Tag: corruption

How and why the EU is declining

Europe is in disarray.

Appearance-wise and disregarding petty differences, the EU-27 are marching on the spot on foreign policy, defence, Schengen and the single market with the exception, notable but again not yet really convincing, of progress on financial regulation and supervision.

A layer deeper though, one encounters seemingly impassable hurdles of sovereign debt, vulnerable and domino-like arrangement of banks, and a poorly-designed Eurozone, the combined effect of which risk to disintegrate the Euro (for which the crisis was originally brought on by investors with genuine worries about the solvency of several euro-zone countries), on whose foundations the united European economic system was built. It is clear that economic integration has exhausted its potential, which is more limited than anyone had imagined at the beginning, for ensuring structural convergence of industry between Member States and ameliorating weak growth performances.

Presently, Europe appears to be heading towards a decade of stagnation with the triple threat of nationalism, populism and protectionism which is being dragged behind unemployment (9.9% and among young workers, more than twice that much). Industrial activity is already shrinking in Greece, Ireland, Italy, Portugal, and Spain. The time is coming when a new path towards integration, political this time, will reveal itself as indispensable. But no consensus exists for a new treaty. Ad-hoc formulas will therefore have to emerge as short term Band-Aids, exploiting the existing potentialities of the Lisbon treaty to be followed by long-term formulas, based on a complete revisit and revamp of European economic, social and political values and vision driven by a need for sustainability and prosperity.

Europe also finds itself faced with the colossal challenge of having to mobilize public opinion. But because of the lack of a real consciousness of European citizenship, public opinion is at best passive and at worst euro-sceptic. To mobilize it will demand the unveiling of a “European plan” and the rallying of a majority buoyed by the perception of a commonality of destiny on the economy and defence, two inseparable pillars.

European politicians, led by Angela Merkel, have gone to absurd lengths to avoid admitting two truths: that Greece is bust; and that north Europeans (Germans in particular) will end up footing a good part of the bill. The current rescue package reduces Greece’s debt, but not by enough to give it a genuine chance of recovery. As a result, Greece, and maybe other European countries, will need another bail-out rather sooner than later. To face this (upcoming) problem in a united manner, Europe might get “tighter together” by spawning a fiscal union, hitherto unprecedented, while trying to run away/re-distribute immediate problems.

There is also a part of blame to be laid on dysfunctional politics. In Europe national politicians, answerable to their own electorates are struggling to confront continent-wide problems – thus a crucial misalignment between expectations (by national electorates) and commitments (towards European policies) yielding, on average, ”value-less” results.

European leaders do however know what they need to do. They have been slow in doing for two reasons:

  • magnitude of the commitment necessary to save the union is uncertain, and they don’t want to pay a penny more than is necessary, and;
  • distribution of commitment costs is uncertain and not guaranteed, and no individual entity wants to pay a penny more than is necessary.

So what are those possible solutions to the ailing EU economy that EU leaders so far fail to carry out? Some might be:

  1. Peripheral debts to be addressed through austerity.
  2. Like in case of Ireland, to drop all unsustainable debts, not to continuously slowly the economic recovery.
  3. The Euro to compete with the national currencies, putting pressure on the ECB, which will ensure that the Euro is a low-inflation currency.
  4. A form of Eurozone bond, which would largely replace the national eurobonds issued by the individual countries.
  5. To bolster European emergency funding, which fight failing European banking contagion.
  6. Financial/fiscal integration to take place, including fiscal transfers to support peripheral economies while they get their budgets in order.
  7. European Central Bank to stop raising interest rates and being illusioned about inflation.

Just as in Japan two decades ago, politicians have failed to make the structural labor- and product-market reforms essential to spurring growth. Lack of strong leaders was the underlying problem of Japanese economy, which has not recovered yet. The turn has now come for European leadership to show what it is capable of, but there seems to be no leadership.

