Tag Archives | EU

On India—Portugal relations

by Pranay Kotasthane (@pranaykotas)

Bárbara Reis, Editor-in-chief of the Portuguese magazine Publico asked me to comment on Portugal PM António Costa’s ongoing trip to India. Here are the questions and answers. [The full interview on the Public website is here]

Q: How would you describe India-Portugal bilateral relation, in particular compared with other European countries?

I’d put Portugal as the fourth most important country in Europe for India along with Netherlands. The first spot goes to Britain because of historical links and strong contemporary economic ties. Moreover, like other Asian members of the commonwealth, India too sees Europe through Britain. Germany and France are the other two European nations with which India has strategic partnerships. Then comes India’s partnerships with Netherlands and Portugal, both of which have substantially large Indian communities.

Q: Is Costa’s visit relevant for India? In what way? 

Costa’s visit is very significant for three reasons:

One, it comes at a time when India’s traditional connect in the European Union — Britain, is on its way out. Thus, India needs other partnerships to help navigate the complex mechanisms of the EU. As it stands, the EU is not looked upon as a credible strategic actor internationally. Apart from matters of trade and investment, emerging Asian countries like India prefer to interact directly with the member-states of the EU and vice-versa. This is where India-Portugal relations in general and this visit in particular become significant.

Two, India needs to partner with Portugal not just to access the EU, but also to link it with other Lusophone countries in Africa, Asia, and South America. Costa’s visit can give impetus to these partnerships as well.

Three, Costa will be visiting Gujarat, Goa, and Karnataka. It is not very common for the leader of another country to go out of the capital New Delhi. This visit can hence be utilised to establish links directly with these states, all three of which are amongst the economically better performing regions of India.

Q: PM António Costa’s father was an Indian from Goa. How does that fact play in Indian internal and external politics?

Not directly. But Mr Costa’s visit can be used to give impetus to Goa as a foreign policy actor, not only with respect to Portugal but also to other Lusophone nations. Traditionally, foreign policy has been seen to be the sole responsibility of the union government. But over the last decade, many states have started engaging with other countries directly, mostly for economic diplomacy. In this context, Goa is an important state because it is the richest state in India in per capita terms and also because a sizeable number of Goans reside outside India. Thus, riding on Costa’s Goan connections, the Goa—Portugal partnership can be made the first success story for this new paradigm of foreign policy in India.

Q: What could Portugal do to improve and strengthen the bilateral relation with India?

Portugal can help in three ways:

One, open up its doors to Indians for education. India has a shortage of world-class universities. Portugal can provide scholarships, especially in the social sciences stream.

Two, to establish stronger cultural links, Portugal can start short-term fellowship programmes for Indians on the lines of the US State department’s fellowships. This can involve not just Goa, but other Lusophone nations of the world.

Three, the Portuguese language in Goa has declined steadily over the years. It would help if Portugal could boost the Centro de Língua Portuguesa in Goa and tie-up with other schools and colleges for this purpose.

Q: Do you agree that Goa is being underestimated by both countries? Meaning, could Goa be the center of a new triangular type of diplomatic relations? Triangles like India-Mozambique-Portugal? Or India-Portugal and any of the other Portuguese speaking countries?

Definitely. The idea that states are important partners in India’s foreign policy is gaining ground now. States too see themselves as important players and are ready to engage other countries for establishing mutually beneficial economic relations. Many state departments now have NRI departments that interact with nations having large diasporas from their state. Goa can become the crucial link between India and all Lusophone nations. Goa should consider having a permanent trade representation in all Lusophone nations to accelerate the bidirectional flow of investments.

Also read: My colleague Anupam Manur’s article in Mint on the investment opportunities for India in Portugal.

Pranay Kotasthane is a Research Fellow at The Takshashila Institution. He is on twitter @pranaykotas

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Improving Greece’s Global Competitiveness

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EU’s directives on Energy and Environment put additional pressure on one of the most productive sectors of a weakened Greek economy.

By Ratish Srivastava (@socialia13)

Eight years since the Sub-Prime Mortgage crisis hit the world economy, Greece still seems to be on a downhill path. EU’s Directives on Energy and Environment are an encumbrance to one of its most productive sectors – refinery. Greece is losing its comparative advantage in the global economy, in turn hampering its ability to find a way out of trouble.

There are two major implications from this – one, the argument for the case of a Greece exit from the EU becomes stronger. Second, if Greece does have a choice to leave the EU then it will be choosing between long-term impact of its refinery sector on the environment or having more flexibility to improve the conditions of its citizens, at least through the refinery sector’s productivity.

The Greek economy has shrunk by a quarter in the past five years and unemployment is as high as 25%. Greece has received three bailouts from the IMF, the proceeds of which have been used to pay off their international debts. This crisis in the Greek economy and Europe’s debt crisis have combined to have a major impact on the refining sector in Greece.

