TIME Economy

Why Greece Matters for Everyone

Like it or not, Greece is a domino that will have ripple effects throughout the rest of the world

Greece is a tiny country. It’s 0.3 % of the GDP of the world. Most private creditors took their money out of the debt-ridden nation years ago. So why is the possible exit of Greece from the Eurozone rocking markets? Because it represents what could be the end of the biggest, most benevolent experiment in globalization, ever.

On Sunday, Greek voters said “no” to Europe’s latest bailout offer. That means that a Greek exit from the Eurozone is now very likely–most analysts are putting the odds at somewhere around 60%-70% at this point. For Greeks, the next few weeks will be chaotic. Banks are closed; last week, people could take only 60 euros at a time out of ATM machines, this week it may go to as little as 20 euros. Merchants have begun eschewing credit cards in favor of hard currency as a cash hoarding mindset kicks in.

Global markets are not surprisingly down on the news and will likely be quite jittery for the next few weeks. It’s not that the economy of Greece itself matters so much–China creates a new Greece every six weeks–it’s that a Greek exit from the Eurozone calls into question the entire European experiment. Europe was always an exercise in faith: 19 countries coming together to form a made-up currency without any common fiscal policy or true political integration seemed like a great idea in good times, but was destined to be fragile in bad times.

MORE: Here’s What Greek Austerity Would Look Like in America

The risk now is that a chaotic Greek exit from the Eurozone starts to undermine faith in other peripheral countries, like Italy or Spain. Watch what their bond spreads do over the next few days. If they rise a lot, it means investors are worried. While ECB head Mario Draghi has promised money dumps to help stabilize these nations and any other Eurozone countries that need help (perhaps we should start calling him “Helicoper” Mario), he can’t stop the euro from falling against the dollar, or keep investors from fleeing to “safe havens” like US T-bills. That might be good for US bond markets, but Europe’s crisis could also impact the Fed’s ability to raise interest rates in September, which until quite recently seemed like a sure thing.

No wonder President Obama and Jack Lew are getting vocal about it all–while this isn’t going to be a Lehman Brother’s style domino collapse of financial institutions (private creditors represent only about 12 % of Greek debt; most got their money out back in 2011 or 2012), there’s little question that Europe’s growth will slow, which will affect US companies and workers. The stronger dollar will also hurt US exporters.

But even more important than the short-term jitters are the longer-term economic and geopolitical impacts of the Eurozone crisis. One of the reasons that Russia has been so aggressive in places like the Ukraine is that Europe is perceived as being weak, unable to make the political integrations that would actually solve this debt crisis permanently. (That would require creating a real United States of Europe–something that requires German buy in.)

MORE: Greece Says ‘No’ to Austerity

The Greeks may think that a “no” vote to Europe has increased their power to bargain for a third bailout, but I think it will be very hard to convince German voters of that (and any deal will have to pass through the Bundestag). Germans simply don’t understand why the rest of Europe can’t be more like them, despite the fact that the math doesn’t really work.

If Greece is left on its own, where will it turn for support? To Russia, China, and any number of countries in the Middle East. Suddenly, you’ve got the stability of the Balkans in play. And as it becomes clear that the future of the world’s second largest reserve currency isn’t necessary a given, that could weaken investment in Europe as a whole, throw the Eurozone back into recession, and undermine the EU on the world stage. A political bloc that can’t guarantee its own currency will also have reduced clout in any kind of political negotiation. Europe’s weakness could be very destabilizing at a time when America’s own geopolitical power has ebbed.

That’s bad news for everyone. Europe is one of the three legs of the global economic stool, along with the U.S. and China, which is in the middle of its own debt crisis. America’s recovery isn’t strong enough to pull the world along. Europe’s debt crisis is not only an economic crisis but also a political crisis–one that poses challenges not just the EU itself, but liberal democracy as the model of the future.

