Journal 3 - The Alpha
ENDING THE C R I SI I
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S
Ă˜yvind: Bureaucracy
S
Cristina: the banking system as a whole
Nikola: European governments
Federico : Berlusconi
Genco: the corporations
Emmily: the bankers
THE ALPHA
Lidia: irresponsible politicians and bankers
Wim: regulation authorities of European banks
En d in g th e C ri si s
WHO’S TO BLAME? The question everyone is dying to have answered. Kieran McNulty compiles a list of suspects accused of causing the European meltdown. It really is ‘the question’ about how the crisis
and presents a worrying possibility that corrup-
came about. Who can we hang the blame of the
tion still clings to Europe, even with many new
crisis on? Is it those greedy politicians that we
governments in place. It is the fault of both these
love to paint as vile miscreants who spent our
sectors that we are now in the mire of debt.
money recklessly? How about the bankers who took ridiculous risks on a whim, thereby laying waste to our future? Or
Jose Manuel Barroso recently blamed the U.S.
shall we blame our American cousins for causing
for the European implosion. This, while not com-
a domino effect that ensured our collapse? Finally,
pletely true, is a contributing factor. The afore-
and perhaps most controversially, does the blame
mentioned Lehman Brothers and others caused a
of the crisis lie with those normal citizens of our
global catastrophe comparable to 1929. However,
time, our parents and grandparents?
we should not apportion total blame to them. The American crisis simply widened the cracks grow-
In essence, the answer is that every candidate
ing in Europe to a point where the entire system
contributed in some way. A paper written by the
collapsed.
Harvard School of Government writes that the government and the private sector are equally
Finally, our elders. Were they greedy in the good
to blame. It gives a quite compelling metaphor
times? Yes. That is only a small fraction of why
for the crisis: “You may read that a man died of
we are guilty for the turbulent times we now face.
kidney failure, however his death may have been
How could we have let it come to this – and why
caused by 34 factors, kidney failure being just one
on earth are we still letting bankers get off scot-
of them.” The paper applies this to the crisis. Both
free and politicians run our Union into ruin? The
the government and the private sector were high-
riots that consumed Greece have hardly erupted
ly negligent. You need only look at the spending
elsewhere. The protester won TIME Magazine’s
of the Irish government pre-crisis to recognise
Person Of The Year in 2011, but aside from the
this. They poured millions into a computerised
Arab Spring, they have achieved nothing. Democ-
voting system which now sits in a dusty garage
racy – and indeed deliberative democracy – is moot
somewhere, uselessly. It is the same with other
if we do not act. We are on a rudderless course
Member States, even Germany, who violated debt
whilst corrupt people in positions of power, like
agreements and also did not spend wisely during
Larry Summers, Obama’s economics adviser who
‘boom times’ to create sustainable economies.
bribed his way into government, still run rampant and unpunished. There have been no definitive
However, if it had been governments alone be-
changes to the way our countries are run. Are peo-
ing negligent, the crisis may not have occurred.
ple content to live in a steadily sinking ship? It
Banks are obviously at fault, the Lehman Brothers
seems so, and while it remains as such, we are as
in America a striking example. Why bankers in
much to blame for the crisis as anyone else.
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Europe have not been jailed yet is not all too clear
CLASH OF THE ECONOMIC TITANS Camille Dugay Comencini and Jonathan Piepers interview James Benge (Vice-President, UK) and Elisabetta Addis (Economy Professor at the University of Sassari) to see where their opinions on the crisis differ. 1) Apart from the technical side to the crisis, do
3) Could this global crisis and recession have been
you believe there is a fundamental behaviouristic
averted or at least limited?
trigger that sparked the crisis? James Benge: The past year’s crisis has been the James Benge: If we agree that banking has led
inevitable consequence of the computerisation
to the crunch, the culture of risky banking burns
and the massive scale on which the globalised
down to the lack of proactive regulating by na-
economy functions. Nevertheless regulators could
tional institutions as well as the ECB. These insti-
certainly have minimised consequences by adher-
tutions are in essence too slow and reactive and
ing to a more proactive approach.
have therefore sparked the crisis. Elisabetta Addis: On a global scale it was near Elisabetta Addis: If there was one aspect of hu-
impossible to even foresee the possibility of this
man behaviour that provoked the credit crunch;
global crisis, let alone prevent it. On a national lev-
it would be man’s desire for making profit, even
el though, a lot of things could have been handled
if the profit motive is coupled to extreme risk.
differently. A perfect example for this is the lack
Therefore the practice of risky banking is to be
of transparency by some European governments,
blamed.
e.g. Greece and Italy.