A report by Foundation of Economic and Industrial Research in Greece, estimates that the refining sector has a strong impact on Greek economy. The research took into consideration the direct, indirect and induced effect of the sector on the overall economy. The report further estimated that the refining activity contributes € 3.8 billion and 40,000 jobs to the domestic economy, whereas its contribution to the tax and social security revenues is also significant. Another major contribution the refinery sector has is on reducing trade deficit, as the export of petroleum products amounted to 37.5% of all exports, most of which are going to non-EU countries who have the option to switch suppliers (86%).

In light of EU’s Directives on Energy and Environment, the refinery sector faces significant challenges as high financing and energy costs, lower margins, high cost of crude oil has reduced the competitiveness of Greek refineries in international markets. There is a dramatic shift in fundamental demand and supply trends of the world in refinery, as the refining capacity grew in Asia-Pacific (15%), West Asia (8%) and Russia (6%). The refineries in these economies have a high complexity index, implying that they can produce high value products in addition due to their size; they can achieve economies of scale.

The most complex refineries are able to produce petroleum products with high market value and process most types of crude oil, exploiting its price variations and availability. To achieve this complexity, significant investment needs to be made constantly. The refinery sector in Greece already invests in itself majorly, as the sector’s investment accounts for 26% of total investment in the manufacturing sector (€1.3 billion). This investment intensity comes as a surprise as Greece faces high rates on borrowing, making it expensive for them to borrow. However, this investment is seen as necessary to keep up with the international market for oil products in terms of increasing the complexity of the refinery.

The developing economies of Asia-Pacific, West Asia and Russia are export-oriented economies that are increasing the complexity of their refinery. With the domestic demand for oil products lesser than their capacity to produce them, with fewer compliance costs, lack of environmental regulations and low labour costs, these economies are able to price their goods competitively.

Greece will not be able to compete with these developing economies, due to additional costs imposed on them by the EU’s climate change policies. With the following directives in place – EU Emissions Trading System adopted in 2005 (EU ETS currently in its third phase 2013-2020), the Fuel Quality Directive in 2009 (FQD) and Industrial Emissions Directive (IED) in 2010, the refinery sector will not be able to compete in the international market and their products will face a competitive disadvantage compared to its rivals. These policies come at a time when the Greek economy needs more flexibility for the refinery sector to become competitive globally. However, the EU is hoping to achieve its ‘EU Energy Roadmap 2050’ which was launched in 2011 (which is, during the crisis period of Greece), as compliance with Best Available Technique (BAT) under IED is compulsory for an EU member state. BAT brings about high cost of emissions reduction for the refineries with little to no flexibility on meeting the emission targets. In a report by European Commission in 2014, the refining sector in EU has the highest energy cost worldwide with the cost for Greece the highest among EU member states.

The competitiveness of Greek refineries, which contributes significantly to the domestic economy, is not secured. Current legislations and policies of the EU create more problems and uncertainty for the refining sector in Greece as it is affected by a number of other exogenous factors (price fluctuation in crude oil prices, global economic crisis). The bailouts do not help Greek economy, as the money from them is not used to make necessary structural changes that the domestic economy requires. Yanis Varoufakis, the ex-Finance Minister of Greece resigned after his government accepted the third bailout package, maybe realising that the right steps towards a sound economic policy were not taken with the bailout.

One of the most productive sectors of the Greek economy faces uncertainty, reduced domestic demand, high costs, low margins and a comparative disadvantage in the international market. If Greece hopes to take the right steps to move towards a more stable economy, it needs its refinery sector to become more globally competitive. However, with strong pressure from the EU regarding its ‘Energy Roadmap 2050’, the chances for the Greece economy to improve its situation seem bleak as the potential of the refinery sector is being limited.

Ratish Srivastava (@socialia13) is a research intern at the Takshashila Institution

Featured image: Heiko Prigge/Monocle

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When Internationalism Fails

By Ramanjit (@patialablue)

While International bodies enable cooperation, sharing of resources and compatibility of laws, there exist inherent perils of bureaucracy without democracy. In the absence of transparent communication and channels of participation, international bodies might be seen as authoritarian.

Brexit is a stunning example of failure of a supra-state, the European Union. 28 diverse nation states constitute this confederation that facilitate a common currency, cross border mobility and free trade. The union’s constitution and parliament set a basis and framework for political cohesiveness. The EU was seen by many as a model of global integration. Jeremy Rifkin, author of The European Dream: How Europe’s Vision of the Future Is Quietly Eclipsing the American Dream, predicted EU to be a future world superpower.

Alas, the European Union is far from perfect. And it just got even further from it. An influential member, Britain recently voted decisively to exit the union. A referendum to leave Europe was won by those who voted to leave by 52% to 48% for stay. The referendum turnout was 71.8%. There could be more exits. France, the Netherlands, Italy, Austria, Finland, and Hungary might run the idea of holding referendums in the future to reconsider their membership in the Union.

