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Ryan Avent: THE crisis in the euro area is beginning to feel like a permanent piece of the world’s economic landscape

Ryan Avent: THE crisis in the euro area is beginning to feel like a permanent piece of the world’s economic landscape: a great red spot that just churns and churns and never goes away. It isn’t, though. One day the crisis will be over, either because the euro zone managed to muddle through or because it didn’t, and came apart.

To avoid coming apart, the euro zone needs to accomplish three things. First, it needs a policy mix from the European Central Bank and from its member states sufficient to prevent a market panic leading to a quick end. There have certainly been moments when it seemed as though it would fail this first task, but at every point enough action has been taken to prevent an immediate disaster. The ECB’s role has steadily evolved and has in the process reduced the risk of an implosion of the banking system and contagion across sovereign debt markets. And at the same time, Europe’s governments have—slowly, haltingly, inadequately—begun building an infrastructure for a banking and fiscal union. The odds of a Lehman like miscalculation precipitating a sudden financial catastrophe and break-up seem to have steadily receded.

Yet that is just the first hurdle. The euro area also needs to reestablish strong growth, sufficient to begin meeting fiscal goals. On this score, the euro area has done very poorly. The story is more or less this. The crisis, recession, and capital outflows of 2008-09 led to broad weakness in the domestic economies of many peripheral countries. On top of this troubled sovereigns have been raising taxes and cutting spending in order to try and meet budget goals (some necessitated by markets, some imposed by core economies in exchange for fiscal assistance). The result was a descent back into recession, which has in turn worsened budget balance, undermining the process of fiscal consolidation. This weakness could be offset by rising net exports, but the peripherals biggest trading partners are in the same boat, and the world’s other large economies aren’t doing that great either and are also trying to raise net exports.

The result is euro-area recession and peripheral depression. The rise in unemployment across the south over the past year is simply astounding. As of June, 55% of Greeks under 25 were without work. There are over 2m more euro-area workers unemployed than there were a year ago, and the number keeps rising. There have been some positive signs in recent data. Manufacturing activity in September continued to contract across the euro-area economy, but at a slower pace from earlier in the summer. New orders, and new export orders, continued to fall, however. In the absence of growth, it will be very difficult for peripheral countries to bring deficits down and stabilise debt levels. And without those developments, markets will continue to panic with some regularity and the size of bail-outs will grow.

And that brings us to the third hurdle: Europe must maintain a public commitment to keeping things together. Output per capita across most of the southern euro zone has been flat or falling (mostly falling) for almost five full years. There is no immediate end in sight; forecasts for 2013 generally anticipate another year of contraction for several peripheral economies. It is surprising to me that there haven’t been more, larger, and angrier protests than we have seen to date. And uglier politics.

Over the course of the euro crisis, the region’s leaders have elevated complacency into an art form. If the massive and growing unemployment problem isn’t addressed soon and aggressively, all the hand-wringing and summiteering and negotiating and bloviating over fiscal and banking integration will have been for naught. Angry electorates will finally declare: enough.

(Source: economist.com)

James Fallows: Debates Aren’t About Policy or Argument But Are a Monkey-Dominance Game

the easiest way to judge “victory” in many debates is to watch with the sound turned off, so you can assess the candidates’ ease, tenseness, humor, and other traits signaled by their body language. By this standard, Ron Paul, with his chronically ill-fitting suits, often looked cranky; Rick Santorum often looked angry; Rick Perry initially looked pole­axed and confused; Jon Huntsman looked nervous; Newt Ging­rich looked overexcited—and so on through the list until we reach Mitt Romney, who almost always looked at ease. (As did Herman Cain, illustrating that body language is not everything.) Romney looked like the grown-up—the winner, the obvious candidate—with or without sound. “He is as good as it gets in debating,” former Minnesota Governor Tim Pawlenty, who was the first major contender to drop out of the Republican race, told me. “He is poised, prepared, smart, strategic—tactical, too.”

(Source: The Atlantic)

Minxin Pei: The answer to the question of the durability of one-party rule in China is clear: its prospects are doomed

Minxin Pei: The answer to the question of the durability of one-party rule in China is clear: its prospects are doomed.

The answer to the question of how a one-party regime can manage its own political transformation to save itself is more interesting and complicated. Essentially, there are two paths for such regimes: the Soviet route to certain self-destruction, and the Taiwan-Mexican route to self-renewal and transformation. Since the fall of the Soviet Union, top CCP leaders have resolved not to repeat the Soviet tragedy. Their policy has been, therefore, resisting all forms of political reform. The result is, unfortunately, an increasingly sclerotic party, captured by special interests, and corrupt and decadent opportunists like Bo. It may have over 80 million members, but most of them join the party to exploit the pecuniary benefits it provides. They themselves have become a special interest group disconnected with Chinese society.

If the fall of the Soviet Communist Party (CPSU) offered any real lessons, they are definitely not the official Chinese narrative that Gorbachev’s political reforms brought down the party. The sad truth is: the Soviet regime was too sick to be revived by the mid-1980s because it had resisted reforms for two decades during the rule of Brezhnev. More importantly, the CCP should know that, like the millions of the members of the CPSU, its rank and file are almost certain to defect in times of a regime crisis. When the CPSU fell, there was not a single instance of loyal party members coming to the defense of the regime. Such a fate awaits the CCP.

That leaves the CCP with only one viable option: the Taiwan-Mexican path of self-renewal and transformation. The one-party regimes in Taiwan and Mexico are, without doubt, the most successful ones in transforming themselves into multi-party democracies in the last quarter century. Although the stories of their transition to democracy are different and complex, we can glean four key insights into their successes.

First, leaders in Taiwan and Mexico confronted a legitimacy crisis in the 1980s and realized that one-party regimes were doomed. They did not deceive themselves with illusions or lies.

Second, both acted while their regimes were stronger than the opposition and before they were thoroughly discredited, thus giving them the ability to manage a gradual transition.

Third, their leaders centralized power and practiced inner-party dictatorship, not inner-party democracy, in order to overcome the opposition of the conservatives within the regime. In one-party regimes, inner-party democracy will surely lead to an open split among the ruling elites, thus fatally weakening the a reformist regime’s ability to manage the transition. Additionally, making the entire political system more democratic, mainly through competitive elections in cities and states, will provide the ruling elites an opportunity to learn a critical skill: seeking support from voters and winning elections. Such skills cannot be learned through the dubious exercise of inner-party democracy, which is simply another name for elite bargaining and manipulation.

Fourth, a moderate democratic opposition is the best friend and greatest asset a reformist one-party regime has. Such an opposition is a negotiating partner and can help the regime maintain transitional stability. It can also offer much better terms protecting the interests of the ruling elites and even helping them avoid jail. When we look at the rewards reaped by the KMT and the PRI, they included not only favorable terms for exiting power (except for President Salinas, who was forced into exile because of corruption), none of the senior leaders faced criminal prosecution. Most importantly, both the KMT and PRI managed to recapture the presidency, the seat of political power in both countries, after spending two terms in opposition.

But can the CCP actually learn from the KMT or the PRI?

(Source: thediplomat.com)