TIME Burma

Washington Condemns Burma’s Violent Student Crackdown

Police hit a student protester during violence in Letpadan
Soe Zeya Tun — Reuters Police assault a student protester in Letpadan, Burma on March 10, 2015.

Students and monks were peacefully calling for changes to the country's education bill

The U.S. State Department condemned Monday the brutal suppression of a protest by students and monks in the Burmese city of Letpadan.

The demonstrators were calling for educational reform in the former military state.

Video captured by local journalists shows police officers and what appear to be vigilantes using batons, fists and kicks to round up dozens of activists, only hours after student leaders and officials appeared to have reached a deal that would allow the protesters to travel to the country’s largest city, Rangoon.

“Freedom of assembly is an important component of any democratic society,” State Department spokesperson Jen Psaki told reporters on Monday. “We condemn the use of force taken against peaceful protesters.”

The Letpadan protest erupted just days after President Barack Obama paid homage to an earlier student movement in Burma that was crushed by the country’s ruling junta in 1988.

“Young people in Burma went to prison rather than submit to military rule,” declared Obama during a soaring address commemorating the U.S. civil rights marches in Selma on Sunday.

Students from across Burma, which is formally known as Myanmar, have been participating in widespread protests for months, calling for changes to the National Education Bill. Critics of the legislation say the law severely hampers students’ abilities to form unions, forbids institutions from lecturing in local languages and overly centralizes power in government hands.

Monday’s crackdown followed a brutal episode last week, when pro-government thugs assaulted activists rallying near Rangoon’s city hall in solidarity with the students in Letpadan.

The use of vigilante groups was common during the days of military rule in Burma, and their continued existence underscores fears for the future of Burma’s democratic reforms.

“Burma’s reforms are looking increasingly shaky day by day,” stated Brad Adams, Asia director at Human Rights Watch, in response to the crackdown on the Letpadan protests

The heavy-handed police action is also embarrassing for the country’s European partners. Last year, the European Union sponsored a multimillion-dollar initiative to train Burma’s police force in crowd-management techniques, supposedly to help protect the “democratic rights of citizens.”

“Whilst training can be given, the E.U. cannot make decisions on the ground,” said the E.U. Delegation to Myanmar. “We have discussed recent events with the Minister of Home Affairs and the Myanmar Police Force, emphasizing the need for negotiation, mutual understanding and compromise.”

TIME portfolio

Broken Dreams: The Aftermath of 25 Years of Democracy in Bulgaria

For Bulgaria, democracy doesn't necessarily mean prosperity, finds photographer Yana Paskova

Talking politics has always been a part of Yana Paskova’s life. She remembers her family discussing the state of her home country, Bulgaria, on countless occasions during her youth. But the political was also personal: the grandfather had been sent to a political prisoner camp in the 1950s because he didn’t belong to the communist party.

At that time, Bulgaria, known as the People’s Republic of Bulgaria, was part of the Soviet Union’s Eastern Bloc.

“My grandpa spent five years in this camp. He survived and this shaped the rest of his life,” says Paskova, whose own life would also be marked by the event: after the Berlin Wall fell in November of 1989, her family was granted political asylum in the U.S.

Now, 25 years later, the New York-based photographer has turned her lens on her home country to examine its current political standing. “During my yearly trips to reconnect with my family and the homeland, it pained me to note a weariness, hopelessness and ennui, so standard in the Bulgarian passerby that it becomes routine,” says Paskova, who received funding from the Pulitzer Center to finance her work. “Of course, as a Bulgarian that loves her country, I hoped I’d find a bit more hope and a bit more faith in democracy, and find that the country was working better, but, unfortunately, almost every single person I talked to communicated to me a lack of hope in political leadership and democracy.”

This bleak assessment was particularly apparent when Paskova followed a local political activist who had organized a protest. “No one showed up,” she says. “The conversation I had with him was very revealing. We talked about how democracy is a habit that needs to be exercised, but I don’t think many Bulgarians [are encouraged] to do so, especially when they’ve seen so much corruption, even after the fall of communism.”

