Tag

economy

Asia Global Health The International Economy Women's Rights

The Next Global Dilemma: An Aging World

by Tina Kim
Co-Editor

The next great crisis of our generation may not be global warming, nuclear attacks, looming deficits, or any pending apocalypses. It’s babies—specifically, not enough babies. 97 percent of the world’s population now lives in countries where fertility rates are declining, according to the Wall Street Journal. In 60 years, the global population will begin to decrease and the world will lose its most valuable and fundamental resource: human capital. For the past century, large populations have brought innovations to technology and science and provided the manpower to drive the economy. Moreover, a plethora of taxpayers have allowed governments to fund healthcare, defense, education, and all other spending. However, at some point when the world transitions into a situation where the old largely outnumber the young, we will come face to face with an immeasurable problem.

Throughout the world, countries have already faced the consequences of low fertility rates, varying culturally from region to region. In Asia, “tiger” nations such as China, Japan, Korea, Taiwan, and Singapore have fertility rates well below the 2.1 replacement rate. The “tiger” culture of an intensely competitive workplace and lifestyle leave individuals without much spare time while depriving them of the disposable income necessary to enjoy their lives and raise a child.

“Most of my friends are not married,” a 35-year-old female civil servant in Singapore said in an article from Forbes. “They don’t want to be single but they are too busy with their work commitment. My friends are consumed by work. Money, status, prestige, climbing the ladder. You expect things to change when you get older but it doesn’t. The calculation just doesn’t work out.”

Joel Kotkin, author of The Next Hundred Million: America in 2050, explains this issue as an “economic and spiritual” problem. Economically, the high costs of living and the time and money consuming nature of child rearing are seen as major roadblocks. In addition, unlike in the U.S. (with a few exceptions like New York City), many of these Asian countries have high density apartment living. In high density areas, traffic congestion, overloaded public transport, higher rates of crime, higher costs of basic products and services, and general overcrowding are everyday occurrences. Kotkin, who has interviewed and researched individuals living in Singapore and other East Asian countries, stated that spiritually, people who live in these conditions are reflective of their difficult lives. For these individuals, the growing pessimism towards the future has given them a dismal outlook for the next generation, which has led many to not have children.

In 2009, 20 percent of women between the ages of 30 and 39 chose to remain childless; it is estimated that in some East Asian societies, up to a third of all women will remain childless. In addition, as women become more educated, many have pursued their own careers, which have prevented marriage or child rearing. As a result, women are no longer able to take on the cultural expectation, including that of being the sole caretaker of the child. Countries in Southern Europe, which have had similar cultural views, have also had significantly lower fertility rates compared to their Northern European counterparts.

In Northern Europe, greater male participation in child rearing has offset much of the difficulties faced by other countries. Such cultural differences have influenced government policies and have led to higher fertility rates. An article by the New York Times states that, “many countries with greater gender equality have a greater social commitment to day care and other institutional support for working women, which gives those women the possibility of having a second or third child.” For instance, Scandinavian countries provide state support for having a child and guarantee paternity leaves, which gives women the opportunity to work while raising a baby. More importantly, since both parents are more likely to work, financially, the couple is better able to handle obstacles such as high living costs.

In response, many governments in Asia have instituted measures such as state-funded childcare to encourage parenthood. However, according to Kotkin, these state-funded initiatives will only marginally increase fertility rates. The fundamental determinant in encouraging people to have children would be to improve the difficult living conditions people deal with on a daily basis; addressing problems such as high commodity costs, high college tuitions (and debt), rising housings costs, and in some cases environmental pollution, would be more effective in convincing parents to have children.

To make up for these decreases in fertility rates, countries such as Germany, Japan, and the U.S. have largely depended on immigration to offset decreasing birth rates. For example, Germany attracted migrants to establish a highly skilled and productive labor force in order to create an export oriented market. Thus, Germany is able to pay for welfare and provide social programs that many Eurozone countries have struggled to provide. In contrast, debt-ridden Southern European countries such as Spain, Italy, and Greece offer no incentives or job prospects for people to immigrate. By depending on tourism and real estate, when the economy collapsed due to the housing bubble and the financial crisis of 2007, many of the foreign investors fled these countries, leading to great debts.

