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Europe

The Malignancy of Multinational Currency

“France is one of those countries that by printing money for 14 African states prevents their economic development and contributes to the fact that the refugees leave and then die in the sea or arrive on our coasts,”

This hostile and controversial statement was leveraged by Luigi Di Maio, Italy’s populist deputy Prime Minister, in a counterproductive attempt to deflect shared responsibility for Europe’s migrant crisis. However the currency in question should be a part of the larger discussion on globalization and post-colonial institutions. If European leaders were to earnestly evaluate the CFA franc not from their perspective but from the perspective of the affected Africans, they may find some unsettling similarities to the eurozone.

The CFA franc represents two distinct multinational currencies in Western and Central Africa. The currencies are effectively the same, as both have an exchange rate pegged to the euro (1 euro = 655, 957 francs), however they are not interchangeable. The logic behind the fixed exchange rate is to prevent inflation and promote investor security in nations where poor governance may otherwise threaten market stability. However, this comes at a very steep price for the nations involved. In return, they must keep 50% of their reserves in the French Treasury, follow the strict monetary policy of the European Central Bank (ECB), and attempt to develop their economies with an inevitably overvalued currency.

Source

In the current economic landscape, African nations should seriously consider if the sacrifice of sovereignty necessitated by the franc is worth the supposed increase in prosperity. The crux of the problem is that the CFA franc is essentially a version of the euro, and relatively weak economies using a strong currency is counterproductive to economic development. The strength of the franc encourages imports and makes exports less competitive on the global market, stagnating the development of member nations. Additionally, the main priority of the ECB is to maintain stable prices, with inflation at a maximum of 2%. This policy makes sense for the top members of the European Union (EU), but a developing nation should be focused on high employment rates and exports, ideally with inflation rates of up to 8%. Moreover, the 50% reserve requirement of the franc zone countries greatly limits their investment options. The French treasury gives them a return rate of only .75%, which sometimes does not even match the level of inflation, much less provide a desperately needed return on investment.

The franc becomes even less attractive when considering the performance of other African economies. Former French colonies that abandoned the franc, such as Morocco and Algeria, are more successful economically, despite using an independent currency. Overall income per capita, adjusted for inflation, has grown 1.4% in the franc zone and 2.5% in the remainder of Sub-Saharan Africa. In addition, the line of credit extended to the franc zone is pitiful. In the western franc zone (see map) the credit to GDP ratio is 25% and in the central franc zone it is only 13%! This is in comparison with the remainder of Sub-Saharan Africa around 60%.

So why keep the CFA franc? The franc is known to benefit a small percentage of upper and middle class African citizens by providing easy access to imports and the ability to invest abroad, while by and large disadvantaging the 75% of the citizenry who are working class. To exacerbate things further, France and other foreign interests greatly benefit from the franc zone as an export market, and France is granted special access to African resources as a part of the agreement. Furthermore, the franc’s status as a multinational currency provides greater benefit to outside nations wanting to facilitate trade, than the internal member states. The franc is after all very poorly integrated, with intra-regional trade accounting for only 15% of total trade, while trade with Europe accounts for 60%. The French, along with the remainder of the eurozone, clearly profit off of the CFA franc.

Many African economists and politicians acknowledge these flaws, yet the question of how to move forward still remains. The French have responded to the protestations of their former colonies by supporting the creation of a new multinational African currency independent of the euro, that will incorporate more– and larger–African states, including but not limited to Nigeria. However, this still appears self-serving. There is minimal justification for the existence of a new multinational currency in Sub-Saharan Africa, and as aforementioned, it primarily benefits outsiders. The best interest of the franc zone may be to follow the advice of former World bank director Carlos Lopes. He believes the CFA franc should be tied to a basket of other currencies, including the notoriously undervalued Chinese yuan, or to hover around a target exchange rate with the euro, both which will help to mitigate the overvaluation of the franc, while maintaining the currency as a pillar of stability.