For a few years, after Bulgaria’s accession to the European Union in 2007, there was hope for positive change. “[Being in the E.U.] has certainly made trading of goods easier, attracted more investors and brought diversity to the country,” but, she adds, Bulgaria is still plagued by “country-wide corruption, which a recent study by the Sofia-based think tank [Center for the Study of Democracy] found to be at its highest in 15 years, across civil and political sectors.”

“Communism didn’t die in 1989: it lives in people’s minds, surviving political factions and visual remnants across the nation,” she says.

And yet, Paskova remains optimistic: “My hope is in those inside and outside of our country who have the patience and passion to continue rekindling Bulgaria’s democracy.”

Yana Paskova is a New York-based Bulgarian freelance photographer.

Olivier Laurent is the editor of TIME LightBox. Follow him on Twitter and Instagram @olivierclaurent

Michelle Molloy, who edited this photo essay, is a senior international photo editor at TIME.

MONEY Markets

What the Greek Crisis Means for Your Money

Global markets seem safe enough for now, but a so-called “Grexit” could have unpredictable effects.

As government officials in Greece and the rest of the European Union continue to haggle over the terms of its bailout agreement, you may be wondering: Does this have anything to do with me?

If you are investing in a retirement account like a 401(k) or an IRA, the answer is likely “yes.” About a third of holdings in a fairly typical target-date mutual fund, like Vanguard Target Retirement 2035, are in foreign stocks. Funds like this, which hold a mix of stocks and bonds, are popular choices in 401(k)s.

Of those foreign stocks, only a small number are Greek companies. Vanguard Total International Stock (which the 2035 fund holds), for example, has only about 0.1% of assets in Greek companies. But about 20% of the foreign holdings in a typical target date fund are in euro-member countries, and if Greece leaves the euro, that could affect the whole continent.

What’s the worst that could happen? For one, investors and citizens in some troubled economies like Spain and Italy could start pulling their euros out of banks. Also, borrowing costs could go up, and that could hurt economic growth and weigh down stock prices. And if fear of European instability drives investors to seek out safe assets like U.S. Treasuries, then bond yields and interest rates could keep staying at their unusually low levels.

There are some market watchers who see a potential upside to the conflict over Greece, however.

“If you believe the euro is an average of its currencies, it could actually rise if Greece leaves,” says BMO Private Bank chief investment officer Jack Ablin. A higher euro would make European stocks more valuable in dollar terms.

Additionally, he says, if Athens is thrown into pandemonium, then it’s actually less likely other countries will want to follow Greece out of the currency union.

The Greek situation will also have an impact on the bond market. If fear of European instability drives investors to seek out safe assets like U.S. Treasuries, then many bond funds will do well, and yields and interest rates would stay at their unusually low levels.

Perhaps the most insidious thing right now, says Ablin, is uncertainty. Again, a Greek exit from the euro would be unprecedented, and that makes the effect unpredictable—and potentially very scary for the global market. So investors would be wise to keep in mind the possibility of “black swans,” a term coined by statistician Nassim Taleb to describe market events that seem unimaginable (like black swans used to be) until they actually occur.

TIME europe

Germany Says ‘Nein’ to Greece Bailout Request

Greece Prime Minister Alexis Tsipras listens to Greek President Karolos Papoulias during their meeting at Presidential Palace in Athens, Greece on Feb. 18, 2015.
Thanassis Stavrakis—AP Greece Prime Minister Alexis Tsipras listens to Greek President Karolos Papoulias during their meeting at Presidential Palace in Athens, Greece on Feb. 18, 2015.

Climb-down still leaves doubts in Germany that Athens is serious about implementing reforms

Greece caved in to pressure from the rest of the Eurozone Thursday and asked for an extension of its bailout program.

