The infamously so called 'PIGS' (Portugal, Ireland, Greece, Spain) of Europe threatened the stability of the continent. They had built up unsustainable budget deficits.
In May, Greece were rescued with a $110bn package. In November, Ireland were given a $85bn emergency loan. Both countries embarked on deep austerity cuts, sparking fierce riots on the streets of Athens.
The Eurozone was called into question as it limited the powers of its members to control their debts. They were unable to devalue their currency which would have mitigated their woes.
Friday, 17 December 2010
Thursday, 16 December 2010
2010 A Year of Economics: Deficit and Debt
As we approach the end of 2010, I will be blogging on the top economic stories that have dominated our lives this year.
Deficits and debts throughout Europe and the US threatened the sustainability of public finances. The UK, notoriously, had the highest levels of debt within the G20. David Cameron coined the phrase, 'the age of austerity', marking the start of unprecedented cuts in government expenditure. Amongst many cuts in spending, the reform of the welfare system created the biggest headlines - child benefit was removed for many parents.
As we begin 2011, taxation will also increase as VAT rises to 20% and transport costs increase, causing more misery for motorists.
Deficits and debts throughout Europe and the US threatened the sustainability of public finances. The UK, notoriously, had the highest levels of debt within the G20. David Cameron coined the phrase, 'the age of austerity', marking the start of unprecedented cuts in government expenditure. Amongst many cuts in spending, the reform of the welfare system created the biggest headlines - child benefit was removed for many parents.
As we begin 2011, taxation will also increase as VAT rises to 20% and transport costs increase, causing more misery for motorists.
Wednesday, 24 November 2010
Yes to government aid for non-democratic states
Burma, North Korea, Zimbabwe - should governments support the principle of giving aid to these countries, run by non-democratic regimes? Yes.
The argument for not giving aid often goes like this: by giving government aid, we grant an undeserved patina of legitimacy for the oppressive regime. We have a duty as a Western democratic government to exert political pressure on unjust governments. Pressures and condemnations from the international arena can unsettle regimes: we saw in this in South Africa under the apartheid and arguably, in Burma (who held their first, albeit rigged, elections since 1990 this month.) However, by giving aid we are effectively condoning their actions. In order to help their citizens in the long-term (for greater freedoms) we must make the sacrifice now.
This short-term pain, long-term gain argument does not stand. It lies on the assumption that democracy is somehow the only good form of government - all other systems are wrong. This is a typical elitist Western view. Other good forms of government do exist. Pakistan under Musharaff was undeniably more stable than it is now. Under military rule, their citizens were safer. Now, although democratic, they are plagued by insurgency. Authoritarian Communist rule in China has been good for its people - their economy is booming and the middle class are rising. Therefore, it is wrong to assume that a non-democratic state automatically equates to a system that is bad for its people.
Besides, even if we accept perhaps democracy is the ideal form of government, logic still dictates that we should give aid to non-democratic governments. There are three grounds for this.
First, by not giving aid we are only penalising the people we claim to support, not their oppressors. The citizens are the ones who will suffer as a result of our inaction. Surely we have a moral duty to meet their humanitarian needs as opposed to making a counter-productive political statement of condemnation. I say counter-productive for a reason: not giving aid only serves to strengthen the position of the dictator. As he has a monopoly over all forms of media, he will be able to turn his population against the West - the "foreign oppressors who do not help."
Second, giving aid will actually help the shift to democracy - which is the presumably, the aim of those who oppose giving aid to non-democratic governments in the first place. Aid helps to develop the country in terms of infrastructure. The population become richer and more educated. As a result, the people can no longer be ignored as they put more effective pressure on their governments. This has happened in China. As the middle class have risen, the Chinese government have increasingly become more liberal (although not perfect) towards its people. This is in stark contrast to places like North Korea, where the population can be easily oppressed because most are just peasant and hence - powerless. Thus, there is a link between giving long-term aid and the population developing. When the country develops, greater freedoms become inevitable.
Governments across the world must continue to give aid to non-democratic governments - it is the moral and practical way.
The argument for not giving aid often goes like this: by giving government aid, we grant an undeserved patina of legitimacy for the oppressive regime. We have a duty as a Western democratic government to exert political pressure on unjust governments. Pressures and condemnations from the international arena can unsettle regimes: we saw in this in South Africa under the apartheid and arguably, in Burma (who held their first, albeit rigged, elections since 1990 this month.) However, by giving aid we are effectively condoning their actions. In order to help their citizens in the long-term (for greater freedoms) we must make the sacrifice now.
