Spotlight Durban: New talks launched at Durban

Martin Khor

United Nations Climate Change Conference in Durban ended on Sunday morning with the launch of negotiations for a new global climate deal to be completed in 2015.

The new deal aims to ensure “the highest possible mitigation efforts by all Parties”, meaning that the countries should undertake deep Greenhouse Gas emissions cuts, or lower the growth rates of their emissions.

It will take the form of either “a protocol, another legal instrument or an agreed outcome with legal force”.

In a night of high drama, the European Union tried to pressurize India and China to agree to commit to a legally binding treaty such as a protocol, and to agree to cancel the term “legal outcome” from the list of three possible results, as they said this was too weak an option.

Read the rest of this entry »

The EU Fiscal Compact

Philip Arestis and Malcolm Sawyer, guest bloggers

The European Leaders agreed in principle at their meeting in Brussels on the 8th/9th of December 2011 to adopt tougher sanctions on the euro area countries that break the ‘new’ rules of what used to be the Stability and Growth Pact (SGP), what is now called the ‘fiscal compact’ (FC). The FC requires that tax and spending plans be checked by European officials before national governments intervene. There will be automatic actions against those countries that are deemed to have budget deficits that are too large. In effect the new agreement tightens the rules of the old SGP, but with no apparent improvement, as the FC retains the principles of the previous SGP but with the one addition that breaking the deficit rules may actually be punished in some way.

The limits of the fiscal compact (as in the SGP) are in effect to balance overall budget over the cycle and limit the national budget deficit in any year to a maximum of 3 per cent of GDP. Under the fiscal compact the 3 per cent limit is retained, and the balanced overall budget is formulated as ‘structural budget’ to not exceed 0.5 per cent of GDP, and this is to be written into national constitutions or equivalent. In place of the previous threat of a 0.2 per cent of GDP ‘fine’ for exceeding the 3 per cent limit (though never implemented even though there were 40 cases where the 3 per cent limit was breached), there will be automatic consequences, including possible sanctions, unless a qualified majority of euro area countries is opposed.

It is readily apparent that the ’fiscal compact’ does nothing to address the perceived problems of national governments with large budget deficits, which cannot be funded through capital markets, except insofar as it somehow changes the European Central Bank’s attitudes to directly or indirectly funding those deficits. More seriously it does nothing to address the major problem of the Economic and Monetary Union, namely the large current account imbalances – ranging from a surplus of 7 per cent in the case of Germany to deficit of 10 per cent in the case of Greece (figures for 2010).

Read the rest of this entry »

Why Only Germany Can Fix the Euro

Mark Blyth and Matthias Matthijs

“Never did a ship founder with a captain and a crew more ignorant of the reasons for its misfortune or more impotent to do anything about it.” This was Eric Hobsbawm’s damning judgment of the policy elite’s response to the Great Depression. As these leaders reached for the old truisms of balancing budgets, lowering tariffs, and restoring the gold standard, they merely worsened the crisis. The same judgment may soon be passed on Germany for its role in the ongoing European sovereign debt saga.

After watching the economies of Greece, Ireland, and Portugal founder, the world has now turned its attention to Italy, home to the world’s eighth-largest national economy and third-largest sovereign bond market. The diagnosis is sadly redolent: Europe should deflate its way to growth by sticking with a gold standard of sorts: the hard-money German-dominated euro. Meanwhile, under enormous international pressure, the Greeks replaced socialist Prime Minister George Papandreou with Lucas Papademos, a former official of the European Central Bank, and the Italians placed economist and former European Commissioner Mario Monti, hailed “super Mario,” in the stead of Silvio Berlusconi. Yet despite the EU’s coup d’état, the yield on ten year Italian debt went back above seven percent within twenty-four hours of Monti showing up for work.

Read the rest of this entry »

Spotlight Durban: The Fight at the Heart of the Durban Climate Talks

Martin Khor

Another in a Triple Crisis and Real Climate Economics Blog series on the Durban Climate Change Conference.

The UN Climate Conference is reaching its climax.  Perhaps the most important decision being made is on the future of the global climate regime, and whether it will be as fair as the present one, or less so.  And also whether what is decided is enough to tackle the worsening climate situation on the ground.

The hottest topic is the fate of the Kyoto Protocol.  Japan, Canada and Russia have announced they do not want to undertake a second period of commitment, when the first period expires in 2012.

The developing countries have been fighting for the protocol’s survival and vowed that Durban shall not be the protocol’s burial ground.  All developed countries except the United States had committed to reduce their emissions by a certain percentage under this protocol.

Read the rest of this entry »

Growth bonds a win-win for troubled eurozone

Stephany Griffith-Jones, Robert Akerlof and Marcus Miller

The eurozone is in serious trouble. Panic has grown as creditors search desperately for a safe haven, and corrosive contagion risks spreading unchecked. Rating agencies act pro-cyclically as usual, helping to deepen the crisis.

The outline of a deal by the 17 eurozone governments to be agreed this week is emerging. It would include fiscal commitments and a European Stability Mechanism; and the new agreement would not imply future debt reduction. This could be a basis for stopping the crisis.

