How Macron Became E.U.’s Saviour
By Kyanna Ouyang
For the past years, the right has cried that Europe is destined for Armageddon, thrust upon its path by immigration, bureaucracy, its welfare states and labor laws. Last year, even the most educated British demanded for “leave” in the Brexit referendum, declaring that since the European Union was headed for collapse anyway, the United Kingdom should flee as soon as possible.
Perhaps they are right. But, throughout the past few months, Austria, Holland, and now France, have stifled far right politicians who represented nativism, nationalism and anti-E.U. In doing so, these countries have defied the beliefs of E.U. skeptics.
Three weeks before Christmas, Alexander Van der Bellen, center-left, defeated Norbert Hofer, of the anti-immigration Freedom Party, by fifty-four per cent to forty-six per cent in the Austrian presidential election. In March, Mark Rutte, the center-right Dutch Prime Minister, soared to victory in a landslide election, as Geert Wilders, founder of the far-right, Islamophobic Party for Freedom, received a meager 13% of the vote.
Now, centrist Emmanuel Macron, founder of his neither-left-nor-right party En Marche!, won in a landslide victory on Sunday, May 7, grabbing 67% of the vote against Marine Le Pen of the far-right National Front. Macron won the endorsements of his previous opponents, center-right Republican François Fillon and center-left Socialist Benoît Hamon, reminiscent of the election of 2002 when all presidential candidates who were eliminated after the first round supported center-right Jacques Chirac against Le Pen’s father, Jean-Marie Le Pen, resulting in 82.2% of the vote for Chirac.
President François Hollande also expressed support for Macron, saying, “What is at stake is France’s make-up, its unity, its membership of Europe and its place in the world.”
From one perspective, Sunday’s result was shocking and disruptive. For the first time in sixty years, neither of France’s traditional leading parties will have a candidate in a Presidential election. Meanwhile, Le Pen has cemented the position of the National Front, a longtime fringe party, as a major force in French politics. Hitting the campaign trail again on Monday, she declared that the election was a referendum on “uncontrolled globalization” and accused Macron of being “weak” on confronting terrorism.
From another perspective, however, Sunday’s result was reassuring for people who worry about the rise of extremism in Europe. Le Pen’s share of the vote was only five percentage points greater than the share her father, Jean-Marie, received in the first round of the 2002 Presidential election. She was bested by Macron, a thirty-nine-year-old former minister in the Socialist government of Hollande, who portrays himself as the head of a new movement occupying the middle ground, which he calls En Marche—On the Move. Appearing before his supporters on Sunday night, Macron said, “I want to be the President of all the patriots against the threat of all the nationalists.”
The message of these three recent elections is that, so far, at least, the European center has held—an outcome that seemed far from certain twelve months ago. In the first round of the Austrian Presidential election, last April, with the migrant crisis dominating the headlines, Hofer, who campaigned on the Trumpian slogan of “putting Austria first,” finished ahead of all the other candidates. In a runoff held a few weeks later, Van der Bellen, a former leader of the Green Party, narrowly defeated Hofer, but the results were annulled after allegations of voting irregularities. As late as August, opinion polls suggested that Hofer would win the rerun.
Wilders and Le Pen, who have worked together to create a far-right bloc in the European parliament, both got a lift from the Brexit vote. They both share a preoccupation with the threat of Islamist groups, peddle similar rhetoric about élitist politicians and bureaucrats in Brussels selling out the common people, and promised to hold referenda on membership of the E.U. in their respective countries if they were elected. (Hofer was a bit more circumspect on this last point. He said he’d a call referendum if the European Parliament took more power, or if Turkey joined the Union.)
A victory for any far-right candidate, but especially for Le Pen, would represent an existential threat to the E.U. Today, all across Europe, pro-E.U. politicians are hoping fervently that the populist wave has crested. Jean-Claude Juncker, the Luxembourg national who is the head of the European Commission, congratulated Macron on Sunday’s result and wished him “good luck for the future.” The German foreign minister Sigmar Gabriel said, “I am certain that Emmanuel Macron will be the next President of France. Great for Europe.”
After the surprises of Brexit and the U.S. Presidential election, it would be premature to endorse Gabriel’s prediction of the outcome of the vote on May 7th. But if Macron were to win—opinion polls currently show him leading Le Pen in a head-to-head contest by twenty points or more—the result would certainly provide some welcome breathing space for the E.U. Half of the Franco-German alliance that underpins the union would have been shored up. And the other half would be looking pretty solid, too. (It seems likely that September’s general election in Germany will be contested primarily between two pro-E.U. candidates: the center-right Chancellor, Angela Merkel, and the head of the center-left S.P.D., Martin Schulz.)
