Journal 3

Journal 3 - The Alpha

ENDING THE C R I SI I

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S

Ă˜yvind: Bureaucracy

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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