John Mourmouras, Deputy Governor of the Central Bank of Greece, Talks Euro and the North-South Divide

Written by Lyubomir Hadjiyski

John (Iannis) Mourmouras is Deputy Governor of the Bank of Greece with responsibilities pertaining to the implementation of monetary policy, global capital markets, payment and settlement systems, and bank resolution. He is also Chairman of the Bank’s Financial Asset Management Committee.  He served as Deputy Finance Minister of Greece (2011-2012) and was Chief Economic Advisor to the Greek Prime Minister, as well as Head of the Prime Minister’s Economic Office (2012-2014). He is Professor of Macroeconomics at the Department of Economics, University of Macedonia – Thessaloniki, Greece, and has previously held academic positions at a number of British universities. He holds a PhD from the University of London and is a graduate of the London School of Economics (LSE).

John Mourmouras spoke to Princeton students and faculty today on the topic of the Euro — the common currency of the European Union. He highlighted the currency’s achievements and drawbacks in the 21 years since its implementation, and his predictions for the opportunities and challenges that lie ahead.

The two decades of the Euro can roughly be split into two, each with its own distinct characteristics. The first, from the introduction of the currency in 1999, ended in 2008 with the global financial crisis. During this time, the Euro emerged as the world’s second reserve currency behind the US Dollar — a position it still holds today. The second period, from 2009 to 2019, was marked by ten years of European economic turmoil that hit Southern countries particularily hard. During this time, four EU member countries participated in EU bailout programs — included Greece, Portugal and Cyprus — while the European Central Bank (ECB) engaged in unconventional monetary policy like setting negative interest rates and engaging in quantitative easing.

However, the North-South divergence existed far before the Eurozone crisis. In the ten years after the 1999 introduction of the Euro, North European countries saw, on average, a 30% increase in their GDPs. For Southern Europe, this number was closer to 10%. Indeed, the split between the North and South appears to be chronic, and largely due to three reasons. The first is historic differences in unemployment rates: while some countries like Spain have a long-term unemployment rate of 12%, most Scandinavian countries hover around 5%. This means that potential output is lost in Southern European countries. Second, labor and total factor productivity is significantly lower in the South. Third, asymmetries in incomes have arisen due to lower wages and stricter austerity measures in the South, which has also impacted consumption. All in all, the North-South divide has widened since 2009, which poses a substantial challenge to the unity of the EU.

There are several lessons to be learned from the Eurozone crisis, the most important of which is that the sovereign debt crisis was not inevitable: the existence of a common fiscal authority (in addition to the common monetary authority in the face of the ECB) would have lessened the impact of the crisis by formulating a common fiscal response in both prior and after the Eurozone crisis. National governments failed to use fiscal and other policies to manage the credit boom of the early 2000s, and subsequently relied on excessive austerity to manage the crisis. Further, the ECB was too slow in moving towards unconventional policies like quantitative easing, all of which prolonged recession.

There are several challenges that lie ahead. Among the greatest are what role, if any, the ECB will take with regards to Climate Change. While some, including ECB President Lagarde, argue for an active role, the question remains whether this is within the purview of the institution. Second, the emerge of digital currencies will bring multiple difficulties and opportunities, and Central Banks all over the world will have to contend with tech giants and corporations that control these alternative currencies. Finally, Europe’s populist wave may threaten both the unity of the bloc and the ability of the ECB to make independent, technocratic decisions; the prospect of politicizing the institution is real and dangerous.

The Euro’s 21-year history has been eventful. However, Mourmouras argued that this is the natural evolution of monetary unions — after all, the United States only established its Federal Reserve more than 100 years after independence. The Euro is a global currency: it remained strong throughout the debt crisis and is here to stay. Whether it will overtake the US dollar, continue to be the world’s second reserve currency, or lose this title to the Yuan depends on political will and smart policy.

The EU and Turkey: event with Mario Zucconi, author of ‘EU Influence Beyond Conditionality’

Written by Riccardo Talini Lapi

Mario Zucconi studied at the universities of Perugia and Palermo, Italy. In 1968-1970 was a postdoctoral fellow at Princeton University with a Harkness Fellowship. He then taught or was a guest/research fellow, among other places, at Naples University, Urbino University, Johns Hopkins’ SAIS (Bologna Center), NATO Defense College, Columbia University, University of Maryland (College Park), Woodrow Wilson International Center for Scholars. He taught (as visiting professor and later lecturer) at Princeton’s Woodrow Wilson School of Public and International Affairs first in 1987 and then regularly from 2003-04 to 2017-18. He led research projects for the Italian Ministries of Defense and Foreign Affairs and was, on several occasions, expert witness at hearings of the European Parliament and at UN’s consultations. His research has focused on transatlantic relations, East-West relations, the Balkans, Turkey and the Middle East and, most recently, on democratic transition.

Professor Zucconi came to present his new book “EU Influence Beyond Conditionality: Turkey Plus/Minus the EU.”  Professor Zucconi tries to fill the gap in the literature on EU conditionality, which rarely looks at what happens within the target country and focuses too often on normative problems, rather than political conditions. His research centered on analyzing the difference in Turkish domestic politics before and after the start of the accession talks to the EU.  Professor Zucconi’s thesis is that EU enlargement can bring peace and stability, and the case of Turkey proves it.

