The Bowdoin Globalist – Issue 2 – Spring 2012

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The Growing Dragon Dylan Hammer

Q+A: Nicholas Toloudis

One Year Later

Markets and the Future of the Euro

The Logic of Fear

Facing Austerity: American Foreign Policy

Venezuela Faces the Unknown

Bridget O’Carroll

Christiana Whitcomb

New Trends in South Asian Markets Tanu Kumar

Tina Curtin

Two-speed Europe Mac Routh

Michael Mort

Isabel Nassief

Allison Beeman

The Bowdoin Globalist

Introduction

EDITOR IN CHIEF Lauren Speigel

DEAR READERS,

ASSISTANT EDITOR Aaron Wolf

LAYOUT STAFF Leo Shaw

EDITORIAL STAFF Christina Curtin Tanu Kumar Nora Biette-Timmons Christiana Whitcomb

EXECUTIVE STAFF Max Staiger

Welcome to the sophomore issue of The Bowdoin Globalist. Our theme this May focuses on the continuing repercussions of austerity, both in the United States and abroad. The magazine begins with an exploration of China’s economic status and examines where the country is heading. An interesting discussion of the potential for South Asian markets follows, before we shift our focus to the continuing euro crisis.

The latter half of the issue focuses on political trends that have developed as a result of continuing global economic fragility. Looking at changing American foreign policy in the face of austerity is especially pertinent as we follow the political and humanitarian crisis in Syria.

Finally, our attention shifts to the environmental ramifications of the increasingly enduring age of austerity. Last, but not least, we want to thank you for your support during our inaugural year, and look forward to continuing our coverage of all things global next fall.

FACULTY ADVISOR Paul Franco

This magazine is published by students of Bowdoin College. The content and opinions expressed are not those of the College. bowdoinglobalist@gmail.com Front cover image Š Reuters Front cover design by Leo Shaw Image this page courtesy of Ken Teegardin Back cover image courtesy of Jason Pier All pictures from Creative Commons used under Attribution Noncommerical license. www.creativecommons.org

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Lauren Speigel, Editor in Chief

Photo courtesy of Reuters

The growing dragon China’s rebalancing act

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The Bowdoin Globalist

China Today Investment China is at a pivotal point in its ecoFixed asset investment (FAI) has been nomic development. Its leadership is the single most important factor conattempting to rebalance by placing tributing to Chinese economic growth. greater emphasis on consumption and The construction of factories, high-rise moving the country away from depen- apartments, high-speed railways, masdence on investment and exports, tradi- sive highways, and leviathan shopping tional drivers of China’s GDP growth. centers continues to be the key engine This change is in part caused by the of GDP growth. Investment represents current state of the Chinese economy, nearly half of all GDP growth. The which reveals the weaknesses of the central government subsidizes certain current system. Nonetheless, China’s industries and sectors (such as housing) present condition is a direct byprod- to incentivize investment. Banks, which uct of the global are almost all state economic downturn, owned and used as which damaged the tools of government Whether or not China will be country’s export and development policy able to rebalance its econoinvestment sectors rather than commy remains to be seen and was exacerbatmercially oriented ed by government entities, make cheap programs instituted credit available for to rescue these key drivers of eco- these select industries. Much of this is nomic growth. The stimulus program aimed at the property sector, which has launched in 2009-2010 in response to developed a housing bubble of its own the effects of the 2008 financial crisis as construction nears over-capacity. resulted in high inflation and massive China’s infamous “ghost cities”—entire debt. Meanwhile, the continuing Eu- cities rapidly built from the ground up ropean financial crisis has cut demand that remain devoid of life—are evidence for Chinese exports to Europe, which of this. collectively represents China’s largest In addition to government stimulaexport market. Whether or not China tion, foreign direct investment (FDI) has will be able to rebalance its economy— been a crucial component of China’s de- put. which still lacks a service sector and velopment. Defined simply, FDI refers FDI has been critical to China’s ecohas one of the highest savings rates to the investment of capital by a foreign nomic development in several ways. of any country—remains to be seen. company, such as the establishment of First, because most foreign companies Little progress has been made since subsidiaries in China and building facto- that invest in China are involved in the central government issued its latest ries, machinery and global exports, they five-year plan last March. The govern- equipment. Cumupromote the trade ment has already scaled back its growth lative FDI in China As foreign investors contiue to surplus that has betarget from eight percent (where it has at the end of 2008 come a staple of the curb spending amid the debt been since 2004) to seven and a half was estimated at Chinese economy. crisis, the crucial FDI compopercent, although many economists approximately $880 Second, the influx nent of the Chinese economy predict GDP growth to decrease to billion, with $148 of capital from suffers seven or six and a half percent. While billion added that fibuilding constructhere are a number of issues that plague nal year. Just about tion and purchase the Chinese economy—including envi- every major company in the world has of equipment spurs growth and creates ronmental concerns and friction with substantial investments in China. These jobs. Third, FDI allows for technology the United States—the most impor- foreign investment enterprises were es- transfer to China, as companies must litant challenge facing China is the task timated in 2007 to have employed more cense patents to joint venture operating of restructuring its economy towards than 42 million people and accounted in China. This provides China with acconsumption. for 31.5 percent of gross industrial out- cess to advanced technologies, allowing 3

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Photo courtesy of Anne Roberts it to maintain a competitive edge in the global market.

However, there are risks in relying heavily on FDI for economic prosperity. FDI faced severe reductions following the 2008 subprime mortgage crisis. By April 2009, FDI inflows to China were down by 22.5 percent, as compared to April of the previous year when FDI surged by over 70 percent.

FDI levels from January to September of 2009 were 21 percent lower than in the same period in 2008. As foreign investors, particularly Europeans, continue to curb spending amid the debt crisis, the crucial FDI component of the Chinese economy suffers, underscoring the reality that China, in its rebalancing, needs to become less dependent on FDI.

Exports percent from its current rate (around China’s economic growth is also nine percent). heavily driven by exports. Growth over the last few decades has ridden on the Response back of export-led industrialization Facing a precipitous fall in FDI and and a high trade surplus. In 2010, Chi- exports, in November 2008 the Chinese na became the world’s largest exporter, government announced a massive stimsurpassing both the United States and ulus package totaling 4 trillion RMB Germany. China’s net exports com- ($586 billion) to prop up the economy. posed over 37.8 percent of its GDP Tapping into its huge foreign currency growth in 2008, and even with the reserves (topping $1.95 trillion), the economic downturn, increased to 39.7 government increased expenditures to percent of GDP. This number is the promote domestic spending and spur highest among major world economies. investment. This focus on investment Unsurprisingly, China runs a large distinguished the Chinese stimulus trade surplus that rarely drops except package from the U.S. package, the lataround Chinese New Year as export ter of which focused more on consumer factories close for the festival. spending. The package was aimed at This focus on exports makes China China’s key industries, including steel, heavily dependent on foreign market machinery, electronics and information demand for ecotechnology, texnomic growth. tiles, and transContractions of portation. The The single largest impact of the the export seclargest portion global financial crisis on China’s tor have severe went into public economy came from the drop in exports following a fall in global ramifications for infrastructure demand the economy. investment, with The single projects on raillargest impact ways, highways, of the global financial crisis on China’s and airport construction. China’s low economy came from the drop in exports budget deficit over the past decade alfollowing a fall in global demand. Ex- lowed the government to undertake ports dropped by 21.8 percent in just the such massive expenditures. The $586 first half of 2009 after increasing con- billion package was financed by direct tinuously for seven years since 2001. As grants and interest subsidies, as well net exports collapsed in late 2008 and as bank credit and government bonds: 2009, GDP fell from 13 percent growth $173 billion from central government in 2007 to as low as 6.1 percent in the spending, $180 billion from local govfirst quarter of 2009. Some believe that ernments, and $233 billion from bank the Chinese economy needs to grow at lending. a rate of at least 8 percent to account As part of the stimulus program, for the rapidly expanding population the government also instituted a numrequiring 20 million new jobs a year. ber of monetary policy adjustments, Today, the European debt crisis con- easing from a “tight” to a “moderately tinues to negatively affect the Chinese loose” monetary policy to make loans economy, as export demand remains more readily available. Under direction low. The EU collectively represents from the state, banks eliminated lendChina’s largest export market, and ing quotas and reduced interest rates speculations of a prolonged European to create a surge in bank lending. The recession suggest that China could face huge injection of liquidity into the drops in GDP growth as large as two banking system lead to a rapid increase 4

Economics

in China’s money supply and bank credits in the first half of 2009. Under this expansionist policy, bank credit increased by 7.3 trillion RMB in the first half of 2009, in comparison to 3.18 and 3.63 trillion RMB in 2006 and 2007 respectively. These loans overwhelmingly went towards investment projects, with nonfinancial businesses getting over 90 percent of the total amount loaned. Indeed, bank loans provided much larger funding of investment than government spending, despite rhetoric focusing on the 4 trillion RMB stimulus package.

Results China’s GDP growth responded well to the stimulus program and propelled China out of the crisis faster than almost any other country. The government efforts prevented a precipitous fall in 2009, only dipping to 8.7 percent, and allowed for growth to recover to 10.4 percent in 2010. Studies suggest economic expansion of about nine percent in 2009 and ten percent in 2010.