But euphoria in financial markets lasted less than two hours before the German finance ministry said the request wasn’t “substantial” and didn’t offer enough guarantees that it would continue to implement reforms.

Berlin’s rejection came barely an hour after Dutch finance minister Jeroen Dijsselbloem had confirmed that the Eurogroup’ (comprising the Eurozone’s 19 finance ministers) would meet again Friday in Brussels to discuss the request.

The statement was unusual in that, while Germany has traditionally led the group of creditors driving a hard line at bailout negotiations for six countries over the last five years, it has rarely done anything to pre-empt discussions so thoroughly.

A deal on Friday would buy time for the new Greek government to validate its promise of cracking down on corruption and collecting more taxes, particularly from the business elite that has successfully avoided them in the past. Greece’s government hopes it could then agree a new and less onerous deal with the creditors that would allow it to recover faster.

Greece’s €240 billion program is due to expire at the end of the month, after which it will lose access to over €10 billion ($11.5 billion) of aid. On Monday, the Eurogroup had given Greece an ultimatum on extending the deal, telling finance minister Yanis Varoufakis to either take it or leave it.

A text of the request published by Reuters Thursday indicated that the government pledged to abide by all its previous commitments and recognize the bailout as legally binding. However, the wording of its first point implied that Greece wants to haggle over implementing reforms demanded by the original bailout agreement–an impression reinforced this week as Prime Minister Alexis Tsipras promised to introduce new laws rolling back some of the agreement’s key provisions.

A spokesman for Germany’s finance ministry dismissed it as “not a substantial proposal for a solution. In reality, it aims for a bridging loan without fulfilling the demands of the program.”

Even so, the request is still a major climbdown for the new government, led by Tsipras’ radical left-wing Syriza party, which swept to power on a pledge to overthrow the bailout agreement in January and subsequently declared it “dead”. It pledges to honor all of Greece’s debts and, just as importantly, to continue accepting monitoring visits from the three institutions that have overseen Athens’ implementation of the bailout to date, the hated “troika” of European Central Bank, the International Monetary Fund and the European Commission.

The request comes less than a day after the ECB subtly, but nonetheless significantly, increased the pressure on Greece by voting only a minimal increase in the amount of cash that Greek banks can access from it.

Greeks have reportedly been pulling deposits out of the banking system in increasing numbers recently, scared at the prospect of their country being forced out of the Eurozone. The increase of only €3.3 billion in the ceiling on Emergency Lending Assistence might have left banks unable to honor requests for withdrawals. The banks are already effectively barred from the ECB’s regular lending operations because the ECB no longer considers Greek government debt as good enough collateral.

The German newspaper Frankfurter Allgemeine Zeitung had reported earlier Thursday that the ECB would rather impose capital controls on Greece than allow its banking system to continue being drained of resources. However, the ECB later denied this, saying that: “There was no discussion on capital controls in the Governing Council and any reporting on this is incorrect.”

This story updates an earlier version published before the German government issued its statement.

This article originally appeared on Fortune.com.

TIME energy

EU Pushes For Greater Integration Into an Energy Union

european-union-flag
Getty Images

While main stumbling block for the effort appears to be merely an engineering challenge, the bigger obstacle is political

European nations met in Latvia last Friday to devise a strategy to unify their energy sectors.

The Feb. 6 meeting in Riga by European Union energy ministers sought to find ways to increase interconnections across the continent to better insulate countries from dependence on Russia for natural gas. It also hopes to support new and cleaner generation – the EU has passed ambitious energy and climate goals for 2030, but still lacks the legal framework to achieve those goals, as the IEA noted in a 2014 report.

One of the main stumbling blocks to a European-wide “energy union” is the dearth of high-voltage transmission lines and major natural gas pipelines that traverse multiple countries.

While that appears to be merely an engineering challenge, the bigger obstacle is political. As with much of EU policy, national governments are reluctant to forgo sovereign power for the sake of EU goals.