MORE: Greek Finance Minister Resigns

TIME Greece

Greek Vote Forces Europe to Make a Difficult Decision

Europe's choice is essentially to give way to Greece or see it leave the Eurozone

Europe’s leaders are faced with a tough choice after Greek voters rejected austerity conditions attached to a new bailout in a referendum on Sunday: fundamentally alter their policies for dragging Europe back to prosperity, or lose a member of a currency union that was meant to represent the political and economic strength of the whole continent.

On Tuesday, leaders of the 19 countries that use the euro will meet in Brussels to grapple with the implications of the referendum result, which saw more than 60% of the Greek electorate vote No to a package of spending cuts and new taxes in return for more loans.

Beyond the economic contagion of a potential Greek exit from the Eurozone, there are lasting political ramifications for all 28 European Union members, regardless of which path they choose.

For an alliance constantly fighting accusations that it is stacked with unelected officials foisting ruinous policies on struggling members, ignoring the will of the Greek people and soldiering on with its tough austerity policies would deal another blow to its democratic credentials. A Greek exit from the single currency would also shatter the dreams of many European leaders who see the euro as the ultimate symbol of the bloc’s political union.

But returning to the negotiating table with Greek Prime Minister Alexis Tspiras and forging a new bailout deal with less stringent conditions could embolden other far-left parities across the E.U. It would also spark a backlash both in richer creditor nations like Germany, and other bailout countries such as Ireland and Portugal that had to endure the pain of reform programs.

Much depends on whose pre-vote bluster wins out. Ahead of the referendum, Tspiras said a No vote would give him a stronger hand in negotiations and he could return to Brussels with a mandate to prioritize social justice and get a better deal for a nation that has endured the highest unemployment rates in the E.U. and a plummeting quality of life.

Eurozone leaders, however, threatened that rejecting the terms on the table after six months of negotiations was a vote for leaving the single currency, and right now the hawks are remaining adamant that Greece has blown its last chance of being part of the euro club.

The German economy minister, Sigmar Gabriel, said that the vote meant Tsipras had “torn down the last bridges across which Europe and Greece could move toward a compromise”. He told the German newspaper, Tagesspiegel, that the vote was essentially a rejection of the Eurozone’s rules.

Slovakia’s Finance Minister, Peter Kažimír, tweeted that he was “disappointed” by the vote and now “the nightmare… that a country could leave the club seems like a realistic scenario”.

That path would begin with the European Central Bank (ECB) cutting off the emergency funding that has kept Greece afloat even after it defaulted on existing loans. Athens would have to start printing its own currency, meaning a de facto exit from the Eurozone. Exactly how the other Eurozone nations would mange this and contain any economic fallout is uncharted territory.

The “Grexit” option would also likely lead to a prolonged depression in Greece and a potential humanitarian disaster. That prospects has some voices around Europe arguing for a return to the negotiating table. Gianni Pittella, the leaders of the Socialists and Democrats in the European Parliament, called for the resumption of talks “inspired by a new attitude of solidarity and cooperation, taking into account the difficult social dimension in Greece”.

The Italian foreign minister, Paolo Gentiloni, also came out in favor of more negotiations, tweeting that “Now it is right to start trying for an agreement again”.

But there is so much bad blood now between the Greek government and its creditors in the Eurozone, the ECB and the International Monetary Fund that a calm and collected round of negotiations seems unthinkable. Talks have been increasingly combative since Tspiras’ far-left Syriza party was elected in January, and his finance minister has accused the creditors of “terrorism”.

The first hurdle is staying afloat for the next few days, and the ECB must now decide whether to continue the emergency funding for Greece while the Eurozone leaders meet.

Whatever happens in the next few days, Raoul Ruparel of the Open Europe think tank said the referendum would bring “profound change”. Either the Eurozone will “capitulate to Greece… changing its entire modus operandi” or Greece will have to leave the Eurozone.

“In which case the E.U. and the Eurozone will be fundamentally changed,” he wrote on his blog. “The E.U. will have to reconsider its ‘ever closer union’ mantra and accept that its flawed approach and inflexible institutions have helped precipitate the downfall of one of its guiding principles.”