As the package was aimed at spurring investment, the changes in growth reflected this focus. Fixed asset investment growth rate surged with a 30 percent increase in the second half of 2009.

On the other hand, the stimulus plan exacerbated preexisting issues with the imbalanced economy while creating new challenges in the form of inflation and debt. The program placed heavy emphasis on investment to spur recovery, further pushing the country out of balance, in the wrong direction of developing larger consumer and services sectors. The fixed-investment share of GDP increased from 42 to 47 percent from 2008 to 2009 and now stands at almost 50 percent. Infrastructure projects and booming housing construction have pushed the country closer to overcapacity, as illustrated by the aforementioned “ghost cities.” The majority of the misdirected investment was 5

The Bowdoin Globalist

funneled into the property sector (2.5 binge in 2009 remains. China’s weak trillion RMB in 2009), which contin- currency, kept artificially low to protect ues to construct unattainably expensive exports by making them cheaper, only apartments. This property bubble has exacerbates inflation and erodes the put home ownership out of the reach buying power of Chinese households. of millions.

Then there is the issue of debt. OutAdditionally, as standing loans to a result of all its local governments spending, China amount to $1.65 The stimulus plan exacerbated now faces high in- preexisting issues with the imbal- trillion, nearly a flation.

Soaring third of GDP. The anced economy while creating prices for pork, central governnew challenges in the form of vegetables and othment has declared inflation and debt er staples, as well as that as much as even less affordable 20 percent of housing prices, pose dangerous ramifi- the loans granted under the stimulus cations for the average household. The program will be written off. Interestinflation rate has fluctuated over the ingly, while the rest of the world was past several months, at times easing deleveraging to pay down debt in the these tensions, but the threat of infla- wake of the financial crisis, China did tion as a hangover from the spending the opposite, with rapid spending and

May 2012

Economics

loan acquisition. Debt almost doubled in housing and government sectors in the two-year period following the stimulus program. This has left China in a far less flexible position today; another stimulus program simply may not be feasible.

The issues raised by the stimulus program compound the fundamental problem with the Chinese economy.

The imbalanced economy and the government’s relative inability to engage in expansionary policy in the face of an economic downturn pose a serious danger. A prolonged European recession only stands to hurt China. Because the Chinese economy remains so heavily dependent on exports, it is vulnerable to such a downturn in demand. China’s other economic sectors are simply not large enough to supplant the portion of

Photo courtesy of Reuters

GDP growth offered by exports. The creation of a welfare state to address county’s consumption share of GDP is household concern for health savings, the lowest of any country in the world. as well as lower taxes on consumer and Likewise, the service sector is only 43 luxury goods, deepening income distripercent of GDP, as compared to the bution reform, and continuing tax reworld average of 60 percent. Envision- bate policies. ing such a turn of events, experts preThe Chinese government is well dict a drop in China’s GDP growth of aware of the need for change. Since at least 2 percentage points. Now with 2007, the leadership has indicated the the borrowing capacity of the country importance of shifting the weight of so low, the government does not have the economy from exports and investthe ability to launch another large lend- ment onto consumption. The superb efing program. fort to boost the economy in 2009 and The China of tomorrow must rebal- 2010 overshadowed plans for rebalancance its economy and move in the direc- ing, but by March 2011 the leadership tion of becoming a consumption rather reasserted the critical importance of than export-based economy. Part of reform. The Twelfth Five-Year Plan this means accepting lower rates of issued at the National People’s ConGDP growth while the economy ad- gress that month proposed to stabilize justs and inflation and debt are reigned the country’s annual growth by about in. Another suggestion is for China to 7 percent over the next five years. Recseparate ownership from the manage- ognizing that China’s growth model ment of state-owned enterprises and is outdated, the leadership indicated it for the country to is intent on seeimplement modern ing manufacturing corporate goverand exports deSince 2007, the leadership has nance practices, crease as personal indicated the importance of including public fi- shifting the weight of the econo- consumption and nancial disclosures my from exports and investment services develop. and external auditPremier Wen Jiaonto consumption ing. bao stated that this But the most year’s economic critical step will be situation would be to get the Chinese spending. At pres- “complicated and tough.” Cutting back ent, only 37 percent of wealth is going GDP growth in favor of fostering a reback into the economy. Households are balanced economy will allow China to saving rather than spending, caused by continue to develop into an economic a negative real interest rate because the superpower, one with the potential to inflation rate is greater than the nomi- eclipse even the United States down the nal interest rate, which has led to lower road. incomes. Also to blame is the lack of a social safety net; insurance is weak and families keep a larger amount of cash on hand in case of emergencies.

To bring real interest rate into the positive, the government needs to raise nominal deposit rates by allowing the market to more fully control the amount banks pay on deposits and charge on loans. Other suggestions to Dylan Hammer ’14 is a Government and promote spending have called for the Asian Studies double major.

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The Bowdoin Globalist

Economics

New trends in South Asian markets

Photo courtesy of Neha Singh

The rise of India should be extremely relevant to South Asia and the world as a whole. According to the Economic Times, from 2000-2010, the growth rate of India’s GDP averaged 7.45 percent and reached a startling high at 11.80 percent in December of 2003. Given that India’s population passed one billion in 2000, the nation’s average population growth rate of 1.48 percent for the same time period is no less impressive. The increased purchasing power of average Indians combined with the sheer magnitude of demand that a population of 1.17 billion generates should be a boon to South Asia’s numerous small economies, such as those of Nepal, Bhutan, Bangladesh, and Burma. Nevertheless, integration of South Asian regional trade has been extremely slow and frustrating.

India’s merchandise trade volume with East Asia has, on the other hand, doubled in the past decade. Why has the growth of India failed to prompt economic inte7

gration between its South Asian neighbors?

According to Dr. Dilip K. Das, a former consultant for the World Bank, regional trade did flourish at one point in time. In 1948, soon after the departure of the British, trade with Pakistan, Afghanistan, Sri Lanka, Bhutan, Bangladesh, and the Maldives accounted for as much as nineteen percent of India’s foreign trade. By 1967, however, regional trade had plummeted to a mere two percent. This was due to the fact that India and its neighboring economies adopted a policy of import substitution industrialization (ISI) in the post-World War II period. ISI is a strategy that supports the replacement of foreign imports with domestic production. The policy is based on a nation’s wish to increase its selfsufficiency and focuses on high tariffs to protect domestic businesses so that they may grow to one day compete with foreign industries.

During the 1970s and 1980s, a large portion of policy makers throughout India and the rest of South Asia began to become disenchanted with ISI. This was mainly because the policy led to heavy intrusion of the government in economic life. Moreover, according to Dr. Das, a “segment of the policymaking community felt that their countries had been missing out on the growth and development opportunities that East and Southeast Asian economies enjoyed after 1960, especially China after 1978.”

This sentiment led South Asian countries to start liberalizing their trade regimes. Sri Lanka, the pioneer in the region, undertook significant reforms in the 1970s and during the 1980s, and consequently now has the lowest tariff barriers in the region. India began to reduce tariffs on manufactured goods in the 1990s, and Nepal and Pakistan started liberalizing their economies in 1997.

Furthermore, the South Asian Association for Regional Trade (SAARC), an organization of eight South Asian Nations, had its first committee meeting in 1985.

While these moves have been promising, the Asian Development Bank estimates that intra-regional trade still remains below six percent of South Asia’s total global trade. According to the Bank, this is “is far below levels of intra-regional trade in other regions such as East Asia and the Pacific (about 52 percent), Latin America and Caribbean (about 17 percent) and even SubSaharan Africa (at nearly 11 percent).”

Furthermore, SAARC remains a forum for the organization of conferences and meetings, rather than an actual policymaking institution. According to Dr. Das, this is, perhaps, in large part due to the fact that India has had a historically contentious relationship with some of its neighbors, particularly Pakistan.

Even more importantly, economic activity has been “critically constrained by serious infrastructural bottlenecks, poor economic governance, serious constraints in labor and land markets, and inadequate development and deficient performance of financial markets. Some of the most conspicuous economic con-

May 2012

straints have been power shortages, poor inland road and rail transport, and inefficient trade infrastructure, particularly customs procedures and regulations.”

These obstacles to economic integration ultimately seem to be chicken-or-egg in nature. While political conflict may have diminished the potential for trade, an integrated trade network could lead South Asian states to become more dependent on each other and diminish the risk of inter-state conflict. Similarly, while poor infrastructure and governance may have hindered foreign investment among the South Asian nations, increased trade would provide an impetus for the creation of better infrastructure, the increased flow of information and technology, and regulatory cooperation.

It seems then, that deeper integration of regional economies can be achieved if South Asian nations actually take the initiative to do so. For the smaller and poorer nations, the incentives to increase trade with India consist, most importantly, of India’s demand for their goods.

Regional trade would also allow Indian consumers to replace costly imports from the rest of the world with regional imports. Indeed, a study published in March 2012 titled, “Cost of Economic Non-Cooperation to Consumers in South Asia,” estimated that deeper trade integration could bring $2 billion in benefits to Indian consumers.

South Asia is home to half of the world’s poor, and spreading India’s newfound wealth through trade will begin to bring some of South Asia’s poorer nations out of poverty. While this will obviously mean the most to those who actually live in the region, the United States should be interested in seeing regional trade flourish as well. As poverty is one of the main contributors to strife, fundamentalism, and terrorism, stronger economies throughout all of South Asia will surely help ease security concerns within the region, and throughout the world.