But even for Germany and other countries that count on imported labor, the dependence on immigration may not be an option in the future. In the next century, the world’s population will decline and so will the surplus of people in Asia, the Middle East, and Latin America. Even if regions such as Africa and India do have surpluses of people, there is the issue of having an educated and skilled workforce. According to UNESCO, South and West Asia and Sub-Saharan Africa have among the lowest literacy rates in the world, at about 63 percent.

Ultimately, Kotkin predicts that the “diminished labor force and consumer base” will eventually “slow economic growth and limit opportunities for business expansion.” However, there are predictions that the need for human manpower will be replaced with innovations in technology and economic growth will continue. But how many more Steve Jobs can come from a significantly smaller population?

Politically, the smaller youth population will have many problems. On one level, the youth will have less political power and representation, as seniors will be the majority of voters. A UN report states that in 2050 the number of people 60 years and older will increase by a factor of 2.6 (from 784 million to more than 2 billion). These seniors will need social security and healthcare, but how will a disproportionately smaller workforce handle paying for these programs? These individuals have the burden of paying today’s and future government debts, along with healthcare and social security for seniors as well.

Already, there have been protests against governments cutting social programs and raising taxes. With income inequality increasing and the population decreasing, there may be a future where seniors will not be able to count on state support. Governments around the world have become aware of their impending demographic cliffs. However, the general trend among political figures around the world has been to implement austerity measures, which ultimately ignores addressing these core issues. Austerity will no longer work in a future of an unbalanced population, increased income inequity, and a world of reduced economic growth.

Whether governments do anything to address these issues or not, the social, economic, and political consequences are imminent and they will affect people on a global scale. How exactly will this unfold? This generation will just have to wait and see.

Facts and figures obtained from Forbes, The New York Times, The Wall Street Journal, UNESCO, the United Nations, and a personal interview with Joel Kotkin.

Tina Kim is a second year Communications major and Urban Planning and Public Policy double minor at UCLA. She is co-editor of The Generation.

February 18, 2013 27 comments

Africa Middle East Security and Conflict Society and Culture Terrorism Uncategorized

Terrorist Coup Threatens to Destroy Mali

written by thegeneration

By Christine Smith
Co-Editor

Recently, Al Qaeda-affiliated militants have created political chaos in the previously stable West African country of Mali by successfully gaining control of the country through a coup. The United Nations passed a resolution roughly one month ago on October 12th stating that the militants renounce power in Mali within 45 days. Little positive progress, however, has been made. Several international actors, including the United States, France, and Algeria, have been in discussion about the growing necessity for international action. While losing the country to Al Qaeda-linked militants is an obvious security threat both to surrounding countries and to the entire international community, the militants’ presence is significantly impacting Mali’s economy and culture as well.

In an effort to replace Mali’s Africanized version of Islam with the traditional version that is more commonly seen throughout the Middle East, the Islamic militants have decided to ban all forms of secular music and all things “un-Islamic” in the northern part of the country. As a result, the militants in the region have dealt a major blow to Mali’s music and tourism industries. This seemingly minor incident has in reality caused major repercussions throughout the country.

A country that has a rich history of music that includes the singer Salif Keita, the late guitarist Ali Farka Toure, and the legendary kora player Toumani Diabete, Mali has created a vibrant tourism industry out of the legendary music the country produces. Further, Mali has made its mark in the international community as one of the premier music destinations on the planet. Western artists, including U2’s Bono and the British band Blur’s Damon Albarn, have flocked to Mali to collaborate with Malian musicians and immerse themselves in Mali’s rich music scene.

Banning secular music in northern Mali, therefore, has amounted to a significant economic setback to the region. Because of the ban, northern Malian music has been forced underground or out of the country and into neighboring states, resulting in the largest income-producing industry in Mali being eliminated. Malian music, in fact, accounted for two to four percent of the country’s gross domestic product (GDP) in 2000 and is believed to have an even greater impact on Mali’s current GDP. An even bigger economic consequence of banning secular music, however, is the impact it will have on the developing economy. As the country has demonstrated in recent years, the impact of culture on economic development in Mali is huge. Music and other profitable aspects of Malian culture have created more jobs and economic markets both for the state and for its citizens, which consequently has helped grow the national economy. Removing music from Mali’s economy is therefore shaping up to be a huge financial blow to one of the ten poorest nations in the world.

