An IMF Bridge to Somewhere for Greece?

ZURICH – The International Monetary Fund has resurrected an old technique – commonly used in the 1980s during the Latin American debt crisis – that would allow Greece to avoid a payment default next month on debt owed to European creditors. The reprieve also gives the IMF and its European partners time to sort out their technical differences on the struggling country’s growth and budget outlook. But the Fund’s elegant compromise still leaves Greece under the shadow of an enormous debt overhang; reducing it requires that Europe find a way to set aside national politics and act on the basis of economic logic and necessity.

Europe and the IMF have been unable to reconcile two views of Greece’s debt sustainability, with the two sides’ differences spilling over into the public domain. Guided mainly by a cash-flow analysis, European authorities argue that low interest rates and long maturities have made the nation’s debt sustainable. But the Fund notes that, at almost 200% of GDP, Greece’s stock of debt deters investment and capital inflows. For the IMF, meaningful debt reduction is critical for generating the confidence and credibility needed to break Greece out of a prolonged period of impoverishment.

This is not the only area of disagreement between Greece’s two major creditors. They also differ on the realism of some key economic projections, including the important nexus between growth and the government budget, with Europe adopting a much more optimistic perspective.

For those of us who have been following the Greek economic tragedy for many years, much of the European view continues to defy economic logic – and for a simple reason: European politicians worry about the domestic political consequences of granting Greece debt relief, especially ahead of Germany’s federal election in September. Offering debt relief, it is feared, could undermine the credibility of governing parties and provide a boost to extremist movements.

To be sure, debt forgiveness is tricky, raising complicated issues of fairness and incentives. Yet, in some cases, there comes a time when refusal to forgive debt is more damaging. European officials know as well as the IMF does that Greece has long been at this stage, turning the country into a permanent “ward of the state” within a eurozone that does not accommodate this outcome well. But they seem unable to act.

With Europe and the IMF failing to agree, Greece has been robbed of the additional funding it needs to clear domestic arrears and meet its rather large external debt-service payments in July. Meanwhile, growth is languishing once again, despite the pickup in European economic performance as a whole. To overcome this bottleneck, the IMF has compromised, by reviving the practice of approving a financing program “in principle.”

An approval in principle signals the Fund’s endorsement of a country’s economic policy intentions. This can unlock other funding (in this case, from Europe). But the IMF refrains from actually disbursing its own loans, pending a more satisfactory outcome on overall financing assurances (in this case, proper debt relief for Greece).

It is a short-term compromise that acknowledges Europe’s political calendar and constraints, helps Greece avoid a summer default, and safeguards the IMF’s resources. The arrangement would shift more of the financing burden to Europe, where it properly belongs. And it even provides a signal of unity, despite the important disagreements that remain.

But this is nothing more than yet another temporary solution – or, to be less generous, the continuation of what has come to be known as the “extend and pretend” approach. While the immediate funding issue is indeed addressed, not enough is being done to put Greece on a realistic path of medium-term growth and financial viability. It also risks exposing the IMF to even heavier political pressure, accentuating legitimate questions about the uniformity of its treatment of member countries.

Having compromised, the IMF should now stick to its guns and refuse to make its arrangement for Greece operational until it is satisfied on both debt relief and technical assumptions. And, rather than declare victory, as they were inclined to do in a mid-June statement by eurozone finance ministers, European officials should treat this compromise as the next step in softening its increasingly untenable stance on Greek debt.

In the meantime, both sides would be well advised to undertake a careful analysis of previous experiences with programs that were approved in principle, rather than becoming immediately operational. When defined well, including by specifying a short period for the prospective shift to being fully operational, such programs can serve as a catalyst and conduit for relaxing a binding constraint on growth and financial viability. They need to be part of a constructive process. They do not work as standalone solutions.

Notwithstanding some bumps along the way, the succession of such programs in the 1980s helped avoid disruptive defaults, and culminated in meaningful reductions of debt and debt-service obligations, which helped several Latin American economies restore high growth and financial viability. A few years later, the process was repeated successfully in the debt-reduction programs for low-income countries under the HIPC (Heavily Indebted Poor Countries) initiative.

The grudging short-term compromise between the IMF and Europe comes after months of sometimes acrimonious discussions. For the sake of Greece, and for the credibility of their own future interactions, they should view it as a stepping-stone to the (long-delayed) definitive resolution of Greece’s economic and financial malaise. Greek citizens have waited, and suffered, long enough.

Mohamed A. El-Erian, Chief Economic Adviser at Allianz, was Chairman of US President Barack Obama’s Global Development Council and is the author of The Only Game in Town: Central Banks, Instability, and Avoiding the Next Collapse.

By Mohamed A. El-Erian

The Global Economy in 2067

NEW YORK – The world is experiencing a slow-motion economic crisis – one that, most experts agree, will continue for the foreseeable future. The global economy has grown in fits and starts since the economic crisis of 2008 – one of the longest recorded stagnations of the modern era. In virtually all middle- and high-income countries, wages (as a share of GDP) have been steadily declining for nearly 40 years. But what about the next 50?

Today, the situation certainly looks bleak. Economic stagnation and widening inequality have contributed to a surge in xenophobia and nationalism in the advanced countries, exemplified by the United Kingdom’s vote to exit the European Union and the election of US President Donald Trump – and now his decision to withdraw from the Paris climate agreement. Meanwhile, large parts of the developing world – notably, the Middle East and North Africa – have been embroiled in conflict, with some teetering on the edge of state failure.