Tanu Kumar ’12 is a Government and Legal Studies major with a minor in Economics.

Economics

Photo courtesy of the European Parliament

Two-speed Europe “You’re an out, a small out, and you’re new. We don’t want to hear from you,” said French President Nicolas Sarkozy to Danish Prime Minister Helle ThorningSchmidt during a recent debate over the European Union’s newest fiscal compact.

Mr. Sarkozy’s comment reinforces the reality of a two-speed Europe and the awkward circumstances that have arisen as a result of the ongoing euro crisis. Although overshadowed by countries like France and Greece, member states outside the eurozone have suffered tangible effects from the crisis too, and Denmark (which recently ascended to the Council of the European Union’s rotating presidency) is poised to bridge the gap between the two EU constituencies.

The European sovereign debt crisis that has devastated economies throughout the region over the last two years is complicated by the fact that the EU lacks

a single currency and a common fiscal policy. Seventeen EU nations are members of the eurozone, each using the euro as its currency, while the remaining ten member states do not for varying reasons. Most of the member states outside the eurozone have yet to meet the convergence criteria for joining the monetary union—a goal that has become less appealing over the last two years— though Sweden, the United Kingdom and Denmark are special cases. Denmark and Britain avoided adopting the Euro through opt-outs to the Maastricht treaty and will not have to join the eurozone unless their governments decide otherwise. Although all other member states are obliged to adopt the common currency, Sweden gained a de facto opt-out by choosing not to take part in a voluntary phase of the convergence program, the European Exchange Rate Mechanism, 8

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Photo courtesy of Kristian ThÃ, gersen and will remain outside the eurozone for the indefinite future.

Throughout Europe’s economic crisis, particular attention has been paid to the countries receiving bailout packages from the European Union such as Greece, Ireland and Portugal, as well as other member states that have threatened bankruptcy like Italy, Spain and Belgium.

Despite the attention focused on struggling eurozone members and their more stable financiers, such as Germany, the ten non-euro countries have been overshadowed, but not unaffected. Though member states not included in the euro area do not have to fund the enormous bailouts, they are members of the EU’s common market and thus have suffered as a result of the crisis.

Most members outside the euro area have faced increasing prices, taxes and unemployment rates, as well as the collapse of housing markets. Jacob Buksti, a former Danish transportation minister and parliamentarian, points out that even Denmark, which remains one of Europe’s stronger economies (possessing one of the world’s twelve remaining AAA credit ratings), and holds a privi9

leged position within the EU, will undergo deep reforms as a result of the European Union’s new fiscal compact. Under the compact agreed upon in March, all member states (with the exceptions of Great Britain and the Czech Republic, who did not sign the treaty) entered a binding agreement to coordinate their fiscal policies and subject themselves to unavoidable penalties. The compact requires annual national budgets to be balanced or in surplus and prohibits public deficits from exceeding 0.5 percent of GDP. If the parameters of the compact are broken, a member state may be fined up to one percent of its GDP. The new fiscal compact is the latest and most direct example of the effect the debt crisis has had on non-eurozone member states.

Denmark is a unique example among those outside the eurozone, particularly because it recently ascended to the rotating presidency of the Council of the European Union, one of the EU’s four main institutions. This body is comprised of the national ministers of each member state and wields the budgetary power of the Union. The fact that Denmark is not a member of the eurozone does present

challenges, as nations not participating in a specific policy area, such as the monetary union, do not have voting rights for that particular type of legislation. Thus Denmark’s presidency appears to have come at an awkward time, yet Mr. Buksti looks at Denmark’s position favorably, as it can be used to emphasize the sense of unity that has been a cornerstone of the EU since its inception. By serving as a “bridge-builder” between eurozone members, and those outside of it, Denmark can use its position to facilitate greater coordination between the two groups in hopes of finding a comprehensive solution to the crisis.

As the bailed-out member states continue to climb out of a considerable economic hole, Europe and the world economy appear to be on the mend. The combination of the recent fiscal compact and Denmark’s leadership in increasing cooperation among all member states could bode well for the future of the EU’s economic policy.

Mac Routh ’12 is a Government and Legal Studies major. He studied abroad in Denmark in 2010.

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What’s really happening in Greece: An interview with Professor Nicholas Toloudis Globalist: How did Greece get into this mess in the first place?

Toloudis: Ten years ago, the euro came into being. At this point, in 2002, Greece found itself in a situation in which it could borrow money on the bond markets at the same rate that Germany could (cheaply, that is). Germany (and other Eurozone countries, but Germany above all) found itself in a situation in which by letting Greece do that, it could magically transform Greek people and businesses into consumers of its goods—an apparent win for Greece and for Germany. The problem was that a) the Greek government didn’t use this borrowed money to invest for an economically sustainable future, b) it borrowed way too much, and c) the fundamentals of the Greek economy were fairly weak. Eventually, when public debt got too high, and the Greek prime minister was forced to publicly admit that it was even higher than anybody knew, bond markets, already spooked by financial crises in the U.S. and U.K., panicked and pulled the plug. Then Germany closed its wallet too. And the European Central Bank, initially, refused to take on a “lender-of-last-resort” role that, for example, the Fed does in the U.S. The result: no one will lend money to Greece, creditors want the Greek government to pay back its debts, and the Greek government now can’t afford to. That’s the quick version of the story.

G: Now that a $172 billion bailout has been approved, what can this really do for Greece other than lower its debt? Is it actually likely to bolster any economic growth?

T: In the short term? Nothing. And not only will it not bolster economic growth, but it will thrust Greece into a protracted recession. In the long term? The hope is that these austerity measures will not only restore credibility to Greek fiscal governance, but will also make Greece

more competitive internationally. I see very little chance of that happening.

What will Greece compete in? Tourism?

That’s about all it has going for it, other than agricultural products.

G: What will be the most significant austerity measures that Greece will take over the coming months?

T: The twenty-two percent minimum wage cut will be enormous, along with the slashing of public sector wages and employment, especially given the cuts that have already taken place over the past couple of years. But there are a series of other measures that Greece has agreed to which are technically not austerity at all, but still constitute major changes. The labor market reforms and the commitment to privatize some big state-owned firms signal a big shift in the structure of the Greek economy. And now the Greek government has committed to spending all the money it gets from tax receipts to pay down the debt first, before spending on anything else.

G: The International Monetary Fund and many European leaders felt strongly that Greece should not leave the Eurozone, but why allow Greece to stay?

T: It’s not really a question of allowing Greece to stay—the E.U. would never let Greece leave! The effects of Greece leaving the euro on the other Eurozone countries would be enormous. Apart from the short-term economic fallout, one of the political consequences would probably be a general loss of confidence in the euro itself. If one country leaves, the precedent is set for subsequent departures, and that would call the entire edifice of the E.U. into question. In spite of the enormous challenges, I would be surprised if Greece wound up outside the Eurozone.

If against all odds this were to happen, it would likely precipitate much bigger changes to the structure and member-

ship of the Eurozone if not the E.U. as a whole.

G: Looking ahead, what does the bailout mean for Greece’s relationship with the rest of the European Union?

T: It means that Greece is now a protectorate of the E.U. Greece no longer has even a modicum of autonomy to set its own fiscal agenda. No country is an island, of course; every country has its limitations that are partially set by the international environment. But Greece is now confined by the rules of the bailout agreement. Among other things, that means that tax receipts must go to paying off debt first. Only then will Greek governments be allowed to fulfill other obligations. In a way, there are no other obligations.

G: Do you think that the international effects of Greece’s financial collapse, along with that of several other European countries, shows that the euro was a bad idea? What does this mean for the future of the euro?

T: Certainly the euro has enormous design flaws. The lack of a mechanism to coordinate fiscal policy across Eurozone members, the disproportionate (one might say hegemonic) power of one member (Germany), and a Central Bank that refuses to take on the role that would ensure a sound monetary policy—these are all problems. But the bigger issue is that the single currency presumes a single economy, but a single economy doesn’t exist. 17 Eurozone members, 17 different economies, not to mention 17 different polities. As far as the future goes, I dare not say. This is virgin territory for the EU and, for the moment anyway, Europe looks adrift. This is very bad news, not just for Europe but for everyone.

Nicholas Toloudis is a Visiting Assistant Professor at Bowdoin College currently teaching The Politics of the European Union and Political Development in the West.

Christiana Whitcomb ’14 is a Government and Visual Arts double major.

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Markets and the future of the Euro “A day will come when you France, you Russia, you Italy, you Germany, you all, nations of the continent, will be merged closely within a superior unit and you will form the European brotherhood… A day will come when the only fields of battle will be markets opening up to trade and minds opening up to ideas.”

Victor Hugo

A century after Victor Hugo delivered this opening address to the International Peace Congress in Paris in 1849, the leaders of Europe laid the foundations for a united continent. The process of political and economic integration began with the formation of the European Coal and Steel Community in 1952, followed by the 1958 creation of the European Economic Community, also known as the “common market.” Political and economic integration continued over the next several decades, leading to the 1993 formation of the European Union under its current name.

This project was both ambitious and risky.