TIME

Joseph Stiglitz to Greece’s Creditors: Abandon Austerity Or Face Global Fallout

Nobel laureate tells TIME that the institutions and countries that have enforced cost-cutting on Greece "have criminal responsibility"

A few years ago, when Greece was still at the start of its slide into an economic depression, the Nobel prize-winning economist Joseph Stiglitz remembers discussing the crisis with Greek officials. What they wanted was a stimulus package to boost growth and create jobs, and Stiglitz, who had just produced an influential report for the United Nations on how to deal with the global financial crisis, agreed that this would be the best way forward. Instead, Greece’s foreign creditors imposed a strict program of austerity. The Greek economy has shrunk by about 25% since 2010. The cost-cutting was an enormous mistake, Stiglitz says, and it’s time for the creditors to admit it.

“They have criminal responsibility,” he says of the so-called troika of financial institutions that bailed out the Greek economy in 2010, namely the International Monetary Fund, the European Commission and the European Central Bank. “It’s a kind of criminal responsibility for causing a major recession,” Stiglitz tells TIME in a phone interview.

Along with a growing number of the world’s most influential economists, Stiglitz has begun to urge the troika to forgive Greece’s debt – estimated to be worth close to $300 billion in bailouts – and to offer the stimulus money that two successive Greek governments have been requesting.

Failure to do so, Stiglitz argues, would not only worsen the recession in Greece – already deeper and more prolonged than the Great Depression in the U.S. – it would also wreck the credibility of Europe’s common currency, the euro, and put the global economy at risk of contagion.

So far Greece’s creditors have downplayed those risks. In recent years they have repeatedly insisted that European banks and global markets do not face any serious fallout from Greece abandoning the euro, as they have had plenty of time to insulate themselves from such an outcome. But Stiglitz, who served as the chief economist of the World Bank from 1997 to 2000, says no such firewall of protection can exist in a globalized economy, where the connections between events and institutions are often impossible to predict. “We don’t know all the linkings,” he says.

Many countries in Eastern Europe, for instance, are still heavily reliant on Greek banks, and if those banks collapse the European Union faces the risk of a chain reaction of financial turmoil that could easily spread to the rest of the global economy. “There is a lack of transparency in financial markets that makes it impossible to know exactly what the consequences are,” says Stiglitz. “Anybody who says they do obviously doesn’t know what they’re talking about.”

Over the weekend the prospect of Greece abandoning the euro drew closer than ever, as talks between the Greek government and its creditors broke down. Prime Minister Alexis Tsipras, who was elected in January on a promise to end austerity, announced on Saturday that he could not accept the troika’s “insulting” demands for more tax hikes and pension cuts, and he called a referendum for July 5 to let voters decide how the government should handle the negotiations going forward. If a majority of Greeks vote to reject the troika’s terms for continued assistance, Greece could be forced to default on its debt and pull out of the currency union.

Stiglitz sees two possible outcomes to that scenario – neither of them pleasant for the European Union. If the Greek economy recovers after abandoning the euro, it would “certainly increase the impetus for anti-euro politics,” encouraging other struggling economies to drop the common currency and go it alone. If the Greek economy collapses without the euro, “you have on the edge of Europe a failed state,” Stiglitz says. “That’s when the geopolitics become very ugly.”

By providing financial aid, Russia and China would then be able to undermine Greece’s allegiance to the E.U. and its foreign policy decisions, creating what Stiglitz calls “an enemy within.” There is no way to predict the long-term consequences of such a break in the E.U.’s political cohesion, but it would likely be more costly than offering Greece a break on its loans, he says.

“The creditors should admit that the policies that they put forward over the last five years are flawed,” says Stiglitz, a professor at Columbia University.What they asked for caused a deep depression with long-standing effects, and I don’t think there is any way that Europe’s and Germany’s hands are clean. My own view is that they ought to recognize their complicity and say, ‘Look, the past is the past. We made mistakes. How do we go on from here?’”

The most reasonable solution Stiglitz sees is a write-off of Greece’s debt, or at least a deal that would not require any payments for the next ten or 15 years. In that time, Greece should be given additional aid to jumpstart its economy and return to growth. But the first step would be for the troika to make a painful yet obvious admission: “Austerity hasn’t worked,” Stiglitz says.