The tragic irony is that France, along with a number of Southern European states, are the victim of the euro in much the same way that the CFA franc is. The euro is too strong for the economies of Southern Europe. Estimates peg overvaluation at 5% in France and 7% in Greece. Furthermore, the emphasis on low inflation within the eurozone is really to the benefit of the booming German bloc, at the expense of countries such as Italy and Greece that desperately need stimulus spending. In terms of real GDP, Italy was the same size in 2016 as it was in 2001. Much like the franc zone, Italy, among other countries, needs to focus on improving employment rates, infrastructure projects, and competitive exports, to ensure growth in coming years.

When comparing eurozone countries to those that chose not to adopt the currency, such as Sweden and Hungary, the results are disappointing at best. National Gross Income (NGI) per capita in the eurozone grew at a rate of 1.65% in 2015, whereas Sweden saw growth rates around 2.72%. Additionally, Hungary, an emerging European economy, witnessed even higher growth rates, with NGI per capita reaching 3.06% in 2015. The success of independent Eastern European economies makes evident the disadvantage Southern Europe suffers being a part of the euro. Furthermore, when examining the eurozone within the global context, it is evident that as a whole they have fallen behind other developed countries. The US economy was just 13% bigger than the eurozone at it’s genesis, but now it is over 27% larger.

So why keep the euro? This question is obviously more nuanced in light of the highly integrated European economy and greater cultural and political ties of the EU, than are present in the franc zone. Brexit, despite not having a monetary element, should be evidence enough that disintegration is not a feasible option for Europe at this point. However, the shortcomings of the euro must still be recognized. The euro, rather than being of overt benefit to a neocolonial power as the franc is, does disproportionately benefit Germany. The significant undervaluation of the euro in Germany (about 17%) makes its exports extremely competitive and creates greater economic prosperity. Unfortunately, this leads to a vicious cycle where Germany becomes more and more prosperous and the ECB creates tighter monetary policies to adjust for German strength (ie higher interest rates), all while neglecting the needs of the weaker economies in the eurozone. For the benefit of not only the European project, but the 147 million people who use the CFA franc, the Germans should ease their tyrannical monetary policy and cozy relationship with the ECB.

Realistically however, the prospects of Germany doing this are unfavorable, and as a result the euro’s most likely fate seems to be an eventual phase out. The currency once intended to unite Europe, has since contributed to the very economic stagnation and rise of isolationism that will eventually be its demise. But perhaps this is to be expected when inflicting stringent monetary policy on nations with diverse economic needs and dissonant fiscal policies. It may be time to reconsider multinational currencies as a whole.

March 15, 2019 0 comment

Europe Featured Geopolitics Globalization Humanitarian Aid Immigration Middle East Religion Security Security and Conflict Society and Culture Terrorism Uncategorized

Nationality vs. Humanity: The Stranger’s Case

written by Madison Weil

“It is nationalism which endangers nations, and not the other way round.” –Ernest André Gellner (British-Czech philosopher and social anthropologist)

French President Francois Hollande recently issued a statement that his country is prepared to open its borders and welcome 24,000 migrants seeking asylum over the next two years. This statement, issued on September 7, 2015, is part of a new plan designed by the European Union to accept and appropriately distribute the massive exodus of refugees fleeing from Syria, Iraq, Afghanistan, and other surrounding nations. When asked to comment on French polls that indicated 55% of the national population was opposed to accepting more refugees, Hollande responded that asylum is a constitutional right and a moral duty, and that “France’s image and standing in the world were at stake.”

In light of the recent terrorists attacks on Paris, and amid reports that one of the attackers held a Syrian passport, Hollande has emphasized the necessity of making proper background checks prior to accepting these refugees. Hollande has declared war on ISIS, but made it clear that France will maintain its “humanitarian duty” and promise to welcome refugees over the next two years.

While many refugees initially identified Germany as the most ideal place to relocate with supposed security and job opportunities abound, other European countries are now offering comparable conditions and welcoming the migrants. In fact, because Germany has been accommodating such a massive influx of individuals in recent months, France has offered to help by offering an expedited asylum application to migrant families arriving in Munich: temporary housing in France along with a two-week approval process as opposed to the usual six-month process.

These recent political and cultural strides made by France are particularly notable given the nation’s sticky history with immigration and ethnic tension. Having just spent a month living and learning in France, I can attest that it is challenging to go more than a day without hearing an allegation that the presence of ethnic minorities, foreigners, and immigrants creates a grave problem for the nation. A commonly held belief among French traditionalists is that these groups directly threaten and compromise the very essence of true “Frenchness.” Many harbor a sense of nationalism that transcends the concept of national pride and actually results in extreme and egregious discrimination—for example, some believe that to be truly “French” is to be white, Catholic, and multi-generationally French. This statement parades as protectionism when in reality it is rooted in racism. This has created an ongoing and very heated dialogue surrounding immigration policy in the last century.

This French perception of nationalism (hopefully) seems foreign to us in the United States. Our nationality law is based on the principles of jus soli (Latin for “right of soil”), meaning that individuals gain immediate citizenship upon being born in the U.S. This has subsequently created the notion that America is a mixing pot of racial identities—our sense of national pride comes from being united as American, not from being one united race. In contrast, most states in Europe, Asia, and Oceania grant citizenship based on principles of jus sanguinis (Latin for “right of blood”) or a restricted version of jus solis—as is the case in France. Under this philosophy, individuals become citizens depending on their parents’ citizenship and not by birthplace. This has fostered and accentuated the cultural division in France between natives and immigrants which has resulted in the emergence of a perceived social hierarchy. Because of this heated history and conflicting cultural dynamic, President Hollande’s decision to welcome refugees in spite of opposition (and in spite of recent events) deserves recognition.

France’s situation forcibly evokes a particularly challenging set of questions: at what point should international leaders place a greater emphasis on obligations to humanity than on obligations to their own national interests? How do leaders of the Western community in particular negotiate or reconcile national interests with moral duty? Is there such a thing as a moral duty to the international community? According to the UNHCR: “Since, by definition, refugees are not protected by their own governments, the international community steps in to ensure they are safe and protected.” In fact, in the past few decades 142 nations have signed on to both the 1951 Refugee Convention and the 1967 protocol. By signing this international treaty and its 1967 amendment, the UNHCR states nations are essentially agreeing that “refugees deserve, as a minimum, the same standards of treatment enjoyed by other foreign nationals in a given country and, in many cases, the same treatment as nationals.”

While we have historically seen that most national actions, even humanitarian ones, are often out of self-interest, it is my sincere hope that international authorities will continue to improve and open their borders to those in need. Afterall, those of us born in Western nations with relatively safe conditions could have just as easily been born into a nation experiencing a crisis. Wouldn’t we then hope and pray for assistance and asylum in the E.U.? In the U.S.?

This debate reminded me of an excerpt from Shakespeare’s play “Sir Thomas More.” Sir Thomas More is a lawyer, sent to address an angry crowd of individuals rioting to get rid of “those immigrants” or “strangers.” Shakespeare delivers a powerful message that transcends time and place when More challenges the natives to consider what they would do if they had to flee their home country:

“Whether would you go?

What country, by the nature of your error,

Should give you harbor? go you to France or Flanders,

To any German province, to Spain or Portugal,

Nay, any where that not adheres to England,–

Why, you must needs be strangers: would you be pleased

To find a nation of such barbarous temper,

That, breaking out in hideous violence,

Would not afford you an abode on earth,

Whet their detested knives against your throats,

Spurn you like dogs, and like as if that God

Owed not nor made not you, nor that the elements

Were not all appropriate to your comforts,

But chartered unto them, what would you think

To be thus used? this is the strangers case;

And this your mountanish inhumanity.”

(Sir Thomas More, Act II, Scene IV)

This is the stranger’s case—the immigrant’s case. For many, it’s near impossible to fully comprehend the plight and experiences of today’s refugees, but so important to try. While it’s challenging to reconcile national interests with humanitarian needs, our nationality shouldn’t supersede our humanity.

