Tuesday, 15 September 2015

A turbulent summer, an even more turbulent autumn

As you may have noticed, blogging has been particularly slow over the past few months. From the beginning of the year as well, compared to previous years. This is due to a number of commitments I have bestowed upon myself (including a lot of new research I've been doing), and it will likely continue until the end of the year, so expect regular blogging to continue as it has in the past as of 2016.

In the mean time I will write an occasional comment on a burning issue, but due to many outstanding obligations I will again be rather slow. It will be quality, not quantity in the next few months. 

So, let's recap what has happened over the summer, and what awaits in the forthcoming months.

Keeping up with the Greeks

A whole number of things happened in Greece. The most important one was the referendum on the new austerity package ("the bailout referendum") in July which the Greeks overwhelmingly rejected. In the immediate aftermath their Finance Minister Varoufakis resigned, while PM Tsipras, although happy with the outcome which was supposed to hand him greater bargaining power in negotiations with the EU, decided to disregard the will of the people and signed a deal even worse than the one rejected at the referendum. 

This is to show that one can play hardball as much as one wants, but must eventually face the reality of financial markets. As I have foretold back in February:
"Prime Minister Tsipras therefore has two options; one is to follow the rules of the Troika and respect the realistic constraints of financial markets. This would necessitate entering into various compromises which could be interpreted as a betrayal of his voters. The other option is to use the same populist policies responsible for the crisis in the first place, and descend the country into bankruptcy and subsequently an even bigger recession.
...
Tsipras will probably choose the first option, coupled with a few benign populist decisions such as rehiring cleaning ladies and firing ministerial advisers, in order to maintain a signal of intransigency towards his voters."
It took him a while but in the end he was cornered - by logic. The disturbing part of this story is a big hit on democratic decision-making. The Greeks expressed their opinions about the bailout directly and explicitly. However despite having the backing of their PM into fulfilling their decision, he simply couldn't do it. It would mean he would have to bear the responsibility for the country's subsequent exit from the Euro and terrible economic turmoil. He had no choice but to disobey the democratic choice made by his people. In the era of globalization governed by the logic of financial markets, democracy loses. No matter how bad this sounds, it doesn't necessarily have to be so. But that's a different topic for another time. 

It is also fair to say that Europe ruined Greece, exactly as I said they would back in October 2011 when Greece agreed to the bailout plan. The hardcore austerity was not the proper solution for a country that has yet to get sober. The proper solution was a long-lasting pledge for institutional reform which would slowly and gradually change mentality, i.e. the informal institutions in Greece. It would take a lot of time before we could start expecting the Greeks to stop avoiding their taxes and stop demanding so much entitlements from its governments.

Things will continue to be interesting in Greece, as the new elections are scheduled to be held this weekend. Syriza has let down many of its supporters, but it still seems to be holding on to first place. The problem now is that they definitely won't be securing a landslide victory as they did back in January, and will be faced to form coalitions with its main adversary New Democracy. All in all, it doesn't look too good for Greece, as more political turmoil awaits.

Refugees at Europe's boarders 

In the mean time, after a few weeks of panic over the Greek referendum in July, something else caught widespread attention in Europe: the refugees problem (I will avoid referring to it as an "immigration" problem, as these people are not immigrants, they are refugees of war - not the same thing!).

The refugees crisis is far from an economic issue. It is a political and humanitarian issue. People caught in the midst of an escalating war with ISIS, literally running for their lives and seeking asylum in Europe, only to find themselves at the mercy of the Mediterranean sea. It's hard even to ponder on the hypocrisy of Europe and the West in this crisis, so I'll refrain from any further comments on this. 


The most dire economic consequence is that the EU is closing its borders. The Schengen area has been compromised. Germany, of all countries, closed its borders this week imposing strict controls on asylum seekers. A country that was long a symbol of openness, praised for having economic arguments triumph over ideological ones in the immigration debate, has succumb to the panic after tens of thousands of refugees entered the country each day. They claim to have exhausted their logistical capacities. Some are praising this move as a well designed tactical maneuver that will force neighboring countries to take on their fair share of incoming refugees, as predicted by Juncker's plan of solving this crisis. If the Schengen borders stay closed for too long this will surely hamper trade in the Union and will present a drag on economic growth this year. But hardly anyone is concerned with the short-term consequences in this case. The focus of attention is cultural, not economic. 

Chinese slowdown? 

Moving beyond Europe, things have started to look bad for China. The economy is losing steam, and will probably go below the 7% target growth rate. It is amazing that this will be China's lowest growth rate in 25 years. However China has indeed been growing massively over that period, so now even a 7% growth rate seems to look poor. It really isn't. The Chinese bubble will happen, but not quite yet. Not this year definitely. 