TIME U.K.

British Legislators Give Overwhelming Support for a Referendum on the U.K.’s Future in the E.U.

The British Union flag and European Union flag are seen hanging outside Europe House in central London
Toby Melville —Reuters The British Union flag and European Union flag are seen hanging outside Europe House in central London on June 9, 2015.

The bill has to pass through several more stages before a referendum takes place, however

Lawmakers in the U.K. cleared the first hurdle for a new nationwide referendum on Tuesday, which could allow voters the chance to decide whether the U.K. stays in the European Union in the future.

On Tuesday, members of the Parliament voted 544 to 53 in favor of the referendum plan.

“An entire generation of British voters has been denied the chance to have a say on our relationship with the European Union. And Mr. Speaker, today we are putting that right,” said Foreign Secretary Philip Hammond, according to the BBC.

The bill must now make it through several debates and additional votes before a referendum is unveiled, however.

[BBC]

TIME energy

Could Iran Play a Part in E.U. Energy Security?

iranian-flag
Getty Images

As Europe looks for alternatives to Russian gas, Iran could provide Europe "new routes"

Azerbaijan’s energy minister, Natig Aliyev, says the gas pipeline originating in his country can also transport fuel to Europe through the Trans-Anatolian Pipeline (TANAP) from Iran and other neighboring nations in both the Middle East and Central Asia.

“Gas from Turkmenistan, Iran, Iraq, as well as from Israel and Cyprus, can be connected to the Southern Gas Corridor,” Aliyev told the Caspian Oil & Gas Conference in Baku on June 3. “The extensive work done by Azerbaijan stands behind all of this.”

The minister said that as Europe is looking for alternatives to Russian gas, its attention is being drawn increasingly to Azerbaijan because it could provide “a new source of energy for Europe, and it offers Europe new routes.”

Azerbaijan could become a major source of energy for the West, Aliyev said, given that it produced 42 million tons of oil and 29 billion cubic meters of gas in 2014. Looking to the future, he said, his country intends to maintain that level of oil output, or even increase it to 45 million tons per year, and that it plans to double its output of gas.

Aliyev pointed to Europe’s growing concern about its current reliance on gas deliveries from Russia via a pipeline that transits Ukraine. Because of political and pricing disputes between Kiev and Moscow, these deliveries have been briefly interrupted three times in the past nine years. “Europe imports about 90 percent of oil, 60 percent of gas and 42 percent of coal,” he said.

TANAP would run west from Baku, through Turkey, then the Balkans and connect with the Trans-Adriatic Pipeline (TAP), which finally would deliver the gas to Italy and on to the rest of Europe. Already Turkmenistan, on the other side of the Caspian Sea from Azerbaijan, has expressed interest in joining TANAP, and Aliyev said Iran, with its huge energy resources, also would be a prime candidate.

“Iran’s cooperation with the world was always good,” Zanganeh said at the time, “but they were unkind to us. However now they are returning to the cooperation.” Besides, he said, Iran has more energy reserves than it can consume domestically.

And on June 3, addressing Aliyev’s comments, Mohsen Pakaein, Iran’s ambassador to Azerbaijan, said his government was considering the invitation to join TANAP as part of Tehran’s plans to establish a strong presence on the world’s gas market.

Construction already has begun on TANAP, while a rival pipeline through Turkey, sponsored by Russia, is still in the planning stages. Whichever of these two conduits is completed would replace Russia’s South Stream pipeline to Europe, a project that was scuttled in late 2014 because of an EU rule that forbids one entity from owning both the pipeline and the gas it carries.

The 1,100-mile-long TANAP is expected to begin delivering natural gas by 2020. The initial volume of fuel will be about 16 billion cubic meters per year, increasing eventually to 31 billion cubic meters per year.

This article originally appeared on Oilprice.com.