The states of Europe voluntarily surrendered a certain degree of national sovereignty, in pursuit of political and economic cooperation and the celebration of a common heritage. After all, this was the home of Michelangelo and Mozart, of Galileo, Gutenberg and Rousseau. Even more important, in less than fifty years, two world wars had ravaged the continent—above all, the founders of the E.U. intended to prevent such tragedies from occurring again.

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Today, the crisis Europe faces is of the economic variety. Of the seventeen countries that have adopted the euro as their common currency, Ireland and Portugal have each required a bailout, two bailouts have not ended Greece’s economic woes, and Italy and Spain are floundering. This does not resemble the

minds have been preoccupied with the euro crisis.

Origins of the Currency Crisis One fact many people forget, says Bowdoin Professor of Government Laura Henry, is that the decision to create a common currency was as much a politi-

Photo courtesy of Reuters Europe that Victor Hugo and the founders envisioned. Although the common market has supplanted the battlefield, the economic landscape has recently become grim and casualty-strewn. Rather than opening up to new ideas, Europe’s

cal as it was an economic strategy. Following the breakup of the Soviet Union, the leaders of Western Europe began to seriously consider the possibility of economic and monetary union. For many at the time, the deterioration of the Soviet

May 2012

Bloc signified the triumph of liberal democracy, and the official launch of the euro on January 1, 1999 symbolized European unity in the new world order.

However, no one could predict with certainty the economic implications of this experiment.

Murmurs of concern first began to circulate a decade later, when former Greek Prime Minister George Papandreou came into office in October 2009.

Papandreou admitted that the previous administration had blatantly falsified the state of Greek finances in order to gain entrance to the eurozone. According to the 1997 Stability and Growth Pact (S.G.P.), which was intended to enforce fiscal discipline in the eurozone, members must have annual deficits no higher than three percent of G.D.P., and national debts lower than sixty percent. Papandreou revealed that the Greek budget deficit was over four times as large as it should have been, at 12.7 percent, and that the country’s public debt had reached a staggering 113 percent.

Despite this egregious distortion of the facts, Athens is not the sole architect of the monetary crisis. Other states were fiscally irresponsible as well. Now one of the few eurozone states able to hold its head above the water, Germany was actually one of the first countries, along with Italy, to stray from the S.G.P.’s three percent rule. France followed suit later.

Surprisingly, Spain managed to abide by the provisions of the S.G.P. until 2008.

These discrepancies between past behavior and current predicaments exist partially because northern European economies were better prepared to weather the storm of globalization, argues Professor Henry. For example, in 1999 France and Germany had more valuable exports and higher productivity levels than did Italy and Spain. Germany even became an export superstar, selling more than it imported and achieving a favorable balance of trade. To an extent, the relative stability that the northern economies enjoy occurred at the expense of the southern economies. The former sold their goods and also loaned the resulting cash to the latter, which could

Economics

suddenly borrow at lower interest rates, thanks to the creation of a common currency. This set the stage for the debt crisis occurring today.

However, with the exception of Greece, the private sector, rather than government borrowing, precipitated the euro crisis. Many European citizens recognize this, as well as the national leaders tasked with balancing European issues against domestic interests. Roberta Verardi, a young Italian professional with a master’s degree in international relations, explains, “I think that the biggest slice of responsibility is shared by banks and financial companies because of their speculation, not only in Europe but also and above all in the U.S… I think that there are many different countries bound up by an economic link but with political problems of leadership.” Sara Robles, a student of law and economics in Madrid, similarly argues that, “… [under] the euro it’s difficult to manage such different economies like Germany or Greece, whose philosophy or understanding [of economics] are completely different.”

Regional differences also account for the quarreling that has arisen over how to remedy the situation. Northern states—particularly France and Germany, which have demonstrated strong leadership throughout the crisis—fear financial contagion and have required Greece, Ireland, and Portugal to drastically cut spending before approving their bailout packages. The duo of French President Nicolas Sarkozy and German Chancellor Angela Merkel (facetiously dubbed “Merkozy”) can be expected to adhere to this strict approach in order to gain support in their upcoming national elections. Historically, such austerity measures tend to deepen recessions by increasing unemployment and rendering debt repayment even more difficult.

Yet refusing to cut spending could cause defaults and financial collapse. Despite this apparent contradiction, current European Commissioner for Economic and Financial Affairs Olli Rehn believes that cutting debt and stimulating economic growth are not mutually exclusive pro-

cesses but rather “two sides of the same coin.”

Of course, such reforms are much less popular in countries that are required to cut spending. Italy’s new Governo Tecnico, staffed by technocrats, has raised taxes, acted to decrease tax evasion and increased the pension age. This austerity package, which Prime Minister Mario Monti refers to as a “Save Italy” decree, has incited a strikes and protests throughout the country. For instance, last November police narrowly prevented demonstrators from invading the Bocconi University campus in Milan, where Monti previously served as president, says current student Francesca Ginexi. A strike by truck drivers also prevented food, gas and mail from reaching her home in Sicily for several days.

Despite the effects of this chaos, Ginexi nonetheless supports Monti’s government and its policies. She explains, “I deeply distrusted the government under Berlusconi, while I trust the people that have the power now. I understand why people are upset, but I believe that the measures that have been taken are like a medicine to cure sickness… I know that people can’t really understand the impact that these measures will have, but as a law and economics student I understand that the only way to fix the situation is working all together and making some sacrifices.”

The Human Cost of Austerity These sacrifices will be felt most heavily by the people of Europe, even though it is mainly private financial companies that created the debt crisis. Unemployment rates, and youth unemployment rates in particular, have skyrocketed in Europe. At the beginning of the year, over fifty percent of young Greeks were unemployed, and Spain, Portugal, and Italy had unemployment rates of 49.9, 35.1 and 27.8 percent, respectively.

Rising unemployment rates have also affected young people from the more stable northern states. Liam Whittington hails from the U.K., but currently holds a temporary job in Vienna, Austria. “I am somewhat dreading the end 12

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of my contract in Vienna,” he says, “because it means I will have to go home and look for some kind of temporary work while I consider my options… it is not out of the question that when I get home, if I cannot get a job within a couple of months, I will have to apply for a ‘jobseeker’s allowance.’” Although he completed his undergraduate degree in 2008 and holds a master’s degree as well, Whittington has not been able to procure a steady source of income since graduating. He may be just one of the many young people that Europe will lose as a result of the recession, as he admits that, “I am seriously considering moving away from the U.K. to work or study, at least for some period of time, as prospects in the U.K. currently look somewhat bleak.”

Similarly, the eurozone crisis has injected the career plans of Caroline Denigot (a French teaching assistant at Bowdoin) with a degree of uncertainty. Denigot is a graduate student at France’s Université de Bretagne Occidentale, yet the years she devoted to academics will not guarantee her a job when she returns home. She is realistic about her opportunities, yet not entirely discouraged: “I want to be a teacher, but Nicolas Sarkozy’s government cut the fees in the public sector, and they suppress a lot of jobs, too. That’s why it is going to be harder for me to find a job, but we will see how things are going after the presidential elections.”

The Survival of the Eurozone?

Nowhere have Europe’s economic woes been felt more heavily than in Greece, which is in the grips of an economic crisis so severe that it overturned the previous government and threatens the stability of the rest of the eurozone.

In May 2010, an initial bailout package worth 110 billion euros led to Greece’s implementation of a series of austerity measures, followed by protests and riots throughout the nation. When the troika, or tripartite committee, comprised of the EU itself, the European Central Bank and the International Monetary Fund, offered the country a second, 130 13

billion euro bailout in October 2011, further austerity measures were imposed and Prime Minister Papandreou opted to resign. In fact, the situation in Greece is so miserable that speculation has begun to circulate about whether the country will follow Papandreou’s example, and bow out of its eurozone membership.

On-the-ground accounts of the poverty and disarray sweeping Greece are astonishing. “I have many Greek

friends and colleagues. No one remains untouched,” laments George Bruseker, a non-national employed in Athens. In the past two years general sales taxes, income taxes, and property taxes have increased sharply, while those Greeks fortunate enough to hold jobs have seen their wages slashed by 15 to 25 percent. Poverty has become very visible, he observes, and many homeless people wander throughout the cities. Credit is

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May 2012

Photo courtesy of Reuters nonexistent. The strikes and protests that have been so visible in the news are a constant impediment to productivity, as well as a threat to safety. Recalling a particularly unnerving experience, Bruseker says, “the last protest which I attended was on February 12. It is hard to describe this event. As I have said, I participated in many, many protests over the past year. I normally just wander through the crowd… I have never been

afraid at a demonstration before (and I have been to some dicey demonstrations) but I was that day… The police appear to have been given orders to disperse the crowd. They began early and intensively to tear gas the protestors. They attacked everywhere indiscriminately. They chased people down main shopping streets and side roads, anywhere. They were relentless and their point was very clear. Do not protest, do not challenge us.” In Athens, the birthplace of democracy, the euro crisis has threatened not only livelihoods but civic participation.

To call Greece’s situation precarious would be an understatement. Yet if the country were to leave the eurozone the result would be catastrophically expensive and logistically impossible, speculates Professor Henry. Were Greece to reintroduce its former currency, the drachma, it would do so at a devalued rate, which is the case whenever governments revive national currencies.