Chinese growth fundamentals are slowly being exhausted, this is undoubtedly true. But it will take some time before they finally burst. Its leaders are doing little to change that, despite some encouraging signs. So what we can expect to hear from China is another bad day at the stock market every now and then (more frequent than before), but a crisis is still not on the horizon. Bubble bursts are hard to predict, but I still feel China will continue this not-so-worrying slowdown a bit further, before they reach an impasse. Not until then will the rest of the world feel China's problems, when the second largest economy creates its own negative spilovers. Hopefully this will happen after the West embarks on a more robust recovery, so the drag on the rest of the world could be lower than was the case in 2008/09. 

Anti-establishment movements have found their way into the US and the UK - at the biggest stage 

In politics two very interesting developments, one in the US, another one in the UK. 

In the US, one contender for the Republican race yielded a huge boost in popularity, so much that he seems a shoe-in to tie the nomination at this stage (if you don't buy it, just check the latest polls - Trump is leading in all the early primaries - even Florida). The miraculous and inexplicable rise of Donald Trump has left many political analysts in the US perplexed. Any yet his story is quite simple: he epitomizes the american dream and wants to "make America great again". A man who picked himself up from four bankruptcies says he knows how to do the same for the "moral bankruptcy of the US" - whatever that might mean. 

It's actually quite easy to understand why Trump has experienced a surge in popularity. More than anyone he embodies the 1980s spirit many in the country still crave about. Plus he is a winner, and a showbiz star. And if there is anything Americans love it's show-business and winners.

Donald Trump, raising his right arm...
Which is why I disagree with those saying Trump will be a bubble, regardless of many of his ridiculous outbursts, outrageous ideas and proposals, and the fact that he has yet to deliver an economic program fit for a presidential candidate. I will go so far to claim that he will win the Republican nomination (yes, I'm being a bit bold with this statement, but what the heck). On the other hand Hillary Clinton seemed much more comfortable before the summer. Now she is likely to face an anti-establishemnt candidate within her own party - Sanders, maybe even another establishement candidate - Biden, before she can take on the Republicans. It will be a very interesting political year for the US, that's for sure. 

In the UK, a remarkable victory of a marginalized outsider as the leader of the opposition has redefined the meaning of grass-routs movements in the country's political history. A radical leftist Jeremy Corbyn secured a landslide victory in the Labour party's primary elections, winning 59% of first-preference voters. He did it with the help of many new incoming members and supporters who all joined the Labour party in the past few months with an aim to elect Corbyn as its leader. This represents an unprecedented success of the grass-routs movement on the left in Britain. They managed to nominate and elect a complete outsider, a hard-line oddball salon socialist, whose ideas about the economy are still trapped in the 1970s when the Labour party, together with the unions, was a fortress of Marxism. It is so strange to see the UK's official opposition leader advocating ludicrous ideas like printing money "for the people" (!), rent controls (!), a cap on wages (the maximum wage), the renationalization of railways and energy companies, not to mention his radical views on foreign policy. It's easy to see why Corbyn was a marginal figure throughout his 32 year political career.

...Jeremy Corbyn, raising his left arm.
However, this is nothing new in Europe. Extremist leftists have risen in strength following Syriza's victory in Greece and the upsurge of Podemos in Spain, but to do the same in the UK seems almost surreal. Particularly since it took Tony Blair a great effort to reform the Labour party in the 1990s and move it towards the political center, landing him and Labour 13 years in power during which many political commentators in the UK were questioning whether the Conservatives will ever recover. A regression back to the 1970s-style Labour party could secure the same, if not longer, longevity in office for the Conservatives. Particularly if the leftist movements across Europe crumble as Syriza did when they were brutally pulled away from their utopism and became faced with the reality of financial markets. It won't be long before some of Corbyn's backers start yelling: "betrayal!" It took a month for that to happen to Tsipras. 

***
Looking at both of these candidates, there is one thing they have in common: they are both anti-establishment candidates. Despite the fact that Corbyn has been an active politician for 32 years, and that Trump is a symbol of big business, they both seemed to have positioned themselves as fighters against the establishment status quo. The way Trump keeps denouncing the Republicans is very similar to how Corbyn fought against New Labor. They both may seem way too extremist to the average median voter, or at least to the average centrist voter, but they both seem to successfully (thus far) ride the wave of dissatisfaction with mainstream politics. 

It would be really bizarre, but also quite amusing to see these two in a meeting as the President and Prime Minister - the descendants of the famous US-UK partnerships: Thatcher and Reagan, Bush and Blair ... Corbyn and Trump? Perhaps in a parallel universe. 

1 comment: