The Crisis of another World: Eurozone

No one has thought that the rising eurozone will ever face a financial dogmatism. European Union, once considered as a potential rival to the US, the world’s largest economy, is today increasingly losing its stance and is suffering a clear leadership failure. Both financial pundits and diplomatic psychoanalysts are describing the EU as ‘no-hoper zone’ with no consistency on its future role. Today the analysts are finding a bit difficulty to analyze the ‘herd behavior’ of the EU and are questioning about the stability of its single currency. Eurozone needs a strong leader who will stabilize its economy and restore its rising growth. Due to increasing fragile of financial credibility and political destabilization in some of its member states, the EU is today suffering the hypersensitivity of its position, dignity and power to its rivals. Greece, with foreign debt 200% of its GDP and an average debt of 38,073 euro per person, is heavily indebted to eurozone countries and the biggest fear is the factor of ‘contagion’ that its financial catastrophe could have a similar effect to other member countries. Spain with 41,366 foreign debts per person with a 67% govt. debt to GDP is increasing pressurizing not only on EU but also the global economy. Italy, the third largest economy in the EU and the seventh largest in the world in terms of nominal GDP, is a country of concern today. The recent leadership changes from the most controversial leader Berlusconi to a technocratic leader Monti, Italy is expecting an immediate solution to its economic imbalance and the rising unemployment issues which is continuously decreasing the consumer demand and is a big concerned to the EU leaders.

 

The heyday of the EU is significantly unimportant today as the huge financial damages the union is suffering has become a serious burden. Though its leaders are profoundly focusing on grand strategy to pitch a sustainable solution to the collateral damages, even Paris and Berlin could not reach in a conclusion how to tackle this biggest financial cost ever since its unification. The issue of containment has become a huge debate among the EU leaders as the eurozone is enormously failed to make a mark on its diplomatic policies. So, the financial price of diplomatic disintegrity has triggered its economy down and member countries are trying to calculate the cost of the relationship damage which analysts describe ‘very unsystematic’. Though the United States is preparing for a painful adjustment to shape the economy, but the question of recent bond crisis and longstanding instability of sovereign debts of some of the member countries are constantly a matter of ambiguity. The financial irregularity and the fiscal irresponsibility are factors of growing concern today and the PIGS (Portugal, Italy, Greece and Spain) countries have recently revaluated the price of risk. Mr. Monti’s “rigorous consolidation” of its public finance may not yield an immediate result and Ms. Merkel’s ‘can do speech’  “we will do everything to defend the euro” does not tell how to do it.

 

As diplomatic issues are concerned, the litany of diplomatic failures in Europe should be analyzed carefully and the financial impact must be conceptualized.  The political storm in the Arab spring and diplomatic pressure in the Middle East are growing concern today for the whole world, and Washington, Berlin, and Jerusalem are trying hard to make a move.  Tehran’s tremendous move and increasing power could be a difficult task for the NATO and Europe and should well be prepared for the price of the consequence. The recent Palestine bid at the UN is still questioning about the peaceful solution. So, the authorities should calculate the cost of both diplomatic damage and financial mishandled before they face another critical crisis which could have unintended consequences.

 

N.B.: Foreign Debt per person and GDP and Foreign Debts,      Source: Bank for International Settlements, IMF, World Bank, UN Population Division http://www.bbc.co.uk/news/business-15748696

Social Capital

Social Capital has become an engaging factor and we all are serious to build up social capital. Many people are wondering about this unique scientific term. Social capital does not have a clear, undisputed meaning, for substantive and ideological reasons (Dolfsma and Dannreuther 2003; Foley and Edwards 1997).

Man is by nature a social animal; an individual who is unsocial naturally and not accidentally is either beneath our notice or more than human. Society is something that precedes the individual. Anyone who either cannot lead the common life or is so self-sufficient as not to need to, and therefore does not partake of society, is either a beast or a god. ( Greek Philosopher Aristotle  384 – 322 BC)

Social capital is about the value of social networks, bonding similar people and bridging between diverse people, with norms of reciprocity (Dekker and Uslaner 2001; Uslaner 2001).

Social capital means a network of relationships between individuals and various entities. John Field’s (2003: 1-2) social capital theory emphasizes on ‘relationships matter’. Dekker and Uslaner (2001) wrote that social capital is fundamentally about how people interact with each other. So, how can we define the term social capital? The World Bank defines:

‘Social capital refers to the institutions, relationships, and norms that shape the quality and quantity of a society’s social interactions… Social capital is not just the sum of the institutions which underpin a society – it is the glue that holds them together’ (The World Bank 1999).

According to Robet Putman, the social capital guru:

Whereas physical capital refers to physical objects and human capital refers to the properties of individuals, social capital refers to connections among individuals – social networks and the norms of reciprocity and trustworthiness that arise from them. In that sense social capital is closely related to what some have called “civic virtue.” The difference is that “social capital” calls attention to the fact that civic virtue is most powerful when embedded in a sense network of reciprocal social relations. A society of many virtuous but isolated individuals is not necessarily rich in social capital’ (Putnam 2000: 19).