Investors know this, and would flee in droves, leading confidence in the Greek economy to plummet. Financial collapse would most likely be inevitable.

Fortunately, polls reveal that that majority of Greek citizens would rather remain in the eurozone than reintroduce the drachma. And even though it may seem like “Merkozy” and the other European nations have bullied Greece, they are not trying to push the state out of the E.U. Merkel has stated that Greece’s continued membership is crucial for the survival of the eurozone and the health of the continent, explaining, “we have taken the decision to be in a currency union. This is not only a monetary decision, it is a political one. It would be catastrophic if we were to say to one of those who have decided to be with us: ‘We no longer want you.’ It would be a huge political mistake to allow Greece to leave. That is why we will be clear with Greece, we will say: ‘If you want to be part of a common currency you have to do your homework but at the same time we will always support you.’”

Politicians, economists and other experts have speculated that the breakup of the eurozone is imminent. Sarkozy

has several times announced that “the worst is over.” In reality, the euro’s future is probably neither as bleak nor as rosy as these prognostications indicate.

All eyes are on how Greece will fare with the aid of a second bailout package.

Bruseker ponders, “Greek citizens have to realize their power for creativity and to choose their own destiny. They should vote for change and put in a government that rules for the people. Greece is going to go through hell one way or the other; they ought to choose to determine their own destiny.” One very real path that the Greek public may opt for is that of radicalism. When asked to make a prediction about Greece’s future, Professor Henry said it was impossible to know definitively, but did allow, “one thing is certain: economic crises such as this one radicalize politics. If the eurozone crisis persists throughout several more election cycles, some pretty nutty parties will come to power. We cannot be sure of what they will do.”

At this critical juncture, it is necessary for the nations of Europe to reevaluate the costs and benefits of economic and monetary union. There is some cause for optimism. For example, the European Central Bank—which was previously strictly committed to preventing inflation—has agreed to engage in some preferential lending. This activism is encouraging, argues Professor Henry, because all the actors are engaged and there are more options on the table than ever before.

Another factor that Europeans must consider is the ideological implication of unity. “The E.U. is not just about economics,” Whittington remarks. Despite his frustration with the job market and current state of the economy, he stands by the founding principles of the union: “it is about promoting economics, integration, human rights, security, cultural exchange, infrastructure, and mobility.”

It is about markets opening up to trade and minds opening up to ideas. Europe rebuilt itself once, and must do so again.

Tina Curtin ’12 is a Government and Latin American Studies double major.

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The Bowdoin Globalist

Politics

Facing austerity: American foreign policy Photo courtesy of the U.S. Army

As the U.S. national debt soars over $15 trillion, there is a growing sense that reductions to the federal budget will extend beyond domestic spending and into U.S. foreign policy. A handful of politicians are even calling for an end to American foreign aid. Certainly, Americans will be much less willing to see their tax dollars go overseas when there are clear domestic needs that must be addressed. In addition to foreign aid, the wars in Iraq and Afghanistan have not only depleted American public support for U.S. intervention abroad, but also American coffers. War is expensive, and the heavy focus that America has put on its “hard power” (power derived from military or economic coercion) has failed to produce positive results.

Recognizing the need to reduce defense spending, the U.S. has already begun cutting funding for the Department of Defense. However, the coming change will have less to do with actual American capabilities–the U.S. military will remain domi15

nant–and more to do with the manner in which America uses them. War is costly but talk is cheap, and given these budgetary constraints, the U.S. will once again have to develop the ability to make words effective tools of foreign policy. Peacefully spreading American ideas and values is becoming a powerful instrument in the U.S. foreign policy arsenal. The U.S. will also need to recognize the importance of improving its image abroad and take advantage of the monetary burden sharing that follows from multilateral action. With inevitable budget cuts it is essential that that the American government respond effectively by boosting or maintaining its ‘soft power’ (power through attraction and co-option) to make up for reductions to its hard power. Critics of the U.S. are predicting its imminent demise, but there is no reason that budget cuts should threaten America’s superpower status. In recent years the U.S. has not used its foreign policy budget to maximize value, leaving room

for reductions while getting more bang for its buck.

Frugal Foreign Policy?

In its current economic condition, it is unlikely that America will engage in another costly war anytime soon. Iran may prove to be the sole exception, but the U.S. is only considering military action as a last resort, if at all. Dr. Elizabeth Austin, visiting assistant professor of government at Bowdoin College, believes that the U.S. “will have no choice but to downsize its foreign policy objectives over the next decade.” Indeed, she asserts that “the U.S. will have to become a sort of frugal superpower.” The most prominent cuts have so far come to the Department of Defense, with nearly $500 billion saved over the next 10 years by scrapping and delaying programs. It is important to recognize that American defense spending soared after 9/11, and therefore cuts now will not bring the U.S. to historically low levels of

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spending. In fact the U.S. will still spend more money on defense than any other nation in the world (and most of the world combined). The U.S. Navy also still plans to maintain its fleet of 11 aircraft carriers, which are the primary means of American force projection around the world.

Last year, with the budget debate still boiling, many Americans took issue with U.S. action in Libya. The full cost of the U.S. mission in Libya was well over $1 billion, with $100 million worth of cruise missiles fired on the first day of the intervention alone. However the Libyan case may actually hold clues for the future of American foreign policy, and the cost compared to Iraq and Afghanistan is just the first of many important factors to note.

The official cost of the wars in Iraq and Afghanistan stands at over $1.3 trillion, and this amount actually triples when long term costs like future care for wounded veterans and interest on loans are factored in. Given the currently unstable conditions in both Iraq and Afghanistan, it is no wonder that many Americans feel that the U.S. has made bad international investments.

However the U.S. is scaling back more than just its hard power. The U.S. has also begun to institute deep cuts to the Department of State (congressional committees have suggested up to a 20 percent reduction to its $50 billion budget), which is already chronically underfunded. Additionally, congressionally-funded organizations like the United States Institute of Peace (USIP) have been gutted. Even over the objections of key military leaders, who recognized the great cost-benefit value of the Institute for Track II diplomacy (using unofficial dialogue to advance aims), the Republican-controlled House of Representatives tried to eliminate all FY 2011 funding for USIP. To put USIP’s $50 million budget in perspective, General Anthony Zinni (former Commander of USCENTCOM) noted that it could not sustain the war in Afghanistan for a mere three hours.

The Institute was spared by the Senate with only a 20 percent cut to its budget, but it still remains under threat. Dr. Austin notes that these cuts could “undermine President Obama’s ‘smart power’ approach to foreign policy, which emphasizes diplo-

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macy and development as an accompaniment to American military power.” In essence, the Department of State and other organizations are facing budget cuts just as America is in need of soft power (which is relatively cheap) to fill some of the void left by withdrawing American hard power.

The situation is so dire that, as Dr. Austin notes, “the last time we faced such severe cuts in foreign aid and other soft power techniques such as public diplomacy came at the end of the Cold War.” Those cuts, exemplified ideologically by Fukuyama’s The End of History, left the U.S. dangerously unprepared to confront post-Cold War conflicts.

U.S. Foreign Aid Analyzed Ron Paul isn’t the only American pointing to U.S. foreign aid as a place to save money. Foreign aid has become a popular topic of conversation for many Americans.

However a lot of the political rhetoric surrounding the issue is deceivingly optimistic about savings. Standing at approximately $50 billion, U.S. foreign aid is a mere one percent of the total federal budget – a point President Obama has often used to reject critics. Despite this low percentage, Dr. Austin believes that the U.S. government “will need to fundamentally rethink how it distributes foreign aid.”

Nevertheless, there are serious consequences for reducing American foreign aid that must be considered. For example, the vast majority of U.S. foreign aid goes to developing countries, where prosperity, stability and positive American public image is essential for long and short term U.S. interests. Whether it be a need for security cooperation (on terrorism, etc.) or the prospect of opening new markets in the future, it would be foolish to think that the U.S. can simply pull out of the world without losing key benefits. Quite simply, the U.S. does not regularly invest in foreign countries for moral reasons. The U.S., like all states, usually has more self-serving interests in mind when considering any type of action abroad.

There is also a lot of confusion, which politicians do not often clarify, over what happens with American funds once they are delivered. To start, Israel and Egypt

Photo courtesy of the U.S. Army

are consistently the largest recipients of U.S. foreign aid with annual portions of approximately $3 billion and $1.7 billion respectively; however Iraq and Afghanistan have fluctuated at the top in recent years. There are, however, conditions that the U.S. places on the use of its funds. For instance, 70% of all U.S. aid to Israel must be used to purchase U.S. military equipment. Egypt’s aid is similarly tied to military investment, and also contingent on upholding its peace treaty with Israel. The military conditions are a boon for American defense companies and a nice boost to the U.S. economy–especially important in recent years–while the political conditions allow the U.S. to maintain international stability in its areas of interest. These conditions mean that a significant amount of U.S. foreign aid either returns directly to the American economy or supports stability that also benefits the economy, making a reduction in foreign aid a less appealing option for serious budget cutters.

Repairing America’s Image and Redeveloping Multilateralism While it is clear that the U.S. will be forced to scale down its foreign policy expenditures, it is imperative that it learns to use the money it has more effectively.

It seems that the U.S. is slowly beginning to adapt to this new fiscal environment.