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TIME europe

E.U. Ministers Discuss Jihadist Threat in Wake of Charlie Hebdo Terrorist Attacks

BELGIUM-EU-FRANCE-ATTACKS-MEDIA
Emmanuel Dunand—AFP/Getty Images European Union flags fly at half-mast at the European Parliament in Brussels on Jan. 8, 2015, following the attack against French satirical weekly Charlie Hebdo

The meeting comes days after authorities foiled terrorist plots in Belgium, France and Germany

Twenty-eight Foreign Ministers are set to meet in Brussels on Monday to discuss persistent threats against the European Union from Islamist militants, as well as the renewed fighting between the Ukrainian military and separatist insurgents.

However, the ministers are not scheduled to hammer out any decisions regarding how the bloc will respond to threats from potential terror cells, according to Agence France-Presse.

Last week, authorities in Belgium foiled a failed terrorist plot, resulting in the death of two armed suspects. Similar raids were also launched in Germany and France a week after three gunmen linked to Yemen- and Syria-based terrorist networks carried out a series of high-profile attacks across Paris that resulted in the deaths of 17 people, including a dozen at the offices of satirical newspaper Charlie Hebdo.

Thousands of Europeans are believed to have traveled to battlefields in both Iraq and Syria to fight alongside Islamist militias, raising concerns among E.U. officials over what the battle-hardened jihadists are capable of doing if they return home.

The ministers are also slated to discuss renewed tensions between Kiev and Moscow as fighting between the Ukrainian military and pro-Kremlin insurgents has escalated in recent weeks.

Reports swirled on Monday that Ukrainian troops retook Donetsk airport over the weekend after launching a massive counteroffensive against Russian-backed separatists in the area.

TIME U.K.

Anti-Immigration Party’s Win in U.K. Rings Alarm Bells in Europe

Newly-elected UK Independence Party MP Douglas Carswell poses for photographers with a copy of the local paper in Clacton-on-Sea, in eastern England, on Oct. 10, 2014.
Leon Neal—AFP/Getty Images Newly-elected UK Independence Party MP Douglas Carswell poses for photographers with a copy of the local paper in Clacton-on-Sea, in eastern England, on Oct. 10, 2014.

The first British parliamentary seat for the U.K. Independence Party intensifies—and reflects—the crisis of mainstream politics in Europe

Many forces are at work in British politics, but nominative determinism may not be one of them. When last month a member of parliament named Mark Reckless defected from the Conservative Party, Britain’s largest mainstream political party and senior partner in the country’s coalition government, the move looked, well, reckless.

Reckless resigned his parliamentary seat to join the right-wing, anti-Europe, anti-immigration United Kingdom Independence Party (UKIP), which had not yet succeeded in getting any MPs elected to Westminster. UKIP did well in some local and European elections, but conventional wisdom suggested the party benefited from protest votes against the big established parties and would struggle gain a foothold in the U.K. legislature.

On Thursday, those predictions proved wrong as another Conservative Party defector, Douglas Carswell, won back his parliamentary seat for UKIP with a thumping majority. In another by-election held the same day in a district that had previously been a solid Labour Party area, UKIP came within 617 votes of defeating the Labour candidate, overturning another piece of conventional wisdom that misconstrued UKIP as a threat only to the right-leaning Conservatives.

Reckless, who is preparing for a Nov. 6 by-election to try to capture his old seat for his new party, no longer looks reckless and conventional wisdoms appear anything but orthodox. Alarms are ringing not only among members of Britain’s mainstream parties but across Europe. An obvious focus of fear is what the rise of UKIP means for Britain; not only its attitude to Europe, but also towards its own diverse population.

In his victory speech, Carswell called for UKIP to be “a party for all Britain and all Britons, first and second generation [immigrants] as much as every other.” But UKIP’s party leader Nigel Farage was already busily undermining this message of tolerance, responding to criticism of an interview in which he called for HIV-positive migrants to be turned away at British borders by going still further, proposing a ban on any migrants with “life threatening diseases” getting treatment within Britain’s National Health Service.

