George Soros at the World Economic Forum, Davos. photo: World Economic Forum
The name George Soros, in a news report, tends to attract attention, but it wasn’t just the legendary investor’s estimation in a recent Financial Times editorial that the eurozone had now entered a “more lethal phase” that stood out for me. It was the news that he is funding a new thinktank, the INET@Oxford, at the Oxford Martin School, so that it might, to quote The Guardian, “focus on the eurozone and global crises”.
With this in mind, I looked through the School’s website and read about Professor Thomas Homer-Dixon’s theory that the present times have the potential to be very disturbed. “Various material and social stresses are increasing around the planet,” he said. He also discussed his Z Plan for dealing with, rather than trying to prevent, the results of climate change, “a shift in our policy focus,” and explained that he is now in the process of applying his model to the issue of conflict and any global shocks that lie ahead. From my viewpoint, this was particularly relevant to social unrest and I thought this type of plan could serve as a preventative measure, like those on the environment.
Deficit reduction is one of the more urgent global pressures that has been building up for some time.
Deficit reduction is one of the more urgent global pressures that has been building up for some time. A number of countries are deeply involved in the process and experiencing considerable sacrifice, especially in the Eurozone, which poses the question of how far people should be subject to increasing austerity before general consensus demands another way. One answer could be that there is no limit unless a country with a group-agreed reduction programme itself sets it, by amending terms and conditions. This made me think of why the 3 percent annual deficit to GDP target is being re-introduced so forcefully in Eurozone, where there is unrest and suffering. The target has been allowed to lapse over a period and equally, could have a longer time scale to be achieved again.
But if this change in attitude is presently uncertain, dealing with the situation, as it is, seems a necessity. We are now at the point where only some of the eurozone stability measures have been put into effect. Those remaining, like the substantial firewall, have yet to take full form. The EFSF is to run concurrently with the ESM for perhaps a year, starting in July, which should create a possible total capacity of up to 800 billion euros. Some feel this is not sufficient because about half the EFSF is already committed. To compensate for this, perhaps the EFSF could have a reasonable top up facility, which might go some way to answering the criticism.
The whole point of the firewall is that it is big and available, and such an iconic safety net, it is not used.
The whole point of the firewall is that it is big and available, and such an iconic safety net, it is not used. The Spring Meeting of the IMF will be discussing this issue on April 20, hoping to assemble additional funding for the institution that, with the combined EFSF and ESM, creates a firewall of up to 1.5 trillion euros. The importance of this IMF and Eurozone safety net cannot be too greatly emphasised, with Eurozone elections pending, and it is to be hoped that IMF part of the facility will be successfully set in progress at the meeting.
While focus is rightly on the IMF and the significant steps about to be taken, there is still no comprehensive plan encouraging recovery and mitigating extreme austerity after the financial crisis. Such a plan might propose that in the same way the firewall would be a safety net, so would an orderly Euro exit mechanism; both not meant to be used, but still available. And in respect of recovery, the Eurozone could be given a much needed growth plan and the EU, regulation reduction. The UK has growth proposals and there is three quarters of a trillion pounds in potential corporate investment, some of which will hopefully start to accelerate recovery this summer, as similar investment is doing in the US. Perhaps there is a Eurozone growth plan of some kind already being prepared? Apparently there is funding unused in European Union special purpose departments.
There is still no comprehensive plan encouraging recovery and mitigating extreme austerity after the financial crisis.
All these points are related to the main one that the financial crisis occurred, steps have been taken to prevent it recurring, and there is no immediate benefit in dwelling on blame, or lamenting the one size fits all policy. Instead countries are seeking to pay back debt without stifling recovery. One way for the Eurozone might be to set up a fast moving review body looking at the social conditions and political stresses of its member states; and giving it the power to say this policy needs easing or amending. Countries entered the EU for their well being, so it would be appropriate. It is not sufficiently productive to concentrate entirely on paying down debt. Naturally it is essential to have an effective reduction plan in place, but not to the exclusion of every other consideration.
All actions that help to prevent disorderly default and ongoing recession in the eurozone are important because its stabilisation is vital to global balance. The single currency model may be experiencing difficulties, but it can ameliorate them with the right policies and in time, restructure.
This posting appears to have come a long way from George Soros and the work of the Oxford Martin School, but in reality it hasn’t: INET@Oxford and the School itself anticipate and debate approaching global challenges. The April 20 meeting will present an opportunity to raise the firewall and respond positively to the issues that will affect our future.