But while such turbulence is likely to continue for the near future, there is little consensus on what lies beyond that. To be sure, long-run forecasting is usually a fool’s errand. In 1930, in similarly troubled times, none other than John Maynard Keynes tried his hand at it, with the famous essay “Economic Possibilities for our Grandchildren.” He got his forecast wrong.

Nonetheless, Keynes’s attempt surely sets a respectable precedent for economic future gazing. So here I go: in 50 years, I predict that the world economy is likely (though not guaranteed) to be thriving, with global GDP growing by as much as 20% per year, and income and consumption doubling every four years or so.

At first, this scenario probably seems farfetched. After all, the global economy currently is growing at a rate of just 3% annually (a bit worse, in the last few years). But it wouldn’t be the first time global economic growth accelerated to previously unimaginable levels.

From 1500 to 1820, according to data collected by the late Angus Maddison, the world’s annual growth rate was just 0.32%, with large sections of the world experiencing no growth at all. In China, annual per capita income stood at $600 throughout this period. For someone living at that time, today’s disappointing 3% growth rate would have been inconceivable. How could they anticipate the Industrial Revolution, which lifted average annual global growth to 2.25% from 1820 to 2003?

Today, it is the Digital Revolution that promises to lift growth to new heights. Indeed, we are in the midst of dramatic technological breakthroughs, with advances in digital technology connecting all corners of the world. As a result, workers are not just becoming more productive; they are gaining greater access to employment. Individuals in developing countries, for example, are now able to work for multinational companies. The upshot is that more workers are participating in the labor market.

The economic effects of this trend have not been all positive. In the United States, for example, the average real (inflation-adjusted) wage has barely risen, even as unemployment has fallen to 4.3%. By enabling lower-wage workers abroad – and, increasingly, machines – to do more jobs, technology has reinforced this “maximum wage ceiling.”

The key to breaking through this ceiling is to change the kinds of work in which people are engaged. Through improved education and training, as well as more effective redistribution, we can facilitate more creative work – from art to scientific research – which machines will not be able to do in the foreseeable future.

Though such work may seem wasteful, owing to the number of people and amount of time it takes to secure one major achievement or breakthrough, one such achievement or breakthrough is all it takes to create enough value to boost everybody’s standard of living. And, indeed, as the creative sector grows, growth will pick up substantially.

This outcome is likely, but it is not certain. Ensuring it will require fundamental changes to our economies and societies.

For one thing, we must work to smooth workers’ transition to more creative endeavors. This will require fundamental changes to education systems, including retraining for adults. It will also require policies and programs that provide some financial cushion to displaced workers; otherwise, the owners of machines and equity will seize on technological disruptions to capture an even larger share of the economic pie. Within countries, this can be achieved through some form of profit sharing, with, say, 15-20% of a country’s total profits “owned” by the working classes.

Consumption patterns will also need to change. If, as overall consumption doubles every four years, we also double the number of cars on the road or miles that jets fly, we will quickly exceed the planet’s limits. This is all the more true given that rising life expectancies will not only compound population growth, but also increase the share of elderly people. The right incentives will be needed to ensure that a large share of our wealth is directed at improving health and achieving environmental sustainability.

If we do not manage such policy shifts in the coming years, the world economy will probably swing to the other extreme over the next 50 years. In such a scenario, 2067 would be marked by even greater inequality, conflict, and chaos, with voters continuing to choose leaders who take advantage of their fears and grievances. What I believe can be ruled out is a middle ground, with the world looking roughly like it has over the last 30-40 years.

In 1967, the world saw big innovations in economics (the world’s first ATM was installed outside London that June) and health (the world’s first successful heart transplant was performed in South Africa in December). If 2067 is to be a fitting centenary for these breakthroughs, the current turmoil must motivate world leaders to work to develop and implement the novel policies we need to create a more prosperous, equitable, and stable future. Kaushik Basu, a former chief economist of the World Bank, is Professor of Economics at Cornell University.

By Kaushik Basu

Aleppo’s Sobering Lessons

NEW YORK – The fall of Aleppo to forces loyal to Syrian President Bashar al-Assad is neither the end of the beginning nor the beginning of the end of Syria’s five-and-a-half-year-old civil war – a war that is also a proxy, regional, and to some extent global conflict. The next major battle will be fought in Idlib province; the only question is when. And even after that, the war will continue to fester in various parts of what will remain a divided country.

Even so, now is a good time to take stock and focus on what has been learned, if only to learn from it. Little in history is inevitable, and the outcome in Syria is the result of what governments, groups, and individuals chose to do – and what they chose not to do. Indeed, not acting in Syria has proved to be as consequential as acting.

At no point was this clearer than when the United States did not fulfill its threat to make Assad’s government pay for its use of chemical weapons. That proved to be a missed opportunity not only to alter the momentum of the conflict, but also to underscore the principle that any government that uses weapons of mass destruction will regret it. Enforcement, after all, is essential to the effectiveness of future deterrence.

Deriving additional lessons requires going back to 2011, when peaceful anti-government protesters were met with deadly force, leading US President Barack Obama and others to demand that Assad step down. Here, too, no action or resources backed the strong rhetoric. The emergence of such a wide gap between means and ends almost always dooms a policy to failure.

This is especially so when the goal is regime change, and when the incumbent regime represents a substantial minority of a divided population. These circumstances tend to give rise to winner-take-all – and loser-lose-all – struggles. Not surprisingly, those with the most to lose tend to conduct the fight with enormous tenacity.

