An American President Meets the E.U.: Corrective Exigencies of a Debt Crisis

Political protocol can take some time to catch up to changed political realities. For over two hundred years, it has been assumed that U.S. presidents have met with their counterparts in E.U. states such as Britain, France, and Germany. During the European debt crisis, “in numerous private conversations and increasingly forceful public statements, [American] policy makers are urging their European counterparts to take big steps and move fast to reassure markets.”[1] It was undoubtedly assumed that the counterparts were at the state level in the E.U., rather than in E.U. governmental institutions. So how are we to situate Barak Obama’s meeting on November 27, 2011 with José Manuel Barroso, president of the European Commission; Herman Van Rompuy, president of the European Council; and Catherine Ashton, the European foreign policy chief? 

1. Anne Lowrey, "Obama Meets Leaders of the European Union," The New York Times, November 28, 2011. 

Monti and Papadernos in the E.U.: Leadership in Technical Expertise or Democratic Deficit?

“The moment of truth has come.”[1] This was said by the head of state of the E.U.’s third largest state, Italy, in a televised address just after Berlusconi had resigned as the prime minister. Although the statement could be interpreted as referring to the need to reign in the Italian profligate system of public-sector patronage (which includes private contractors), Giorgio Napolitano could also have been referring to the credibility of his state at the E.U. level. “We need to restore confidence with investors and European institutions,” he continued before turning to the more tangible point that the state would need to refinance nearly 200 billion euros in government bonds before May, 2012.[2]

The full essay is at "Essays on the E.U. Political Economy," available at Amazon.

1. Alessandra Galloni and Christopher Emsden, “Italy’s Monti to Form New Government,” The Wall Street Journal, November 14, 2011.
2. Stephen Castle and Liz Alderman, “Under a New Prime Minister, Italy’s Star May Rise at the European Union,” The New York Times, November 23, 2011.

The Descendants

In the 2011 film, The Descendants, George Clooney plays a character who must wrestle with several trade-offs bearing on character itself. Both the acting and the screenwriting handle the task very well. It is a pity that the actor gets a near monopoly of the credit/attention, for the way the trade-offs are navigated by the screenwriter is vitally important—perhaps even more so than the acting.

The full essay is at "The Descendants."

Carnage

I was drawn to the film Carnage by the actors—specifically, Christoph Waltz and Kate Winslet, though Jody Foster and John Riley can certainly hold their own as established actors, and in fact have been in Hollywood far longer than Waltz and Winslet. The primary message of the film seems to be that making up may be more natural than the adults think. This is perhaps why the conflict between the adults doesn’t really get resolved—there being no sense of resolution. This is particularly noticeable because of how dramatically the emotions escalated—particularly in Foster’s character but with Winslet’s coming in a close second. In other words, the acting firepower was perhaps too much, given the actual matter of conflict—the boys’ fight in a city park.

The full essay is at "Carnage."

The African Customs Unions and the E.U.: On Currencies

The East African Community (EAC) is Africa’s “most advanced regional trade bloc,” according to the Wall Street Journal in 2011.[1] The EAC was already a customs union that guaranteed the movement of goods and the right to work across Kenya, Uganda, Rwanda, Burundi and Tanzania. The parliaments were working at the time on synchronizing immigration and tariff laws. “We want to develop this corridor vigorously and collectively,” Mugo Kibati, director of a Kenyan government program, said.[2] But the EAC and other trading blocs in Africa, such as the Southern African Development Community, were “backing away from one prominent aspect of Europe’s economic union: a common currency.”[3] Aside from any vague similarities that the fiscal differences between Greece and Germany may have to those between Zimbabwe and South Africa, the currency question itself is out of place for a NAFTA-like trade agreement.

The full essay is at "Essays on the E.U. Political Economy," available at Amazon.