Without secular music, Malians have also lost their ability to publicly express their dissatisfaction with the current political situation. The loss of the traditional way of vocalizing political disapproval, albeit in an indirect manner through their secular music, however, reaches beyond politics. By banning secular music, the Islamic militants have created a cultural war against Malians and their identities. After all, it can only benefit the militants to attack and forcefully remove a culture they view as “un-Islamic.” Consequently, Malians are currently living in silence or facing arrest and possible death if they choose to voice political objections.

A continuation of the militants’ policies will certainly lead to a drastically different Mali than the one that has existed up until the March coup. Not only will the country’s culture significantly change and its economy weaken, but Malians will also continue to lack their pre-coup right to express their opinions and act as the democracy that they have been since 1992. It is essential that the international community follows through on its desire to remove the Islamic militants from Mali. Doing so will both benefit Malians and protect their rights and culture as well as benefit the international community and its security.

Facts obtained from The New York Times, The Guardian, The Jerusalem Post, and The Independent.

Christine Smith recently received her B.A. in Political Science and two minors in African Studies and Anthropology from Boston University. She is currently an editor for The Generation as well as a first year M.A. in African Studies student at UCLA with a focus on human rights issues in East Africa.

November 25, 2012 3 comments

Security and Conflict The International Economy Uncategorized

Spain’s Invisible State of Social Turmoil

written by thegeneration

October 15, 2011 in Barcelona, Spain. Photo by the author, Ferran Masip-Valls.

by Ferran Masip–Valls
Contributing Writer

Welcome to Spain, home of siestas, fiesta, sangria and paella; please enjoy our nice weather and good food. Why not? Walking throughout the streets of Madrid they appear as lively places full of people and energy. It is awfully surprising how non-obvious the current situation is. Demonstrations, strikes, and riots have been happening every week somewhere within the country, and have been for quite some time. The current state of disbelief, of no hope in our democracy, these are punctual things, a punctual and self-contained discomfort, and one that an outsider may never notice. One could say that it all started with the 2011 Spanish protests of Spain’s economic crisis, also known as the 15M movement.

Throughout 2011, it became obvious that we were living in some sort of police state. If we understand a police state as a place where the law is used to the extent that it becomes repressive – control through fear of the forces of the law – that it limits the freedoms inherited from the transition to the democracy, then that was the state of 2011.

One must come to the understanding that demonstrations in Spain are followed by hundreds of thousands of protesters, by millions in some cities. With only 45 million inhabitants, reaching a million in any city’s demonstration is not a small achievement. The average age in a given demonstration falls around 40 years of age, including families with children or elders. In other words, the demonstrators are not some random punks but are representative of the average population who are simply saying, “We’ve had enough.” Enough.

And by enough, some people refer to the fallacy, the open insult to democracy. The right-wing “People’s Party,” now in the government, is literally doing the opposite of what its agenda campaigned on and promised (protecting or lowering taxes, preserving social aid, etc. during elections – what people voted for. One could take the current state of affairs, fact check each point of what was promised and what has happened, and it literally comes out as the opposite.

By enough, some others refer to the statistics. As Sabino Cuadra, a member of the Congress stated during one of its sessions, between 1994 and 2007, or the “high development” years in Spain, real salaries rose by only 1.9% (without considering inflation), the average pension rose by only 16.3% and unemployment benefits decreased by 16%. Meanwhile, the gross benefit of major companies rose to 50%, shares and other activities rose to 129% and real estate property to 175%. Therefore, the real growth wasn’t applied to the average population. And that money left the country, which takes us to the next point.