For supporters of the European project, there is reason to be hopeful, but not to get complacent. Even if the threat of right-wing populism is held off this time, it won’t go away. Politicians like Le Pen, Hofer, and Wilders are odious, but they can draw support from a broad constituency of alienated and disaffected voters, who, like many Trump supporters in this country, believe the political establishment has ignored them.
In the European context, the challenge in confronting right-wing populism is threefold: restoring broad-based economic growth and job creation to the economy (the French unemployment rate is still at more than ten per cent, and the youth jobless rate is above twenty per cent); dealing with the issues of terrorism and migration from the Middle East and North Africa, which are associated in the minds of many voters; and boosting public support for the political institutions of the E.U., which many people see as remote and out of touch. If Europe fails to meet these challenges in the years ahead, popular resentment could increase further, and with it could come more support for the far right, bringing about the breakup that the pessimists foresee.
In France, Macron campaigned on a platform that he claimed was neither left-wing nor right-wing. It included cutting corporate and payroll taxes, reducing class sizes in schools, increasing military spending, opposing religious discrimination, and persuading Germany to adopt pro-growth policies for Europe as a whole. How important his individual policy positions were is debatable. His background as a technocrat and investment banker hardly made him an obvious candidate to take on populism. But, after the two traditional parties stumbled from exhaustion and corruption, he provided someone for anti-Le Pen voters to rally around.
Even if Macron does emerge victorious from the runoff election, there is no assurance that he will have sufficient support in parliament to fulfill his pledges, or that they would make very much difference. (The recent history of French politics is the history of reformers getting frustrated.) These are questions for the future, though. For now, Macron’s task is to finish the job and defeat Le Pen. Anyone who wants a stable Europe rather than one lurching toward the rebirth of nationalism that destroyed it in the twentieth century should wish him well on May 7th.
FED Balance Sheet Explained
By Catherine Chen
During the Federal Reserve’s March meeting, discussion arose over a plan to begin unwinding the balance sheet to more manageable levels. As the FED continues to raise interest rates in anticipation of reaching full-employment output, officials are also beginning to address the trillions of bonds the FED holds on its “balance sheet.”
In his speech in Mumbai on Thursday, New York FED President William Dudley made three key statements:
Now that the economy has shown signs of recovery from the financial crisis and continues to expand, the FED must find its way back from its uncharted journey through the normalization of monetary policy. This entails returning the balance sheet and interest rates back to “normal,” or pre-2008 levels. The Federal Reserve can do this in two different ways. The first is to simply allow the bonds to mature and stop reinvestment. Over a few years, the balance sheet will begin to dwindle on its own. The second is to sell bonds back into the market, which may put pressure on the bond market and lead to instability. The former option is thus much more likely to occur. In both scenarios though, the failure to reinvest principal may decrease the demand for bonds and thus have a contractionary effect on the economy.
Ultimately, the Federal Reserve hopes to return the balance sheet and interest rates back to normal levels so that monetary policy will be effective in counteracting future recessions. Traditionally, the FED increases and decreases interest rates by selling and buying bonds in order to influence the money supply and produce a contractionary or expansionary impact on the economy. At the moment, interest rates can barely go any lower, leaving the FED with limited tools if a crisis is to occur.
However, reducing the balance sheet does not come without risks. Although the FED has wanted to normalize interest rates for a while now, concerns over the slowly recovering economy has led to precaution. When the FED stops buying bonds and reduces the demand for bonds, the potential spike in long-term interest rates can destabilize markets.
The key, then, is for the FED to gradually reduce and taper off its balance sheet--a process that can take many years. As always, the FED will continue to analyze economic conditions and make policy decisions from there.
Do Negative Interest Rates Work?
by Andrea Lan
Countries such as Japan, Switzerland, and Denmark are dabbling in the world of negative interest rates in an effort to encourage spending. Negative interest rates are exactly what they sound like: instead of earning interest on savings, the central bank will shrink the account balance on bank reserves. Theoretically, central banks will target a negative overnight lending rate in an effort to encourage people to spend and banks to loan in order to increase demand for borrowing, while lowering the cost of borrowing.
