Category: Elcano Royal Institute

EU urges reopening of stalled membership talks, despite failures

William Chislett

The European Commission would like the talks on Turkey’s full EU membership, frozen for the past three years, to be renewed and greater attention paid to incorporating the issue of fundamental rights into negotiations with the country.
http://www.realinstitutoelcano.org/wps/portal/rielcano_eng/Content?WCM_GLOBAL_CONTEXT=/elcano/Elcano_in/Zonas_in/Commentary-Chislett-Turkey-EU-reopen-stalled-membership-talks

Has Spain Turned the Corner?

William Chislett

After almost two years of doom and gloom, the Spanish government has been trumpeting, perhaps rather too loudly, some good news on the economic front:

The economy shrank by ‘only’ 0.1% in the second quarter over the first quarter. Exports continue to boom. The number of tourists this year looks like setting a new record. The overall balance of payments (current and capital accounts) in the first half notched up its first surplus since 1997. Net foreign direct investment in Spain is on the rise. Car companies Renault-Nissan, Ford, Iveco and Seat have all announced big investments for their Spanish plants. Bank results are finally beginning to improve. Almost two-thirds of the revenues of the companies that form the Ibex-35 benchmark index of the Madrid Stock Exchange were generated abroad in the first half of the year. The risk premium –that term that even taxi drivers are knowledgeable about– on 10-year government bonds over German equivalents has dropped substantially. The Madrid stock market has become bullish and is at its highest point this year.

All of this is music to the ears of the government’s economic team, the troika (the European Commission, the European Central Bank and the International Monetary Fund) that has Spain under its tutelage, analysts and foreign investors, but means little to the man in the street, particularly if he is unemployed.

Morgan Stanley’s rating analysts recommended in a long report earlier this month titled ‘Viva España’ that investors ditch Italian government bonds and buy Spanish ones. ‘We are bullish on Spain in outright terms and versus Italy’, wrote Anton Heese and Maggie Chidothe.

The other side of the coin of macroeconomic fundamentals is that the official jobless rate is 26% (I say official because I do not believe it, and this is not to deny the seriousness of the problem), gross public debt continues to rise (92.2% at the end of June, surpassing the forecast for the whole year) and also the ratio of non-performing loans of banks, which at 11.6% and excluding the toxic assets in the ‘bad bank’ Sareb is close to an historic high.

There is no doubt that the economy has improved since the Popular Party (PP) took office at the end of 2011, and the spectre of a full-blow bailout, as opposed to just the one for ailing banks, is now a distant memory. According to Miguel Ángel Fernández Ordóñez, the former and discredited Governor of the Bank of Spain, there was a very real threat of Spain leaving the euro zone because of the banking crisis triggered by Bankia.

The government, by and large, has stuck to its guns and done what it said it would do and what it said it would not do (for example, raising taxes), but then what political party has not broken its campaign promises, especially after winning power and looking at the dreadful state of the public accounts?

Spain is beginning to come out of the woods, but the recovery will be very slow and net job creation will remain the biggest problem for a very long time. Last year’s labour market reforms have had no notable effect on employment, except on part-time jobs and this should not be sniffed at. The number of these jobs reached a record 2.75 million at the end of June (16.4% of the working population). Many part-timers go from being subsidy receivers to tax payers, which improves government accounts both ways. Part-time jobs as a proportion of total employment is still low in Spain, however. The EU average is 20%, and it is no coincidence that the countries with low unemployment rates, such as Germany, the UK and the Netherlands, have a high proportion of part-time jobs.

When a government begins to see some light in the tunnel (in Spain’s case a long one) there is always the temptation to ease up and believe its job is finished.

Close examination of Spain’s position in the components of the World Economic Forum’s Global Competitiveness Index, released this month, shows how far Spain still has to go. Although Spain moved up one notch in the overall ranking to 35th place out of 148 countries, its already low position in three of the 12 categories –macroeconomic environment, financial market development and labour market efficiency– worsened.

The country’s main strength is its world-class transport infrastructure (6th place) and a large and skilled labour force, thanks to one of the highest tertiary-education enrolment rates (8th). Spain also scores well in the availability of scientists and engineers (18th). The problem is there are nowhere enough jobs for them as Spain’s economy is a long way from being knowledge-based, as it has been excessively based on bricks and mortar. Significantly, the country’s capacity to retain talent is ranked 102nd, a big drop from 82nd last year. This underscores Spain’s brain drain: bright young scientists are increasingly working or seeking work abroad.

