On March 30, Cornell Faculty and students filled 120 Physical Sciences building to attend a public forum entitled, "The EU Financial Crisis – Implications Inside and Outside the Euro-Zone". The focus of the discussion was to explain the nature of the Euro-Zone financial crisis, to understand the current and new institutional arrangements, and to examine the impacts of the crisis both within and outside the EU. This international forum was organized by the Mario Einaudi Center for International Studies and was supported by the European Union Commission.
Einaudi Center Director Fredrik Logevall welcomed all in attendance to the forum, and Einaudi center Director of Programming Heike Michelsen introduced the three visiting experts. The first to speak was Antonia de Lecea, Minister for Economic and Financial Affairs in the European Delegation to the United States. In a presentation entitled "Beyond the Euro Crisis: What does it mean for the EU and the U.S.," de Lecea explained the roots of the financial crisis, how the EU planned to recover from it, and how the EU and the US were becoming increasingly intertwined in the economic sphere.
De Lecea characterized the economic crisis as a "perfect storm" comprised of four simultaneous crises; excessive borrowing in some countries, a mismatch in wages versus productivity in others, misallocation in the financial sector, and most importantly, incomplete economic governance. He said that the way for Europe to recover from these respective crises was to address each of them head on, with national governments and EU institutions all playing a role. One important part of this solution, said de Lecea, was for each of the member states to "...enshrine the balanced budget rule in national binding law, preferably in their constitution." He also called for stricter surveillance of financial markets and the expenditures being made by countries receiving assistance.
By promoting growth and competitiveness and adopting a single regulatory framework, de Lecea predicted that Europe would be able to not only recover from the current crisis but would also forge a stronger economic union. He also called for stronger "firewalls" against contagion in sovereign debt markets and increased IMF assistance to prevent the recurrence of a similar crisis. "The crisis highlights the economic interdependence between the European Union and the United States," de Lecea said, and that the more durable foundation being established for fiscal and financial stability will contribute to job creation and growth, "on both sides of the Atlantic."
The second expert to speak was Edouard François de Lencquesaing, Managing Director at the European Institute of Financial Regulation, who characterized the financial crisis as a costly wake-up call and a major collective failure. De Lencquesaing views Europe as a "historical ambition." Current EU objectives are to become a "domestic-like region," and this requires some degree of political integration. He identified 3 parallel objectives: maximum harmonization within Europe, compatibility with global practices, and learning lessons from the crisis to avoid its recurrence. The crisis occurred in part, said de Lencquesaing, as a consequence of political decisions preempting technical pre-conditions and the absence of economic governance before the Euro-Zone was established. The financial crisis revealed structural weaknesses and unsustainable imbalances in Europe, and Greece should be viewed as a symptom of the larger problem.
Despite these structural difficulties, de Lencquesaing had an optimistic vision of the future of Europe and was confident that the clear road map for financial integration, newly implemented federal regulatory network and reinforced system of economic governance would guarantee better macro national policies. He closed by saying, "Our worst enemy is skepticism and pessimism over our collective capacity to learn lessons from our major collective failures." By remaining optimistic and innovative, de Lencquesaing feels that Europe will continue to progress along the path to fulfilling its historic ambitions.
Next to speak was Petia Kostadinova, Assistant Professor in the Department of Political Science at the University of Illinois at Chicago, who spoke on the "Implications of the Euro Crisis: focus on the new member states. She used a number of economic indicators to compare the impact of the crisis on all members of the Euro-Zone, and pointed out how the economic fates of newer member states was linked to that of older and more developed members. "Most exports from these countries go to other EU member states, and there is a heavy reliance on investment from these other member states," she said.
Newer member states have seen higher levels of unemployment than their more developed partners. Though they have good government deficit rates, Kostadinova said, some of the newer member states have large government debts. Their borrowing rates are similar to western European member states, and most of their debt is long-term, low-interest debt. This scenario is unlikely to change, since, "There has been less lending to new members since the crisis," she said.
Kostadinova concluded that there was little danger of default and the need for bailouts. She emphasized that newer member states were vulnerable to changes in the flow of foreign capital and that despite the Vienna Initiative, banks are still overly exposed. From all of these indicators, Kostadinova thought that for newer member states the net result of this crisis would be slower economic growth.
After a brief break, the forum continued with a panel discussion moderated by Valerie Bunce, Professor in Cornell University's Department of Government and Director of the Cornell Institute for European Studies. The panel was comprised of Robert Hockett, Professor in the Cornell Law School; Jonathan Kirshner, Professor in the Department of Government and Director of the Judith Reppy Institute for Peace and Conflict Studies; Thomas Pepinsky, Assistant Professor in the Department of Government; and Richard Swedberg, Professor in the Department of Sociology.
Each of the panelists provided his reaction to the presentations given by the guest speakers. Richard Swedberg opened by telling the audience he had been told to be "provocative but brief" in his response. He contended that the debt crisis was "unnecessary", and had resulted from two political miscalculations: that the Euro-Zone would provide stability and that the crisis could be quickly ended. Swedberg said that the Euro had been established with the bond market in mind rather than the well-being of the Euro-Zone as a whole. He pointed to the 10-year yield on bonds as a significant analysis, and closed with a pessimistic vision of the years to come by saying "This systemic crisis pace may build, and may be replaced by a real crisis."