2) Who do you believe is responsible for the 2007
4) With the media frenzy around the crisis, do you
credit crunch?
think the phenomenon has been given the right attention in the various media?
James Benge: Ultimately everyone can be blamed.
James Benge: The ECB and bankers have been
The last decades we have been living in a debt-ac-
sometimes portrayed in an appauling manner, that
cumulating culture, some would call this Keynes-
is certain. On the other hand I am not unemployed
ianism but I would say it goes against common
due to this situation. In general though, I believe
sense to not put something aside during the good
the media have overblown the coverage on the cri-
times to spend in less positive economic periods.
sis. In retrospect this crisis will be perceived as a blip, just like the Great Depression.
Elisabetta Addis: It is very difficult to pinpoint a single entity responsible, if one even exists. The
Elisabetta Addis: The media do not manage to
main reason for the crisis is more of a mindset
properly cover the full extent and real conse-
that encourages low regulatory oversight. Ivy
quences of the crisis. It is high time the media start
League professors and mathematicians have con-
covering reality. There is, for example, an impor-
tributed to this mentality by the creation of high
tant industrial reality that is not being adressed
profit financial projects that entailed increased
nor investigated. Another thing media seem to
risk-taking.
lose sight of is the effect of the crisis on migration flows and migrants in general. 3 The Alpha
En d in g th e C ri si s
THINGS YOU SHOULD REALLY KNOW
The sovereign debt crisis calls for a simple analysis of Europe’s complex institutional structures. Speculations and media frenzy fostered the emergence of popular misconceptions, blurring the judgment of the public. Evanthia Kasiora investigates the truth behind the myth and sheds light on the situation.
M
isconception 1: The Crisis concerns only
Misconception 3: Austerity is the most efficient
Portugal, Italy, Ireland, Greece and Spain,
solution.
‘the PIIGS’. Austerity measures stem from the need to impose Indeed, these countries face the detrimental ef-
fiscal discipline and reduce irrational expenditure.
fects of the crisis on a larger scale. Their econo-
However, they result to low mobility of capital and
mies appear to be the weakest and least competi-
a less competitive economy. What is more, the
tive within the Eurozone. Many support that they
living conditions of the individual, should exces-
should be left to manage the issue on their own,
sive austerity be imposed, deteriorate. The Hel-
as it is their very problem.
lenic paradigm is clear; social upheaval, violent
13% believe that the support offered should not
demonstrations, strikes and higher rates of unem-
be financial, whilst financially stable and solvent
ployment are to be expected if austerity does not
Member States should continue co-operating and
come along with measures aspiring to mobilise
leave the others to their own problems .]
the domestic marketplace. 37% believe that more or continued austerity is the way out of the crisis.
However, the Euro Crisis concerns Europe as a whole. The Member States of the Economic and
Misconception 4: The Euro crisis is merely a debt
Monetary Union (EMU) are largely interdepend-
crisis
ent. In fact, a devaluation of the Euro as a result of the economic conditions in some of them is
No, it is, above all, a crisis of confidence. Investors
equivalent to the devaluation of the EMU curren-
not only unloaded bonds issued by countries with
cy and harmful even for the stronger European
debt problems and low competitiveness, but also
economies.
turned away from borrowers with good credit ratings like France and Austria.
Misconception 2: A Member State can simply walk away from the Euro
Misconception 5: The Hellenes cheated and violated the rules of the EU.
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The Union statutes make it impossible to leave the common currency without exiting from the Union
While this is true, other EU Member States are
at the same time, especially under the provisions
not so ‘innocent’ themselves. To ensure fiscal dis-
of the Lisbon Treaty. Even more, the procedure for
cipline, the Maastricht Treaty restricts the amount
the establishment of a new Treaty is exceeding-
of public debt that countries in the European Un-
ly long and complex, involving negotiations be-
ion can assume to 60% of their Gross Domestic
tween the Member States, ratification processes
Product. Yet, even Germany has violated this regu-
and popular votes. 11% believe that the way out of
lation every year since 2003. 14% blame other EU
the crisis is a breakup of the Eurozone.
Member States for the crisis.
WHICH WAY WILL THE EU GO? Dmitry Vyskrebentsev considers the EU’s two main options. aking into account the sovereign debt crisis in
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it will be years before the countries’ legislatures
Europe, it has now become evident to every-
ratify it. So that is a non-solution for the current
one that immediate change needs to happen. The
debt, banking and economic mess.
EU now has been in crisis for more than two years.