But, the EU hopes that the summit will mark “the time when we finally move away from 28 national policies,” as European Commission Vice President Maros Sefcovic put it. The EU Commission will publish its strategy on Feb. 25.

European nations have made some progress over the past year. In 2014, Lithuania inaugurated a new liquefied natural gas (LNG) import terminal, which opened up Baltic nations to a vital new source of natural gas. Lithuania’s LNG import terminal gave it another option to Russian gas, and the small Baltic country used that enhanced leverage to win price concessions from Russia.

But with about one-third of EU gas coming from Russia – and Eastern Europe’s share is easily double that percentage – more needs to be done.

“We need to pool our resources, combine our infrastructures and unite our negotiating power vis-à-vis third countries,” European Commission President Jean-Claude Juncker said as part of his opening statement to European Parliament after his election. Juncker wants the energy union to act as a block to give Europe more sway when negotiating energy deals with outsiders.

The central pillar of the energy union, however, is a focus on more gas connections. There has been a stepped up effort on bidirectional gas flows to provide Eastern Europe with a safety valve in the event of a supply disruption.

Moreover, after years of political gamesmanship and regional jockeying, the EU has settled on a two-section gas pipeline that will connect Caspian gas from Azerbaijan to central Europe, cutting out Russia from Europe’s southern corridor. The Trans-Anatolian pipeline (TANAP) will start at the Caspian Sea and run the length of Turkey, hooking up with the Trans-Adriatic pipeline, which will take the gas from there on to Italy. The project should be completed by the end of the decade.

Beyond new gas supplies, the EU wants to liberalize electricity markets and unify rules across member nations. They have tried this before – electricity and gas markets were supposed to have been liberalized by 2007 according to a past EU directive, but there has been a lot of foot-dragging. That is because different states have different priorities and an EU energy union is not necessarily in the interest of key players at the national level. As The Economist noted in a Jan. 17 article, linking up Spanish wind power is something that French nuclear operators might resist.

In fact, it is not clear how the EU is going to overcome a lot of national turf battles. Some countries have regulated electricity pricing, others do not. Some are linked to their neighbors, others are not. Some prioritize clean energy, others put fossil fuels at the top of their agenda.

At its core, the European “energy union” will mean more Europe, which is something that may not be palatable in many countries these days. Anti-EU sentiment is rising – UKIP in the UK, Syriza in Greece, along with anti-EU factions on the right and left in Germany, France, Spain and others. The EU Commission will face an uphill battle.

This article originally appeared on Oilprice.com.

TIME russia

Russia Says It Would Consider Financial Help for Greece

Russian Federation Council member Anton Siluanov delivers a speech as Russian Federation Council deputy chairman Ilyas Ukhmanov, Russian Federation Council chairperson Valentina Matviyenko, Russian Federation Council deputy chairmen Evgeny Bushmin and Yuri Vorobyov (L to R, background) look on at a plenary meeting of the Russian Federation Council on Jan. 28, 2015.
Pitalev Ilya—ITAR-TASS Photo/Corbis Russian Federation Council member Anton Siluanov delivers a speech as Russian Federation Council deputy chairman Ilyas Ukhmanov, Russian Federation Council chairperson Valentina Matviyenko, Russian Federation Council deputy chairmen Evgeny Bushmin and Yuri Vorobyov (L to R, background) look on at a plenary meeting of the Russian Federation Council on Jan. 28, 2015.

Finance minister says Russia hasn't yet received a request for assistance

Russia’s finance minister said his country would consider providing financial support to Greece, raising the stakes for the European Union as it confronts the new Euroskeptic reality in Athens.

Anton Siluanov told CNBC that Russia has not received a request from Greece for assistance, but his comments come days after the anti-E.U. party Syriza won parliamentary elections, vowing to renegotiate aid packages from the bloc that are tied to strict austerity measures.

