role played by the banks

the US inter alia caused by lax regulatory over-

and the different responses of the policy makers.

sight, relaxed standards of prudent lending and

During the late 1920s Europe was strongly affect-

abnormally low interest rates. The boom in the

ed by the war and was therefore extremely de-

housing market affected both the banking system

pendent on US loans. In a globalised world, this

and the economy. In 2007 the interbank lending

does not seem to be the case and Europe has an

market system faced a first freeze, then rescued by

economic influence of its own.

the injection of liquidity from the Federal Reserve.

Is it really true that nothing different could have

In 2008 the crisis worsened and banks had to be

been done this time? Was there not a lesson to be

rescued. The turn for the worse happened with

learned in order to avoid this historical pattern to

the bankruptcy of Lehman Brothers. The liquidity

be repeated?

THE EURO CRISIS: THE END OF THE GAME

After then years of a common currency, the future of the Eurozone is debated passionately. Celia Poncelin looks back to understand what went wrong. he euro crisis first gained mass public atten-

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the PIIGS, borrowed too much and cooked their

tion in 2010, when the reality of the situation

books. The media usually point the finger to the

in Greece became evident to everyone. But does

PIIGS for their supposed decisions that dragged

this mean we should we blame only Greek politi-

the euro down.

cians? Allan Little from the BBC traced the Euro crisis back to the fall of the Berlin Wall. Indeed,

But what about the EU’s most powerful members?

we could point out that this event, even if it might

Did political ambitions triumph over economic re-

not have been the starting point, lead to a hasty

ality? Indeed, its seems that England, France and

integration process. With the introduction of the

Germany have always tried to shape integration ac-

Euro with the Maastricht Treaty 1993, it became

cording to their own interests. The German news-

possible for one of the 17 Eurozone countries to

paper Bild gave a striking example of this. Even

borrow at much cheaper rates than previously as

though Germany lent 46,1€ billion to Greece, the

the European Central Bank (ECB) set low interest

country saved 60€ billion on its own debt. How?

rates. The only barrier that could have prevented

Berlin recuperates the investments that used to be

them from excessive lending was the Stability and

put into the Greece’s and Spain’s economies.

Growth Pact which was set up to ensure that the Eurozone members states’ debts did not exceed

The experts reacted to this crisis differently.

60% of the Gross Domestic Product (GDP) and

Whereas some of them, like Lucas Papademos,

that any budget deficit should not exceed 3% of

think that “it’s often discussed that leaving the

the GDP: however, countries were free to define

Euro is an option for Greece. I think this is real-

their own fiscal policy and this is what they did.

ly not an option”, the other half believes that the euro has no future; Sean Hannity declared that

Nevertheless, in the beginning of the 20th Cen-

“the euro’s going to collapse; it’s done. The world

tury, the Euro still had its best time ahead. What

has to accept it. And if they sustain it artificially

went wrong?

for a long period, that’s a bigger mistake ‘cos we’re

Mr Wren-Lewis proposed an answer to this ques-

just kicking the can down the road”.

tion. When the core countries of Europe set up the Euro, they did not take the macroeconomics

So, could we have avoided the crisis? The 2007

consequences of a common currency into consid-

Nobel Prize Winner in Economics, Erik Maskin,

eration. Instead they opted for an inadequate na-

admitted that the crisis could have been prevent-

tional limit on public debt, agreed on weak guide-

ed if there had been a fiscal union in conjunction

lines that were never followed through. Portugal,

with the monetary union. What’s the next step,

Ireland, Italy, Greece and Spain, also known as

European Union?

7 The Alpha

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o what is the purpose of the chairs team at the International Session in Amsterdam?

To make fools out of themselves for your benefit ? To provide you with all the answers?

Surprisingly not. The role of a chair is broad, tough but nevertheless very fulfilling. Their aim is to facilitate discussions and help you on the way to finding the best possible solution for the problem at hand. Simply put – without them you would be quite lost.

So far you have just seen them playing with orange balls, pasta and marshmallows. This may make you wonder why these people have been entrusted to look after you for the next seven days but do not worry. Under that warm, unicorn-like façade there is a very serious person waiting to get their masterplan out.

If you do not believe us just take a look at the topic overviews; each one carefully brainstormed, planned and written for your benefit.

We are well aware that you may have thought the teambuilding games were randomly slotted in just to avoid awkward moments – you are wrong. Every single game was planned in advance to ensure you got the maximum out of the first two days.

So make sure that you listen to every word they say. Every piece of advice they give you is valuable, every little line that will be dropped is dropped for a reason. Heed their advice and committee work will be as productive and enjoyable as it can be!

Good luck with committee work!