1. Patrick McGroarty, “Africa’s Goal: EuropeWithout the Currency,” The Wall Street Journal, November 21, 2011.
2. Ibid.

3. Ibid.

On the Role of the European Central Bank in Ending the Debt Contagion

“That the [ECB was being] forced [in 2011] to step into the power vacuum left by a fractious political class underscores the increasing centrifugal forces unleashed by the debt crisis.”[1] Yet that pressure was being applied to the central bank to issue Eurobonds and buy more state government bonds in spite of the objections of German officials suggests that there were also centripetal forces acting on the center at the expense of the state capitals, even Berlin. It is important to view the E.U.’s “management” of its debt crisis through the prism of the history of European integration since the Shuman Plan in 1951, which called for ever closer union so as to obviate war and give Europe a stronger economic and diplomatic power in the world. The history of the European project can be characterized as a series of fits and starts, punctuated by momentary crises—each proffering potential ruin to the union itself. For example, France’s veto of Britain’s accession as a state must surely have struck some people as portending the end of the EC—the forerunner to the E.U. Yet from the vantage point of 2011, the conduct of the accession seems a mere hiccup on a much longer road of hills and valleys. Regarding the extent of integration by 2011 (e.g., monetary union), the question is whether European efforts to come to grips with the contagion of over-burdened state debt signify merely another valley, or an inherent contradiction or fault-line in the E.U. itself. Whatever the answer, the outcome will no doubt come about incrementally, as one might expect from E.U. history.

The full essay is at "Essays on the E.U. Political Economy," available at Amazon.

1, Brian Blackstone and Matthew Karnitschnig, “Crisis Ensnares Central Bank in Desperate Bid to Save Euro,” The Wall Street Journal, November 18, 2011.

On the E.U. Debt Crisis: Lessons from the Early U.S.

In the March 2, 2010 issue of The New York Times, Roger Cohen illustrates how useful EU-US comparisons can be.[1] He is careful to compare the E.U. of his time not to the contemporaneous U.S., but, rather, to it a few decades into its founding. In other words, he corrects for the impact of time on political development. This is not to say that the E.U. in 2010 was akin to the U.S. under its Articles of Confederation. The Articles treaty evinced far less integration politically and economically. For example, whereas the Articles sported only a common council of delegates from the states, the E.U. in 2010 had a presidency (the European Council, whose president was Van Rompuy), an executive branch (the E.U. Commission, whose chief executive was Barroso), a bicameral legislature (the E.U. Council (of Ministers) and the E.U. Parliament), and a supreme court (the European Court of Justice, or ECJ). In fact, whereas under the Articles the American republics held governmental sovereignty, the ECJ held in 1963 and again in 1964 that E.U. law is supreme over state law and state constitutions. In short, whereas the Articles did not split the atom of governmental sovereignty, the E.U. in 2010 was a federal system of dual sovereignty. Like that of the U.S., the E.U.'s federal system is itself on the empire level; its republics being commensurate with the early modern kingdoms.

The complete essay is at Essays on Two Federal Empires, available at Amazon.

1. Roger Cohen, “Greece, Europe and Alexander Hamilton,” The New York Times, March 1, 2010. 

Europe's Political Elite Takes on Popular Sovereignty in Greece

As October 2011 was coming to an end, George Papandreou, prime minister of Greece, “stunned Europe by announcing a referendum” on the latest bailout from the E.U. and set the vote for January 2012. Shocked E.U. leaders were doubtless shaking their heads with a mix of incredulity and frustration, as they had not even been consulted on the prime minister’s proposal. Meanwhile, the yields on Italy’s bonds continued to increase, as did the spread between German and Greek 10-year bonds. The world was left to whether the Greek voters would reject their government’s austerity plans and, relatedly, whether the E.U. would augment its bailout of the state as per the agreement reached only days before the prime minister’s announcement.

The full essay is at "Essays on the E.U. Political Economy," available at Amazon.

Greece & Italy: Undercutting Market Confidence in the E.U.

As a federal system, the E.U. can be expected to contain a certain amount of economic disparity. The state bond yields in October 2011, for example, were—one could say—“diversified.” Investors relishing high risk-return could partake in Greek bonds while retired investors could safely stick to the German variety. A healthy federal system proffers something for nearly every taste, while constraining the outliers for the sake of unity. It does not require uniformity. However, too much diversity can cause a federal system to come apart due to divergent pressures seeking more expression. Also, if the high-risk “end” is sufficiently risky, the ensuing atmosphere of uncertainty can undo the federation’s financial system. Uncertainty, like anxiety, can subtly eat away at a system to the point that it cannot pull itself out of its funk.

The full essay is at "Essays on the E.U. Political Economy," available at Amazon.

Greco-Roman Achilles’ Heel: Democracy or Leadership?

In assessing the abilities of the E.U. states of Greece and Italy to manage their respective debt-loads as expected by E.U. leaders, the impacts from the governance systems can be distinguished from the impact from compromised or failed leadership. In general terms, a forceful, visionary leader can leverage an existing governance system to “produce.” However, it is also true that a faulty system can make transformational leadership difficult if not nearly impossible.


The full essay is at "Essays on the E.U. Political Economy," available at Amazon.