“We can imagine any situation, so if such petition is submitted to the Russian government, we will definitely consider it,” he said, “but will take into account all the factors of our bilateral relationships between Russia and Greece, so that is all I can say.”

The Greek government’s clash with the E.U. over its debt risks cutting the country off from euro zone lenders and private investors. That could create an opening for Russia to expand its influence in Greece—an ugly prospect for the E.U. as it engages in a sanctions battle with Russia over the conflict in Ukraine.

E.U. foreign ministers agreed on Thursday to impose a new round of sanctions, according to the Associated Press, apparently overcoming for now concerns from the new Greek government about expanding the rift between the EU and Russia.

[CNBC]

MONEY Greece

What the Turmoil in Greece Means for Your Money

The head of radical leftist Syriza party Alexis Tsipras waves to supporters after winning the elections in Athens January 25, 2015. Tsipras promised on Sunday that five years of austerity, "humiliation and suffering" imposed by international creditors were over after his Syriza party swept to victory in a snap election on Sunday.
Marko Djurica—Reuters The head of radical leftist Syriza party, Alexis Tsipras.

Expect lower stock prices.

Faced with an apocalyptic unemployment rate of 28%, voters in Greece have drawn the line on austerity measures that have mired the country in a crisis rivaling that of the Great Depression. In the worst case, the move could lead to Greece’s exit from the European monetary union. In the best case, it will produce much-needed debt relief for the country’s ailing economy. But either way, it’s prudent to assume the turmoil will roil equity markets both here and abroad.

The issue came to a head earlier this week when Greece’s “radical left” Syriza party won a plurality of votes in the latest election. Led by 40-year-old Alexis Tsipras, Syriza campaigned on a platform to ease the “humiliation and suffering” caused by austerity. This includes debt relief and rolling back steep spending cuts enacted by Greece’s former government in exchange for financing from the International Monetary Union and other members of the European Union.

To say Greece has paid dearly for these cuts would be an understatement. The consensus among mainstream economists is that austerity during a time of crisis exacerbates the underlying issues. We saw this in Germany after World War I when France and Great Britain demanded it pay colossal war reparations. We saw it throughout Latin America following the IMF’s structural adjustments of the 1980s and 1990s. And we’re seeing it now in Greece and Spain, where unemployment has reached levels not seen in the developed world since the Great Depression.

The problem for Greece is that Germany and other fiscally conservative European countries aren’t sympathetic to its predicament. They see Greece’s travails as its just deserts. They see a fiscally irresponsible country that exploited its membership in the continent’s monetary union in order to borrow cheaply and spend extravagantly. And they see an electorate that isn’t willing to accept the consequences of its government’s actions.

To a certain extent, Greece’s critics are right. Over the last decade, its debt has ballooned. In 2004, the country’s debt-to-GDP ratio was 97%. Today, it is 175%. This is the heaviest debt load of any European country relative to output.

It accordingly follows that the European Union stands once again at the precipice of fracturing. If the Syriza party sticks to its demands and Greece’s neighbors won’t agree to relief, then one of the few options left on the table will be for Greece to exit the monetary union and abandon the euro. Doing so would free the country to pursue its own fiscal and monetary policies. It would also almost inevitably trigger a period of sharp inflation in a reinstituted drachma.

This isn’t to say global investors should be petrified at the prospect of even the most extreme scenario — that of Greece abandoning the euro. In essence, the euro is nothing more than a currency peg that fossilized the exchange rates between the continent’s currencies in 2001. By going off it, Greece would essentially be following in the footsteps of the Swiss National Bank, which recently unpegged the Swiss franc from the euro after a drop in the latter’s value made maintaining the peg prohibitively expensive.

A more complicated question revolves around the fate of Greece’s sovereign debt. Seceding from the monetary union won’t eliminate its obligations to creditors. It likely also won’t change the fact that the country’s debt is denominated in euros. Thus, if Greece were to exit the euro and experience rapid inflation, the burden of its interest payments would get worse, not better. This would make the prospect of default increasingly attractive if not necessary in order to reignite economic growth.