This short-term pain, long-term gain argument does not stand. It lies on the assumption that democracy is somehow the only good form of government - all other systems are wrong. This is a typical elitist Western view. Other good forms of government do exist. Pakistan under Musharaff was undeniably more stable than it is now. Under military rule, their citizens were safer. Now, although democratic, they are plagued by insurgency. Authoritarian Communist rule in China has been good for its people - their economy is booming and the middle class are rising. Therefore, it is wrong to assume that a non-democratic state automatically equates to a system that is bad for its people.
Besides, even if we accept perhaps democracy is the ideal form of government, logic still dictates that we should give aid to non-democratic governments. There are three grounds for this.
First, by not giving aid we are only penalising the people we claim to support, not their oppressors. The citizens are the ones who will suffer as a result of our inaction. Surely we have a moral duty to meet their humanitarian needs as opposed to making a counter-productive political statement of condemnation. I say counter-productive for a reason: not giving aid only serves to strengthen the position of the dictator. As he has a monopoly over all forms of media, he will be able to turn his population against the West - the "foreign oppressors who do not help."
Second, giving aid will actually help the shift to democracy - which is the presumably, the aim of those who oppose giving aid to non-democratic governments in the first place. Aid helps to develop the country in terms of infrastructure. The population become richer and more educated. As a result, the people can no longer be ignored as they put more effective pressure on their governments. This has happened in China. As the middle class have risen, the Chinese government have increasingly become more liberal (although not perfect) towards its people. This is in stark contrast to places like North Korea, where the population can be easily oppressed because most are just peasant and hence - powerless. Thus, there is a link between giving long-term aid and the population developing. When the country develops, greater freedoms become inevitable.
Governments across the world must continue to give aid to non-democratic governments - it is the moral and practical way.
Tuesday, 23 November 2010
The Great Irony
The despot that is Sadaam Hussein was toppled in 2003. A new Iraq was born: based on the principles of freedom and democracy - something it had been denied in the past.
But this week Iraq stumbled. Along with five other nations (Russia, Khazakhstan, Cuba and Morocco), Iraq too declined their invitation to the Nobel Peace Prize ceremony in December. China has asked nations to boycott this year's ceremony in Oslo because it has been awarded to a pro-democracy dissident, Liu Xiaobo, who is imprisoned in China. Presumably, Iraq followed this course of action so as not to harm trade relations with China.
By doing so, Iraq has betrayed its own values and succumbed to pressure from the Chinese.
But this week Iraq stumbled. Along with five other nations (Russia, Khazakhstan, Cuba and Morocco), Iraq too declined their invitation to the Nobel Peace Prize ceremony in December. China has asked nations to boycott this year's ceremony in Oslo because it has been awarded to a pro-democracy dissident, Liu Xiaobo, who is imprisoned in China. Presumably, Iraq followed this course of action so as not to harm trade relations with China.
By doing so, Iraq has betrayed its own values and succumbed to pressure from the Chinese.
Sunday, 14 November 2010
Expansion of the UN Security Council?
The UN Security Council is often the subject of intense criticism - from accusations of unfair representation to ineffectiveness to slowness. Expansion of the UN Security will exacerbate this problem, not solve it.
The problem with the current UN Security Council stems from its structural problems - the power to veto. By expanding this to include more permanent members, it means more vetoes and more inaction. Therefore, we do not solve problems on the efficiency front.
Neither do we make it more representative. Presumably, nations like India, Brazil and Japan will be the first to be added the council. This manifests two problems. Firstly, nations will undoubtedly represent their own self-interests as opposed to their continent. Secondly, it will increase agitation and tensions on those countries who are not given permanent seats. Pakistan will be furious about India representing Asia on the council and the same can be said for Mexico and Argentina about Brazil. Thus, far from improving representation, we are harming it.
Besides, even if expansion were to improve representation, that does not enhance the security council. The purpose of the council is to maintain world peace. The reason why USA, China, Russia, UK and France hold permanent seats is because they possess unparalleled military might. If the UN had intervened in Georgia, Russia would have undoubtedly sparked a bitter war. But, the fact that they could veto the UN's involvement meant that the war happened in the boardroom - not the battlefield.
