The problem with the euro

The problem with the euro.
Updated 30 December 2016
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The problem with the euro

Ever since the elections to the European Parliament were first held in 1979, voter turnout has been falling, with even France and Germany — two of the bloc’s founding countries — having low rates of participation.
Voters do not rate European elections as anywhere near as important as national ones; in a study conducted by academic Paul Statham, only 15 percent know enough to be for or against issues whereas the rest simply do not know, and many may not even be interested at all. Some European parliamentarians seem to have acknowledged their second-rate status, given the low attendance rates of many sessions. On Nov. 18, 2008, the Guardian showed on its front page a photo of the European Parliament where a debate was taking place in front of empty rows.
What are the reasons behind the general public’s apparent indifference to the European Union and the euro? Should European institutions strengthen their communication with citizens? Has enough been done to address the shortcomings of the euro area’s rules? Has the euro crisis changed European politics?
I searched for some answers to these questions in “The Euro and the Battle of Ideas” by Markus Brunnermeier, professor of economics at Princeton University, Harold James, professor of history and international affairs at Princeton University, and Jean-Pierre Landau, former executive director of the International Monetary Fund and the World Bank and now associate professor of economics at Sciences Po in Paris.
In this book, the authors argue that the main problem with the euro is due to the fundamental economic and political differences between France and Germany.
The historical roots of German-French differences can be summarized as “French centralism versus German federalism.” France’s centralized political structure goes back a thousand years whereas modern Germany has always been a federal system.
“It is this war of ideas that lies at the heart of our book. Our main aim is to provide an explanation of the long-term historical, intellectual and cultural roots of the contrasting German and French economic philosophies,” the authors write.

Historic meeting
“The Euro and the Battle of Ideas” begins with a meeting held on Oct. 12, 2010, between German Chancellor Angela Merkel and then French President Nicolas Sarkozy. This meeting, held in the French coastal town of Deauville, changed the course of European politics. Bypassing the European institutions in Brussels, the two heads of state made a secret agreement. Germany would slacken its grip on the rules if France accepted “an adequate participation of private creditors.”
This encounter highlighted the difficulties Germany and France had faced in agreeing on an appropriate solution to the financial crisis due to their different economic visions. The Franco-German discussion also caused a genuine anger and a deep resentment among the other European leaders, including the head of the European Central Bank, when they learned of the outcome. This clash of ideas also involved Finns, Austrians, and at times Slovaks and Poles. This conflict eventually played a role in the British vote for Brexit.

Forged in crises
Jean Monnet, the father of the EU, believed that “Europe will be forged in crises, and will be the sum of the solutions adopted for those crises.” This worked well in the case of small setbacks but fell short in the wake of the 2007-2008 financial crisis. Incidentally, the only European institution that was strengthened by the euro crisis was the European Central Bank (ECB).
The contrast between the French and German economic approaches can be illustrated by looking at maps of the respective countries’ railroad systems. On the French map everything emanates from Paris, the capital, while Germany has a multiplicity of nodes, which are all interconnected.
Influenced by its federal system, German banking is largely regional and operates within a strict legal framework to preserve precisely the interests of its different regions. In France, an independent central bank is seen as incompatible with the country’s republican traditions.
However, Christian Noyer, former governor of the Banque de France, stated that the German model offered the most effective blueprint for the establishment of a new European Central Bank.
The French economy after 1945 also reflects its historic drive toward centralization. France has more firms among the 500 largest firms in the world than Germany. On the other hand, Germany has a much larger sector of small and medium enterprises, something the authors rightly see as “the incubators in which middle-class dynamism developed and galvanized society as a whole… In recent years, small businesses have been the major creators of jobs… By contrast, most large companies have tried to rationalize or downsize employment.”
The German and the French economic thinking also differs regarding cross-border capital flows. The Germans privilege free trade, fair competition, and open international markets whereas the French favor fixing exchange rates and controlling capital flows.

Optimal balance
According to the authors of “The Euro and the Battle of Ideas,” to reach an optimal balance between the French and the German positions, policy makers need to find the right combination of immediate responses and the creation of a robust, sustainable long-term economic framework.
“In the presence of extreme adverse events, an excessive emphasis on individual liability is counterproductive. In such extreme circumstances, the solidarity principle should dominate. The European community thus needs a discussion of the extent to which it is willing to assume tail risk for its members. A commonly acceptable cutoff needs to be identified, agreed upon, clearly communicated, and enforced in future crises,” the authors write.
“The Euro and the Battle of Ideas” chronicles the complex monetary history of the euro. It analyzes the difficulties faced by two of the EU’s founding members, France and Germany, to shape an adequate common European strategy. The combination of a strong resolve and bold decisions, which led to the creation of the European community and Eurozone, are needed to respond to the challenges of the ever-changing reality.