But investors have shouldered sovereign debt repeatedly since the birth of international bond markets. Just last year, Standard & Poor’s declared that Argentina had defaulted after missing a $539 million payment on $13 billion in restructured bonds — restructured, that is, following the nation’s 2002 default. Yet stocks ended the year up by 11.5%. The same thing happened when Russia defaulted in 1998. Despite triggering the failure of Long Term Capital Management, a highly leveraged hedge fund that was ultimately rescued by a consortium of Wall Street banks, stocks soared by 26.7% that year.

Given all this, the biggest impact on investors, particularly in the United States, is likely to make its way through the currency markets. When fear envelopes the globe, investors flee to safety. And in the currency markets, safety is synonymous with the U.S. dollar. Over the last year, for instance, speculation about quantitative easing by the European Central Bank, coupled with the scourge of low oil prices on energy-dependent economies such as Russia and Mexico, has increased the strength of the dollar. This will only grow more pronounced if the U.S. Federal Reserve raises short-term interest rates later this year.

The net result is that American companies with significant international operations will struggle to grow their top and bottom lines. This is because a strong dollar makes American goods more expensive relative to competitors elsewhere. Consumer products giant Procter & Gamble PROCTER & GAMBLE COMPANY PG -1.16% serves as a case in point. In the final three months of last year, P&G’s sales suffered a negative five percentage point impact from foreign exchange. As Chairman and CEO A.G. Lafley noted in Tuesday’s earnings release:

The October [to] December 2014 quarter was a challenging one with unprecedented currency devaluations. Virtually every currency in the world devalued versus the U.S. dollar, with the Russian Ruble leading the way. While we continue to make steady progress on the strategic transformation of the company — which focuses P&G on about a dozen core categories and 70 to 80 brands, on leading brand growth, on accelerating meaningful product innovation and increasing productivity savings — the considerable business portfolio, product innovation, and productivity progress was not enough to overcome foreign exchange.

With this in mind, it seems best to assume revenue and earnings at American companies will take a hit while Europe works toward a solution to Greece’s problems. In addition, as we’ve already started to see, the hit to earnings will be reflected in lower stock prices. There’s no way around this. But keep in mind that we’ve been through countless crises like this is in the past, and the stock market continues to reward long-term investors for their patience and perseverance.

TIME Greece

5 Facts About the Greek Elections

Greek Prime Minister and Syriza party leader Alexis Tsipras, at the Presidential palace during the swearing in ceremony of the new Greek Government, Athens, Jan. 27, 2015 .
Panayiotis Tzamaros/NurPhoto/Corbis Greek Prime Minister and Syriza party leader Alexis Tsipras, at the Presidential palace during the swearing in ceremony of the new Greek Government, Athens, Jan. 27, 2015 .

The results of Sunday's elections in Greece pose major challenges to Europe

On Sunday, Greek elections ushered in a radical left-wing Syriza government in sweeping fashion: the party won 149 seats—two short of an absolute majority—on the back of its anti-establishment, anti-austerity platform. How dissatisfied are Greeks with the status quo? How does that compare with Germany, heading into tense negotiations over the southern European country’s debt? And where can Greece turn for support? Here are five facts that explain the situation.

1. Surging discontent

In 2010, Syriza was polling at 5%. In last weekend’s elections, they captured more than 36% of the vote. Meanwhile, Golden Dawn, an anti-immigration party with neo-Nazi associations, took third place with 6%. Perhaps a different poll best explains this surge in support for anti-establishment parties. In a Pew Research survey measuring economic attitudes, Greece came dead last among all countries polled: just 2% of Greeks think their economic situation is good. (Compare that to the 85% of Germans who are happy with their economy.)