Thomas Pepinsky spoke next, on the theme that "Money is Politics." He started by stating that a crisis of finance is in reality a crisis of politics, and looked to comparative politics to explain the political consequences of the Euro-Zone crisis. Between the "high politics" of international relations and the "low politics" of domestic policy, Pepinsky said, there is a differing understanding of how to evaluate the crisis, who should pay the price for it, and how we should talk about it. In Pepinsky's analysis, discussion of the crisis in the media and public sphere tended towards "low politics," with rhetoric revolving not around structural confidence and other economic indicators but the imagery of "lazy Greeks and virtuous Germans." What matters to ordinary people in Europe is how to answer questions like "Should a Spanish sanitation worker be laid off so a German pensioner can go on vacation?" Pepinsky questioned the need to reduce deficits, or that the solution to the crisis was to restore economic growth, and asked the audience to think about how we measure success before evaluating solutions to this crisis.
Next to speak was Robert Hockett, who asked the audience to imagine two hypothetical countries, Romulus and Remus. Through a series of rhetorical steps, he established parallels between his two fictional countries and the actuality of Germany and Greece, with one country being industrialized and with goods to export, and the other having a service-based economy. After a number of other examples, he said, "By virtue of these factors one country would develop a high opinion of themselves and point out that the other is living beyond its means." Hockett then continued to draw the same parallels in the economic relationship between China and the United States, and between the industrialized northern states and agrarian southern states in the United States before the Civil War. He said that a significant north-to-south financial transfer, with redistribution in the form of federal aid, as the only realistic solution to the problems that led to the current economic crisis in Europe.
Last to speak was Jonathan Kirshner, who focused on two major themes. The first was a discussion of the logic and illogic of the Euro. Kirshner said that the Euro was always a political project with a common identity as its goal. In anticipation of its establishment, much literature was generated on the efficiency gains to be achieved by reducing transaction costs. He said that in establishing the Euro, European countries had given up "policy levers" without getting new ones in return.
Kirshner's second theme was that the economic crisis in Europe has exacerbated political conflict. "The successful containment of the global economic crisis took the wind out of the sails of reform," he said, and that, "Actors within nations understand that stimulus measures will bleed across borders." Kirshner concluded by saying that the crisis had exposed the instability of the common EU market, and that in "the most integrated bilateral trade and fiscal policy relationship in the world," the future stability of the dollar is one consequence of the EU crisis. He closed by quoting Bob Dylan, who said, "You think you've lost it all, but you've still got more to lose."
At the conclusion of the panelists' remarks, the panel was opened to questions from the floor. Nicolas van de Walle, Chair of the Department of Government, asked, "How much of this crisis is about the failed long term Keynesian management of developed economies?" Kirshner answered that three anti-Keynesian sins had brought about the crisis: financial deregulation, not using surpluses to pay down debts, and failure to take on demographic challenges like entitlement reform instead of engaging in stimulus spending. Hockett identified 2 additional sins, compensating for busts while failing to "tamp down" booms and having a completely dysfunctional global currency system.
Gail Holst-Warhaft, Adjunct Professor with the Cornell Institute for European Studies then commented by saying that, "People have underestimated the collapse of the Greek state and the social unrest there." She continued that those in power may have "behaved badly," but that the austerity measures aren't punishing the "corrupt ones" who produced the crisis in Greece. Given that so much of the Greek economy is devoted to tourism and because tourists are staying away from Greece, she said, "They have no way to 'grow' themselves out of the crisis."
Pablo Yanguas, Doctoral Candidate in the Department of Government, commented that he grew up in Spain and speaks frequently with friends about the crisis. He asked the panel what he should tell his friends that the future holds for them, and asked, "Is there a European solution to the Spanish crisis?" De Lecea responded that, as a fellow Spaniard, he could say that, "This is the manifestation of catastrophe." He pointed to education and the establishment of a system of apprenticeships as one way of getting young workers into the labor market, coupled with monetary transfers to make up for the lack of lending to small businesses. Finally, he said, Spain should promote exports by becoming more competitive in the global market.
Hockett offered his own response in a short answer and a "next shortest" answer. The short answer: no. His "next shortest" answer was that the solution to Europe's problems needs to be global and that two forms of imbalance were the key to understanding the crisis; vast disparities of wealth and income among individuals, and vast surpluses in some nations and debts in others. For these reasons the solution to Europe's crisis, Hockett contended, would have to involve some form of redistribution of wealth. De Lecea countered that financial transfers have not ended the crisis but to the contrary were among its causes, stressing that instead member states must pursue natiuonal reforms. Pepinsky added his own less optimistic analysis, stating that the current state of affairs, "...is what the solution looks like."
A final remark came from Mabel Berezin, Chair of the Department of Sociology. She commented that the issues between national solidarity and European solidarity need to be worked out, and that some more developed form of political union seemed necessary. She was concerned, however, about the trend in public opinion against this political union evidenced by significant national and populist backlash in recent elections.
International Forums organized by the Einaudi Center provide faculty, visiting scholars, students, and the local community the opportunity to address compelling issues in international studies that cut across disciplinary areas and regions of the world.