In his State of the Union address on February 12 President Obama announced that the US will set up a Transatlantic Trade and Investment Partnership with the European Union. The US and the EU will soon start negotiations to create the world’s largest free trade area. The agreement will eliminate tariff barriers and harmonize regulatory and technical standards. It is argued that this will add up to two percent to GDP. The US and the EU already trade goods and services worth $ 2.7 billion per day. This seminar will discuss the politics and economics of such an agreement.

This event is part of The Europe Center's series on the "European and Global Economic Crisis."

Is the Eurozone crisis undermining European democratic socialism? Why the current economic and fiscal crisis is cause for concern and opportunity, not alarm nor decline, for the future of the European Left.

This is part of the Europe Center's series on the "European and Global Economic Crisis". 

Pia Olsen Dyhr was appointed Minister for Trade and Investment in  October 2011. Pia Olsen Dyhr became member of the Danish Parliament (Folketing) for The Socialist People’s Party in 2007. Before joining Parliament, she worked with policy, international relations, trade, and environmental issues at the non-governmental organizations CARE Denmark and the Danish Society for the Conservation of Nature. She carries a MA in Political Science from University of Copenhagen.

Timed between the election's first and second rounds, this discussion brings together noted scholars and authors with unique and deep insight into contemporary French political culture.

Co-sponsored by the Europe Center and the French Culture Workshop

A brief write-up of this discussion titled "French vote a rejection of Sarkozy, panelists say" can be found in the May 7, 2012 edition of the Stanford Daily.

Event Summary:

Arthur Goldhammer opens the panel by arguing that the first round of the French presidential elections, not the second, are "the real story." For the first time in the history of the Fifth Republic, divisions between left and right were less pronounced than between the top two tiers of candidates (Hollande/Sarkozy, and Melénchon/Le Pen) especially regarding their attitudes toward European integration, globalization, and the Euro. Goldhammer points out that given France's role as a top global investor as well as a leading destination for foreign investment, the anti-globalization stance of the second tier candidates is unrealistic, although it enjoyed broad support at the polls. Sarkozy responded to this show of support by attacking the Shengen agreement and other aspects of the EU in a bid to win votes, while Hollande kept a low profile on the same issues. If Hollande wins, Goldhammer predicts, he will be tested by the markets and the global financial industry. He also points out that the Socialist and UNP parties are both internally divided on important issues.  If Sarkozy loses and decides to leave politics, Goldhammer predicts a power struggle for leadership of the party.

Laurent Cohen-Tanugi predicts that if Hollande wins, the outcome will be a statement against Sarkozy more than one in favor of Hollande. He echoes Arthur Goldhammer's concern about a strong market reaction to a victory by Hollande, who has positioned himself as pro-growth and has sanctioned Sarkozy for his strict austerity measures. Cohen-Tanugi adds that Hollande's focus is on domestic politics, and that he lacks significant international experience. Whoever wins, he cautions, France is in for difficult times.

Jimia Boutouba describes the rise of the extreme right – which has invoked nostalgia for a pre-globalization era - leading up to the elections. This rise has been dominated by Marine Le Pen and the Front National, which vows to defend the "French way of life" and (like Sarkozy as the election neared) has made anti-immigration rhetoric a key component of its platform. Le Pen, however, has attracted many first time, rural, and female voters, and has been successful in setting the tone and the agenda of national politics. Boutouba sees several problems with this trend toward defining the nation by what it opposes (Islam, globalization, international finance, etc), and warns it can be very disruptive to the political system, pointing to the recent fall of the Dutch government. More significantly, the anti-immigrant tone of the discourse discourages second and third generation descendants of immigrants from voting or participating in the political process.

A question and answer session following the roundtable addressed such questions as: Have both Hollande and Sarkozy radicalized their rhetoric and proposals to win support from far right and far left voters? Will the taxes and government spending (which is already very high in France, at 57%) promised by some politicians choke private sector growth? Which candidate will be most attractive to this new generation of French college graduates? What are the main differences between the three potential leaders currently jockeying for control of Sarkozy's party? To what extent would a Hollande presidency be beholden to Communists, Greens, and other extreme left parties? How will a Hollande presidency affect France's involvement with NATO, and relations with the United States? What are the prospects for the future of the Euro?

Ronald I. McKinnon is an applied economist whose primary interests are international economics and economic development-with strong secondary interests in transitional economies and fiscal federalism. Understanding financial institutions in general, and monetary institutions in particular, is central to his teaching and research. His interests range from the proper regulation of banks and financial markets in poorer countries to the historical evolution of global and regional monetary systems. His books, numerous articles in professional journals, and op-eds in the financial press such as The Economist, The Financial Times, and The Wall Street Journal reflect this range of interests.

Event Summary

Professor McKinnon first outlines the two major assumptions behind his paper (available on this page). First, that from December 2008 to August 2011, an inflow of "hot money" to emerging economies resulted from low U.S., European, and Japanese interest rates. Since then, the trend has reversed in the wake of the European banking crisis and bank lending has fallen. Second, the dollar remains the widespread central bank reserve currency despite instability in the U.S. system. 

McKinnon voices concern about Federal Reserve Chairman Ben Bernanke's zero interest rate policy, calling it an overreaction to the crisis and a "lose-lose" policy as it deters investment in the U.S. while simultaneously spurring destabilizing hot money flows to surrounding emerging markets. These countries are in turn forced to suppress interest rates to mitigate the inflows, and to build up dollar reserves to keep exchange rates in check. The zero interest rate policy also stimulates carry trades in commodities by speculators.

The belief that under a zero interest rate regime, inflation will stimulate the economy by bringing real interest rates to negative levels, is misplaced in McKinnon's view. He argues that this simply adds uncertainty and interferes with efficient bank intermediation, as banks hold high excess reserves and tighten lending, causing a procyclical contraction as has been seen in the United States and Europe. He contrasts this approach with China, which stabilized its economy following the “dot-com” bust by expanding rather than contracting bank credit. He criticizes U.S. pressure on China to appreciate or float its currency, asserting that these strategies would fail to reduce China's trade surplus.

McKinnon suggests that international reforms should target interest rates instead of exchange rates.  He recommends coordination between central banks of the major industrialized countries, especially the United States, European countries, and Japan - to collectively raise interest rates to approximately 2%. This would improve overall bank intermediation, and would benefit both central and peripheral countries in Europe.

A question and answer session following the talked addressed topics including: the likelihood of a coordinated effort between central banks; the potential effects of Kucinich's monetary reform proposal; the potential negative effects on real growth from carry trades, and whether this is a cause for concern; and the effects of bank borrowing trends in Europe on the European monetary system.