Scholars of international relations often write about the perceived limits to the utility of military force. But Syria shows that military force can be decisive – especially when applied in massive doses, with little concern for the number of civilians killed or displaced. Russia, Iran, and Assad’s government all demonstrated what large-scale and often indiscriminate use of military force could accomplish.

Another casualty of the Syria conflict is the term “international community.” In fact, there is little in the way of a global community of thought or action. And, with more than 500,000 dead and another ten million displaced in Syria, the much-vaunted doctrine of the “responsibility to protect” (R2P) has been exposed as well.

Adopted unanimously by the United Nations General Assembly in 2005 (partly in response to Rwanda’s genocide a decade earlier), R2P was premised on the notion that governments are obliged to protect their citizens from physical harm. When they are unable or unwilling to do so, according to R2P, other governments are obliged to intervene to protect those being subjected to harm.

If any government failed to meet the R2P norm, it was Syria’s. But the international intervention that came about was not designed to protect innocent lives or to weaken the government’s hold on power; instead, it was designed to ensure that the government prevailed. And it succeeded.

The international community did only somewhat better when it came to responding to the massive refugee crisis caused by the war. The fact that many countries have been unwilling to open their borders to meaningful numbers of asylum-seekers highlights the reality that the best refugee policy is one that prevents innocent men, women, and children from becoming refugees in the first place.

Diplomatic efforts failed to achieve much in the way of saving Aleppo or its inhabitants, and they are no more likely to bring an end to the war. However talented and committed diplomats may be, diplomacy tends to reflect, not create, realities on the ground. Future diplomatic efforts to bring about an end to the fighting or a particular political outcome will succeed only to the extent that the military balance and trends allow.

Looking ahead, Assad’s government will remain in place and in control of much, but not all, of the country. Various Sunni terrorist groups, less radical Sunni rebels, proxy forces such as Hezbollah, the Turkish army, Syrian Kurdish forces, and others will compete for control of particular regions. Outsiders, such as the US, would be well advised to accept this reality for the immediate future and focus their energies on stabilizing areas liberated from the Islamic State, protecting civilian populations, developing political and military ties with non-terrorist Sunni groups, and forging local cease-fires to prevent further Aleppos.

The goal of bringing about a transition to a different and more broad-based government should be maintained. But that is a long-term proposition. The lesson of the last five and a half years must be taken to heart: those who engage Syria with limited will and limited means must set limited goals if they are to accomplish even a limited amount of good.Richard N. Haass is President of the Council on Foreign Relations and the author of A World in Disarray: American Foreign Policy and the Crisis of the Old Order.

By Richard N. Haass

Brexit In Reverse?

LONDON – Economic reality is beginning to catch up with the false hopes of many Britons. One year ago, when a slim majority voted for the United Kingdom’s withdrawal from the European Union, they believed the promises of the popular press, and of the politicians who backed the Leave campaign, that Brexit would not reduce their living standards. Indeed, in the year since, they have managed to maintain those standards by running up household debt.

This worked for a while, because the increase in household consumption stimulated the economy. But the moment of truth for the UK economy is fast approaching. As the latest figures published by the Bank of England show, wage growth in Britain is not keeping up with inflation, so real incomes have begun to fall.

As this trend continues in the coming months, households will soon realize that their living standards are falling, and they will have to adjust their spending habits. To make matters worse, they will also realize that they have become over-indebted and will have to deleverage, thus further reducing the household consumption that has sustained the economy.

Moreover, the BoE has made the same mistake as the average household: it underestimated the impact of inflation and will now be catching up by raising interest rates in a pro-cyclical manner. These higher rates will make household debt even harder to pay off.

The British are fast approaching the tipping point that characterizes all unsustainable economic trends. I refer to such a tipping point as “reflexivity” – when both cause and effect shape each other.

Economic reality is reinforced by political reality. The fact is that Brexit is a lose-lose proposition, harmful both to Britain and the EU. The Brexit referendum cannot be undone, but people can change their minds.

Apparently, this is happening. Prime Minister Theresa May’s attempt to strengthen her negotiating position by holding a snap election badly misfired: she lost her parliamentary majority and created a hung parliament (no single party has a majority).

The primary cause of May’s defeat was her fatal misstep in proposing that elderly people pay for a substantial portion of their social care out of their own resources, usually the value of the homes that they have lived in all of their lives. This “dementia tax,” as it became widely known, deeply offended the core constituency, the elderly, of May’s Conservative Party. Many either did not vote, or supported other parties.

The increased participation of young people was also an important contributing factor in May’s defeat. Many of them voted for Labour in protest, not because they wanted to join a trade union or because they support Labour leader Jeremy Corbyn (although he gave an unexpectedly impressive performance throughout the campaign).

The attitude of Britain’s young people to the single market is diametrically opposed to that of May and supporters of a “hard” Brexit. Young people are eager to find well-paying jobs, whether in Britain or elsewhere in Europe. In that respect, their interests correspond with the interests of the City of London, where some of those jobs are to be found.

If May wants to remain in power, she must change her approach to the Brexit negotiations. And there are signs that she is prepared to do so.By approaching the negotiations that will start on June 19 in a conciliatory spirit, May could reach an understanding with the EU on the agenda and agree to continue as a member of the single market for a period long enough to carry out all the legal work that will be needed. This would be a great relief to the EU, because it would postpone the evil day when Britain’s absence would create an enormous hole in the EU’s budget. That would be a win-win arrangement.