This however does not mean that all interest rates are negative, it is just a rate that the central bank targets.Fundamentally, people need incentive to save. Thus, the longer people lock down their money, the higher the interest rate will be on those savings. Shown in the chart on the left, the short term lending rate starts negative, while long term bonds still yield a positive return. Consequently, banks are struggling to make a profit and keep excess reserves for overnight interbank lending.
Nevertheless, the theory behind negative interest rates remains to be just that: a theory. Reality shows that negative interest rates do more harm than good. In response to near negligible inflation and falling prices, Japan introduced a .1 of one percent fee on banks’ reserves in 2014. Two years later, “core consumer prices [still] fell .5 percent”. Additionally, only two months post negative interest rates, demand for Japanese bonds increased. Suggesting that despite negative interest rates, people were still willing to secure their money in bonds rather than spend it. Four years later and Japan has yet to hit its 2% target inflation. Though Japan has recently seen a small boost in their economy, it would be a reach to credit it to negative interest rates given the recent increase in prosperity within the global economy. Undoubtedly, the recent inflationary pressures could very well explain the boost in price levels that many of these countries have been looking for. While this unorthodox form of monetary policy has put more money in circulation, it does not mean that the money is being well spent or, for that matter, even spent at all.
The long term effectiveness of negative interest rates is questionable. Although low interest rates make borrowing cheaper, it does not mean the investments being made are in the interest of increasing capital stock, labor force, and furthering education. Looking into a country who is no stranger to negative interest rates, Denmark has been below zero for five years this July while their prosperity remains dubious. Despite Denmark’s flourishing housing market, the high-risk borrowing that comes with low interest rates leads to unreliable loans. Leaving the country with an influx of potentially-questionable loans if the interest rates were to ever rise again. If the interest rate were to resume positive rates, many will no longer be able to afford their loans, posing the threat of defaulting on loans… sound familiar? In 2008, the millions of people who defaulted on loans which they could not afford largely contributed to the catastrophic collapse of the housing market.
All in all, this new phenomenon has not been proven to be effective in the short run and poses many potential problems for long term growth of an economy. Putting more money in people’s pockets does not guarantee that they will spend it.
Intrigued? This will not be the last that you hear of the fascinating world of negative interest rates, Although interest rates are negative our interest in them certainly is not!
By: James Gao
This week, the South Korean population discovered the target of its next fanatical obsession: newly elected President Moon Jae-in’s unnamed bodyguard, who has quickly become a Twitter sensation for his good looks. While the Internet’s infatuation with Moon’s bodyguard may be in good fun, seeing as his election comes at a critical period for the country, Moon must hope that his presidency will be even half as sensational and widely appealing as his bodyguard’s looks.
Following the disaster that tainted ousted President Park Geun-hye, the South Korean population scrambled to find a suitable replacement for the country’s highest office. They needed an uncontroversial candidate who could bury the scandals of the past and focus on the future. They needed a leader who could effectively respond to the rising tensions in East Asia that threaten South Korea’s security.
On May 9th, 2017, the South Korean people found their answer in Moon.
Moon, a member of the Democratic Party of South Korea, is the first liberal candidate to be elected to the South Korean in almost ten years. Previously a human rights lawyer, Moon served as a member of South Korea’s national assembly and ran unsuccessfully against Park Geun-hye in the 2012 presidential elections. For the entirety of his political career, Moon seeked to paint himself as a politician who connected to the people; an advocate for the common man who rejected the elite “establishment” of political insiders like Park. In the first week of his presidency, Moon has publicly rejected the use of butlers, and pledged to forsake residing in the presidential palace of South Korea in favour of a more humble office in Seoul.
In many aspects, Moon is a foil to the disgraced Park Geun-hye. He represents the change that the South Korean people wanted as they seek to put the remnants of Park’s tarnished presidency behind them. Nowhere is the symbolic change Moon brings more palpable than in his foreign policy.
For South Korea, effective foreign policy is critical in protecting the country’s sovereignty amidst unpredictable neighbors. South Korea is nothing but a helpless onlooker in the eastern Asia region as its next-door neighbors - North Korea and China - aggressively pursue their self-interests.