So, Social capital is all about a relationship between individuals, entities and other social norms. It is very unique that it focuses on trusting relationship that add values, opportunities and possibilities which helps in promoting a quality life. It depicts about cultivating cultures, engagement, equality, trust, tolerance and solidarity.

Social capital is, in my view, an engaging experience of relationship of networks. It is all about how we are related to each other. We are considering three important factors – individual interest, shared interest and common interest. So, when these three interests mutually are engaged that provide an incentive in building social capital. With good quality of social capital, we can better deal with a ‘wasted opportunity’. The quality of our existence comes from the quality of social capital.

Social capital provides incentives to globalization, knowledge spillover, community development and human progress. When a society is unable to meet growth, it means, it is facing a huge deficit of social capital. Today’s non-profit organizations are undoubtedly helping the society creating social capital but the government and international bodies should provide appropriate platform to build social capital in order to face the future challenges.

Is Obama shaping Geopolitics?

The large majority of Americans are thinking today Obama is no different than other US presidents.  The mid election result pushed Mr. Obama to do some changes both in his policies and international activities. It’s clear that Obama’s mere rhetoric no longer works to galvanize Americans to support for a second term. He is bargaining hard with his oval office position not only domestically but at international stage. Now, the question is – Is Obama working on to shape the Global Geopolitics?

The recent so expensive trip to India, which was criticized by many republicans, has shown a dramatic success as many analysts say it as a ‘Political Motivation’. Indeed, Obama’s more than 4,300 words long historic speech at Indian Parliament is one of  his best speech. Obama ‘s prolific speech has focused not only on India but also on Global Geopolitics.

On Pakistan: The President has heavily criticized Pakistan for not taking active action both on terrorism and Mumbai attackers. He explicitly said –

“We will continue to insist to Pakistan’s leaders that terrorist safe-havens within their borders are unacceptable, and that the terrorists behind the Mumbai attacks be brought to justice.”

Arguing that US will not meditate between the two conflicts nations, he made it clear that only people of two nations can resolve the Kashmir issue.

“We will continue to welcome dialogue between India and Pakistan, even as we recognize that disputes between your two countries can only be resolved by the people of your two countries.”

On India’s ambitious UNSC: Though analysts say it a mere political motivation, but, the body language of state politicians made it clear that Obama is their all time favorite leader.

“The just and sustainable international order that America seeks includes a United Nations that is efficient, effective, credible and legitimate. That is why I can say today—in the years ahead, I look forward to a reformed U.N. Security Council that includes India as a permanent member.”

On Afghanistan: Insisting on US Army deployment, Obama said to the world that they will work on Afghanistan as long as the country does not succeed in their own security.

. “We’re making progress in our mission to break the Taliban’s momentum and to train Afghan forces so they can take the lead for their security. And while I have made it clear that American forces will begin the transition to Afghan responsibility next summer, I have also made it clear that America’s commitment to the Afghan people will endure. The United States will not abandon the people of Afghanistan—or the region—to the violent extremists who threaten us all.”

On Burma’s Dictatorship and Human Rights: Obama has strongly criticized Burma’s dictatorship and persuaded India to take responsibility to act.

Every country will follow its own path.  No one nation has a monopoly on wisdom, and no nation should ever try to impose its values on another.  But when peaceful democratic movements are suppressed—as in Burma—then the democracies of the world cannot remain silent.  For it is unacceptable to gun down peaceful protesters and incarcerate political prisoners decade after decade.  It is unacceptable to hold the aspirations of an entire people hostage to the greed and paranoia of a bankrupt regime.  It is unacceptable to steal an election, as the regime in Burma has done again for all the world to see.

Faced with such gross violations of human rights, it is the responsibility of the international community—especially leaders like the United States and India—to condemn it.  If I can be frank, in international fora, India has often avoided these issues.  But speaking up for those who cannot do so for themselves is not interfering in the affairs of other countries.  It’s not violating the rights of sovereign nations.  It’s staying true to our democratic principles.  It’s giving meaning to the human rights that we say are universal.  And it sustains the progress that in Asia and around the world has helped turn dictatorships into democracies and ultimately increased our security in the world.

On Nuclear Weapons: Remembering his controversial Noble prize, Obama reiterated and gave importance on world without nuclear power.

Since I took office, the United States has reduced the role of nuclear weapons in our national security strategy, and agreed with Russia to reduce our arsenals.  We have put preventing nuclear proliferation and nuclear terrorism at the top of our nuclear agenda, and strengthened the cornerstone of the global non-proliferation regime—the Nuclear Non-Proliferation Treaty.

We can make it clear that even as every nation has the right to peaceful nuclear energy, every nation must also meet its international obligations—and that includes the Islamic Republic of Iran.  And together, we can pursue a vision that Indian leaders have espoused since independence—a world without nuclear weapons.


Free Trade: Mr. President has once again explained the importance of free trade and said, the US market is always open to the whole world. He further argued that the major economies should work together for our mutual growth and to re -balance the world economy and to strengthen the international financial system.

Together we can resist the protectionism that stifles growth and innovation. The united states remains – and will continue to main-one of the most open economies in the world. By opening markets and reducing barriers to foreign investment, India can realize its full economic potential as well.