The veto is a necessary evil. Expansion of the UN security council would be, on the other hand, an unecessary evil; it will not become more representative nor efficient.
The problem with the current UN Security Council stems from its structural problems - the power to veto. By expanding this to include more permanent members, it means more vetoes and more inaction. Therefore, we do not solve problems on the efficiency front.
Neither do we make it more representative. Presumably, nations like India, Brazil and Japan will be the first to be added the council. This manifests two problems. Firstly, nations will undoubtedly represent their own self-interests as opposed to their continent. Secondly, it will increase agitation and tensions on those countries who are not given permanent seats. Pakistan will be furious about India representing Asia on the council and the same can be said for Mexico and Argentina about Brazil. Thus, far from improving representation, we are harming it.
Besides, even if expansion were to improve representation, that does not enhance the security council. The purpose of the council is to maintain world peace. The reason why USA, China, Russia, UK and France hold permanent seats is because they possess unparalleled military might. If the UN had intervened in Georgia, Russia would have undoubtedly sparked a bitter war. But, the fact that they could veto the UN's involvement meant that the war happened in the boardroom - not the battlefield.
The veto is a necessary evil. Expansion of the UN security council would be, on the other hand, an unecessary evil; it will not become more representative nor efficient.
Friday, 12 November 2010
Despotism in Burma
After the Second World War, Burma was widely seen as the brightest economic prospect in South-East Asia. In 2010, we have an impoverished nation plagued by the actions of a brutal army. In 1990, multi-party elections were held largely as a result of popular pressure. The National League for Democracy (of which Ms Suu Kyi lead) won a landslide victory. Yet the result was annulled, Ms Suu Kyi placed under house arrest and no elections have been held since - that is, until last Sunday.
What has gone wrong? The international community, despite what it may think, are utterly powerless. The US have imposed sanctions on Burma since 1997. This is ineffective considering Burma are controlled by despots who could not care less for their people.
These sanctions have not only been futile but actually counter-productive. Firstly, when all information is heavily censored by the state, they have undoubtedly been able to foster an 'anti-foreign' feeling in the country against the 'foreign oppressors' who impose sanctions on its people. Secondly, sanctions hurt the very people they are meant to help; the poor, impoverished citizens. Thus, sanctions are nothing more than a form of tokenism.
Instead,the most we can do is exert international pressure through the mass media. Although this is not claimed to solve our problems, it can be effective. Iran did not stone to death Ms Astiani for adultery because of the incredible amounts of negative press coverage around the world. Clearly, these brutal governments do care about international opinion. This is the way forward.
What has gone wrong? The international community, despite what it may think, are utterly powerless. The US have imposed sanctions on Burma since 1997. This is ineffective considering Burma are controlled by despots who could not care less for their people.
These sanctions have not only been futile but actually counter-productive. Firstly, when all information is heavily censored by the state, they have undoubtedly been able to foster an 'anti-foreign' feeling in the country against the 'foreign oppressors' who impose sanctions on its people. Secondly, sanctions hurt the very people they are meant to help; the poor, impoverished citizens. Thus, sanctions are nothing more than a form of tokenism.
Instead,the most we can do is exert international pressure through the mass media. Although this is not claimed to solve our problems, it can be effective. Iran did not stone to death Ms Astiani for adultery because of the incredible amounts of negative press coverage around the world. Clearly, these brutal governments do care about international opinion. This is the way forward.
Thursday, 11 November 2010
Currency Wars
The G20 meet today in Seoul - at the top of the agenda will be no doubt about global imbalances. A multilateral approach is need to prevent countries retreating into competitive devaluations.
As a result, the USA has a huge current account deficit while others, like oil exporters and China have large surpluses. There will be pressure on China to revalue its currency. This would make China's exports more expensive in the market and Chinese consumers would import more goods and services. This will support growth in the USA and Europe.
However, we must achieve this end, not by threatening China, but through agreement. Punitive protectionist measures against China will only force them to retaliate.
As a result, the USA has a huge current account deficit while others, like oil exporters and China have large surpluses. There will be pressure on China to revalue its currency. This would make China's exports more expensive in the market and Chinese consumers would import more goods and services. This will support growth in the USA and Europe.
However, we must achieve this end, not by threatening China, but through agreement. Punitive protectionist measures against China will only force them to retaliate.
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