November 20, 2015 0 comment

Europe Featured Security Security and Conflict The International Economy

Crisis in Ukraine and the Global Scramble for Ukrainian Allegiance

written by Christine Smith

By Christine Smith – Editor

Since November of last year, mounting tensions within Ukraine have made divisions between Russia, the European Union (EU), and the United States (US) increasingly evident. In an effort to establish stronger trade relations with Western Europe, Ukraine’s then-President Viktor Yanukovych initially sought to broker a deal in which his country would join the EU. However, come decision time and ongoing pressure from Moscow, Yanukovych backed out of the EU deal in favor of strengthening economic and political ties with his country’s border neighbor Russia, resulting in the rapid escalation of tensions between pro-Western Ukrainians and eastern pro-Russian Ukrainians. Consequently, pro-Western Ukrainians voiced their frustrations and ousted Yanukovych, while pro-Russian Ukrainians retaliated by seizing government buildings and showing their support for Russian military assistance.

Despite the existence of East versus West divisions within Ukraine prior to the controversy surrounding the failed EU deal, following the tense situation in November, countries both near and far have sought to make their stance known in an effort to fulfill personal political and/or economic goals. For example, frustrated with the country’s former president’s decision to vacate from an EU agreement, the EU quickly reacted to Ukraine’s political instability by approving the provision of 1 billion euros of economic assistance to the new pro-Western Ukrainian government. Additionally, the EU issued tariff cuts to the country in order to make exporting goods to the EU cheaper and to reiterate why an economic partnership with the EU is worth pursuing.

Furthermore, the United States, who just so happens to be a strong ally of the EU, has voiced its disapproval of pro-Russian Ukrainian factions by demanding the end of Russian participation and by the apparent orchestration of eastern Ukraine’s ongoing separatist violence. It has even gone so far as to continuously label Russia’s presence in the region as a carefully planned, “full-scale invasions,” causing a stark division between the US and Russia reminiscent of the Cold War. However bold, this language appears to be appropriate. After Russia’s occupation and annexation of Ukraine’s Black Sea peninsula of Crimea and its continued presence on the country’s eastern border, it is hardly surprising that a global power like the United States would distrust Russian actions and intentions. It is in the US’s political and economic interest, therefore, to protect Ukraine’s sovereignty and promote Ukraine becoming a member of the EU.

Russia, however, views the situation differently. Because Ukraine and Georgia are the only territories separating Russia from NATO member-states (with the exception of the Russian port city of Kaliningrad), allowing Ukraine to join the EU and potentially join NATO is a scenario Russia cannot entertain. After all, NATO’s creation and ongoing expansion were centered around containing the Soviet Union politically and militarily. Understandably, Russia sees proximity to NATO as a direct threat to its national security, and therefore refuses to let Ukraine stray without a fight. That said, supporting a separatist movement is also not in Russia’s interest, for it will still lessen the physical divide between NATO members and Russia as a result of the incorporation of part of Ukraine into its borders, resulting in the expansion of Russia’s borders and the partial dissolving of its buffer from NATO. Russia, therefore, is walking a fine line; it must support pro-Russian Ukrainian factions without encouraging them to split away from Ukraine in order to create a new, united, pro-Russia Ukraine that Russia can depend on in its quest to maintain political security and distance from NATO.

Until tensions are quelled within Ukraine and so long as Ukraine remains a global political, security, and economic interest, hostilities between the West and East will remain especially high. For such a small country, playing up its strategic value is the primary source of power it possesses. Consequently, maintaining ties with all parties best serves the country’s interests, and will likely mean a decision about whether or not to join the EU will be prolonged as long as the West permits. Only time will tell what Ukraine will do and which region will succeed most at wooing the fragile state.

May 5, 2014 2 comments

Europe Society and Culture

Gay Marriage in Britain, France, and Russia: Two Steps Forward, One Step Back

written by thegeneration

by Shadee Ashtari
Editor-in-Chief

Twelve years ago in the Netherlands, the first same-sex couples walked down the aisle to consummate their marriages. Since 2001, almost twelve other countries have followed suit by passing national laws allowing same-sex marriage and domestic partnerships, including Spain, Canada, South Africa, Portugal, Iceland (where no members of the legislature voted against it), and Argentina.

Meanwhile, a 2011 report by the International Lesbian, Gay, Bisexual, Trans and Intersex Association found that same-sex relationships are still criminalized in 76 countries—five of those countries reserve the death penalty as punishment for homosexuality (Iran, Saudi Arabia, Yemen, Mauritania and Sudan). While some parts of the world progress marriage equality, others fall deeper into traditionalism, theocratic justifications, and violence as a backlash to Western progress for the rights of women and gays.