By enough, still others may refer to taxes and financial cuts. Spain is the leader in Europe in tax evasion, doubling the average. According to the Association of Technicians of the Spanish Treasury Department, big companies and wealthy families have taken advantage of these loopholes making up 72% of tax evasion, while 80% of tax inspection disproportionately focuses on workers, small companies, and freelancers. The austerity plans affect the general population, elderly, public health, education, VAT, funds for research and small business, all while new laws are being made to protect big wealth.

Enough of it. Enough of the more than 20% unemployment (50% of unemployment for youth), of having a bizarre mockery of what politics and democracy should be, of being ashamed of how it is all being dealt with, of being the average citizen paying for massive bank bankruptcies and massive private investments. The average citizens of Spain have had enough.

Can the big and wealthy continue to wonder why Spain is on the streets? Can the government continue its misrepresentations?

But now, the police state has disappeared. We have reached a point that dates back to September 25th in Madrid, where a subtle change was too obvious to be ignored. Several hundreds of thousands (once again, families and elders joined together) surrounded the Congress with beautiful and neat signs. “No” was the only message, some even with a “Not Like That” as a slogan. Clean and clear.

After 9:30pm, officially 1,800 anti-riots took place (and civilian videos show how hundreds of others were infiltrated between the demonstrators), with their armored vans and rubber bullets, and started shooting—in the streets, inside cafes and bars, in corners. Apart from the exponential increase of police violence, what changed this time was that after everything was “dispersed,” the police kept going for hours. As an example, the images of how they arrived hours after to Atocha (the biggest station in Madrid), which is nearly a mile away, are horrific. The police started randomly shooting rubber bullets and beating pedestrians and passengers as they randomly arrested citizens, all the while breaking journalists’ cameras. Situations like these relate more to a militarized state. The Government does not need to use the law to expand fear – they use force.

A friend of mine told me “I will keep going, it’s my right to demonstrate. Before, I was scared to end up in jail, to wake up in prison for some months… Now sometimes I literally fear for my life.”

But still, welcome to Spain. Enjoy our nice fiestas, sangrias and paellas – because you won’t see the rest; the sweet and sour mixture between desperation and anger is not obvious enough yet, in the day by day, on the streets.

Ferran Masip-Valls is currently living and working in his native Spain. He is a part of the unemployed under 30 crowd, even after having worked on four continents and completed five university degrees. He most recently completed a MA from Teachers College – Columbia University.

October 26, 2012 1 comment

Middle East Security and Conflict The International Economy Uncategorized

The De-evolution of Iran: Re-claiming a Homeland

written by thegeneration

A Foreign Love Affair

The last time I visited Iran I was ten, and although I looked eight, I still had to wear a hijab and be covered head-to-toe anytime I was outside. This summer, I planned on returning to Iran to see my grandmother for most likely the last time. I am now 21, and although I look 15, I was still prepared to wear whatever I had to in the 110 degree dry heat in order to see my grandmother. But after a phone call with my aunt last week, it turns out I will no longer be visiting my parents’ homeland. As I sat listening to her explain how it is too dangerous for me to visit Iran, I was stunned. I expected this from my American friends or co-workers, but not from one of our own. I responded as I did to friends who worried if it was a safe time to visit, “But I have dual citizenship, my parents are Iranian, I speak Farsi, and I’ll still have the protection of the good ol’ U-S-of A.”

Aside from the obvious fears of potential war, she emphasized how my visit would fall on the month of Ramadan, an Islamic holiday entailing dawn until dusk fasting everyday for a month. Hence, in about a week in Iran (and many other Muslim countries), there will be no eating, drinking, or smoking in public during the daylight hours. Moreover, the already absurd and oppressive laws will be enforced under a zero tolerance policy. If I wear too much make-up, if my hair is showing a bit, if I am not dressed like a wizard, etc. special police called “modesty squads” will be on the streets enforcing their standards with punishments for violation including lashes, fines or imprisonment. Wonderful.