Only by taking this path can May hope to persuade Parliament to pass all the laws that need to be in place once the Brexit talks are completed and Britain withdraws from the Union. She may have to abandon her ill-considered alliance with the Democratic Unionist Party in Ulster and side more emphatically with the Tories of Scotland, who are keen on a softer version of Brexit. May will also need to atone for the sins of the Tories in the London borough of Kensington with regard to last week’s Grenfell Tower fire, in which at least 30 people, and perhaps many more, lost their lives.

If May embraces such a platform, she could then carry on leading a minority government, because nobody else would want to take her place. Brexit would still take at least five years to complete, during which time new elections would take place. If all went well, the two parties might want to remarry even before they have divorced.

George Soros, Chairman of Soros Fund Management and of the Open Society Foundations, is the author of The Tragedy of the European Union: Disintegration or Revival?.

By George Soros

A Scientific Method for the SDGs

PARIS – In just the latest example of popular support for science, tens of thousands of people around the world recently marched to advocate for a worldview based on facts, not fiction. They understand that science could actually save the world, because it can help us solve our greatest health and development problems.

Those problems are at the heart of the United Nations Sustainable Development Goals, which the international community agreed to in 2015, with the aim of creating a more prosperous, equitable, and healthy planet by 2030. The 17 SDGs, which include 169 individual targets, constitute an ambitious agenda to address everything from gender equity to sustainable cities and climate change. All told, they provide an inclusive vision of sustainable development for the twenty-first century.

But comprehensiveness can come at the expense of effective action. Few people can actually name all of the SDGs, much less explain how every country can achieve them over the next 13 years. Experts around the world – including all of those who have gathered in New York this week for the UN Ocean Conference – are wrestling with individual targets or goals. And yet integrating these efforts remains a formidable challenge. If our leaders are ever to realize the world envisioned in the SDGs, they will need a roadmap for navigating the complex policymaking terrain.

Scientists are well positioned to provide this roadmap, because they know how to ask the right questions, design experiments, draw evidenced-based conclusions, and apply new information to existing knowledge. Better still, scientists enjoy sharing their findings with others.

The International Council for Science (ICSU) recently brought together 22 scientists from various fields – including oceanography, epidemiology, agronomy, and energy economics – to come up with SDG-specific insights for world leaders to follow. By studying how different goals and targets relate to one another, we developed an independent analytical framework to help leaders prioritize policies within their own countries.

Some SDGs have reinforcing relationships, whereby achieving one will make it easier to achieve others. At the same time, some SDGs may be in conflict, if progress in one area comes at the expense of others. While we have long known that the SDGs interact with one another, the ICSU study is the first time that these interactions have been systematically quantified.

For example, we selected the four SDGs relating to hunger, health, energy, and oceans, and then identified every possible interaction between them and the other goals and targets. We then developed a seven-point scale, ranging from +3 when a given goal or target strongly reinforces another, to -3 when achieving one goal makes it essentially impossible to reach another.

By applying this scale to different SDG relationships, we were able to answer some important questions. For example, we could determine if protecting the oceans will stifle economic growth and urban development in a particular country or region. And we could determine if increasing agricultural production would make it harder to manage natural resources; or if expanding renewable-energy sources would deplete the water supply in already-arid regions.

One exciting discovery we’ve made is that most SDG targets actually do reinforce one another. For example, helping the world’s poorest people shift away from traditional fuels such as firewood, charcoal, and animal dung would go a long way toward reducing deaths and illnesses from air pollution, especially among women and children.

And in cases where different goals do not align, policymakers can make adjustments as needed. For example, we found that increased agricultural production can damage the oceans if it adds to nutrient run-off and other forms of pollution; and this, in turn, could undermine health and long-term food security.

Moreover, our approach had benefits beyond the immediate quantitative findings, because it united scientists from different disciplines around a shared goal. This was no easy task: scientists are critical consumers of information, and they do not always agree with one another. But, owing to the sheer scale of the SDGs, the participants had to hash out their differences, and develop a common language to devise the best way forward. Breaking down disciplinary silos and bringing together different voices is a significant achievement in itself. It can serve as an example for leaders in government, business, and civil society to follow.

So, where do we go from here? Our analytical framework can help countries figure out which SDGs benefit others, and which do not. With it, policymakers can prioritize goals and investments; map existing resources and identify budget gaps; and establish mechanisms for sharing data and information across sectors.

More generally, each country will need to monitor its progress toward each SDG, and revise its approach as needed. This will require diligence from all policymakers. But the potential return on investment, not least a better planet for generations to come, is enormous.Whether science really will save the world remains to be seen. But one thing we know is that scientists can point us in the right direction.

Anne-Sophie Stevance leads policy work at the International Council for Science. David McCollum is a research scholar at the International Institute for Applied Systems Analysis.

By Anne-Sophie Stevance and David McCollum

The Rise of the Food Barons

BERLIN – The industrial-agriculture sector has long faced criticism for practices that contribute to climate change, environmental destruction, and rural poverty. And yet the sector has taken virtually no steps to improve quality and sustainability, or to promote social justice.

This is not surprising. Although there are more than 570 million farmers and seven billion consumers worldwide, just a handful of companies control the global industrial-agriculture value chain – from field to shop counter. Given the high profits and vast political power of these companies, changes to the status quo are not in their interest.

Moreover, market concentration in the agriculture sector is on the rise, owing to increased demand for the agricultural raw materials needed in food, animal feed, and energy production. As the middle class in southern countries has grown, its members’ consumption and nutritional habits have changed, boosting global demand for processed foods – and setting off a scramble for market power among multinational agricultural, chemical, and food corporations.

The biggest players in these sectors have been buying out their smaller competitors for years. But now they are also buying out one another, often with financing provided by investors from completely different sectors.