Last month, the Russian parliament approved a draft law banning the dissemination of “homosexual propaganda” to minors. The legislation, strongly backed by the Russian Orthodox Church, would forbid public events endorsing homosexual rights, block websites deemed inappropriate for youth, and charge fines up to $16,000 for any public demonstrations of “homosexual propaganda.” The draft will go to Russian President Vladimir Putin (who is in support of the ban) after two more readings, but hope for anything but the implementation of this ban seems futile in light of the 388-1 vote in favor of the law. “We live in Russia, not Sodom and Gomorrah,” United Russia Deputy Dmitry Sablin commented before the Russian parliament passed the bill. Despite the overwhelming intolerance, gay activists still staged a “kiss-in” protest outside the chamber, which ended with the detention of 20 activists.

Since his return to the presidency, Putin has made a series of strategic political moves to stifle dissent and consolidate power through oppressive authoritarian tactics. His rhetoric constantly reflects on a return to conservative Russian traditionalism: “God, Tsar, and Country.”, Putin has tactically strengthened his ties to the Russian Orthodox Church, hoping the support of one of Russia’s most influential institutions will fortify his political power. Hence, the backwards legislation first and foremost serves to establish an anti-Western liberalism while unsubtly signaling a shift towards an Orthodox Russia. More importantly, at the core of Putin’s call for a more traditional Russia lies a far more dangerous vision for homogenization. “We either become a tolerant Western state where everything is allowed—and lose our Christianity and moral foundations—or we will be a Christian people who live in our God-protected land in purity and godliness,” said Reverend Sergiy Rybko, a priest in the Orthodox Church. In partnering with the Russian Orthodox Church, Putin allies with the Church’s religious positions on Russia’s domestic policies. Putin’s plans echo the Reverend’s visions, which begin by politically ostracizing gays as a tabooed immoral minority. But homosexuals are not the only minorities in Russia—next come the Jews, the Central Asian Muslims, the atheists etc., until the Orthodox Russian leadership use “traditional values” as a warrant to politically and socially exclude every non-“Russian” minority.

In protest of the ban, a Russian television host disclosed his homosexuality on the air and was subsequently fired from the channel he had co-founded. Reported beatings of gay men have boomed. Same-sex European couples will be banned from adopting Russian orphans. The real-word impact of Russia’s ban on “homosexual propaganda” transcends an innocent plea for traditional values: homophobic legislation under the false guise of morality sends a dangerous message to the Russian public, who as it is are not the most emphatic towards gay citizens. According to Levada Center’s opinion polls last year, almost two-thirds of Russians find homosexuality “morally unacceptable and worth condemning. About half opposed gay rallies and same-sex marriage, while almost a third thought homosexuality was the result of ‘a sickness or a psychological trauma.’”

In light of the strong prejudices against homosexuals, Putin’s recent escalation of security forces on opposition—jailing and harassing gay activists—sets a critically dangerous example for the nation. Russian leadership’s treatment of a socially vulnerable population tells society that crimes against gays are not considered crimes; that violence against and oppression of some citizens are warranted; and that hate crimes are to be equated with patriotism. Gays in Russia already face tremendous intolerance and the state-sanctioning of homophobia will only serve to escalate violence against innocent Russian citizens, as witnessed by the recent escalation of gay beatings.

The European Union’s foreign policy chief Catherin Ashton expressed concern with the ban, stating, “The implementation of this law could reinforce discrimination against lesbians, gays, bisexuals […] as well as all those who support them and their choices, in particular by limiting their freedom of expression and their freedom of association and assembly.” European cities, including Venice and Milan, have also taken action against the bill by canceling their sister-city status with St. Petersburg.

While Russia’s president dismembers any real opposition in an effort to re-direct his country towards medieval times, other countries are facing a more legitimate debate on the issue of same-sex marriage.