As I reflect upon my last visit, this is neither the Iran I remember (although not as a liberal haven, a far more lax vision than the current state of affairs) nor the Iran my parents spoke so fondly of, a progressive Iran they were so proud of. Countless times I have sat in the car beside my father as he (un-prompted) began explaining how the “Persians liberated oppressed minorities, invented mathematics” and essentially began the civilized world. His bias pride and thick booming accent aside, he is right about a few things. In his Iran, the Iran of the generations before us, the Iranian government was a beacon of progression and innovation, not an oppressive expression of insecurity and ignorance. I used to ask my parents why, after living in the United States for twice as long as they ever lived in Iran, their hearts ached for a homeland I did not understand. My mother explained, “Azizam (my dear), things were not always this way…the Iran I love was a place where women wore shorts and were not afraid, where the government, like Cyrus the Great, reflected his people’s values instead of oppressing them.” As a child, I never understood her deep love affair with Iran, but after my first visit, her nostalgic vision slowly became my own.

The Empire That Once Was

Although it is difficult to tell from today’s Iran, there remain historical symbols amongst the Iranian people that more accurately reflect the people’s priorities, as referenced by my mother’s mention of Cyrus the Great (Iran’s Abe Lincoln). From government rulers to religious tenants to progressive innovations, the country’s past shows us the greater potential of Iran’s future.

Among the artillery of Iranian history my parents’ generation is surely to reference is Cyrus’s Great Cylinder, a piece The United Nations continues to promote as “an ancient declaration of human rights.” Yet, more than a written relic, the ruler’s legacy as a tolerant and progressive figure towards those he defeated and ruled serves to symbolize an origin of tolerance in Iran that has since been forgotten.

In fact, the issue of modern Iran’s fundamentalist Islamic government falls short of the country’s original religious roots: Zoroastrianism. As one of the first religions of the world, Iran’s foundation of Zoroastrianism held free will, “good thoughts, good words, and good deeds” as fundamentally key to happiness and the maintenance of chaos—quite different than today’s Islamic Republic of Iran.

Lastly, what more reflective of the promise of a progressive and engaging nation than its contribution to man’s innovations, including the first: power windmill, banking system of the world, distillation of alcohol, and the creation of algebra, trigonometry, and of course, ice cream (you’re welcome).

Modern Iran’s Failing Politics and Economy

But what has Iran become today? A theocracy. Oppression. Violence. Torturing and killing political opponents. Quarantined from the global social, political and economic realms. Sexism. Persecution of Bahá’ís, gays, and really anyone who isn’t (or isn’t pretending to be) part of a fundamentalist gang running a nation at complete discord with its own people.

In today’s Iran, homosexual behavior and adultery (for women only) are illegal and can carry the death penalty. If a Muslim woman engages in a relationship with a non-Muslim man, she may be sentenced to be whipped. Men (and only men) can contract multiple marriages at a time (up to four permanently and as many temporarily as desired) and can terminate each marriage at will. As for custody, under Iranian law, the children always go to the father—even if the father is not present, the children go to his parents over the mother herself.

Furthermore, a recent announcement of 36 Iranian universities closing 77 fields of study (mostly math and sciences) to women only goes to further devolve the great country that once was. Following the election protests of 2009, the Iranian Supreme Leader Ayatollah Khamenei blamed universities for encouraging subversive behavior and mandated a greater focus on Islamic principles in universities. How promising.

The Iranian government’s current dismissal of human rights aside for a moment, the recent political actions of the government of Iran are now economically penalizing the entire nation. As a result of the Iranian government’s refusal to negotiate or reverse course on its nuclear program, the European Union (EU) governments have agreed to an immediate prohibition of all new contracts to import, buy or transport Iranian crude oil and petroleum products. Last Monday marked the first day of oil trading under the embargo, and consequently, the International Energy Agency estimates as much as one million barrels of Iran’s crude may leave the market.

Countries such as South Korea, Australia, Canada, Japan, Switzerland, and the United States have also engaged in bilateral sanctions against Iran in hopes of curbing its nuclear program. Iran has a $352 billion, oil-dominated economy, hence the objective of the sanctions to make it harder to obtain specialized resources and equipment needed for the nuclear program. Consequently, the value of the Iranian rial has plummeted since fall 2011 and has now fallen another 10% immediately after the implementation of the recent EU oil embargo, significantly affecting the Iranian people.

