Saturday, June 27, 2015
Europe's gathering storm clouds; Greece opts for referendum on bailout; Singapore's lessons for America
1 Europe’s gathering storm clouds (Mohamed El-Erian in The Guardian) Dark clouds are lowering over Europe’s economic future, as three distinct tempests gather: the Greek crisis, Russia’s incursion in Ukraine, and the rise of populist political parties. Though each poses a considerable threat, Europe, aided by the recent cyclical pickup, is in a position to address them individually, without risking more than a temporary set of disruptions. Should they converge into a kind of “perfect storm”, however, a return to sunny days will become extremely difficult to foresee any time soon.
As it stands, the three storms are at different stages of formation. The Greek crisis, having been building for years, is blowing the hardest. Beyond the potential for the first eurozone exit, Greece could be at risk of becoming a failed state – an outcome that would pose a multi-dimensional threat to the rest of Europe. Mitigating the adverse humanitarian consequences (associated with cross-border migration), and geopolitical impact of this storm would be no easy feat.
The second storm, rolling in from the EU’s east, is the costly military conflict in Ukraine’s Donbas region. Further Russian interference in Ukraine would present the west with a stark choice. It would either have to tighten sanctions on Russia, potentially tipping western Europe into recession as Russia responds with counter-sanctions, or accommodate the Kremlin’s expansionist ambitions and jeopardise other countries with Russian-speaking minorities (including the EU’s Baltic members).
The third storm – political tumult brought about by the rise of populist political movements – poses yet another serious threat. Energised by broad voter dissatisfaction, particularly in struggling economies, these political movements tend to focus on a small handful of issues, opposing, say, immigrants, austerity, or the European Union – essentially whomever they can scapegoat for their countries’ troubles.
Given the EU’s fundamental interconnectedness – in economic, financial, geopolitical, and social terms – the disruptive impact of each shock would amplify the others, overwhelming the region’s circuit breakers, leading to recession, reviving financial instability, and creating pockets of social tension. Fortunately, the possibility of such a perfect storm is more a risk than a baseline at this point. Nonetheless, given the extent of its destructive potential, it warrants serious attention by policymakers.
2 Greece opts for referendum on bailout (BBC) The Greek parliament has backed plans for a referendum on international creditors' terms for a new bailout. The 5 July referendum was called by PM Alexis Tsipras, who opposes further budget cuts. He urged voters to deliver a "resounding 'no'" to the package.
Eurozone partners have criticised Greece's referendum announcement, and rejected its request to extend the bailout programme beyond 30 June. Greece could default on a €1.6bn IMF repayment due on that day. There are fears the country may leave the euro and that its economy may collapse without new bailout funds.
Mr Tsipras's motion on a referendum easily won the backing in the 300-member strong parliament, with at least 179 MPs voting "yes" in the early hours of Sunday. His government had earlier rejected the creditors' offer of a five-month extension to Greece's bailout programme in exchange for reforms. On Saturday, eurozone finance ministers rejected the Greek proposal for the bailout extension beyond Tuesday's deadline.
When the Greek government thought it had made substantial concessions at the beginning of the week, the creditors said it simply wasn't enough. And while no-one can say for certain that Greece will leave the eurozone, this is already uncharted territory.
3 Singapore’s lessons for America (Fareed Zakaria in Khaleej Times) To help prepare for a trip there next week, I asked the country’s deputy prime minister, Tharman Shanmugaratnam, what he regarded as the country’s biggest success. I imagined that he would talk about economics, since the city-state’s per capita GDP now outstrips that of America, Japan and Hong Kong. He spoke instead about social harmony.
“We were a nation that was not meant to be,” Shanmugaratnam said. The swamp-ridden island, expelled from Malaysia in 1965, had a polyglot population of migrants with myriad religions, cultures and belief systems. “What’s interesting and unique about Singapore, more than economics, are our social strategies. We respected peoples’ differences, yet melded a nation and made an advantage out of diversity.”
How did Singapore do it? By mandating ethnic diversity in all of its neighborhoods. Over 80 per cent of Singaporeans live in public housing. Every block, precinct and enclave has ethnic quotas. This is what people mean when they talk about Singapore’s “nanny state,” and the minister readily admits it. “The most intrusive social policy in Singapore has turned out to be the most important,” he says.
This belief was at the heart of many of the efforts of the US federal government in the 1950s and 1960s to desegregate schools and to integrate neighborhoods — through court orders, housing laws, and executive action. Those efforts were largely abandoned by the 1980s and, since then, the data show an America that remains strikingly segregated.
Despite the fact that the Supreme Court ordered school desegregation 61 years ago, schools have actually become more homogenous in the last two decades. Secretary of Education Arne Duncan admits that today “only 14 per cent of white students attend schools that you could consider multicultural.”
Singapore is an unusual case. It is a small city-state. It has its critics, who point to a quasi-authoritarian system. Singapore can do things Western democracies cannot. It also has had its own racial problems. All that said, I believe that Singapore is an example of a diverse society that has been able to live together and that we could learn something from. (To be sure, Singapore could learn some lessons from Western democracies as well.)