On Tuesday, February 8, the British House of Commons voted overwhelmingly in favor of a bill legalizing same-sex marriage in Britain (the bill is essentially assured passage through its next legislative stages). Unlike Russia, the bill resulted in a six-hour debate, which ultimately ended with a 400-175 vote in favor of legalizing same-sex marriage. Despite this victory, however, more than half of the Conservative Party’s legislators voted against the bill (or abstained). Right-wing Parliament member Edward Leigh stated, “We should be in the business of protecting cherished institutions and our cultural heritage.”

Sadly, lawmakers like Leigh do not realize the fundamental duty bestowed upon them: to protect people, not institutions, to protect human rights, not a subjective sense of cultural heritage. Lawmakers should be in the business of providing a secure political and social environment for each and every citizen without the fear of exclusion or victimization—despite whom they choose to love.

Even further divided than Britain, France also recently introduced a similar measure on same-sex marriage, backed by President Francois Hollande. On February 12, the French National Assembly passed a bill legalizing same-sex marriage (the bill still needs to pass through the French Senate and be signed by President Hollande, but it is predicted to become law as soon as May 2013). Despite the measure’s overwhelming projected victory in the Senate (or perhaps in spite of), the legislation has triggered recent demonstrations in Paris with tens of thousands protestors taking to the streets to protect traditional definitions of marriage. The French Parliament has been equally heated, with an extended debate on same-sex marriage now in its second week. The bill has drawn angry insults across the National Assembly floor and has undergone more than 5,300 amendments. Similar to Russia, the Insee poll in 2012 indicates that French citizens “do not overwhelmingly embrace legalizing same-sex marriage (70%), with many French citizens joining with the church, as well as some secular conservative groups, in expressing their strong opposition.” As recently as January, a crowd of roughly 500,000 French protestors demonstrated outside the Eiffel Tower in Paris in opposition to same-sex marriage. As both a secular republic defending individual rights and a largely religious Catholic nation with deeply-rooted (and outdated) notions of family structure, France’s debate on same-sex marriage reflects a far deeper paradox in French civil society.

While French Prime Minister Jean-Marc Ayrault explained that “contrary to what those who vociferate against [the bill] say — fortunately they’re in the minority — this law is going to strengthen the institution of marriage,” mass protests continued. As a democratic country, the passage of the same-sex marriage law will extenuate the divide between conservative and progressive members of French Parliament (as it has done in Britain) rather than resulting in a major political crisis. Ultimately, further polarization will more likely be neutralized with younger more progressive political leadership, as opposed to political consolidation through a democratic process.

As the world slowly turns towards the acceptance of same-sex marriage, some countries struggle more than others to adopt progressive policies. While Russian leadership and the Orthodox Church strategically condemn Western influences of marriage equality, France slowly finds its way towards legalizing same-sex marriage, despite strong political opposition and polarization. On a more unanimous path, Britain forges forward in the battle for equality, symbolizing the growing influence of a global social revolution that began over a decade ago. The actions of two of the world’s most influential countries set a brave example for the rest of the indecisive world: despite staunch and sometimes offensive opposition, the essential obligation of national legislators is the protection of their people, not their institutions.

Facts and figures from Reuters, The New York Times, CNN, and The Pew Forum.

Shadee Ashtari is a senior at UCLA majoring in Communications with a minor in Political Science. At the Burkle Center, Shadee is the Editor-in-Chief of The Generation. Her current research focuses on student homelessness in the U.S. and the rise and decline of religiosity in industrialized nations.

February 20, 2013 3 comments

Mexico and Latin America The International Economy

Spain’s Labor Markets: The Disregarded Solution of Economic Recovery

written by thegeneration

by Tina Kim

Despite the anti-austerity protests from thousands of unemployed Spaniards in recent months, Spain is moving towards cutting social programs in its most severe austerity budget plan in history in order to receive bailouts for its banks and government debt. Spain is considering to apply for the Enhanced Conditions Credit Line (ECCL), a euro-zone bailout fund that would grant money to Spain’s government with the condition that it imposes more fiscal austerity. More than $50 billion worth of budget cuts in education, healthcare, welfare, and pensions are expected and unemployment benefits and civil servant wages have already frozen.