Fast-rising prices (the cost of chicken, a staple during Ramadan, has doubled in the last two months) have resulted in recent protests by outraged consumers chanting anti-government slogans like “Death to the looter of public treasure!”— reflecting a popular view among Iranians that public capital is being funneled into bureaucratic pockets instead of benefiting the Iranian public. In response, advisor to the Supreme Leader Ali Khamenei, Yadollah Javani, claims “The West is trying to create a divide between the people and the government.”

No, The East is trying to hide a divide between the people and the government for its own manipulative power-maintenance purposes. Iranian currency has devaluated 40% since February; the self-serving political decisions of the Iranian government are having tangible negative effects on millions of citizens all because of a few merciless men who will stop at nothing for power. Not even at killing their own innocent children of Iran. Not even at sacrificing an entire nation’s economy. Not even at demolishing the once great name of an empire.

The vision of Iran from the eyes of the people is not the same as that of their leaders. And more importantly, the promise of revolution lies in the blood of the Iranian people, in their past, in their resume for rebellion, progression, and tolerance–not in its current government’s fundamentalist power struggle. Iran need not remain a nostalgic fantasy, as it is now, a heavy sigh amongst my parents’ generation. After all, as Michael Leeden writes in a recent Foreign Affairs article, “Although an Iranian revolution may seem unlikely to the casual observer, the Iranian people can be said to have revolution in their DNA, having carried out three revolutions in the twentieth century.”

The Future of a Homeland

In summation, although sanctions may temporarily pressure the Iranian government’s economic options for a nuclear program, long-term, the Iranian people need a democracy, one in which their votes are not stolen, their women are not hidden, and their economy is not a gambling chip.

Meanwhile, the government’s intolerance of minorities in reality is really nothing more than a projection of its own weakness and fear; the stricter they enforce their oppressive laws, the more evident it becomes they are losing control of a boiling nation with a dangerously strong youth demographic waiting to be unleashed (60% of Iran’s population are under 30 years old). From the Green Movement to the attacks on Revolutionary Guard Corps last March, tensions grow and patience draws a close amongst the people of Iran, but their sticks and stones fall short when flung against the government’s unforgiving army of machines, ceasing for neither child nor elder. So what will work?

When I last visited Iran as a child, I observed my own temporary oppression and the more permanent bondage of my female cousins as they longed to escape their hijab and wear “two pieces in America.” I resented the government then, at age nine, as much as I do now for its insecure bondage of a people. I asked my father why someone didn’t hire an assassin to take out the top fundamentalist members of the government (obviously I had watched Godfather too many times). Although the idea made my father smile, he explained how that would not actually solve anything—one dramatically eliminated extremist would just be replaced with another. The long-term solution is implementation of a progressive democratic system genuinely created and supported by the Iranian people. It seems that has already begun to some extent. The Iranian people sent a clear message to the Obama administration in November 2009 after the fraudulent Iranian election: “Religion, by the will of the Iranian people of today, has to be separated from the state in order to guarantee unity of Iran.”

Moreover, as Leeden projects, there will be a need for a global union of actions: a call for the end of the regime; airing unbiased, on-the-ground news of Iran to the Iranian people in Iran and America; publicly demanding the release of political prisoners; and implementing international trade unions as a strike fund for Iranian workers.

I believe the last piece of the puzzle, and perhaps the most powerful, are Iranian Americans living in America. With the organization of Iranian citizens within Iran, the support of a global effort for universal human rights, and the tapping of a hugely agitated and patriotic Iranian-American population in America itching to get a punch in at the pillagers of their homeland, I believe there could be a promising and progressive future for Iran. Let us look to Iran’s beautiful past to turn today’s third world shadow of an empire into the bright promise that flutters in the hearts of the generations before us.

Facts and figures from BBC, CBN, and Foreign Affairs.

August 13, 2012 20 comments

Security and Conflict The International Economy

Greece: Why Exiting the European Union is not the Solution

written by thegeneration

By Trisha Parikh

“Within our mandate, the ECB is ready to do whatever it takes to preserve the euro. And believe me, it will be enough,” Mario Draghi, President of the European Central Bank (ECB), stated on July 26, 2012. What was once a question of Greece leaving the European Union (EU), commonly known as “Grexit,” has now evolved into the question of breaking up the entire EU. The ramifications of multiple countries leaving the EU, or even one country leaving, would be felt in economies around the world. But, as Draghi states, European leaders are looking beyond this possibility to continue to work towards healing the crises in Europe.