The characterization of UKIP as a protest party fails to acknowledge the way such rhetoric resonates in communities that feel they are losing jobs and opportunity to immigrants. The mainstream parties have a shamefully thin record of speaking up for the necessity of immigration and an even more shameful record of harnessing anti-immigration sentiment while chasing short-term electoral gain. At other times, they find it more comfortable not to broach the subject at all—one reason Labour came so close to gifting UKIP a by-election victory.

Britain’s rumbling debate about its membership of the European Union may appear on the surface to be about bossy Brussels regulators and distorting subsidies and laws, but it is more often a proxy for the immigration debate that isn’t happening. Mainstream politicians don’t want to be tarred as Little Englanders, but increasing numbers of them, mostly Conservatives but also Labour members, are attracted to the idea of an exit from the E.U., which would instantly restrict the flow of immigrants from other, poorer E.U. countries currently entitled to live and work in Britain.

Continental Europe worries—with justification—that the U.K. is edging closer to ditching its E.U. membership. Yet the shudders attending UKIP’s latest win are not merely caused by the prospect of a so-called “Brexit“. In the flounderings and failings of Britain’s big political parties and the upsurge in support for populist alternatives sounding anti-immigration, anti-Europe rallying cries, E.U. leaders outside Britain see reflections of the turbulence in their own countries. Even in Germany, the crucible of pro-E.U. sentiment where memories run deep of its disastrous experiment with the narrowest possible vision of national identity, a euroskeptic party is gaining ground.

UKIP’s win is, with a certain irony, part of a pan-European phenomenon. Such parties grow because the political mainstream gives them the space to do so.

 

 

 

TIME U.K.

U.K. Edges Toward Departure from European Union

Prime Minister David Cameron walks with Mayor of London and Parliamentary candidate Boris Johnson at the Conservative party conference on Sept. 29, 2014 in Birmingham, England.
Peter Macdiarmid—Getty Images Prime Minister David Cameron walks with Mayor of London and Parliamentary candidate Boris Johnson at the Conservative party conference on Sept. 29, 2014 in Birmingham, England.

As Britain's Conservative Party holds its last party conference ahead of May's general elections, the Euroskeptic message looks like a winning one

It’s hard to imagine anything more insular than a British party political conference—except, perhaps, for an island.

The ruling Conservative Party is currently meeting in the U.K.’s second largest city, Birmingham, but delegates tightly ringed by security and focused on the narrow issue of how to win the next election may as well be on a coral atoll for all the connection they have with the wider world.

Events in Hong Kong go unremarked. U.K. participation in the military campaign against ISIS barely merits a mention. A lone protestor standing beyond the crowd barriers bellowed rage against Britain’s fresh involvement in Iraq for hours Monday, but his words whispered in the convention center like distant waves. Even so, events on this artificial island may yet carry global significance. Britain is getting ever closer to the brink of leaving the European Union.

That is the probable outcome if the Conservatives win the U.K. general election next May, as they have pledged to allow Britain’s increasingly Euroskeptic population a referendum on whether to stay or go. Polls suggest a sizeable majority would vote to leave the E.U. under the current terms of membership.

Admittedly a Conservative victory is far from a sure thing in 2015. The Labour Party enjoys a lead of several points in most opinion polls and the Conservatives, in coalition with the Liberal Democrats since 2010, should expect to be punished by voters for implementing painful austerity policies that have reduced the budget deficit (but not by as much as they promised). But even though Labour may look like the likelier winner, it doesn’t act like it. Neither party members nor the wider public have faith in the current Labour leader Ed Miliband, who capped a lackluster conference last week by forgetting key chunks of the speech that should have energized his troops and instead demoralized them.

In truth all three mainstream parties are suffering from a loss of connection with the public — voters feel they’re untrustworthy, and incapable of championing Britain, whatever form that might take. This disenchantment is fostering the rise across Britain of populist parties that promise a new, more honest mode of politics and more localism. In Scotland this means the Scottish National Party strengthening largely at the expense of Labour, which will struggle to retain its 41 Westminster seats there at the coming election.