However, as long as the labor market in Spain remains uncompetitive, Spain has little hope in recovering from its economic crisis in the long term. Restoration of the labor market, rather than its banks and bond market, is what will ultimately bring Spain out of its suffering. With nearly a 25% unemployment rate, Spain is making a serious mistake in cutting the social programs that are the lifeline of thousands of unemployed people. Moreover, borrowing money from the rest of the world to grant these bailouts to banks does not consider the future of its youth in the job market. According to the Wall Street Journal, “workers ages 16 to 24 face an astronomical 53.3% unemployment rate and for 25- to 34-year-olds, the rate is 27%.”

UCLA Economics Professor Aaron Tornell explains that high unemployment in Spain’s youth is due to a situation of “insiders” and “outsiders.”

“An insider is someone who is ensured a job for life; many insiders are union members,” said Dr. Tornell. “An outsider, particularly a young person, is someone who will not have a job regardless of whether the person is educated or not. The power of unions is protecting the insiders from getting fired. In order to fix unemployment, you have to weaken the power of the unions to make sure companies can hire younger, more productive people.”

Another problem that the Spanish youth faces stems from the housing bubble that burst in 2008. When Spain joined the euro in 1999, low interest rates brought banks to lend an unprecedented number of property loans and the boom years of this period caused wages to rise quickly within the labor market. As a result, Spain has been exporting less of its own, more expensive goods and importing more of cheaper products from its European counterparts. This trend resulted in Spain’s government overspending, but more importantly, Spain’s labor market became highly uncompetitive.

In the long term, giving salvation only to banks with bailouts all the while punishing the Spanish people through austerity measures serves in no interest of the Spanish people, government, or even banks. Nobel Peace Prize Laureate in Economics, Paul Krugman wrote in a New York Times op-ed article that fiscal austerity in Spain’s current economic state is simply, “just insane.”

“Europe has had several years of experience with harsh austerity programs, and the results are exactly what students of history told you would happen: such programs push depressed economies even deeper into depression,” said Mr. Krugman. “And because investors look at the state of a nation’s economy when assessing its ability to repay debt, austerity programs haven’t even worked as a way to reduce borrowing costs.”

However, the general trend throughout the world, not just in Spain, has been that bailing out banks has preceded the need to support social programs. The banking system has become monopolized so that banks are too large to fail when they are in trouble. Smaller banks around the world have merged together into larger banks in order to increase their assets to a point where defaults in these banks can risk a financial collapse. In addition, the risk of having these banks default could lead to a greater catastrophe of foreign investors pulling out their money from banks and government bonds. No investments cause reserves of banks to shrink, which would in turn increase interest rates and stiffen lending to consumers. Therefore, the banking system has become so essential to capital of the economy that bailouts have become the insurance banks can rely on when their loans are in trouble.

As a prime example, Spain’s government is applying for an ECCL to bring foreign investors, or at least keep the ones it already has, and maintain its credibility to repay debt. Moreover, if there are no foreign investors, there is a risk that Spain will default on its loans to France and Germany, which can spread Spain’s economic crisis into an epidemic throughout Europe. Consequently, further downgrades of Spain’s bonds—which are currently one notch above junk status according to Moody’s and Standard and Poor’s—will not only drive foreign investors further away from its bond market, but also bring other European Union countries down with it.

For these reasons, although banks are responsible for the housing bubble, they will receive the aid that they need even though austerity measures will make taxpayers’ lives harder. Since big banks are nearly guaranteed bailouts, there are no incentives to prevent banks from issuing out risky loans when the economy recovers and interest rates are low again. But for how long can this vicious cycle last? Already there are violent protests of hundreds of thousands all around the world. If governments wish to ensure the future of its citizens, the cries of the poor, young, and unemployed must be heard.

A strong, competitive labor market is what will bring revenue and ultimately restore the economy. Spain can start with not cutting social programs that are the support systems for the thousands of unemployed and struggling citizens. Secondly, laws must be set in place to prevent unions from not hiring the unemployed youth in Spain. Thirdly, although bailouts must be administered, social programs should take priority before banks are given aid. Finally, there must be laws or a set of incentives that will prevent banks from giving out such toxic loans that start such housing bubbles and financial crises. The people of Spain have been hurting long enough and it is time the government supports and invests in the people who can restore the economy for what it once was.

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

October 23, 2012 1 comment