On the one hand the new framework has many
European leaders understand that in such a sit-
drawbacks; the exclusion of the EU citizens from
uation there are two options: further integration
the decision-making process, its centralisation and
or the collapse of the single currency as a whole.
intervention into home affairs of Member States.
One of the EU’s answers to this dilemma is the
On the other hand Europeans should not forget
Fiscal Compact. The Fiscal Compact requires its
that these drawbacks are nothing more than the
parties to introduce a national requirement where
price to be paid for the European common pro-
national budgets are in balance or in surplus. This
ject that produced evident benefits in the form of
initiative is aimed at tackling not only today’s cri-
prosperity, economic opportunities and jobs. So
sis but also the political crisis.
long as the EU does not touch the most important
Yet experts believe that this solution only works
political issues for ordinary voters - such as tax,
for economically stable countries and is thus not
spending, education, defence or health care - its
applicable to those already in crisis. Although 25
apparent lack of accountability will not matter.
of the EU’s 27 Member States signed the Fiscal
The path has been chosen, but it is not an easy
Compact in January to enforce budget discipline,
one.
IS THERE REALLY A WAY OUT? As Europe seeks for an answer to the crisis, Laura Pérez-Galdós reflects on whether there is any solution to be found. hroughout its history, Europe has demon-
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of cooperating and of reaching any kind of tangi-
strated to be a place where wars, disasters
ble solution. Furthermore, the topic is one which
and the most intolerable social injustices have fol-
is hard to debate due to the fact that the crisis is
lowed one after another. Over the last century we
an intricate puzzle of several pieces; the sovereign
have witnessed two World Wars, the memories of
debt crisis or the banking crisis are just a couple of
which are still raw.
examples. This means that banks become insol-
The fact that the EU has been awarded with the
vent for their not having saved enough money to
Nobel Peace Prize only means that it is actually a
cover the risks they took when conceding assets
miracle that such a dysfunctional union is able to
to their customers. These factors lead to a social
remain peaceful given the current ‘crisis’ situation.
crisis and then entered a vicious cycle from which
Back in 2008 the first signs of the crisis started to
it is clearly difficult to get out.
become obvious, and it began to spread through-
How are we supposed to deal with this and solve
out the world. We all thought that its effects would
the crisis? We simply cannot. And what does this
rapidly lessen and that our situation would be back
mean? It means that there will come a time when
to normal in a two year time period; that being
Member States will simply not be able to cope
2010. But clearly, these last years have proven that
with their debts anymore, which will entail a final
Member States and political leaders are incapable
rupture of the Eurozone. 5 The Alpha
En d in g th e C ri si s
SOLUTIONS TO THE BANKING CRISIS Oscar Stenbom clarifies the debate on banking reform and the potential measures to prevent future bank rescues. f the four years since the start of the financial
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strict limitations on the connectedness between
crisis has shown us one thing, for better or for
the two. The purpose of this is to keep vital re-
worse, it is that banks will almost always get
tail banking, the potential loss of which caused
bailed out before they are allowed to fail. As a
bank rescues, safe from losses incurred by the
result of this banking reform in its simplest form
more hazardous but profitable investment bank-
revolves around ensuring the taxpayer will never
ing divisions thereby avoiding the need for fu-
again have to bear the cost of what has become
ture bailouts. ‘Living wills’ mean if banks cannot
an implicit government guarantee of banks. It is
maintain realistic plans for clean separations of
assumed that since banks are set to remain sys-
vital divisions in the event of a crisis regulators
tematically important to the economy and will
have the power to enforce greater separation. Bail-
therefore be liable to future bailouts a mechanism
in instruments would give officials the power to
that protects taxpayer money must be established
quickly and effectively dictate the terms of a bank
as lighter measures such as curtailing some large
failure; deciding who loses how much without a
banks’ activities will not be enough.
lengthy bankruptcy process that worsens the cri-
The prominent reform areas can be split into four
sis.
sections; ring-fencing, living-wills, bail-ins and
Lastly capital requirements are sets of regulations
capital requirements. Ring-fencing has been pro-
that dictates how many times over a bank is al-
posed and is set to be implemented in the US,
lowed to lend out its assets, fundamentally gov-
UK and EU as a solution to government’s resolve
erning ‘risk’. In general, however, the debate does
to save failing banks by separating banking ac-
not lie in the ‘what’, but the ‘how’ of national and
tivities into retail (regular high-street) and propri-
EU-wide regulation harmonisation entangled with
etary (riskier investment banking) divisions with
political differences.