(Eurasia Group, Pew Research)

2. 25%: Greece’s unlucky number

Why so much frustration with the economy? Since the financial crisis struck in 2008, the Greek economy has shrunk by more than 25%. So have wages. The unemployment rate is over 25% too. Youth unemployment is double that, rising to 50.6% in October. (Compare that to 7.4% youth unemployment in Germany.)

(Los Angeles Times, the Guardian, the European Magazine, Trading Economics)

3. Under pressure

When Greece inked a historic bailout worth $270 billion dollars, or some $25,000 per Greek citizen from the Troika—the International Monetary Fund, the European Commission and the European Central Bank—it came with a quid pro quo. The government has undertaken drastic cuts in government spending to try to balance the budget. Education funding has been decimated: over six years of austerity, the Ministry of Education’s budget has been slashed by more than 35%. The pain adds up: the University of Crete endured a budget cut of 75% in 2011, an additional 15% the following year—and a 23% cut is scheduled for this year. Syriza’s argument—that such cuts are a bad bet for Greece’s future and will undermine longer term growth—resonates with the broader Greek population.

(CNBC, European Parliament)

4. Brain drain

With the numbers so bleak, it’s no wonder Greeks are leaving in droves. Migration outflows are up 300% compared to pre-crisis figures; roughly 2% of the population has left, some 200,000 people. Somewhat ironically, over half of these emigrants have headed for Britain—and for Germany. Since 2010, more than 4,000 Greek doctors have left the country for jobs abroad.

(The Guardian, NPR, Deutsche Welle)

5. Pivot to Russia?

Greece has had a little help from a friend outside the EU. In 2013, Russia surpassed Germany to become Greece’s largest trading partner, with trade flows of $12.5 billion. Tourism is a huge part of the Greek economy, contributing over 16% of GDP—and Russia has been the fastest growing source of new visitors. In 2013, tourism revenues from Russia skyrocketed 42%. Of course, recent Western sanctions undermine this budding relationship—a weaker ruble means less tourism, and Russia’s EU food export ban hurts Greek fruit exporters. This could explain why new Greek Prime Minister Alexis Tsipras met with the Russian ambassador to Greece within hours of taking office—and publicly expressed his disapproval with new EU condemnations of Russia.

(Bloomberg, the OEC, EU Observer)

Foreign-affairs columnist Bremmer is the president of Eurasia Group, a political-risk consultancy. His next book, Superpower: Three Choices for America’s Role in the World, will be published in May

TIME Economy

Europe’s Economic Band-Aid Won’t Cure What Really Ails It

Prime Minister David Cameron Tries To Take A Harder Line with Europe
Carl Court—Getty Images E.U. flags are pictured outside the European Commission building in Brussels on Oct. 24, 2014

Quantitative easing is a good start, but it won't fix the Continent's underlying wounds

Markets always love a money dump, which is why European stocks are now rallying on news that the European Central Bank will purchase 1.1 trillion worth of euro-denominated bonds between now and September 2016. Bond yields are dropping, implying less risk in the European debt markets. And the value of the euro itself is falling, which should make European exports more competitive, which could in turn bolster the European economy over all.

All good, right? For now, yes, it is all good.

But let’s remember that central bank quantitative easing (QE) of the kind that Europe is now embarking on is always just a Band-Aid on economic troubles, not a solution to underlying structural issues in a country (or in this case, a region). Just as the Fed’s $4 trillion QE money dump bolstered the markets but didn’t fix the core problems in our economy—growing inequality, a high/low job market without enough work in the middle, flat wages, historically low workforce participation—so the ECB QE will excite markets for a while, but it won’t mend the problems that led Europe to need this program to begin with.

Those consist primarily of a debt crisis stemming from the lack of real political integration within the EU. Right now, Europe has a currency and an economic union that exists in a kind of fantasy land, with no underlying political unity. Until the Germans start acting more European (meaning creating a consumption society and realizing that they’ll have to do some fiscal transfers to struggling peripheral nations in exchange for the huge export benefits they get from the euro), and countries like Spain, Italy, Portugal and France start making the changes they really need (all the usual stuff—labor market reforms, cutting red tape, fighting corruption, opening up service markets), the debt crisis won’t go away.