President Obama came into office with the promise of repairing America’s image abroad by reaching out to historically neglected areas of the world and work16

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The Bowdoin Globalist

European countries necessarily be as willing or capable to intervene in a region farther away than Libya. Even so, this multilateral and support-oriented approach should be seen as a blueprint for future U.S. foreign interventions.

Photo courtesy of the U.S. Army

ing to further the cause of multilateralism. President Obama’s historic speech in Cairo, aptly named “On a New Beginning,” was intended to accelerate the mending of America’s image. But the repair job has certainly not been as successful as President Obama hoped, and a post-inauguration spike in foreign approval ratings of America has now disappeared, particularly in the Middle East.

One of the main tenants of soft power is the idea of attraction, whereby a nation can achieve its foreign policy goals by making itself attractive to foreign audiences.

Nurturing this foreign appeal, as one could imagine, can save the U.S. dearly needed money. Under the Bush administration, America’s popularity abroad fell dramatically, as demonstrated by America’s failure to get a significant portion of the international community to support the invasion of Iraq. The Arab Spring has offered the U.S. a unique chance to brighten its image 17

in the critical area of the Middle East, but initial wobbling of support between oppressive governments and oppressed peoples cost the U.S. dearly.

However, given its relatively low level of monetary commitment and high payoff in public image, U.S. action in Libya is a good example of achieving a foreign policy goal without expending a vast amount of resources. The U.S. mainly played a support role (aerial refueling and reconnaissance) after the initial barrage of missiles, giving allies like Britain and France greatly needed infrastructure to maintain bombing missions. In addition, the U.S. and its NATO allies mainly fought an air war in Libya in support of an indigenous resistance movement, sparing the intervening nations the high costs associated with ground warfare. Libya is far from a universal model, as not every conflict zone has a native resistance group capable of handling ground combat, nor would the

Talk is Cheap In Libya the U.S. took a supervisory military role. Now in other countries, like Syria, the U.S. is not considering military action. This is a geopolitical difference, as Russia sees Syria in its zone of influence. Syria also has a professional army and regional ties that could set the Middle East ablaze if it were formally attacked.

Nonetheless, Russia’s insistence on sheltering Syria from international action puts America’s weakness on display. With America’s clear reluctance to become militarily involved, Russia, and now China as well, have more flexibility in defying U.S. wishes. Both nations have begun to consistently back states that the U.S. tries to internationally isolate (most prominently Syria and Iran), calling into question the effectiveness of U.S. foreign policy options, like economic sanctions.

This means that one of America’s greatest remaining weapons is its figurative mouth. If the Arab Spring has taught the world anything, it is that the spread of ideas and values can topple governments and shake international politics with impressive efficiency. It can be argued that the penetration of ‘western’ culture and values (and relative ‘western’ economic dominance) into the Arab world played an important role in the Arab Spring. This does not validate President Bush’s effort to spread democracy (which was too reminiscent of a religious crusade), but it does raise interesting questions and it should cause us to reevaluate the stigma currently associated with promoting democracy.

Secretary of State Hillary Clinton has led the way in reinvigorating the global promotion of American values. As Bashar al-Assad has cracked down on his people, Secretary Clinton has made a habit of flying around the world decrying the Syrian government’s brutality, predicting its downfall and generally promoting the cause of universal human rights. These

May 2012

words are quite literally cheap (just a few airplane tickets), and they can make a big difference. Secretary Clinton recently elevated typical American rhetoric by denouncing Russia and China’s veto of a UN resolution on Syria as “despicable.” The explicit and public manner of U.S. support for the Syrian opposition has once again boosted America’s image in the Middle East, especially when the U.S. is considered relative to Russia and China.

For China in particular, it is possible to see a more aggressive shift in U.S. foreign policy that focuses on value promotion.

It is clear that China has pushed the U.S. into a corner, as China is the single largest foreign holder of U.S. debt. The U.S. also depends on China for everything from cheap goods to rare earth metals. Furthermore, the U.S. has thus far failed to end China’s practices of currency manipulation and computer hacking, the latter of which has led to massive industrial espionage and intellectual property theft. However, over the last few years the U.S. has begun to strengthen its alternative foreign policy measures against China. The U.S. has promoted values like internet freedom (especially after Google voiced concern), expressed support for Chinese dissidents like Ai Weiwei and hosted the Dalai Lama over China’s strong objections. Secretary Clinton even publicly blasted China for its “deplorable” record on human rights. The Chinese government often responds angrily when the U.S. makes such gestures, but this only proves their effectiveness. For non-democratic regimes these ideas of universal freedom and human rights are mortally dangerous (and the Arab Spring has made this threat more salient), therefore it would be prudent for the U.S. to continue to advocate democratic ideals in the face of opposition. The U.S. may not be the most economically healthy nation on earth, but it can reclaim the moral high ground to strengthen its soft power and sustain its current global influence.

The Future Game The U.S., as Dr. Austin explains, is “being forced to do more with less.” Budget cuts will certainly hurt America’s military and diplomatic structures, but this does not

Politics

mean that the U.S. should simply fold and retreat. Responding in part to deal with budget cuts and changing needs, President Obama recently announced a defense restructuring plan. The plan notes that the U.S. will boost its military capabilities in the Asia-Pacific region (to counter Chinese influence) and continue to maintain a bolstered presence in the Persian Gulf (in case of conflict with Iran). Defense in other regions of the world will consequently suffer, but this realistic approach is timely and cost-effective. Dr. Austin notes that the U.S. “will need to prioritize spending according to U.S. national interests and be able to justify its spending to a skeptical American public.” President Obama has started to prioritize, but the threat of cuts to the Department of State, U.S. foreign aid and organizations like USIP could undermine these new plans. The U.S. will need its already relatively small soft power budget to continue promotion of American values abroad and facilitate negotiations and multilateral action.

With elections looming, Dr. Austin warns that, “given the right situation or series of events, America could revert back to a more militaristic approach to its foreign policy.” Taking into consideration recent conservative rhetoric, the threat of such a costly reversal is ever-present.

It is therefore essential that Americans– politicians included–inform themselves about U.S. foreign policy and the ways in which the U.S. can save money while still maintaining influence. Caring about issues like multilateralism and America’s image abroad has not always been a high priority for many Americans. Thus, it is crucial to frame this foreign policy debate with monetary savings, in addition to encouraging the recognition that budget cuts can occasionally be economically detrimental.

With the U.S. economy suffering and debt rising, saving money is a concept that all Americans can agree upon, and smart savings might just hold the key to the future of a strong American foreign policy.

Michael Mort ’12 is a Government and Legal Studies major. He studied abroad in Jerusalem his junior year.

Photo courtesy of Crethi Plethi

One year later December 17, 2010, local policemen patrolled the corruption-ridden streets of Sidi Bouzid, Tunisia. It was routine: the street merchants were subject to the authorities’ harassment, but often a bribe would permit them to stay and sell. Mohamed Bouazizi had lived this way since age ten, when he started supporting his mother, uncle and five siblings, making approximately 200 dinar a month ($140). Today was different.

The authorities confiscated his scales, fruits and vegetables and Bouazizi was thrust to the ground; the humiliation finally surpassed his tolerance. He sought other officials at the local municipality building, but was turned away. He decisively settled himself outside of the building, soaked his body in paint fuel, and incited not only flame but revolution.

It has been almost a year and a half since Bouazizi drastically brought attention to the living and economic conditions of Tunisia and triggered rebellions throughout North Africa, yet the Arab world remains in an economic crisis. Among the cultural diversity of the North African regions, the plea for reform has proved to be consistent throughout the area. Since the highly ad18

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vertised frustration of 2010, leaders in Libya, Tunisia, Egypt and Yemen have been forced from power in an attempt to resolve civil issues including corruption and unemployment. Irrespective of any political success, the post-revolutionary environments of Tunisia and Egypt continue to be threatened by economic crisis due to fragmentation and turmoil.

North Africa continues to face the highest youth unemployment figures in the world, leaving 27 percent jobless.

The region also remains the globe’s most economically fragmented in terms of trade and production, despite its central geographic location. As much of North Africa continues to endure the struggle of political reform, Tunisia and Egypt continue their effort to establish stability. “After a revolution, history shows it can go one of two ways. It can move in the direction you are now headed, building a strong, democratic country, or it can derail ... into autocracy, into new absolutism,” Secretary of State Hillary Clinton said in a meeting with Tunisian President Moncef Marzouki. “The political side of the revolution is going quite well,” she continued, “I am a very strong champion for Tunisian democracy and what has been accomplished here... The challenge is how to ensure the economic development of Tunisia matches the political development.”

There are no landlocked countries in North Africa; thousands of miles of coastline separate Morocco and Egypt, and the region is in close proximity to Europe. Nonetheless, each Arab country remains a singular, isolated economic unit. The lack of trade between these countries can be ascribed to the severe restriction of the movement of goods and labor, centralized control and arbitrary regulations, as well as the subsequent trade friction spurred by these barriers. Instead of utilizing coastal access and nearby major trading routes to better their markets, governments maintain their isolation.