CHILDBIRTH AND TAXES - NEVER CONVENIENT! Maximilian Kiehn sums up the key facts about the widely discussed Financial Transaction Tax . magine you would need to pay for every hand-
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by bailouts. Opponents of the FTT stress that such
shake; you would surely become a bit shyer. That
interference would cause massive losses and harm
is pretty much the idea behind a Financial Trans-
the free market.
action Tax, to cool down the capital flow. Every
while the Commission and the Parliament pro-
transaction is taxed by a minimal, e.g. 0.3% –
pose such taxation, Member States like Sweden
0.1%, rate. Proponents expect that excessive risk
and the United Kingdom block a European wide
taking would be minimised, capital flows slowed
decision in fear of demolishing the development
down and the whole system become more sta-
and global competitiveness of a slowly recovering
ble. Furthermore such a tax would let the financial
financial sector.
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sector pay their ‘fair share’, after the costs caused
Europe’s opinion is divided,
REPAIRING BURNING BRIDGES Dunja Tanović examines whether Germeece can ever find a solution.
E
URO 2012 viewers must have experienced a
The only major social problem currently experi-
sharp shock when they turned on the quarter-
enced in Germany comes from the citizens’ dis-
final match on June 22nd; Germany versus Greece.
appointment in the Greeks, a stark contrast to Greece. The news that the number of suicides in
Whilst this was an unexpected but nevertheless
Greece has dramatically risen since the start of
humorous scenario, it did bring to light some dis-
the crisis, children passing out at school due to
turbing images; the Greeks carried with them
hunger and public sector workers not receiving
a desecrated blow up doll symbolising Angela
pay in months rarely reaches the papers – people
Merkel, whilst the Germans joked about being
not being able to feed their families is evidently
their counterpart’s sponsors for the match. If this
something Europe does not want to hear about.
witticism was just for the sake of football then it would not be worrisome, however what viewers
Unfortunately, due to the social problems stem-
saw from the fans during those ninety minutes was
ming from economic problems it is apparent
just a snippet of a steadily worsening situation.
that the former can only be solved by the latter.
When it comes to Germeece, what one thinks of is
Therefore, it is reasonable to assume that ending
finding a solution to the economic problems, after
the crisis would be a good starting place when it
all it was what started this whole debacle. While
comes to mending burning bridges. How the crisis
this is undeniably important in their relationship,
is ended is irrelevant, just as long as it ends. Oth-
matters like bailouts and sovereign debt are over-
erwise this part of the EU family will break apart
shadowing the social issues – which were created
irrevocably.
by the economic problems.
TIME WILL TELL Maximilian Kiehn examines the controversial idea of decreasing European debt by inflation. f a Member State in debt were to leave the Euro-
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late the interest rate, every Central Bank essential
zone, they could reduce their devastating deficit
influences of the inflation rate. On the one hand
by slowly devaluating their currency. While pro-
the stability of money, based on a steady and low
ponents declare it as the easiest way of coping
inflation rate, secures both the private and cor-
with the crisis, opponents feel that it is a better
porate investments in the long term. On the other
option to stay in the Eurozone. A common percep-
hand, a higher inflation rate decreases the value of
tion, shared by the European Central Bank, des-
money and therefore the amount of debt stays the
ignates the ideal inflation rate between 1.5 – 2%.
same but the practical value is reducing accord-
In the ideal case one barely notices a price de-
ingly. However, even though the debt decreases,
crease, but the currency still buffers the ups and
the value of savings reduces as well – harming
downs of the market. With the ability to regu-
every investment. 7 The Alpha
W
ho are the organisers?
They are the people who created Amsterdam 2012
cial life - it goes without saying that they receive
and who work to ensure the smooth running of
no economic retribution for their work. The one
every single day. It is as simple and complicated as
thing that pushes them to work harder and harder
that. Mark Brakel is the Head Organiser, the lead-
is the satisfaction of you discovering the magic of
er of a hard-working, professional and hospitable
EYP and the pleasure of seeing that you have such
team whom we owe everything. Since two years
a positive and enriching experience.
ago, he has worked to make the session happen, but he could not have achieved it without the help
Please never forget the people thanks to whom we
of his 24 organisers.
are all here!
An organiser’s responsibilities a wide array of things, starting from fundraising a significant amount of money to the actual day to day running of the session. The organising team has enabled 220 delegates to participate in an International Session of the EYP in Amsterdam, an unforgettable event that will surely bring something valuable to their lives. They have worked day and night, have risked their grades and sacrificed their so-
The Amsterdam Media Team