Indeed, the challenge now is for countries is to use the breathing room that the ECB has given them to really come together over the next 18 months and make those reforms happen while committing to a truly integrated Europe. Germany should say it will unequivocally back peripheral nations financially in exchange for a promise of real reforms in those nations. (There should also be tough penalties for failure on both sides of the bargain.)

That will be tough for sure, but Europe will find itself in an even worse place come September 2016 if it doesn’t take action now. Post QE, without any real structural reform, the EU will simply have an even more bloated balance sheet, and the market will exact punishment for it. For a historical lesson on this, look to the many emerging market crises of the past where countries tried to spend themselves out of their problems without doing underlying reforms; it always ends in a stock market crash, a financial crisis, and plenty of tears.

The buck has stopped for Europe. The ECB has called policy makers’ bluff. It’s time to create a real United States of Europe to match the common currency.

TIME France

5 Facts That Explain the Charlie Hebdo Attack

People gather to pay respect for the victims of a terror attack against a satirical newspaper, in Paris, Jan. 7, 2015.
Thibault Camus—AP People gather to pay respect for the victims of a terror attack against a satirical newspaper, in Paris on Jan. 7, 2015.

Immigration figures, unemployment numbers and an unpopular President all offer context to a terrorism attack

Wednesday’s attack on magazine Charlie Hebdo shocked France, but tensions with the country’s Muslim immigrant population have been building for years. It looks like these attacks were motivated by anger among Muslim militants that the newspaper had published cartoon images that mocked the Prophet Muhammad. There is no political or demographic trend that can explain such a cold-blooded murder, but the statistics below tell a disturbing story about how this crime will exacerbate already high tensions in France and across Europe, making life still more difficult for Muslim immigrants.

1. All-time highs for migration
Rising anti-immigration sentiment in France comes at a time of historic levels of human movement. There are now more than 50 million people around the world displaced by violence, the highest number at any time since World War II. All of this refugee movement is being felt along Europe’s borders. Frontex, the E.U.’s border agency, estimates that 270,000 people tried to enter Europe illegally last year, shattering the previous high of 141,000 in 2011, the year of the Arab Spring. In 2014, more than 3,000 migrants died in their attempts to reach Europe.

(Los Angeles Times, Frontex via CNN, Frontex via the Telegraph)

2. Painful economic realities … and misconceptions
Youth unemployment in France is over 24%. As high as that figure may be, another troubling statistic surpasses it. The average person in France believes that 31% of the population is Muslim; in reality, the figure is 7.7%. (Yet, even this much-smaller-than-believed Muslim population is still the largest in Europe.)

(Eurostat, IPSOS MORI, Bloomberg)

3. Anti-immigration goes mainstream
Approval for Marine Le Pen’s Front National, an anti-E.U., anti-immigration party, has steadily risen. In 2010, 18% in France said they agree with the party’s ideas. That number has grown each year since, reaching an all-time high of 34% in the most recent TNS Sofres poll. In European parliamentary elections back in May, the Front National took first place in France with 25% of the vote.

(TNS Sofres , Ifop via Le Figaro, BBC)

4. All-time lows for a French President
President François Hollande’s approval ratings have dipped as low as 12%, the lowest tally ever for a French President. (According to more recent figures, they’ve “rebounded” to 15%.) The President has pledged to step down and not seek re-election in 2017 if he can’t curb unemployment. Currently at 11%, the unemployment rate is almost higher than his approval ratings.

(BBC, France24)

5. Passports — and lack thereof
As of August 2013, France had the third longest wait time in Europe for immigrants seeking naturalization: an average of 14 years. According to U.S. counterterrorism officials, there are more than 3,000 ISIS recruits believed to hold Western passports.

(Los Angeles Times, France24)

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