But in England, it is the anti-immigration, Euroskeptic United Kingdom Independence Party (UKIP) that has been attracting support on the back of its strident views, which it calls “unashamedly patriotic”. The party’s manifesto not only calls for departure from the European Union, but also restrictions on the numbers of immigrants entering the country, less foreign aid, and priority in the allocation of social housing given to “people whose parents and grandparents were born locally”.

It’s a message that appeals to many who might otherwise be inclined to vote for the Conservative party. The eastwards expansion of the E.U. was enthusiastically supported by past Conservative governments, because they thought a larger union might be less inclined to move towards federalism and consequent impingements on British sovereignty. But enlargement has increased the pool of E.U. citizens entitled to work in the U.K, and fostered resentment among conservative voters, as the British economy struggles to recover from the economic slump. UKIP has capitalized on that resentment; two Conservative MPs have recently defected to UKIP and more are rumored to be considering jumping ship.

“The biggest issue on the doorstep is immigration,” says Phillip Lee, the Conservative MP for Bracknell, west of London, “but this is also related to Europe.” His constituents would like to see an Australian-style points system applied to jobseekers from abroad, he says. That’s a policy UKIP already proposes for all immigrants, whether they come from the E.U. or further afield.

Even so, the Conservatives are better positioned than Labour—which opposes giving Britons a vote on E.U. membership—to fight UKIP on its own turf. Prime Minister David Cameron’s post-Scottish referendum promise of “English Votes for English Laws” plays to demands for more local control, while his party is ramming the message home at every opportunity during its conference that only a Conservative government will deliver an in-out referendum on the E.U. It will doubtless be a pivotal passage in Cameron’s keynote address to delegates tomorrow.

Cameron first made the offer partly in an effort to hold together a fractious party that has a long history of falling out over Europe. But his official position—that he wants Britain to remain in the E.U., but on renegotiated better terms—also happens to be his real preference, not least because many British businesses worry that an E.U. exit will load costs and obstacles on to their European operations. His ideal is to retain the advantages of E.U. membership while shielding Britain against moves to closer E.U. integration precipitated by the euro zone crisis. But in a BBC interview this morning, Cameron made clear that he wouldn’t be too upset if Britain left the E.U. entirely. The sales pitch being rolled out in Birmingham is clear: vote UKIP, get Labour, lose the chance of a referendum.

Despite what the polls say, many Conservatives believe this is a winning formula, and they could well be right. But the same urges the Conservatives would be tapping to win election victory would inevitably still be in play if and when Britons voted on their relationship with Europe. An exit would mean a period of extended turbulence for Britain and for the E.U., used to British intransigence but also used to Britain as a counterbalance to German muscle and French protectionism. The rest of the E.U. hopes Britain stays put, and so does Washington, which still often looks to the U.K. as a bridge to Europe.

British politicians hear these voices but their message, like the shouts of the man outside the Conservative Party conference, are muffled. This island nation with its parochial politics could well be headed for greater insularity.

TIME europe

Europe’s Economic Woes Require a Japanese Solution

Rome As Italy Returns To Recession In Second-Quarter
Bloomberg—Bloomberg via Getty Images A pedestrian carries a plastic shopping bag as she passes a closed-down temporary outlet store in Rome, Italy, on Tuesday, Aug. 12, 2014. Italy's economy shrank 0.2 percent in the second quarter after contracting 0.1 percent in the previous three months.

The region’s economy is starting to resemble Japan’s, and that threatens to condemn Europe to its own lost decades

No policymaker, anywhere in the world, wants his or her national economy to be compared to Japan’s. That’s because the Japanese economy, though still the world’s third-largest, has become a sad case-study in the long-term damage that can be inflicted by a financial crisis. It’s more than two decades since Japan’s financial sector melted down in a gargantuan property and stock market crash, but the economy has never fully recovered. Growth remains sluggish, the corporate sector struggles to compete, and the welfare of the average Japanese household has stagnated.

The stark reality facing Europe right now is that its post-crisis economy is looking more and more like Japan’s. And if I was Mario Draghi, Angela Merkel or Francois Hollande, that would have me very, very nervous that Europe is facing a Japanese future — a painful, multi-decade decline.