Consider the seed and agrochemical sector, where Bayer, the second-largest pesticide producer in the world, is in the process of acquiring Monsanto, the largest seed producer, for €66 billion ($74 billion). If the United States and the European Union approve the deal, as seems likely, just three conglomerates – Bayer-Monsanto, Dow-DuPont and ChemChina-Syngenta – will control over 60% of the global seed and agrochemical market. “Baysanto” alone would be the proprietor of almost every genetically modified plant on the planet.

With other large mergers also being announced, the global agriculture market at the end of 2017 could look very different than it did at the beginning. Each of the three major conglomerates will be closer to its goal of achieving domination of the seed and pesticide markets – at which point they will be able to dictate food products, prices, and quality worldwide.

The agrotechnical sector is experiencing some of the same changes as the seed sector. The five largest corporations account for 65% of the market, with Deere & Company, the owner of the John Deere brand, in the lead. In 2015, Deere & Company reported $29 billion in sales, surpassing the $25 billion that Monsanto and Bayer made selling seeds and pesticides.

The most promising new opportunity for food corporations today lies in the digitization of agriculture. This process is still in its early stages, but it is gathering momentum, and eventually it will cover all areas of production. Soon enough, drones will take over the task of spraying pesticides; livestock will be equipped with sensors to track milk quantities, movement patterns, and feed rations; tractors will be controlled by GPS; and app-controlled sowing machines will assess soil quality to determine the optimal distance between rows and plants.

To maximize the benefits of these new technologies, the companies that already dominate the value chain have begun cooperating with one another. The John Deeres and Monsantos have now joined forces. The confluence of soil and weather “big data,” new agrotechnologies, genetically modified seeds, and new developments in agrochemistry will help these companies save money, protect natural resources, and maximize crop yields worldwide.

But while this possible future bodes well for some of the world’s largest companies, it leaves the environmental and social problems associated with industrialized agriculture unsolved. Most farmers, particularly in the global South, will never be able to afford expensive digital-age machinery. The maxim “grow or go” will be replaced with “digitize or disappear.” The ETC Group, an American non-governmental organization, has already outlined a future scenario in which the major agrotechnology corporations move upstream and absorb the seed and pesticide producers. At that point, just a few companies will determine everything that we eat.

Indeed, the same market-concentration problem applies to other links in the value chain, such as agricultural traders and supermarkets. And even though food processing is not yet consolidated on a global scale, it is still dominated at the regional level by companies such as Unilever, Danone, Mondelez, and Nestlé. These companies make money when fresh or semi-processed food is replaced by highly processed convenience foods such as frozen pizza, canned soup, and ready-made meals.

While lucrative, this business model is closely linked to obesity, diabetes, and other chronic diseases. Worse, food corporations are also profiting from the proliferation of illnesses for which they are partly responsible, by marketing “healthy” processed foods enriched with protein, vitamins, probiotics, and omega-3 fatty acids.

Meanwhile, corporations are amassing market power at the expense of those at the bottom of the value chain: farmers and workers. International Labor Organization standards guarantee all workers the right to organize, and they prohibit forced and child labor and proscribe race and gender discrimination. But labor-law violations have become the norm, because efforts to enforce ILO rules are often quashed, while trade union members are routinely threatened, fired, and even murdered.

In this hostile climate, minimum-wage, overtime-pay, and workplace-safety standards are openly neglected. And women, in particular, are at a disadvantage, because they are paid less than their male counterparts and often must settle for seasonal or temporary jobs.

Today, half of the world’s 800 million starving people are small farmers and workers connected to the agricultural sector. Their lot will hardly improve if the few companies already dominating that sector become even more powerful.Christine Chemnitz is Head of the Department of International Agricultural Politics at the Heinrich Böll Foundation.

By Christine Chemnitz

The Eurozone Must Reform or Die

OXFORD – With the election of a reform-minded centrist president in France and the re-election of German Chancellor Angela Merkel seeming ever more likely, is there hope for the stalled single-currency project in Europe? Perhaps, but another decade of slow growth, punctuated by periodic debt-related convulsions, still looks more likely. With a determined move toward fiscal and banking union, things could be much better. But, in the absence of policies to strengthen stability and sustainability, the chances of an eventual collapse are much greater.

True, in the near term, there is much reason for optimism. Over the past year, the eurozone has been enjoying a solid cyclical recovery, outperforming expectations more than any other major advanced economy. And make no mistake: the election of Emmanuel Macron is a landmark event, raising hopes that France will re-energize its economy sufficiently to become a full and equal partner to Germany in eurozone governance. Macron and his economic team are full of promising ideas, and he will have a huge majority in the National Assembly to implement them (though it will help if the Germans give him leeway on budget deficits in exchange for reform). In Spain, too, economic reform is translating into stronger long-term growth.

But all is not well. Greece is still barely growing, after experiencing one of the worst recessions in history, although those who blame this on German austerity clearly have not looked at the numbers: with encouragement from left-leaning US economists, Greece mismanaged perhaps the softest bailout package in modern history. Italy has done far better than Greece, but that is a backhanded compliment; real income is actually lower than a decade ago (albeit it is hard to know for sure, given the country’s vast underground economy). For southern Europe as a whole, the single currency has proved to be a golden cage, forcing greater fiscal and monetary rectitude but removing the exchange rate as a critical cushion against unexpected shocks.

Indeed, part of the reason the United Kingdom’s economy has held up well (so far) since last year’s Brexit referendum is that the pound fell sharply, boosting competitiveness. The UK, of course, famously (and wisely) opted out of the single currency even as it is now moving (not so wisely) to withdraw from the European Union and the single market entirely.