The above challenges in the EU point to serious fault lines of international organizations. EU is almost perfect with its arrangement of institutions like the Parliament, the central bank and Court of Justice of the European Union. But starkly wanting is demos — the people. EU easily comes across as a super-nation without people of its own. While the structure of EU allow for extreme mobility across nations, this automatically does not bring people together. An Italian might still see a French as one his own. A European Union will not necessarily create conditions for a deeper “European” identity.

But an Italian might find himself among Polish or Greeks competing for his jobs or public goods. And it is not a hard guess that he might feel a sense of resentment. His resentment is an easy political capital for ultra nationalist political parties that build narrative against migrants and evoke fears that they will take over the country. The success of such a narrative was well demonstrated during Brexit.

A citizen has almost no influence over the international body that his country might be a member of. However, his life is impacted by the decisions taken by that international body. The EU model includes a European parliament, however the parliament does not have the right to frame legislations. The International body then appears as authoritarian.

Political mediation and communication are key to balance the bureaucratic isolation and autonomy of international institutions. A fine balance of fulfilling the demands of international institutions and aspirations of the home constituencies is not just desirable but pertinent. The argument is not against internationalism but for creating institutions that don’t derive their legitimacy merely from the consent of member nations but also through sturdy mechanics of accountability and transparency.

In conclusion, the answer to the fear of authoritarian Internationalism is not less internationalism. There is no one answer but it will be good to explore methods that allow citizens to participate in the organisations that exist for them.

Ramanjit is a Research analyst with the Takshashila Institution and tweets at @patialablue

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The aftermath of the Greek ‘No’ in referendum

By Anita van den Brandhof

The EU is failing to offer a strong answer to the Greek debt crisis, due to divergent interests between member states.

How did it all start?

When Greece joined the Euro in 2002, the economy and government structures were much weaker than other EU countries. This all changed when the Euro was introduced. Suddenly cheap loans became available, because the Euro offered more liability and lenders thought that the EU would repay the debts if Greece was unable to pay. Greece borrowed money on the international market and the economy grew fast. The borrowed money was not only used to support structural growth, but also for higher social benefits and the Athens Olympics.

The global financial crisis in 2008 hit hard on Greece. In 2009 the country admitted that the low deficit figures reported in 2002 were false. This ruined the Greek financial reputation: the deposits in Greek banks shrank and new loans from the international market became hard to obtain. In 2010 Greece had to accept the first bailout from the EU to prevent a complete bankruptcy. The loan of 110 billion euro came with a list of conditions that included reforms in the revenue collection system and significant budget cuts to bring down government spending. A second bailout of 109 billion euro was needed in 2011. The Greek government implemented most reforms and budget cuts, but it didn’t result in a healthier economy. The cuts in government spending increased unemployment, decreased consumer spending and also tax revenues went down. Since 2008, the economy has declined 25 percent and more than a quarter of the population became unemployed.

Grexit

The economic crisis resulted in a humanitarian crisis and political unrest. The Greek population is fed up with the conditions that came with the loans and are protesting against the European oppression. The leading leftish political party Syriza promised the Greek population that they will not accept new restriction from the EU. When the package deal for a new bail out scheme was finalized at the end of June 2015, Syriza decided to hold a referendum among its population. The majority of the Greek population voted against the new bailout program, to show their discontent to the EU. Without a new bailout, Greece would have to default. So what are the scenarios after the Greek rejection?

What could happen next?

In a sovereign country there are two methods to combat an economic crisis, but these measures are not available for Greece. Monetary measures, such as devaluing the Euro is not possible, are not supported because it will harm the stronger EU economies. Fiscal measures contain an increase in government spending, to bring about more investment. Greece cannot use fiscal measures, because the conditions of the loans stipulate that the Greek government has to cut its spending.

One way to get Greece out of the crisis is to waive the debts or postpone the payment, in order to give Greece space for investment and economic recovery. Waiving the debts would cost billions to the rest of the EU and is not popular among the stronger EU economies. In 2010 the Greek crisis was seen as a European crisis, because other Southern European countries also needed a bail out. However, the other countries have recovered and solidarity of the other EU members states towards Greece has evaporated. Especially the Dutch and Germans view Greece in terms of lazy, unreliable and incompetent. To raise public support in these countries for a new bailout plan is almost impossible.

A Greek exit of the Euro, “Grexit”, became a realistic possibility. Initially, the costs of introducing the old currency would be high, but it would give Greece the possibility to use monetary measures. The cost for the EU would be high as well, because it would hurt their reputation as a reliable financial partner and might cause a plunge in the stock market.

Most likely, the EU and Greece will come up with a temporary solution this week and postpone a Grexit. But the EU will not be able to find a sustainable solution for the crisis, due to its fragmented decision making procedures and divergent interests between the member states. It is possible that the EU will slightly increase the loans, to keep the Greek economy alive, but not enough to keep it from collapsing in the long run. In the long run a Grexit seems inevitable. Important for a Greek recovery after the Grexit is that it remains part of the single market economy of the EU, so that trade barriers are avoided and exports as well as tourism can be increased.

Anita van den Brandhof is a research scholar at Takshashila Institution.

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