GlaxoSmithKline: Born Again Ethically?

GlaxoSmithKline, a drug company based in the E.U., agreed in 2011 to pay $3 billion to settle the U.S. Government’s civil and criminal investigations into the company’s Medicaid pricing practices and sales practices, including illegal marketing of Avandia, the diabetes drug linked to coronary problems. The settlement amount surpassed the previous record of $2.3 billion paid by Pfizer in 2009. Even so, it is doubtful that $3 billion proffered enough of a punch to motivate either Glaxo’s board or CEO to do what would be necessary to extirpate a corporate culture perhaps too comfortable with cutting corners.

The full essay is in the Introduction of Cases of Unethical Business: A Malignant Mentality of Mendacity, available in print and as an ebook at Amazon.

A Fifty-Percent Write-Down: Discounting Debt Insurance?

In “Europe’s Rescue Plan,” The Economist (October 29, 2011) opines on the “fixes” that had been announced just days before by E.U. leaders on the public debt crisis. I find three points of note that are particularly worth elaboration. 

The full essay is at "Essays on the E.U. Political Economy," available at Amazon.

Britain at a Crossroads?

The prime minister of the state of Britain faced a “rebellion” in his own party on October 24, 2011 as eighty conservatives backed a nonbinding referendum on whether the state should secede from the union. “I don’t vote against the government lightly, but I think when there is a matter of principle then that must come first,” Nick de Bois said. “We have a considerably changing dynamic [in the E.U.] and given that . . . and the fact that anybody under 54 has not had a chance to vote on [whether Britain should secede from the E.U.], it is appropriate to set in motion that opportunity,” he said.[1] De Bois’ sentiment mirrors that of Thomas Jefferson, who argued that each generation should have the opportunity to affirm or cancel the social contract of the generation before.

The full essay is at "Essays on the E.U. Political Economy," available at Amazon.

1. Alistair MacDonald, “Tories Split on Role in Europe,” The Wall Street Journal, October 25, 2011.

Hedge Fund Lobby: Breaching Ethics

In a rule adopted by the SEC on October 26, 2011, hedge funds over a certain size must report information—the amounts required depending on the fund’s size. The devil, as it were, is in the details. In this case, they reflect the intense lobbying of hedge funds and their advocates. As a result of the lobbying, according to The New York Times, the “changes call for only the largest funds to report the most detailed information, eliminate any penalty of perjury for misleading reports and delay for six months the initial reports for all but the largest funds.”[1] Whereas the matter of the amount (and type) of information required involves or potentially puts at risk the funds’ secret strategic competitive advantages and the matter of a start date involves technical points such as how much effort is needed to cull the required information, the elimination of any penalty for perjury does not correspond to any legitimate business concern. Indeed, it makes on sense to require information if it can be misleading with impunity. It is as if the SEC regulators had told the hedge funds, You will have to submit information to us but it can be misleading. The fund managers would be apt to reply, Oh, ok.


The full essay is in Cases of Unethical Business, available in print and as an ebook at Amazon.com.  

1. Edward Wyatt, “Rule Allows Regulators a Look at Hedge Funds,” The New York Times, October 27, 2011.

Deloitte: A Culture of Least Resistance

On October 17, 2011, the Public Company Accounting Oversight Board issued a statement saying audits should protect investors. “The board therefore takes very seriously the importance of firms making sufficient progress on quality control issues identified in an inspection report in the 12 months following the report,” the statement said. Not having seen such progress at Deloitte, the board made its 2008 report on the firm public. The report “cited problems in 27 of the 61 Deloitte audits it reviewed, including three where the issuing company was forced to restate its financial statements.” This was “an unprecedented rebuke to a major accounting firm. In too many instances,” the report stated, inspectors from the board “observed that the engagements team’s support for significant areas of the audit consisted of management’s views or the results of inquiries of management.” In some cases, “Deloitte auditors did not bother to even consider whether accounting decisions made by companies were consistent with accounting rules. Instead, auditors accepted management assertions that the accounting was proper, the board’s report said.”[1] As a very young auditor at that firm, I was told to do just that.  

The full essay is at "Deloitte: A Culture of Least Resistance" in Institutional Conflicts of Interest, which is available at Amazon.

1. I took the quotes for this paragraph from: Floyd Norris, “Accounting Board Criticizes Deloitte’s AuditingSystem,” The New York Times, October 17, 2011;  and Floyd Norris, “Audit Flaws Revealed, AtLong Last,” The New York Times, October 21, 2011