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Op-Ed: The Eurozone Debt Crisis

9/27/2011

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BETH THOMPSON - 27 SEPTEMBER 2011

At each stage of the crisis that continues to plague the nations that use the euro, opinions have flown from all sides of the ocean and the media. At the heart of the crisis is a country that cannot pay its debt, and a unique organization struggling to deal with the consequences of incomplete policy coordination.

The euro is the common currency of the member states of the European Union (EU) that are also members of the Economic and Monetary Union (EMU). All member states that have been admitted since the creation of the euro are obligated by treaty to join the EMU by meeting a series of criteria in three stages, the third of which is to adopt the euro as the national currency of the member state. Fifteen countries celebrated the birthday of the eurozone when, on January 1, 2002, euro notes and coins became legal tender. Though the currency had been in use electronically and minting of the euro had been ongoing for some time, the entrance of the euro as public and legal tender within the European Union – with the exception of the United Kingdom and Denmark – was a remarkable step for the organization. In the face of skepticism on the part of many economists, the euro has not been valued below $1.00 since late 2002. It peaked in mid-2008 at $1.59.

Despite the relative success of its currency, the EMU member states have never moved from a unitary monetary policy and single currency to a common fiscal policy. In practical terms, that means that each of the member states sets their own budget and is responsible for the consequences if – or, in the current situation, when – it is unable to pay its debts. The problem with this set-up is that if one member state goes bankrupt and is forced out of the EMU and the common currency that comes with it, it affects the value of the currency, other related economic relationships, and therefore the economies of the other member states. As evidenced by the current situation, a member doesn't even have to actually default for the markets to approach panic. Another consequence of the lack of coordination on fiscal policy is that the economically stronger member states have found themselves needing to provide significant assistance – in the billions of euros – to other members in danger of defaulting on their debt. This creates a political challenge for leaders such as Germany's Chancellor, Angela Merkel, in convincing their electorates that such support is warranted.

Greek Prime Minister George Papandreou attempted to help Chancellor Merkel at a meeting of the Federation of German Industry in Berlin on Tuesday, promising that the Greeks would find growth and prosperity "soon", even as Greece faces another round of potential strikes. He called for stricter regulations in the EMU, a long-term solution that would require the rewriting of treaties likely over years of negotiations, and the expansion of the European Financial Stability Facility, an emergency fund that might be a short-term fix but that Wolfgang Schaüble, the German finance minister, has ruled out expanding. Add to these challenges the Greek people, frustrated after three years of recession and strict austerity measures, and the fact that Chancellor Merkel may be attempting to use more political capital than she has in an already politically tense party and country, and you are left with the question: where are Greece and the euro headed, and is it the same place?

Seemingly countless reporters, talking heads, analysts, politicians, and neighborhood gossips have contributed to the swirl of opinions surrounding the eurozone crisis. From 'whatever makes the dollar stronger can't be that bad' to reasoned suggestions for jointly issued bonds and offers of support by countries as far away as Japan, the conversation has been as varied as its sources.

Those looking at the crisis from afar have, understandably, tended to focus on its impact on world markets. Within the eurozone there is a greater urgency to be seen in the writing of reporters in all languages, and in Germany in particular there has been an emphasis on the political toll the debate over a solution to the crisis is having on the governing coalition under Chancellor Merkel. For example, more than one German writer has pointed out over the past week that when a leader has to go outside of his or her own divided party to garner support for a position they are promoting, their political fortunes are usually next to come into question.

Though not many people, reporters or otherwise, possess the economic expertise and intricate understanding of the laws of the EMU to pose credible, workable solutions to the crisis, there are also more basic questions that we can ask. Is it a good idea for any country to tie its currency, and thus somewhat its economic fortunes, to another country? What might be the benefits or costs? Should there be a broadly accepted standard on sound fiscal policy? Do strong countries have a responsibility – moral, economical, self-interested, or otherwise perceived – to help other countries remain economically strong by helping to prevent a default? Post an answer to one – or all – of these questions in the comment section below or the discussion portion of World Report, and get the conversation started! 

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News Brief: Putin Announces Run for President

9/24/2011

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BETH THOMPSON - 24 SEPTEMBER 2011
On the 24th of September 2011, the governing party in Russia announced that current Prime Minister Vladimir Putin would be their candidate for President of Russia. United Russia, the largest party of the world's largest country, held their annual party congress in Moscow this weekend. The 11,000 party members present stood and cheered as current President Dmitri Medvedev made the formal announcement. Mr. Medvedev is in line to become Prime Minister if – though the correct word may be when – Mr. Putin wins the Presidential election in March 2012.

It all amounts to, essentially, a role reversal in the two top positions in the Russian government. Mr. Putin, who served as President from 2000-2008 before becoming Prime Minister, would be returning to a familiar job amidst potentially different circumstances if he wins the election as expected in March. After the tumultuous decade following the collapse of the Soviet Union, Putin oversaw a consolidation of government power that brought stability back to the lives of many Russians. The average standard of living rose across the country, and contributed to his increаsed popularity. At the same time, proponents of democracy in Russia worried that his governing methods were preventing the development of truly democratic institutions and practices. United Russia continues to be the only major party in Russia, despite the efforts of its critics. The result, some argue, has been an increase in apathy among the Russian people about their political leaders, provided that their standard of living continues to rise.

Mr. Putin will face new challenges if he begins a third term as President in the spring. The oil wealth that has propelled the rise in the average standard of living is not as evident it once was, and Russia has been hit hard by the global financial crisis. Tough decisions will test Mr. Putin's once untestable popularity, and perhaps provide a reason for ordinary Russians to become more involved and invested in their politics once again.

To those who follow Russian politics, and to the Russians themselves, the announcement Saturday was not a surprise. Though President Medvedev occasionally went against Prime Minister Putin on policy matters, there was never more than a slight doubt that it would be Putin calling the shots when it came to this election. There were some who had harbored a hope – a hope that bordered on delusional, others would say – for a challenge between the two and a new party under Mr. Medvedev. Those hopes have now been officially dashed, as Mr. Putin said that an "agreement" about what to do regarding this election was "reached between us several years ago..." What this 'agreement' will mean for the future of democracy in Russia, and for the lives of the Russian people, remains to be seen.

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