Read the rest of this entry »

Multinational retail firms in India

Jayati Ghosh

The Indian government’s sudden decision to allow hitherto prohibited foreign direct investment in multi-brand retail as well as full ownership in single-brand retail generated huge public outcry, to the extent that the government was forced to pause. One important ally of the government, fearing for her own popularity in the state of West Bengal where she is currently Chief Minister, declared that the policy is temporarily “on hold”, to be greeted only awkward silence from the government. Finally the government was forced to announce that the policy is to be kept on hold until “consensus” is achieved, which certainly seems unlikely at present.

What this episode does show clearly is that this is a highly contentious and potentially very unpopular policy, and that politicians are now getting more aware of this. So despite the raucous support from corporatised media and more subtle but possibly more influential lobbying by big multinational business, this policy could not be easily forced down in the face of massive public outcry.

Read the rest of this entry »

Spotlight Durban: Climate stalemate in Durban: What can be done?

Frank Ackerman
Another in a Triple Crisis and Real Climate Economics Blog series on the Durban Climate Change Conference.

Stop me if you’ve heard this one before: the world is again conferring about what to do about climate change, and again deciding to do very little. If it wasn’t so serious, it would be funny. The satirical publication The Onion greeted the COP17 conference in Durban, South Africa by announcing the release of a new report showing that global warming may be irreversible if no action is taken to prevent it before 2006; in an example of fair and balanced reporting, they also interviewed a critic who put the point of no return as late as 2010.

The real debate in Durban seems less realistic than The Onion’s satire. Should the Kyoto Protocol, currently scheduled to expire next year, be extended or replaced by a better agreement to limit emissions? Will the promised $100 billion funding for climate adaptation – let alone the larger sums that will actually be needed – somehow materialize? Or should we just agree to keep talking?

While others are not blameless, the United States is the leader of the do-nothings, the country whose inaction ensures a global climate stalemate. As long as the world’s largest economy, with the largest cumulative emissions and the greatest resources to tackle the climate crisis, refuses to act, others are not likely to move forward on their own. Yet there is not a snowball’s chance in Texas that any significant climate policy will survive the current U.S. Congress.

Read the rest of this entry »

Spotlight Durban: Climate Action on Multiple Scales

Paul Baer, guest blogger
Another in a Triple Crisis and Real Climate Economics Blog series on the Durban Climate Change Conference.

From November 28th through December 9th, the world’s nations are meeting again to discuss solutions to the urgent threat of rising  greenhouse gas emissions, this time in Durban, South Africa. This meeting, the Seventeenth Conference of the Parties to the United Nations Framework Convention on Climate Change, has been much less widely anticipated than the meeting in Copenhagen, Denmark, two years ago. At that time, expectations were high, President Obama had just taken office, and for the first time ever literally dozens of heads of state were scheduled to attend a climate convention. Yet the result – a non-binding agreement called the “Copenhagen Accord” – was widely disappointing, and since then, the prospects for strengthening that agreement have only grown more remote. Indeed, even the continuation of the Kyoto Protocol (which the US did not ratify) is in serious doubt at this point.

Read the rest of this entry »

Know what you’re teaching

Matías Vernengo

Greg Mankiw wrote a response to his students, who protested his teaching, in his last New York Times column.  He basically blames the students for not knowing enough economics. He goes on to say that the complaints of the Occupy Wall Street (OWS) movement, in support of which the students had boycotted his class, are also a “grab bag of anti-establishment platitudes without much hard-headed analysis or clear policy prescriptions.”

He also suggested that students boycotted the wrong class, since his lecture that day was on inequality. Note that his views on inequality are strictly based on conventional mainstream neoclassical theory. Inequality for him is based on education (see here his critique of Krugman’s views on inequality). So basically the top 1% are more educated, more productive and, as a result, receive more. You cannot protest market forces.

Income distribution, according to neoclassical theory, is determined by the relative productivity of the factors of production. If wages are stagnant it must result from the fact that labor productivity is also sluggish. However, the evidence for that is thin at best. As it is well known, labor productivity has increased over the last 30 years in the US, while real wages have not budged.

Read the rest of this entry »

Spotlight Durban: A dirty deal coming down in Durban

Patrick Bond
Another in a Triple Crisis and Real Climate Economics Blog series on the Durban Climate Change Conference.

What, now, are the prospects for a climate deal by Friday?

The biggest problem is obvious: COP17 saboteurs from the US State Department joined by Canada, Russia and Japan, want to bury the legally-binding Kyoto Protocol treaty. Instead of relaxing intellectual property rules on climate technology and providing a fair flow of finance, Washington offers only a non-binding ‘pledge and review’ system.

This is unenforceable and at current pledge rates – with Washington lagging everyone – is certain to raise world temperatures to four degrees centigrade, and in Africa much higher. Estimates of the resulting deaths of Africans this century are now in excess of 150 million. As former Bolivian Ambassadar to the UN, Pablo Solon said at last week’s Wolpe Memorial Lecture, “The COP17 will be remembered as a place of premeditated genocide and ecocide.”
Read the rest of this entry »