The common belief thus far, shared by economists, leaders, and the public, has been that Greece would be the first to leave. Greece, the first EU country to suffer drastic economic setbacks, had accumulated large government debts prior to the economic downturn in 2008. The weak fiscal policies could not generate enough revenue to cover the high rate of borrowing. In 2009, its debt was 113% of Gross Domestic Product (GDP), putting it in a weak position to overcome the hit to its markets.

Elsewhere in the EU, Spain is trying to avoid becoming a second Greece by announcing harsher austerity measures that will increase taxes and cut spending at the local levels. Spain is in a risky position—the interest rate for its 10 year government bonds is passing 7%, signaling investor hesitation and long term instability. If investors are reluctant to put money into bonds, Spain will not get the money it needs to bail out banks. While some options are still on the table for countries like Spain, the actions taken in Greece will set an important precedent.

The idea of Greece potentially leaving the EU raises three questions: (1) Will Greece leave the EU? (2) Should Greece leave the EU? (3) If Greece leaves the EU, does it pave the way for progress?

The Greek elections on June 18, 2012 indicated a positive sign for Greece with the victory of the New Democracy. The party is in support of bailouts and implementing austerity measures to ensure that a “Grexit” does not take place. Even though the win represents a positive political shift in Greece, strong fiscal measures will be needed to lift Greece out of the economic depression. The two bailouts Greece has received amounted to more than 250 billion euros and aid continues to flow in the form of loans. Thus, in the short term, Greece is safe. The new government and new measures put into place will test how much longer Greece can sustain its EU membership.

Although some economists and analysts believe that Greece leaving the EU could be beneficial, an exit will be costly for Greece and its neighboring countries. If Greece leaves the EU, the first hurdle it will face is a drastic devaluation of its currency. With the euro, the currency valuation rests on the economic well being of 17 countries—out of which a few still show signs of economic growth. Without this buffer, the Greek currency will be extremely weak and vulnerable to hyperinflation. Greece’s primary industries of tourism and shipping are insufficient to support Greece on their own. Second, as seen in the past, drastic devaluation of currencies results in shortages, inflation, and eventually, political fallout. Economic instability has historically been a cause of political shifts and unrest. This will only lead to rebellion and violence, endangering Greek citizens and citizens of neighboring countries.

What really lies at the core of the crises? A more basic change that needs to occur in order to prevent these economic problems. Amongst the countries using the euro, we see many fiscal divisions that will not be solved by Greece leaving the EU. The fundamental problem lies in the way fiscal policies are implemented. A central bank, like the European Central Bank (ECB), has two main responsibilities: monetary policy and fiscal policy. The ECB carries out monetary policy but it lacks consistent fiscal policy—taxing and spending. The root cause of the Greek crisis was the increasing debt due to a small influx of taxes that was not enough to cover the excessive spending attributed to Greek wage and pension requirement. Thus, the ECB should maintain greater oversight over the types of tax policies and spending policies put into place by individual governments. If multiple countries are employing the same currency and some countries are undermining its value through ineffective fiscal policy, it can create a harmful domino effect.

The answer to all three questions stated earlier seems to be a “No.” Furthermore, an exit from the EU would set a bad precedent for other countries. An exit does not guarantee economic progress or serve as hope of calm in the midst of chaos. Economic recovery due to large budget deficits and extensive borrowing requires intensive reform that imposes strict consequences for excessive deficit spending. Draghi establishing his stance on this issue is an important step in not only giving investors hope that Europe has not given up in its fight, but also hope for the people of Greece and the EU that their government and the ECB will continue to support their needs in a time of crisis.

Figures obtained from BBC News, Forbes, and the Wall Street Journal.

Trisha Parikh is an undergraduate student at UCLA majoring in Economics and Political Science. She is a co-editor with The Generation.

August 6, 2012 3 comments

Newer Posts

Older Posts