Let anyone believe there is a massive exodus from Spain, this is far from the case, although to judge from the Spanish press one would think otherwise. Between January 2009 and January 2013 the number of Spaniards born in Spain and residing abroad only increased by 40,000 (less than 0.1% of the population in Spain) to 1.9 million (three times less than the 6.4 million foreign-born citizens in Spain). Spanish society has in fact been exceptionally immobile over the last 30 years, after massive emigration in the 1960s and early 70s (see the revealing analysis -in Spanish- by Carmen González Enríquez at the Elcano’s website).

The PP faces a general election in just over two years. The Socialists, for the first time since the PP took power at the end of 2011, would very narrowly win an election if it was held this month, according to a Metroscopia poll. Voters are beginning to move towards the discredited Socialists –at the very moment when the PP has some good news– because they do not believe the macroeconomic turnaround tangibly benefits them and because of the toll that the slush-fund scandal of Luis Bárcenas, the former PP treasurer, is taking on the ruling party.

The government cannot afford to rest on its laurels. It has a long overdue pension reform to approve, in the face of trade union resistance, and has not yet started to tackle the equally urgent issue of tax reform. Spain’s tax system is very inefficient, and unless improved the country will never bridge the structural gap over the course of an economic cycle of around 5% of GDP between government spending and tax receipts. Pension and tax reform are vital for lowering the budget deficit on a sustained basis, unless the government is prepared to take an even bigger axe to spending, which is unlikely as it moves close to elections.
http://www.blog.rielcano.org/en/has-spain-turned-the-corner/

Turkey’s ‘Indignants’ Take to the Streets

William Chislett

The protests that started in Istanbul and have shaken the country are rooted in a lot more than complaints about riding rough-shod over opposition to the redevelopment of one of the few green spaces in the historic heart of a city of 13 million and turning it into a shopping mall.
http://www.realinstitutoelcano.org/wps/portal/rielcano_eng/Content?WCM_GLOBAL_CONTEXT=/elcano/Elcano_in/Zonas_in/Commentary-Chislett-Indignants-Turkey

Child well-being in Spain: the impact of the crisis

William Chislett

Children are the last people responsible for Spain’s crisis in all its many dimensions, but they are suffering the consequences to an equal or greater extent than other collectives, although this is not as visible as it is for other groups and is mainly confined to dramatic images in the media.
http://www.realinstitutoelcano.org/wps/portal/rielcano_eng/Content?WCM_GLOBAL_CONTEXT=/elcano/Elcano_in/Zonas_in/Commentary-Chislett-child-well-bieng-Spain-crisis

Cyprus’s crisis: Aphrodite to the rescue?

William Chislett

The future of bankrupt Cyprus and perhaps of the EU’s vast energy needs lies in the offshore gas field named after the ancient Greek goddess Aphrodite who, according to legend, was born on the tiny island nation.

The Aphrodite field, one of 12 blocks, alone could supply up to 40% of the EU’s current natural-gas consumption. The block, moreover, is close to Israel’s Leviathan gas field –the very name suggests how much energy it might contain–. According to the US Geological Survey, an estimated 122 trillion cubic feet of recoverable natural gas lie, along with 1.7 billion barrels of recoverable oil, beneath the seabed of the Levant Basin, about as much as the world consumes in a year.Gas from Israel’s smaller offshore Tamar field began flowing into the country on 31 March.

While the Greek Cypriot economy goes into meltdown (it could shrink by as much as 15% this year and the unemployment rate reach Spanish proportions), as a result of the collapse of its oversized banking sector (around seven times the annual GDP and much favoured by wealthy Russians wishing to salt away funds in the tax haven), the spotlight is now cast on the potential of the energy wealth in Cypriot waters. The vast reserves could ‘save’ not just the island in the long term (exports are not envisaged until 2019), but also make a huge contribution to the EU’s energy needs and reduce reliance on Russia. Half of EU countries’ energy supplies are imported.

The issue, however, is complex and not just simply one of extracting the gas and exporting it. Cyprus has been divided since Turkey invaded it in 1974 after attempts were made to unite the island with Greece. Since then Turkish troops have occupied the northern one-third of the country in the self-proclaimed Turkish Republic of Northern Cyprus (TRNC), which no other country recognises. Turkey disputes the right of the internationally-recognised Greek Cypriot government in the south of the island to exploit the energy wealth.

The whole of Cyprus joined the EU in 2004 (the acquis communautaire only applies to the Greek Cypriot part). Turkey has been negotiating its EU accession at a snail’s pace since for the past seven years. Roughly one-half of the 35 chapters of EU law that Turkey has to comply with have been suspended by the EU as whole because Ankara refuses to open its ports and airports to Greek Cypriot traffic and so recognise the Republic of Cyprus unless something is done to ease the isolation of the TRNC, or are blocked by France and Cyprus individually.