It is now fairly obvious that the euro was not necessary to the success of the EU, and instead has proved a massive impediment, as many economists on this side of the Atlantic had predicted. Eurocrats have long likened European integration to riding a bicycle: one must keep moving forward or fall down. If so, the premature adoption of the single currency is best thought of as a detour through thick, wet cement.

Ironically, by far the main reason why euro adoption was originally so popular in Southern Europe was that back in the 1980s and 1990s, ordinary people longed for the price stability Germans enjoyed with their Deutsche Mark. But, while the euro has been accompanied by a dramatic eurozone wide fall in inflation, most other countries have managed to bring down inflation without it.

Far more important to the achievement of price stability has been the advent of the modern independent central bank, a device that has helped dramatically reduce inflation levels worldwide. Yes, a few places, such as Venezuela, still have triple-digit price growth, but they are now rarities. It is very likely that if, instead of joining the euro, Italy and Spain had simply granted their central banks more autonomy, they, too, would have low inflation today. Greece is admittedly a less obvious case; but, considering that many poor African countries have been able to keep inflation well within single digits, one can presume that Greece would have managed as well. Indeed, if Southern European countries had kept their own currencies, they might never have dug as big a debt hole, and would have had the option of partial default through inflation.

The question now is how to maneuver the EU out of the wet cement. Although many European politicians are loath to admit it, the status quo is probably not sustainable; eventually, there must be either significantly greater fiscal integration or a chaotic break-up. It is astonishingly naive to think the euro will not face further real-life stress tests over the next 5-10 years, if not sooner.

If the status quo is ultimately unsustainable, why are markets so supremely calm, with ten-year Italian government bonds yielding less than two percentage points more than Germany’s?

Perhaps the small spread reflects investors’ belief that outright bailouts are eventually coming, however much German politicians protest to the contrary. European Central Bank purchases of periphery countries’ debt already constitute an implicit subsidy, and discussion of Eurobonds is heating up with Macron’s victory.

Or perhaps investors are gambling that the South has walked too far into the cement to get out. Germany will just keep squeezing their budgets in order to ensure that its banks are repaid.

Either way, eurozone leaders would be better off taking action now, rather than waiting for the single currency’s next moment of truth. How long today’s optimism lasts is for Macron and Merkel to decide. Kenneth Rogoff, a former chief economist of the IMF, is Professor of Economics and Public Policy at Harvard University.

By Kenneth Rogoff

How Macron Keeps Winning

PARIS – Emmanuel Macron’s one-man revolution in French and European politics continued this weekend, as he will soon be able to add a huge parliamentary majority to his cause, if the results from the first round of the French parliamentary election hold. Such an outcome appears to be very likely.

Eliminating the old “right-left” divide in French politics by uniting “reformists” of the left, the right, and the center, was the challenge that Macron set for himself when he created his En Marche! movement in April 2016 as part of his bid for the French presidency. The result of the first round of elections to the National Assembly is the clearest indication yet of how successful Macron has been in recasting French politics.

Support for France’s two main traditional parties, Les Républicains on the right (which won 21.6% of votes cast in the first round) and the Socialist Party (down to a mere 9.5%), has fallen to levels unseen in the history of the French Fifth Republic. And backing for the far-right National Front, whose leader, Marine Le Pen, lost to Macron in the presidential election, fell to a mere 13.2% in the first round.

If the second round of voting next Sunday confirms projections, Macron’s new centrist party, La République en Marche! (LREM), could end up with between 400 and 445 of the National Assembly’s 577 seats.

How can a party with about 32.3% of the votes in the first round win in such a landslide in the second round?

The explanation is that only candidates winning more than 12.5% of registered voters in the first round can participate in the second. The low turnout (less than 50%) for the first round means that two candidates at most can make it to the second round, where the candidate with the highest number of votes will win.

This means that in nearly all districts the second round will be a duel between Macron’s LREM and another party. Where the other party is on the right, left-wing parties and voters will support Macron. Where the other party is on the left, it is the right-wing parties and voters who will support Macron.

This year’s voting departed markedly from previous National Assembly elections in several other key respects, beyond the support shown for Macron’s new political grouping.

For starters, more than a third of current MPs opted out. Their withdrawal has opened the door to a new generation of politicians, with a significant number, particularly on Macron’s party list, coming from civil society, rather than from other elected or public-sector positions.

Second, the historically large majority of seats that LREM is set to win, owing to low turnout and the 12.5% threshold for going on to the second round of voting, means that a new and very different French political landscape is emerging. French politics is now crystallizing around a strong center, while the two parties of the left and right that traditionally have formed both the government and the main opposition have been swept to the margins.

For decades the Socialists and the parties of the right, now grouped in Les Républicains, have failed to deliver the economic reforms – and thus the economic growth – that France badly needs. For most French, the traditional parties have come to symbolize a lack of transparency, chronic unethical behavior, and a focus on internal party fights at the expense of the national interest. Now French voters have rebuffed them.

Third, the reconstruction of the French political landscape goes far beyond the radical changes likely to occur in the distribution of National Assembly seats that will occur once the second round is complete. Some future MPs from the two traditional parties, as well as others, will almost certainly buck their own party leaders to vote for Macron’s planned reforms. Indeed, more than 30 members of the National Assembly from Les Républicains, as well as a few key figures from the Socialists, already have made it known that they will be supporting Macron’s reform program.