The recent political turmoil is a threat to foreign investors and potential tourists alike. A Tunisian analyst cited 19

The Bowdoin Globalist

Photo courtesy of Reuters 120 foreign firms that had closed down, destroying 40,000 jobs, in addition to a plethora of failed hotels due to a lack of tourism. Similarly, in Egypt, workers are leaving the empty tourist hotels along the Nile to seek menial work in Cairo. The Economist cites a drop in overall foreign direct investment by nearly 25 percent. Moreover, the postrevolutionary environments suffer from a lack of stable governance and a stigma remains attached to the businesses connected to the previous ruling class.

Regional economic integration has proven to be economically desirable but unsuccessful due to political instability.

Al-Jazeera, an Arabic-language news network, argues for the effectiveness of “soft borders and thick markets,” meaning strengthening regional economic ties by lowering protective tariffs and increasing foreign access to goods.

“I come with a very specific and committed statement of support about the political and economic reforms that are

occurring here,” Clinton said of her visit to Tunisia. The economic prospects of Tunisia and Egypt are hopeful.

For example, Italy’s Eni, an energy giant, has promised a $600 million investment in Tunisian healthcare, which may attract international medical tourists.

Amidst the continued instability, Tunisia still has better medical resources than the rest of North Africa, an impending $600 million investment, and a well-educated workforce. Political reforms may have been implemented, but the progress toward economic stability continues. Revolutionary leaders must unite to utilize their strengths, resources and geographic advantage to overcome this crisis.

Bridget O’Carroll ’13 is a Government and Legal Studies and Romance Languages double major.

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The logic of fear Over the last year popular protests and revolutions have unexpectedly erupted throughout the Arab world. This phenomenon has been praised as a shift from authoritarian and oppressive regimes toward more liberal and democratic government. Despite the laudatory attention, the transformations anticipated in Egypt, Tunisia and Libya are still unrealized; the outcome of the “Arab Spring” remains inconclusive.

What the Syrian revolution in particular demonstrates, is that democracy is not necessarily the only measure of success for the Arab revolutions. The events in Syria thus far poignantly illustrate a subtle and perhaps more existential triumph: freedom from a cycle of fear that has long dominated the Middle Eastern political landscape.

When the Syrian uprisings began a year ago, no one thought they would last.

It was assumed that the Assad regime would once again forcefully implement its historically severe mechanisms for

squashing popular revolts and the protests would not continue beyond a couple weeks. But Syria’s protesters have proven unshakable and the country continues to be on the fringe of imminent change.

Syria’s Political Map President Bashar al-Assad denies that these revolutions have credibility. “Nobody else outside Syria is part of our political map,” he said almost a year after the rebellions began. President Assad is, of course, sorely mistaken. In a region where territorial boundaries were created by the pen marks of European officers, and sectarian divisions often elicit greater loyalty than territorial ones, no Middle Eastern country can claim exclusive right to its own political map.

The true significance of this statement lies in Assad’s assertion of control and possession of Syria’s political map; no outsider can be part of this map because Assad created it. For almost half a century, the Assad regime has been in

Photo courtesy of Reuters power (passed down from father to son) and this attitude of ownership over Syria, its society, politics, and terrain, has characterized its leadership.

Until I planned my visit to Damascus in 2008, I had no idea who Bashar alAssad was. Before completely crossing the border from Jordan to Syria, however, I not only knew that Bashar al Assad was the president of Syria, I also knew that his father, Hafez al-Assad, had been president before him. The streets of Damascus are laden with images of father and son, symbols of the decades of Ba’ath Party rule in Syria. These images permeate every corner of the city; they are inside restaurants and shops, plastered onto dilapidated buildings, and looming overhead on billboards. Minhebak, they read in Arabic: “we love you.” Even more ominously, some say Sooria alAssad: “Assad’s Syria.”

In December, President Assad gave his first interview to Barbara Walters about the uprisings. Walters was quick to get to 20

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the point, asking about specific cases of torture carried out by government forces—a famous singer and a popular cartoonist, both critical of the regime, found dead and mutilated, and the murder of a teenager that catapulted the initially peaceful protests into violent rebellion.

As the accusatory tone in Walter’s voice swelled with each description, Assad maintained a ‘teflon-esque’ quality to his demeanor, unaffected by the emotionally charged content of her questions.

As the interview continued, it became clear that Assad was not what one would expect of a typical dictator—he softly answered Walters’ questions, constantly deferring to the authority of the Syrian people, the Syrian constitution and the larger overarching principles of political legitimacy and state sovereignty. As Walters probed him—“but I saw pictures… video clips…foreign reporters said…”— he simply tilted his head, confused, and asked, “but how do you know for sure?

You haven’t been in Syria…what you against the Assad regime and launched speak of, it’s a reality distortion…I’m just attacks against the homes of government authorities and Ba’ath party officials. being frank with you.”

Assad’s demeanor is simultaneously In response, Hafiz al-Assad dispatched humorous and chilling; he does not pos- the mukhabrat (special forces) to crush sess the sternness of Mubarak, the mani- the Brotherhood; for more than 27 days Hama was bombed cal edge of Gaddafi, from land and air, or even the cunning of his father. But Given Syria’s close association resulting in the deaths of 10-20,000 his playful offhandwith Iran and Hezbollah, the civilians. edness about Syria’s precarious and messy afterThe precedent current situation remath of intervention could set forth in Hama veals an underlying fuel anti-Western sentiment outlines the frametension in Assad’s work in which Syria today. Despite Bashar al-Assad obvious changes in his country’s political landscape, Assad continues to rule: when challenges to the renders a distorted reality of his own. He regime arise, they are crushed by quick believes that by reusing the same mecha- and decisive brute force. Fearful that nism of survival as his father—physical challenges to the regime’s legitimacy will violence—he can reassert his ownership weaken its power, the government has no tolerance for opposition. Wary of the reof this ancient land. gime’s history, Syrians have learned not to question its authority. In Assad’s Syria, Logic of Fear It was February 1982 when the House the country’s political map is defined by of Assad began its notorious crackdown the logic of fear.

In many ways, Assad’s Syria is Thomin Hama, a town north of Damascus. as Hobbes’ Leviathan gone awry. Hobbes Throughout 1981, the Muslim Brotherunderstood political stability as the only hood had begun to challenge the government’s authority; it called for a revolt means of protecting human life from the 21

The Bowdoin Globalist

Photo courtesy of Reuters heinous violence of chaos and civil war.

In order to achieve this stability, citizens delegated absolute power to the sovereign. In the extreme case that the sovereign were to abuse this power, Hobbes maintained that the stability afforded by such an austere state was preferable to the state of nature in which life was “nasty, brutish and short.”

Like protesters in Egypt, Tunisia, and Libya before them, large numbers of Syrians are defying Hobbes’ belief in the primacy of stability; they have elected to forgo the status quo and are risking the nasty, brutish, and short life in the state of war. Herein lies the paradox of Assad’s dwindling presidential longevity: though he is willing to use extreme and violent to secure his regime’s survival, this unfettered force is growing less and less effective.

The endurance of the protests in spite of violent crackdowns shows that the Syrians cease to be afraid; stability is not enough to legitimize a political leadership that denies its citizens basic political freedom.

By virtue of the ongoing revolution, Syria no longer belongs to the Assad regime.

May 2012

International Diplomacy Although the existential barrier of fear has been permeated, the reality of Assad’s violence against civilians cannot be ignored. Economic sanctions and political pressure have failed to have an impact and military intervention continues to be at the forefront of the global debate.

The regime has shown few signs of weakening and continues to use violence and extrajudicial killings to intimidate civilians and exacerbate sectarian tension.

Continuing hostilities in Idlib, Homs, and Daraa pose a challenge to the international community: how long should Assad’s regime be allowed to use violence as a survival mechanism? Can these grassroots revolts survive without international support?

In an opinion piece for the Washington Post, Richard Cohen argues in favor of American lead intervention, which he believes could militarily overpower the Assad’s forces. “It can be defeated, maybe easily,” he says of the regime.

That being said, Western-led intervention could have a negative impact.

Given Syria’s close association with Iran and Hezbollah, the precarious and messy aftermath of intervention, could in fact, fuel anti-Western sentiment. Furthermore, though various rebel groups and resistance locations can be clearly identified, the resistance as a whole lacks a unified front. The international community, therefore, lacks a decisive partner in the Syrian opposition forces.

Kofi Annan’s recent appointment as the UN and Arab League’s envoy to Syria marks a strategic shift toward diplomatic mediation. While the implementation of the ceasefire, with the arrival of 300 U.N. observers, has not brought an end to the violence, there is a glimmer of hope on the orizon.

Arguably, what is happening in Syria not only marks a domestic transformation but also a shift in the international community’s approach to dealing with Arab regimes. Throughout the Arab revolutions, the templates of international involvement set forth have been military intervention, such as the NATO lead intervention in Libya, unilateral demands

Politics

for the regime to step down, as occurred with Mubarak in Egypt, and finally the ‘leave it to the neighbors’ approach which happened in Bahrain.

Though less forceful than the oftenproposed military intervention, Annan’s plan signifies an important first step in resolving the Syrian conflict.

Syria After Assad Cohen, perhaps, is correct; through the use of force the Assad regime could be taken down easily. But the shift to diplomacy, exemplified through Annan’s appointment, demonstrates recognition that the uprisings in Syria are not isolated incidents; they are part of a larger process of revolution that is changing the Arab world. Turning to the examples of Syria’s predecessors in Egypt, Tunisia, and Libya, it is apparent that physically overthrowing the regime is only the easiest step.