Obama at G20 summit: Defending his country’s foreign policy, for pumping of $600bn into the economy to boost the recovery, obama said –

“In a prudent, stable way, we want to make sure that we are boosting growth rates at home as well as abroad. It is difficult to do that if we start seeing the huge imbalances redevelop that helped to contribute to the crisis that we just went through.”

Obama defined at G20 summit in Seoul that “Shared Interest” can only be a solution to re-balance the world economy. He said that the US alone could not restore balance growth and asked the major economies to do their part.

“When all nations do their part… we all benefit from higher growth.”

On International Trade: Mr. Obama explained that only production can lead the world into bankruptcy and insists on to increase the world consumptions.

“We all now recognize that the foundation for a strong and durable recovery will not materialize if American households stop saving and go back to spending based on borrowing.

“Yet, no one country can achieve our joint objective of a strong, sustainable, and balanced recovery on its own.

“Just as the United States must change, so too must those economies that have previously relied on exports to offset weaknesses in their down demand.”

On China’s Currency Devaluation: Obama implicitly pledged the G20 major economies to act on currency devaluation.

“that helped to contribute to the crisis that we just went through”.

“Exchange rates must reflect economic realities.”

“Emerging economies need to allow for currencies that are market-driven. This is something that I raised with President Hu of China and we will closely watch the appreciation of China’s currency.”

From the above, it is quite clear that Mr. Obama is working hard not to restore his image but also to restore the American dream. He once said during his presidential inauguration speech ““Well I do not accept second-place for the United States of America. As hard as it may be, as uncomfortable and contentious as the debates may be, it’s time to get serious about fixing the problems that are hampering our growth.”

His oval office is ready to act whether it is Iran or China or any European country and he made it clear that America is no way going to tolerate any monopoly on wisdom. But, It does not seem Obama can get success overn. He has to work and act continuously and we have to wait to see whether Obama will able to make a second term.

Picture Courtesy: http://www. thecurrent.theatlantic.com

Obama’s Soundbite Economics

WE all have seen politicians, in every election, promoting ‘soundbite economics’.  Recently, I saw Obama’s economic election campaign in social network website ‘Facebook’ and also in media. Many people are reckoning President Obama is no different than any previous president. Though he was elected prognosticating to bring a real change for the future, but it now seems all hopes and trusts of the American people has turned into ‘a lost opportunity’. Though his policy certainly averted a sprouted great depression, but the negative employment growth has considerably worried many. The U.S. economy, the world’s largest economy since 1870, historically, a stable overall GDP growth rate, a low unemployment rate and high levels of research and capital investment funded by both national and foreign investors because of its decreasing saving rates, is falling down and the U.S. stock exchange’s dramatic up down has certainly bewildered and confused not only the economists but also the policy makers. The recent stumbling over Gulf oil disaster has raised a question of the economic irregularity. Though 30% of the entire world’s millionaire populations reside in the United States and 40% of the world’s billionaires are American, and the U.S. having a holder of 60% of world reserve, still the Obama’s economic policy has insufficiently brought a clear change into the American economy.

The most talkative US health care reform, for which the government has spent 70% of its GDP, has been criticized by most of the American conservatives, as it costs more to the employers in hiring by mandating insurance coverage. Obama’s tax reform has also been subject of critics stating it‘ll make the liberals richer. Small medium enterprises (SMEs) will also be affected as the higher tax bracket discourages to hire more employees and so is the industrial expansion. The overall economic position of the U.S. is unsound. The combined debt of households, businesses and government constituted $50.7 trillions, representing more than 3.5 times of its GDP. The unchecked import growth of energy is making the US more reliant on foreign oils. Though U.S. manufacturing sector remains the world’s largest consisting 19% of the world’s, but it has created largest unemployment during this short recession – one unemployment in every six factory jobs.  The trade deficits has come down to $ 240bn (2.9% of GDP) in 2009 compared to $700bn (4.9% of GDP) in 2008 due to recession. Unemployment has increased to 15mn and another 11mn labor force work involuntarily part-time or had dropped out of labor force as per the Economic Policy Institute (EPI).

The Democrats complain that Obama is getting a bad rap in the media. Obama’s job is still unappreciated. Many critics said his inconstant confidence has brought the economy down. Though he is talking about job creation, recovery and reform, but his uncertainty argument and dualistic approach has waged a bit more to the US economy. As a great orator, in his magnificent illustrative words, “To every American who’s looking for work, I promise you we’re going to keep on doing everything we can. I’ll do everything in my power to help our economy create jobs and opportunities for all people.”  It’s clear that Obama is making every effort to influence the Democratic race. His recent proposal of stop outsourcing might discourage the US companies but it‘ll incur more costs because of the cost effectiveness. To save some tax break, the US companies have to spend more money on hiring labor force compare to the low cost labor intensive county like India.

The vast and complex US economy, which affects the whole world economy, though it is very tough task to manage, having a long term budget deficits and a bit hard to focus on present recovery to bring into a more stable level, but it should not be stay on political choices and benefits.

Picture courtesy: sultanknish.blogspot.com

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