All of this suggests that Macron will emerge from the second round of the parliamentary election with the strong majority that he needs to embark with confidence on a program to transform France. And the program he envisages offers a viable opportunity – the best in recent memory – to reform France’s economy in ways that will foster innovation-led growth while offering better social protection and education to French citizens.

Macron is raring to get started on that agenda. The first two major reforms that his government will seek to implement entail an overhaul of the labor market and a tightening of rules on ethics in the public sector. But they will likely be just the start of the most dynamic program of reform that France has seen since Charles de Gaulle occupied the Élysée Palace.

Philippe Aghion is Professor of Economics at Harvard University, College de France, and the London School of Economics. Benedicte Berner is a lecturer at Sciences Po in Paris, chair of Civil Rights Defenders, and an associate at Harvard University’s Davis Center for Russian and Eurasian Studies.

The Arab World’s Coming Challenges

LONDON – Fifty years after the Six-Day War, which marked the beginning of Israel’s occupation of East Jerusalem and the West Bank, the Middle East remains a region in seemingly perpetual crisis. So it is no surprise that, when addressing the region, politicians, diplomats, and the donor and humanitarian community typically focus on the here and now. Yet, if we are ever to break the modern Middle East’s cycle of crises, we must not lose sight of the future. And, already, four trends are brewing a new set of problems for the coming decade.

The first trend affects the Levant. The post-Ottoman order that emerged a century ago – an order based on secular Arab nationalism – has already crumbled. The two states that gave weight to this system, Iraq and Syria, have lost their central authority, and will remain politically fragmented and socially polarized for at least a generation.

In Lebanon, sectarianism remains the defining characteristic of politics. Jordan has reached its refugee-saturation point, and continued inflows are placing limited resources under ever-greater pressure. As for the Israeli-Palestinian conflict, there is no new initiative or circumstance on the political horizon that could break the deadlock.

The Middle East is certain to face the continued movement of large numbers of people, first to the region’s calmer areas and, in many cases, beyond – primarily to Europe. The region is also likely to face intensifying contests over national identities as well, and perhaps even the redrawing of borders – processes that will trigger further confrontations.

The second major trend affects North Africa. The region’s most populous states – Algeria, Egypt, and Morocco – will maintain the social and political orders that have become entrenched over the last six decades of their post-colonial history. The ruling structures in these countries enjoy broad popular consent, as well as support from influential institutions, such as labor and farmers’ unions. They also have effective levers of coercion that serve as backstops for relative stability.

But none of this guarantees smooth sailing for these governments. On the contrary, they are poised to confront a massive youth bulge, with more than 100 million people under the age of 30 entering the domestic job market in North Africa between now and 2025. And the vast majority of these young people, products of failed educational systems, will be wholly unqualified for most jobs offering a chance of social mobility.

The sectors best equipped to absorb these young Arabs are tourism, construction, and agriculture. But a flourishing tourism sector is not in the cards – not least because of the resurgence of militant Islamism, which will leave North Africa exposed to the risk of terror attacks for years to come.

Moreover, a declining share of the European food market and diminished investments in real estate undermine the capacity of agriculture and construction to absorb young workers. The likely consequences of North Africa’s youth bulge are thus renewed social unrest and potentially sizeable migration flows to Europe.

The Gulf used to provide a regional safety valve. For more than a half-century, Gulf countries absorbed millions of workers, primarily from their Arab neighbors’ lower middle classes. The Gulf was also the main source of investment capital, not to mention tens of billions of dollars in remittances, to the rest of the region. And many Arab countries viewed it as the lender of last resort.

But – and herein lies the third key trend – the Gulf economies are now undergoing an upgrade, ascending various industrial value chains. This reduces their dependence on low-skill foreign workers. In the coming years, the Gulf countries can be expected to import fewer workers from the rest of the Arab world, and to export less capital to it.

The Gulf might even become increasingly destabilized. Several Gulf powers and Iran are engaged in a partly sectarian proxy war in Yemen – one that will not end anytime soon. And now five Sunni powers have turned on one of their own, Qatar, which has been pursuing its own regional agenda for a generation. The pressures being generated across the entire southern Arabian Peninsula could produce further political shocks.

That is all the more likely, given mounting domestic pressure for reform from a technologically savvy and globally engaged young citizenry. Reforming centuries-old social and political structures will be as difficult as it is necessary.

The fourth trend affects the entire Arab world, as well as Iran and Turkey: the social role of religion is becoming increasingly contested. The wars and crises of the last six years have reversed much of the progress that political Islam had made in the decade before the so-called Arab Spring uprisings erupted in 2011. With radicalism becoming increasingly entrenched, on the one hand, and young Muslims putting forward enlightened understandings of their religion, on the other, a battle for the soul of Islam is raging.

The problems implied by these four trends will be impossible for leaders, inside or outside the Arab world, to address all at once, especially at a time of rising populism and nativism across the West. But action can and should be taken. The key is to focus on socioeconomic issues, rather than geopolitics.

The West must not succumb to illusions about redrawing borders or shaping new countries; such efforts will yield only disaster. One highly promising option would be to create a full-on Marshall Plan for the Arab world. But, in this era of austerity, many Western countries lack the resources, much less public support, for such an effort – most of the Arab world today couldn’t make the most of it in any case.

What leaders – both within and outside the region – can do is pursue large-scale and intelligent investments in primary and secondary education, small and medium-size businesses (which form the backbone of Arab economies), and renewable energy sources (which could underpin the upgrading of regional value chains).