Noble Energy of Texas announced a major discovery at the end of 2011 in the exclusive economic zone of the Republic of Cyprus (with a 60% probability of geological success) after defying Turkish demands to stop drilling.

Ankara claims that sections of some of the blocks ‘overlap with Turkey’s continental shelf areas in the Eastern Mediterranean’. It resorted to gunboat diplomacy and sent ships and submarines to the area and threatened to provide naval escorts for survey vessels of the Turkish Petroleum Corporation exploring off the coast of northern Cyprus.

Nicosia says these claims are ‘legally unfounded and geomorphologically baseless’ and it put out to tender drilling in some of the blocks.

The Cypriot and Israeli governments have an agreement delimiting the maritime boundary between the two countries, as well as defence and cooperation agreements. These accords came after Turkey’s relations with Israel reached a low point in May 2010, following the Israeli raid on a Turkish-flagged aid flotilla seeking to break the Gaza blockade, in which nine Turks died. Recep Tayyip Erdogan, Turkey’s Prime Minister, is a vociferous supporter of the Palestinian cause. Ankara downgraded diplomatic relations with Israel to below the level of ambassador and restricted use of Turkey’s air space to Israeli cargo flights.

In a surprise move last month, Turkey and Israel began to patch up their relations after the Israeli Prime Minister, Benjamin Netanyahu, in a phone call stage-managed by the US President Barack Obama, bowed to Erdogan’s demand and apologised for the deaths. The rapprochement should be seen in the context of the deteriorating crisis in Syria and the need for both countries to work together to contain it (both Turkey and Israel have borders with Syria), but it could also be a game-changer for the region’s energy politics.

The detente between Israel and Turkey could facilitate the export of Israeli gas to and through Turkey, while piping Cypriot gas to Turkey, instead of building a costly liquefied natural gas plant in Cyprus, for which Nicosia on its own does not have the money, looks like the best solution. Turkey (at the nearest point around 100km from Cyprus) is the most easily accessible market for Cypriot gas.

Turkey (population 74 million), which does not have any gas or oil of its own, is becoming an energy hub for Europe. The 1,092-mile Baku-Tbilisi-Ceyhan pipeline traverses 669 miles of Turkish territory to ship Azeri Caspian oil to Turkey’s Mediterranean Ceyhan port. Construction of the 3,900km EU-backed Nabucco pipeline, repeatedly delayed because of cost overruns and problems in nailing down supply deals, which will link the gas-rich Caucasus and Central Asia to energy-hungry European nations, is envisaged to start this year.

Bringing the Cypriot gas to market will be politically and technically difficult, however. A pipeline to Turkey is unthinkable without a mutually satisfactory solution to the island’s division. Greek Cypriots massively rejected in a referendum in 2004 the reunification plan of Kofi Annan, the former UN Secretary General, while Turkish Cypriots overwhelmingly accepted it. Since then little progress has been made in one of the world’s most intractable problems.

Nicos Anastasiades, the embattled President of Cyprus, was the only prominent politician to vote in favour of the plan when he was head of the conservative Democratic Rally party. Greek Cypriots, however, are seething with anger at the demise of the banking sector, the mainstay of the economy along with tourism, and are in no mood to strike a deal with Turkish Cypriots.

Ankara, meanwhile, has wasted no time in exploiting Cyprus’s crisis, as it sees the Greek Cypriots boxed into a corner. No sooner was a deal reached between Nicosia and the troika than Ankara announced it would freeze out energy companies that cooperated with the Greek Cypriot government over offshore gas. Taner Yildiz, Turkey’s Energy Minister, said Eni, the Italian energy giant, would be barred from current and future projects in Turkey if it went ahead with a licence it won in January to explore gas off the Cyprus coast. French, South Korean and US companies have also been awarded exploration licences.

The Turkish Foreign Minister Ahmet Davutoglu has proposed three alternatives to end the stalemate in Cyprus, all involving the exploitation of natural gas around the island. He said the two communities could form a united Cyprus state and jointly exploit the natural resources around the island, or, in parallel to ongoing peace negotiations, Greek Cypriots and Turkish Cypriots could form a joint committee to exploit and market natural gas. The third option is a two-state solution.

Whether Cyprus’s crisis produces a more pragmatic approach to reunification remains to be seen. Unless Ankara decides to be magnanimous, which is unlikely in the present circumstances, a conciliatory gesture would have to come from Nicosia. Perhaps it will be inspired by Aphrodite, the goddess of love.
http://www.realinstitutoelcano.org/wps/portal/rielcano_eng/Content?WCM_GLOBAL_CONTEXT=/elcano/Elcano_in/Zonas_in/Commentary-Chilslett-Cyprus-crisis