Iraq’s top musicians play on despite unpaid wages

Iraqi National Symphony Orchestra conductor Mohammed Amin Ezzat leads musicians during a rehearsal at Baghdad's School of Music and Ballet. (AFP)
Updated 15 August 2018
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Iraq’s top musicians play on despite unpaid wages

In a dusty Baghdad dance studio, conductor Mohammed Amin Ezzat tries to fire up the musicians of Iraq’s National Symphony Orchestra, whose enthusiasm has been dampened by eight months without pay.
An aging air conditioner fights to beat back the summer heat in the cramped space at the capital’s School of Music and Ballet as the 57-year-old maestro leads the group through a rehearsal of Modest Mussorgsky’s “Night on Bald Mountain.”
The shaggy-haired Ezzat and the 40 musicians surrounding him are gearing up to perform at Baghdad’s National Theater on Saturday, but the group’s morale is at an all-time low.
The ensemble has lost more than half its members since the start of the year, when the government issued a directive barring state employees with two jobs from receiving two salaries.
The anti-corruption measure was suggested by the World Bank and should affect only about a third of the orchestra’s musicians, but because of delays in carrying out the reform wages have been withheld from the entire group.
“The orchestra is in great danger,” Ezzat said. “Some don’t have enough money to come, and others are disappointed by the impact of politics on the orchestra.”
Officially created in 1970 after several unsuccessful attempts, Iraq’s national orchestra has survived decades of upheaval.
It has survived wars, an invasion, a 12-year international embargo and a devastating three-year battle against Daesh militants, which came to an end last year.
But this may be the last straw for the outfit, a collateral victim of Iraq’s “war on corruption.”
“Not being paid for eight months has had a terrible psychological effect on the musicians, but we’ll continue to resist peacefully with our music,” said Ezzat, who became the orchestra’s first Iraqi conductor in 1989.
“We’re on the precipice but sure that we won’t jump.”
When all its salaries are tallied up — including the maestro’s $1,200 a month, peanuts for a major conductor — the orchestra costs the state about $85,000 (€73,000) a year.
The sum is a pittance compared to the exorbitant figures siphoned off by ministers and high officials who have either fled or been arrested.
The conductor, his daughter Noor, a timpanist, and his sons Hossam and Islam, who play the cello and viola respectively, have all been without a salary since January.
But according to Raed Allawi, the head of administrative affairs at Iraq’s Culture Ministry, there is no reason to panic — the wages will soon be paid.
“The Finance Ministry has asked for a regularization of contracts. Verification measures are underway and this explains the late payment of wages,” Allawi said.
“The orchestra is one of the country’s cultural showcases (and the ministry) respects its artists and their talent.”
For the symphony’s musicians, however, these are empty words they have heard already.
Saad Al-Dujaily, a professor of medicine and a flutist, thinks the measure is regressive. “I’ve been an obstetrician and a flute player since I was very young,” he said.
Because of the directive, the 57-year-old practitioner — who teaches at Baghdad’s Al-Nahrain University and plays in the national orchestra — is now entitled to only one salary.
“In Iraq, we’re proud to have more than one job, to have more than one love, to practice two professions with the same love and passion,” said Dujaily, who plans to continue with the orchestra to help preserve its quality.
Further along into the rehearsal, the studio’s electricity cuts, a common occurrence in a country plagued by power outages.
The orchestra cannot afford the diesel to fuel the building’s generator.
But the musicians play on in the windowless room, using their cell phones to illuminate the sheet music. “There have been crises in the past, but this is the worst,” said Doaa Majid Al-Azzawi, an oboe player.
“Especially since my father and I are musicians. We don’t know what will happen, but if the orchestra has to stop, it’s culture in Iraq that will be dealt a deadly blow,” the 25-year-old said.
When the studio’s lights eventually make a flickering return, so too does the players’ enthusiasm, and the music swells.
“As long as we live, music will live. It’s our culture,” said Noor, the conductor’s daughter.