Pursuing this agenda won’t stem the dissolution of the modern Arab state in the Levant. It won’t generate workable social contracts in North Africa. And it certainly won’t reconcile the sacred with the secular. But, by attempting to address young people’s socioeconomic frustrations, it can mitigate many of the longer-term consequences of these trends. Tarek Osman is the author of Islamism: What It Means for the Middle East and the World and Egypt on the Brink.

By Tarek Osman

Trump’s Climate-Change Sociopathy

NEW YORK – President Donald Trump’s withdrawal of the United States from the Paris climate agreement is not just dangerous for the world; it is also sociopathic. Without remorse, Trump is willfully inflicting harm on others. The declaration by Nikki Haley, the US ambassador to the United Nations, that Trump believes in climate change makes matters worse, not better. Trump is knowingly and brazenly jeopardizing the planet.

Trump’s announcement was made with a bully’s bravado. A global agreement that is symmetric in all ways, across all countries of the world, is somehow a trick, he huffed, an anti-American plot. The rest of the world has been “laughing at us.”

These ravings are utterly delusional, deeply cynical, or profoundly ignorant. Probably all three. And they should be recognized as such. After Trump claimed to be representing “Pittsburgh, not Paris,” the mayor of Pittsburgh immediately declared that Trump certainly is not representing his city. In fact, Pittsburgh has made the transition from a polluted, heavy industrial economy to an advanced, clean-tech economy. And it is home to Carnegie Mellon University, one of the world’s great centers of innovation in information technologies that can promote the transition to zero-carbon, high-efficiency, equitable, and sustainable growth – or, more simply, an economy that is “smart, fair, and sustainable.”

Trump’s announcement was rooted in two profoundly destructive developments. The first is the corruption of the US political system. Trump’s announcement was not really his alone. It reflected the will of the Republican leadership in Congress, including the 22 Republican senators who sent Trump a letter the week before, calling on him to withdraw from the Paris accord.

These senators, and their counterparts in the House of Representatives, are on the take of the oil and gas industry, which spent $100 million on campaign contributions in 2016, of which 90%went to Republican candidates. (In fact, the total was almost certainly far above $100 million, but much is untraceable.)

The second destructive development is the twisted mindset of Trump and his closest advisers. Their view, defended with “alternative facts” that have no basis in reality, is paranoid and malevolent, aimed at inflicting harm on others, or at best indifferent to harm befalling others. “The Paris agreement,” rants Trump, “handicaps the United States economy in order to win praise from the very foreign capitals and global activists that have long sought to gain wealth at our country’s expense.”

This is nuts. The Paris accord is a universal agreement among 193 UN member states to cooperate in decarbonizing the world’s energy system and thereby head off the dangers of climate disaster, such as a multi-meter sea-level rise, extreme storms, massive droughts, and other threats identified by the global scientific community. Some of these threats are already evident in vulnerable parts of the planet.

The Paris climate agreement requires each country is to do its part with “common but differentiated responsibilities.” America’s differentiated responsibilities start with the fact that the US is, by far, the largest cumulative greenhouse-gas emitter in the world. As such, the US has contributed more to ongoing climate change than any other country. And US per capita emissions are higher than in any other large country, by far. The Paris accord does not victimize the US; on the contrary, the US has a world-beating responsibility to get its house in order.

According to data from the World Resources Institute, the US accounted for an astounding 26.6% of global greenhouse-gas emissions from 1850 to 2013. America’s population today is just 4.4% of the world’s population. In short, it is America, where per capita emissions have always been several times higher than the world average, that owes the world climate justice, not the other way around.

Consider the most recent data for the year 2014 from the International Energy Agency’s Energy Statistics 2016. The world’s CO2 emissions from energy and industry averaged 4.5 tons per person (32.4 billion tons per 7.2 billion people in the IEA tabulation), while US emissions were nearly four times that level, 16.2 tons per person (5.2 billion tons for 320 million people). Trump carries on about the Paris agreement’s supposed bias in favor of India, but fails to acknowledge that India’s per capita emissions are 1.6 tons, just one-tenth of the US level.

Trump also bemoans the US contributions to the Green Climate Fund (and sneers at the name for some reason as well). He complains that the US has already given over $1 billion, without explaining to the American people and the world that $1 billion is a contribution of $3.08 per American. Indeed, the $10 billion expected from the US over many years is a mere $30.80 per American.

Here’s the simple truth: The entire world needs to move quickly and resolutely to a low-carbon energy system, in order to end emissions of CO2 and other greenhouse gases by mid-century.This is not a move against the US. It’s a global imperative – true for the US, China, India, Russia, Saudi Arabia, Canada, and other fossil-fuel-rich countries, as well as for fossil-fuel-importing regions such as Europe, Japan, and most of Africa. Fortunately, the technologies exist: solar, wind, geothermal, hydroelectric, ocean, nuclear, and other low-carbon energy sources.

Here’s more simple truth: With its large, rich, fossil-fuel-intensive economy, the US has done more than any other country to bring about the global peril of climate change, so it should accept its responsibility in helping to get us all out of danger. At a minimum, America should be eagerly cooperating with the rest of the world.

Instead, Trump’s sociopathic behavior, and the corruption and viciousness of those surrounding him, has produced utter disdain for a world nearing the brink of human-made catastrophe. The next human-caused climate disasters should be named Typhoon Donald, SuperstormIvanka, and Megaflood Jared. The world will not forget.

Jeffrey D. Sachs, Professor of Sustainable Development and Professor of Health Policy and Management at Columbia University, is Director of Columbia’s Center for Sustainable Development and the UN Sustainable Development Solutions Network.

By Jeffrey D. Sachs

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