In the case of North Korea, the country’s mere existence is an existential threat to South Korea. The country has recently intensified its nuclear weapons and ballistic missiles program, with the Kim regime seeing “significant technological advances” in the range of its missiles, posing an immediate threat to its sworn enemy immediately south of the 38th parallel. In dealing with North Korea, Moon hopes to revive the “Sunshine Policy” of previous liberal South Korean presidents: one focused on diplomacy, openness and willingness to negotiate with Kim Jong-un. Moon involved himself in implementing this policy when he served as former President Roh Moo-hyun’s chief of staff in 2005. During that period, the Korean Peninsula saw increased economic cooperation between the two Koreas, more diplomatic dialogues and many concessions made to the North Koreans. While the policy was abandoned in 2008 after North Korea backtracked on its promises to end its uranium enrichment program, Moon wants to give the policy a second shot - but in order to do that, he must take into account the changes in the Asian geopolitical landscape that have occurred in the past nine years.
First on Moon’s to-do list is establishing strong relations with the Trump administration. While South Korea’s left has been historically anti-American, Moon recognizes the importance of the two countries’ alliance and pledges to cooperate with Trump in order to resolve the North Korean crisis. However, Moon is likely to find friction with his American counterpart, unsurprisingly due to Trump’s confusing policy positions. While Trump recently stated that he would be willing to meet with Kim Jong-un, his actions speak louder than his words - and Trump’s actions are the exact militaristic aggression against North Korea that Moon wants to avoid. Trump, having previously said that he would not rule out the possibility of preemptively striking North Korea and heralding the use of aggression, will need to compromise with Moon on creating a united foreign policy approach. Without Moon’s approval, the prospect of using military force looks unlikely in the near future. But it is unclear as to how willing the Trump administration will be to give in on its current high-pressure approach to the Kim regime.
Moon’s policies are likely to cause similar friction with Japan, a fellow close ally of America whose security is also compromised by the growing North Korean nuclear threat. While relations between the two countries are strained due to the legacy of Korean “comfort women” sex slaves used by the Japanese empire during World War II, cooperation on the subject of North Korea is critical. Much like Donald Trump, conservative Japanese Prime Minister Shinzo Abe wants to continue forcing the North Koreans to back down through aggressive action. It is imperative that Moon and Abe also reach agreement on the North Korean crisis, and continue their military information sharing program that may be critical for the safety of both countries.
The disagreement between the United States, Japan and South Korea is further exacerbated by the Terminal High Altitude Area Defense (THAAD) missile defense system, currently being implemented jointly by the United States and South Korea. The system, which consists of several truck-based rocket launchers stationed in South Korea, would be able to hit any incoming North Korean missiles over South Korea and Japan. While the agreement was a strong step forward for the country’s relations with America, they have also simultaneously antagonized China, something that Moon does not want. THAAD includes a missile scouting radar that ranges into Chinese territory, and Chinese government officials fear that the system would allow America to spy on China and give them a military advantage in Asia. In response to South Korea’s deployment of the system, the government has encouraged the boycotting of South Korean businesses and tourism. This has seriously stifled the South Korean economy; China is South Korea’s largest trading partner and the country has seen a small recession since Chinese boycotts began.
Moon has repeatedly called for a reconsideration of the system’s deployment, citing it as an unnecessary measure that only worsens tensions on the peninsula. In addition, the country’s economic growth is contingent on a compromise with China. THAAD has already been half-deployed, and, as such, prompting a removal of the system now would be costly and strain the country’s relationship with America. Instead, the two countries will likely reach a negotiation that soothes Beijing’s fears and lifts the dampers on the South Korean economy. Meanwhile, Moon will pressure China to use its economic leverage over Pyongyang (China is the hermit kingdom’s sole trading partner) to suppress the North’s nuclear weapons program. The first steps to repairing Sino-Korean relations have already been taken, with foreign ministers from both countries meeting and pledging support for improved future relations.
Moon Jae-in is faced with the difficult task of appeasing two giants: maintaining strong relations with both China and the United States. While a difficult feat, cooperation with both countries is needed to deal with the immediate threat of North Korea. Moon’s pro-diplomacy North Korean policies will likely lead to conflict between South Korea and its allies - and that is when Moon Jae-in’s negotiation skills will be truly put to the test.
Only ten days into his presidency, Moon Jae-in is still in his “Honey-Moon” phase. The atmosphere surrounding the newest South Korean president is optimistic. He has been described as “pragmatic” and “humble”, and saw approval ratings skyrocket within his first week. But it won’t be long after the new Moon that the sun will rise again, and only after Moon’s words become actions will we truly know if South Korea’s foreign policy future will be all sunshine and rainbows.