The anemic growth figures in post-crisis Europe suggest that the region is in the middle of a long-term slump much like post-crisis Japan. Euro zone GDP has contracted in three of the five years from 2009 and 2013, and the International Monetary Fund is forecasting growth of about 1.5% a year through 2019. Compare that to Japan. Between 1992 and 2002, Japan’s GDP grew more than 2% only twice, and contracted in two years. What Europe has to avoid is what happened next in Japan: There, the “lost decade” of slow growth turned into “lost decades.” A self-reinforcing cycle of low growth and meager demand became entrenched, leaving Japan almost entirely dependent on exports — in other words, on external demand — for even its modest rates of expansion.

It is easy to see Europe falling into the same trap. Low growth gives European consumers little incentive to spend, banks to lend, or companies to invest at home. Europe, in fact, has it worse than Japan in certain respects. High unemployment, never much of an issue in Japan, could suppress the spending power of the European middle class for years to come. Europe also can’t afford to rely on fiscal spending to pump up growth, as Japan has done. Pressure from bond markets and the euro zone’s leaders have forced European governments to scale back fiscal spending even as growth has stumbled. It is hard to see where Europe’s growth will come from – except for increasing exports, which, in a still-wobbly global economy, is far from a sure thing.

This slow-growth trap is showing up in Europe today as low inflation – something else that has plagued Japan for years on end. Deflation in Japan acted as a further brake on growth by constraining both consumption and investment. Now there are widespread worries that the euro zone is heading in a similar pattern. Inflation in the euro zone sunk to a mere 0.4% in July, the lowest since the depths of the Great Recession in October 2009.

Sadly, Europe and Japan also have something else in common. Their leaders have been far too complacent in tackling these problems. What really killed Japan was a diehard resistance to implementing the reforms that might spur new sources of growth. The economy has remained too tied up in the red tape and protection that stifles innovation and entrepreneurship. And aside from a burst of liberalization under Prime Minister Junichiro Koizumi in the early 2000s, Japan’s policymakers and politicians generally avoided the politically sensitive reforms that might have fixed the economy.

Europe, arguably, has been only slightly more active. Though some individual governments have made honorable efforts – such as Spain’s with its labor-law liberalization – for the most part reform has come slowly (as in Italy), or has barely begun (France). Nor have European leaders continued to pursue the euro zone-wide integration, such as removing remaining barriers to a common market, that could also help spur growth.

What all this adds up to is simple: If Europe wants to avoid becoming Japan, Europe’s leaders will have to avoid the mistakes Japan has made over the past 20 years. That requires a dramatic shift in the current direction of European economy policy.

First of all, the European Central Bank (ECB) has to take a page out of the Bank of Japan’s (BOJ) recent playbook and become much more aggressive in combating deflation. We can debate whether the BOJ’s massive and unorthodox stimulus policies are good or bad, but what is beyond argument at this point is that ECB president Draghi is not taking the threat of deflation seriously enough. Inflation is nowhere near the ECB’s preferred 2% and Draghi has run monetary policy much too tight. He should consider bringing down interest rates further, if necessary employing the “quantitative easing” used by the U.S. Federal Reserve.

But Japan’s case also shows that monetary policy alone can’t raise growth. The BOJ is currently injecting a torrent of cash into the Japanese economy, but still the economic recovery is weak. Prime Minister Shinzo Abe finally seems to have digested that fact and in recent months has announced some measures aimed at overhauling the structure of the Japanese economy, by, for instance, loosening labor markets, slicing through excessive regulation, and encouraging more women to join the workforce. Abe’s efforts may prove too little, too late, but European leaders must still follow in his footsteps by taking on unions, opening protected sectors and dropping barriers to trade and investment in order to enhance competitiveness and create jobs.

If Europe fails to act, it is not hard to foresee the region slipping hopelessly into a Japan-like downward spiral. This would prove disastrous for Europe’s young people — already suffering from incomprehensible levels of youth unemployment — and it would deny the world economy yet another pillar of growth.

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