Turkey became candidate country to the EU in 1999, after years of political instability and military rule. In 1995 there were a dozen parties in Turkey, of which 6 represented in parliament. The Welfare party, the Islamist party, became the leader of government, but in 1997 the secularist military staged a coup and took over. By the turn of the century, the EU had become the “substitute authority” Turkish people looked upon for hope and direction. The Islamist AKP, born from the ashes of the Welfare and the Virtue parties, the party still ruling today, adopted EU conditions as their official political platform at the 2002 elections. In 2002, the AKP won over 2/3 of seats in parliament, and was thus able to govern without coalition partners. This victory did not only come about because of the mass migration of the rural population to the cities, but mainly because Islamist was the first alternative to authoritarianism. The periphery was, in fact, emancipating itself through the process of migration and political participation in the cities. By 2001, over 75% of the Turkish population favored being part of the EU. The popularity of the EU could not even be stopped by the military, whose chief of staff declared in 2003 that the military would respect the people’s democratic decisions. This positive cycle was reinforced in 2004, when formal negotiations to enter the EU began.

A staff adjusts European Union and Turkish (L) flags ahead of the arrival of Turkey’s Prime Minister Tayyip Erdogan (not pictured) at the EU Commission headquarters in Brussels January 21, 2014. REUTERS/Francois Lenoir

However, in the same year, Cyprus joined the EU thanks to Greek pressures and the Cypriot question became the scapegoat to suspend the accession talks in 2006. As Professor Zucconi noted, perhaps Europe was not ready to accept a majority Islamic country in the Union and to have borders with Iran and Syria. Yet, he thinks that Turkey would have been a strategic member for the EU, as much if not more than the UK as he was once told in Brussels. In 2006, Europe disappeared from Turkish domestic politics, while the AKP has remained in power under Erogan’s leadership. Without the EU, Turkish politics went back to the polarization between secularism and Islamism, with the latter succeeding in the creation of an authoritarian regime under Erdogan’s leadership. The Islamists used the military’s own methods to construct a regime where the links with Europe would progressively disappear.

Today, Turkey is still ruled by Erdogan’s AKP and it has redirected most of its trade and political network from the EU to the Middle East. It is playing an aggressive role in the eastern Mediterranean and is far from the stabilizing Middle Eastern power it used to be in the 1990s and early 2000s. The case of Turkey teaches us that the EU enlargement process should be reformed, and conditionality should be tailored to the domestic politics of the target country to ensure successful entry into the EU.

The Futures of Nuclear Europe: event with Dr. Sebastien Philippe (Princeton University, Program on Science & Global Security)

Written by Lyubomir Hadjiyski

Dr. Sébastien Philippe is an Associate Research Scholar at the Woodrow Wilson School of Public and International Affairs where he is a core member of the Program on Science and Global Security. His research focuses on the negotiation, monitoring and verification of nuclear arms control and non-proliferation agreements, the reconstruction of past nuclear weapon activities, and the impact of emerging technologies on the safety, security, and vulnerability of strategic nuclear forces. Dr. Philippe spoke to students and scholars about the security challenges Europe faces –particularly in relation to nuclear weapons.

Two recent events on the international scene have caused European leaders to reevaluate their strategic security. In 2018, the United States withdrew from the Joint Comprehensive Plan of Action and imposed sanctions on companies–including European ones–who dealt with Iran. This year, the United States also withdrew from the Intermediate-Range Nuclear Forces Treaty with Russia, which was signed during the Cold War and banned the two countries from developing and deploying short- to medium-range nuclear warheads. With these two pillars of European nuclear security eroded, EU leaders have started to re-evaluate their perception of the United States as a predictable power dedicated to European security, and are beginning to seek alternative options.

We may be experiencing the “erosion and near collapse of arms control,” said Dr. Philippe in reference to recent US withdrawals from nuclear treaties.

Dr. Philippe laid out several scenarios for the future of European nuclear security. The first and most obvious is a “business as usual” scenario, whereby European countries continue relying on the US for their security, accept their inherent nuclear vulnerability, and rely on change in the current administration and its policy towards Europe in 2020.

The second option is what he calls “pursuing strategic autonomy,” which is also what French President Emmanuel Macron hinted at in his widely-circulated ‘The Economist’ interview in which he called the US-backed NATO security alliance “brain-dead.” What this option entails is building up joint military capabilities within the European Union, as opposed to NATO. Two EU members, France and Britain, possess a nuclear arsenal, but in a post-Brexit Europe, France will remain the only nuclear power. Strategic autonomy may mean that that French nuclear weapons will be stationed in EU member states and be shared by the bloc. This scenario, Dr. Philippe, says is currently unlikely due to three reasons: the French nuclear weapon is highly dependent on the United States’, such a deployment may have too little democratic legitimacy, and it is unclear who will foot this bill.

The third option is somewhere in between, but nonetheless involves re-evaluating the EU-US relationship. What is perhaps most worrying is that current US foreign policy and security decisions seem to be less of an anomaly connected to the current US President Donald Trump and more of a tendency among wider political circles. Regardless of where European security heads in the future, one thing is certain: EU citizens must be consulted, or else the bloc risks loosing even more of its democratic credibility.