As long as Assad maintains power the rebellion has an explicit enemy. The opposition may not be unified in itself, but the various groups share a common enemy. In this vein, Assad frequently casts himself as the only thing standing between political stability and the bloodbath of civil war. With the fall of the regime, there is the distinct possibility of the Syrian people retracting to smaller sectarian groups. Without a unifying enemy, the risk of sub-state associations fighting to occupy the power vacuum created by the regime’s fall increases.

This post regime challenge is an underlying commonality in all the countries of the Arab revolutions. Currently, the new governments in Libya, Egypt, and Tunisia are grappling with the difficulty of moving from social upheaval to rebuilding stable political institutions.

In these cases the transition from popular social uprisings to legitimate political institutionalization places significant constraints on the original goals of a popular movement. A new Syrian government would have the grueling task of balancing popular aspirations within the confines of political activity.

Syria’s geo-strategic location and close ties to anti-Western powers make it a

more volatile situation that its predecessors, but Annan’s diplomatic mediation preceding the fall of the regime could put Syria in the best position coming out of a revolution. The real potential of Annan’s plan for peace lies in the possibility of a consensus building mechanism that will outlive the fall of the regime and mitigate internal schisms throughout Syria’s political transformation.

In Egypt, the process of rebellion culminated in a sublime victory; demanding liberty and democracy, protestors engulfed Tahrir square and maintained a largely unified front until Mubarak’s iron grip on Egypt disintegrated. In Libya too, the ruthless execution of Gaddafi was a moment of national euphoria.

Syria is on the edge of a similar change.

Stability is not enough to legitimize a political leadership that denies its citizens basic political freedom

In these cases, citizens paid the ultimate price of bloodshed in order to destroy oppressive regimes. The real challenge of making this bloodshed meaningful, however, lies in implementing and institutionalizing lasting change. This battle is only fought after a regime’s collapse.

Imagining the political reality of Syria after the fall of the Assad regime renders an image that is as mercurial as the overall outcome of the Arab uprisings.

Having fought the existential battle to reclaim Syria from the Assad regime, it remains to be seen if Syrians can fight the battle of politics, which requires transcending the sectarian schisms that historically characterize Middle Eastern societies.

Isabel Nassief ’12 is a Government and Legal Studies major and Religion minor. She studied abroad in Lebanon in 2011.

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The Bowdoin Globalist

Politics

Venezuela faces the unknown Venezuelan leader Hugo Chávez is up for reelection in October, seeking his third sixyear term as president. In a country with a 30 percent poverty rate and one of the most murders per capita in the world, many Venezuelans desperately hope for a change in leadership. Antonella Chumaceiro, a mass communications student in Venezuela, is in “hardcore opposition” to Chávez. “Venezuela has changed a lot since he’s been here… there is absolutely no security,” she says. “In my opinion, he has a cake democracy where he shows he is a democratic leader. The real thing is that Venezuela is in the process of becoming the next Cuba. ” Yet in Venezuela, opposing Chávez is a luxury that is neither enjoyed by the poor who must support Chávez to receive benefits from his programs, nor by those employed by stateowned companies who fear losing their jobs.

He has a strong following and holds a lead in general election polls. However, Chávez’s recent cancer diagnosis has raised serious concerns about his health. Additionally, the centrist opposition party, Democratic Unity, is far stronger and more united now than ever before. Chávez is highly vulnerable both politically and physically, and a change in leadership is becoming increasingly likely.

Last June, Chávez was diagnosed with cancer. Following his diagnosis, he underwent surgery to remove a “baseball-sized tumor” near his pelvis and subsequently received four rounds of chemotherapy. He has kept many of the details private, including the type of cancer and its severity. He has also clearly exaggerated the state of his health and his speed of recovery to the public, declaring himself “cured” last October and claiming on Twitter that his recovery was so successful that he was “soaring like a condor.” Tests in February showed that the cancer had returned and Chávez returned to Cuba for another surgery. He is now undergoing radiation treatment.

Many Venezuelans are convinced that Chávez’s health is currently much worse 23

than he is revealing. They question whether he will survive another term or even make it to the election in October. “Chávez’s health will definitely affect the election in October,” says Clarissa Salas, a Venezuelan citizen who recently graduated from Bentley University but cannot return home because her country is too dangerous.

Typically a strong, charismatic leader, Chávez has always maintained an invincible aura. He now appears weak and vulnerable as a leader; his health not only affects his image, but also causes voters to doubt he will survive another six years in office. Furthermore, since Mr. Chávez will be recovering in the months leading up to the election, he will not have the stamina to campaign as fervently as he has in the past.

On the other hand, many are responding to Mr. Chávez’s failing health with sympathy, and his approval ratings increased when he was first diagnosed. In addition, on March 24, “Chávez followers in Venezuela had a walk and prayed for his recovery,” says Ms. Salas.

However, while Chavez’s health has garnered sympathy from supporters, it will ultimately hurt him politically.

The opposition was divided and could not defeat Mr. Chávez in the 2006 election, but has since united to form Democratic Unity (MUD). In February, MUD nominated Henrique Capriles to run against Mr. Chávez. Unlike the 2006 election, the nomi-

nation was decided by a primary election in which Mr. Capriles received over sixty percent of the vote. Mr. Capriles is a relatively young, center-right candidate who emphasizes eliminating special treatment based on political alignment. He seeks to

reverse much of the damage done by Mr. Chávez, particularly regarding poverty, extreme inflation rates, international trade, and social issues. According to Ms. Salas, “if the opposition wins they will have a lot of changes to start making starting with economic changes…they will also have to start

May 2012

implementing plans to stop the violence, and re-invest in hospitals and schools which Chávez hasn’t done since he took power in 1999.”

However, Mr. Chávez has several advantages, making it a challenging election for Mr. Capriles to win. Firstly, Chávez has secured the vote of the poor through social programs only provided to those who agree with his political ideology. In anticipation of the election, Mr. Chávez has increased his budget this year by 45 percent, using money from the state-owned oil company PD-

get from Chávez’s sickness is infiltrated by some sort of secret agents of Venezuelan news reporter Nelson Bocaranda. As you can imagine, it’s hard to know the sincere and precise reality of his condition.” The pro-Chávez-dominated mass media provides an influential outlet for propaganda, including a six-hour long weekly radio program called “Aló Presidente” featuring the president himself. Furthermore, Mr. Chávez uses a technique of inciting fear to gain politically. He has attempted to prevent Mr. Capriles from campaigning by warning him of a death plot, which may or may not have actually existed. He also requested a list of those who voted in the opposition election and was outraged that the party maintained voter anonymity. (A similar list was posted online in 2004, and many on the list lost jobs with the government or access to benefits from government programs.)

Moreover, the elections in October will be monitored

by Mr. Chávez’s military officials, and the defense ministers assert that the military will not let the opposition win. Clearly, the military is committed to maintaining Chavez’s power. If Capriles is able to win, many Venezuelans predict that the military will stage a coup against the new government and fear the resulting instability.

But as mentioned previously, Mr. Chávez may not even make it to the election. And if he does, it is Illustration by Nicole Fossi improbable that he will live VSA to support programs for Venezuela’s to the end of another six-year term. Should poor. Moreover, Mr. Chávez has a history Mr. Chávez die, his vice president would of skewing electoral results and campaign- assume office. Mr. Chávez has the authoring with corrupt tactics and financing, and ity to remove and appoint individuals to his supporters have control of the media. executive positions as he pleases, and he is According to Ms. Chumaceiro, much of the currently reordering his regime, most likely news is not reliable: “most of the news we to determine his successors and the power

Politics

structure in the case of his death. It is unlikely that this change in leadership would yield a smooth transition. Factions within Mr. Chávez’s regime are intensifying. Power struggles probably involving the military would certainly follow his death, and Venezuelans fear the possible extent and consequences of this governmental instability.

“If the Vice-President takes power, Venezuela will probably go into a chaotic situation, there will probably be riots and maybe even the army will intervene in the situation,” says Ms. Salas.

Mr. Chávez and his followers are adamantly opposed to the U.S. Almost incessantly, he strongly criticizes U.S. actions, leaders and ideology, and his speeches are filled with anti-American rhetoric. With Cuba and six other socialist Latin American countries, Chavez created the Bolivarian Alliance for the Americas, a trade alliance that explicitly opposes the U.S. He also has close ties with Mahmoud Ahmadinejad (the president of Iran), who visited Venezuela in January. Furthermore, Mr. Chávez is currently attempting to remove Venezuela from the jurisdiction of international trade regulation by ceasing adherence to the World Bank’s International Centre for the Settlement of Investment Disputes. Conversely, the U.S. and Venezuela have strong economic ties. Trade with the U.S. comprises a fourth of Venezuela’s imports and half of its exports. Venezuela is a major supplier of oil for the U.S., though the U.S. placed sanctions on the PDVSA in May 2011 for engaging in trade with Iran. Thus, although tensions currently exist between the Chávez administration and the U.S., a new Venezuelan president could prove highly beneficial to American interests.

Although it is impossible to determine the future of Venezuelan politics, one thing is clear: Venezuela is now undeniably closer to new leadership than it has been since Chávez took office 13 years ago.

Allison Beeman ’13 is a Government and Legal Studies major with a minor in Economics.

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