My first big failure

After few stories about historic, technological and strategic failures, time is perhaps ripe for a personal story – my story.

I am originally from Armenia.

A year before my last high school year, I was in a school where I was actively participating in “Applied Economics” program introduced by Junior Achievement – a program designed for high school kids to acquaint themselves with various aspects of micro and macroeconomics. After completion of the program, there was a country-wide competition in applied economics and nearly 1000 pre-selected participants from all high schools across the country took part in it. I came 19th in this competition, and by virtue of being among the first thirty, we were offered one-week long, all-paid holidays in one of resorts in Armenia. This was a week full of economics-related games, stock exchange simulations, and constant interactions with most famous businessmen and bankers of the country. This was when I decided I would become an economist. Next year, however, I was forced to change school and spent my last high school year at a phys-math school.

I wound up in the physics – mathematics school # 1, the best and most prestigious high school in the country specialized in physics and mathematics. I spent my last high school year at this school. This was 1996. Post-Soviet era started few years before, but corruption and nepotism were ubiquitous. Demand for economists, lawyers and doctors soared, and universities reflected well that tendency. The only possibility to enter in an economics department in any of state universities at that time was to obtain maximum scores from three exams: English, Armenian, math.

My family and friends advised against wasting my choices and applying for another department – my father was especially insisting that I apply for physics department, cherishing hopes that I would follow in his steps (he is a nuclear physicist) after graduation. When time came to apply for undergraduate studies, I was still completely in love with economics (especially macro) and without hesitation specified three of my preferences (out of four possible) in one or another of economics or related departments. I couldn’t imagine myself doing anything else. I was living in my own world and couldn’t care less on advises and hints of those who loved me and who had more life experience.

I made my decision and no one was able to make me change my mind. I went for exams. Examination committees were where loads of money circulation was happening. “Give me this much and your kid is guaranteed to get that score” was unwritten policy but was so widely known and followed as if it were legal. No one questioned, no one demanded justice. Corruption chain could be traced all the way to the top, including Ministry of Education. Besides one of subjects, mathematics, examination committees for other subjects were only giving high scores to those who paid or those with connections to committee members. I (and my parents) didn’t have enough money or connections.

Knowing well in advance these initial conditions, I still went for it. I did pass all exams and scored maximum in only one: mathematics. For the other two, English and Armenian, my work was scored worse than it was worth, predictably. Appealing to both committees provided no results. My total score from three required exams fell short by 2 or 3 (out of 20) from minimum pass score for all three departments that I applied for. This was one of the most painful times for me. I felt doomed not least because all young men above 16 not accepted to any university were automatically subject for conscription to the army. Armenian army however is (still) a place many readily pay loads of money to avoid. It is a waste of life for two years without guarantee that health and mental states of a person would be normal after the service (indeed, quite few return with different ailments and mental problems).

Luckily for me however, my fourth (and last) option specified in the application form was physics department. I put physics department as my last choice for exactly such a reason, but I hoped not to be in need of this option. If nothing else worked, I thought, I would at least have a high probability of not being drifted to the army but doing physics instead. After failing for the first three options, I came to the fourth (cheers Murphy): I was accepted to the physics department at Yerevan State University.

I forgot to mention that I could have gotten into the same physics department without any exam but by a simple interview due to a special agreement between my (physics – mathematics) high school and the university.

What I could have achieved by a simple 15-min effortless interview I achieved after passing four exams during one month (the three plus the physics exam), spending money, lot of nerves and countless unaccountable-for time and efforts.

Even when I started studying physics – not being “eligible” for the army – I felt horrible. I started my university days with gloomy expression of face and dark spirits. I really didn’t want to do physics. My future, as I saw and envisioned then, was anywhere but in physics. My perspective changed ever since.

Am I in physics now? No. But I did continue studying physics, which I later realized was more beneficial for me in terms of mentality and attitude than actual knowledge, on graduate and post-graduate levels.