THE ALPHA

ENDING THEENDING THE

Journal 2 - The Alpha

CRIS ISCR IS IS

Elvis Lediņš’ father worked at a car compa-

ny when the crisis hit Latvia. In 2008, he got

fired and three months later the company went

bankrupt. Fortunately, they had unemployment

insurance which enabled them to support a few

friends financially.

Patrick Koepsel is one of the delegates who experienced

the consequences of the crisis in a very harsh way. His

mother lost her job, and despite of her high qualifications,

it was impossible for her to find a new one. They thus had

to move to Germany, leaving their homeland Spain.

Shiofra O’Toole’s mother lost her job when the recession hit

Ireland three years ago. It was very difficult for her to start

working as primary school teachers in Ireland again.

Kit Powell’s family runs a small clothes shop, people are

buying less and increasingly use online services to buy

clothes. As her parents are self-employed, they need to in-

vest all their money into their business.

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We all know that there is a crisis, it is impos-

sible to ignore the desperation enveloping

European nations. But how do we know all of this?

Who informs us? It is a question we rarely consid-

er, yet the way that it influences our perspective

on the crisis is undeniable. We inquired you, the

delegates, to find out how you get in the know.

National TV and radio are the prefered means

for 20% of the delegates. These rather traditional

sources are surprisingly insignificant considering

how accessible they are. Every household in Eu-

rope has on average two TVs, suggesting that new-

er trends are overtaking the role of information

transmission.

Social media would appear to be the primary

modern information source, yet only 13% of the

delegates named this as their first one. It seems

that social media remains a

means of social interaction,

because newspapers, one of

the oldest medium of news, ac-

counts for nearly one third of

the delegates’ responses. 15%

of this was accounted for by on-

line newspapers, suggesting a

difference between the internet

and social media as an informa-

tion source.

It is clear that black and white print is by no means

going out of fashion anytime soon. National news-

papers were the most popular selection amongst

the delegates. This serves as a testament for the

quality and reliability that newspapers represent

in reporting news. This reliability lacks in the ano-

nymity of the internet, which is why delegates turn

to the more reputable online resources of the large

news corporations.

There is no denying that online media is gaining

momentum. The ability to interact and debate on a

global scale is an asset that traditional media can-

not compete with. Yet in times of crisis, it seems

we are still drawn to the worthy tradition of hard

copy. It seems that old-fashion is still in fashion.

BACK TO THE PRINTING PRESS

Sílvia Susach and Rónán O’Connor analyse the sources that delegates use to inform themselves about the crisis.

16%

16%

13%

13%

12%

12%

8% 7% 3%

Chart  Title  

National news

Online news

National TV

Social media

Frends and family

European media

School

Radio

Blogs

HOW DO YOU OBTAIN INFORMATION ON THE CURRENT CRISIS?

3

The Alpha

For no less than three (to five) years now, we

have been incessantly inun-dated by terms

that we are largely expected to – yet which we do

not al-ways fully – comprehend. Even so, in a time

that a shiny brand new crisis vocabulary is being

compiled day after day, we can at least strive for a

minimal familiarisation with the essentials of our

calamity.

The following table constitute an introduction to

5 fancy crisis terms.

DE-TERMING THE CRISISPanaghiotis P. KalaïdhoPoulos Pon-ders the generalised fiscal turbu-lence and clarifies what some must-Know crisis terms are all about.

Also known as “exter-nal debt”, sover-

eign debt is debt guaran-teed by a par-

ticular government to inter-national in-

vestors.

A large number of customers withdraw

their deposits from a financial institu-

tion at the same time, afraid that the fi-

nancial institution is, or might become,

insolvent.

Bonds are instruments of indebtedness

(i.e., being in debt) of the bond issuer to

the bond holders. Euro-bonds, moreover,

constitute suggested government bonds

issued in euro jointly by all 17 Eurozone

states. By Eurobonds (blue bonds) as

debt investments, a certain amount of

money is loaned for a certain amount of

time, with a certain interest rate, to the

Eurozone as a whole.

State of reduced spending. Austerity

measures generally refer to governmen-

tal measures aiming at reducing expend-

iture and, thus, minimising their growing

budget deficits.

In order to raise money for domestic

development, a government issues

bonds (red bonds) in foreign currency

and sells them to investors abroad. It

is on this basis that the sovereign debt

is usually external.

Citizens withdraw their savings fear-

ing a col-lapse, but trigger in-solvency

exactly by this practice. A bank-ing

crisis is not to be confused with a

(sov-ereign) debt crisis.

Bonds generally are certificates rep-

resenting money that a government

or corporation has borrowed from

other entities. The discussed issue

of Eurobonds by the ECB common-

ly shared amongst Eurozone states

could bring money to the Eurozone as

a whole to be then distributed to na-

tional governments in need.

State curtails on liter-ally everything,

widely employed as an anti-dote to

the crisis, di-rectly and radically af-

fecting citizens’ real-ity and everyday

life.

S o v e r e i n g

Debt

Banking Crisis

(Euro)bonds

Austerity

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Understanding sophisticated economics is not

really essential when it comes to synchronis-

ing with the alarming social unrest around you. In

a period of intense political change, when values

are broadly contested and, unfortunate-ly, rein-

vented, things are simply not fine. A lot of us do

suffer, whether this is understood or not, some

very few believe to be profiting by riding the big-

chance train of the crisis, while others yearn to

make something out of it, too. It all started with a

bubble in 2008 and it does not seem likely to end

any time soon.

It is allegedly because of the crisis that Europe fell

into recession and abso-lute economic instabili-

ty; this consecutively led to an unstable European

soci-ety and people begging for their meal. What

we now have is a widespread public consensus on

failure and insecurity, a condition that has surely

not been the case with European nations before.

The mass loss of jobs is still leading to insurance

curtails, with what we knew as social welfare fad-

ing out. Even more, it once again is this turbulence

that widened and highlighted the gap between the

rich and the poor. This is not ok.

As it has always been in the course of history,

such times greatly prove to make it difficult for

people to think clearly. The support that the far-

right Na-tional Front received from the French dur-

ing the elections, the growth of the popularity of

the British National Party in the traditionally Euro-

sceptic United Kingdom, the worrying popularity

that the Dutch far-right, as well as the popu-list

speeches of the European leaders are a clear sign

of the harm done to both the image and the con-

tent of the European idea and dream.

After WWII, hardly anyone would have imagined

that political extremity would dominate Europe

ever again. Not surprisingly at all, the crisis and

the discon-tent caused by the sharp decrease of

people’s life standards created distrust among

the European people towards the EU and the very

idea behind. This is not ok.

At least on the premise that the EU is not built

on bullying, we should stop doing so; the strong

bully the weak, the xenophobic the vulnerable im-

migrant and the markets humanity as a European

principle.

Instead, we should start thinking about where we

stand and find new ways how to get out of this

tunnel of uncertainty, shallowness, lost hope, hy-

pocrisy, deficient solidarity and irresponsibility.

A lot of us suffer, some believe to be profiting

from the crisis, while others profit from growing

anti-EU sentiments. Can you recall the last time

that any-body took responsibility for all this?

It is more than enough. And this certainly is not

the Europe we have dreamt of, so let’s fix it.

THIS IS NOT OKDignity in the Time of Insolvency; Tuna Dökmeci, Panaghiotis P. Kalaïd-hopoulos and Stefan Zoričić trace the way back to an idealistic, truth-ful, humane Europe worthy of its people.

5

The Alpha

The doomsday headlines in the media and the

gloom that permeates public opinion have

been dominated by what we know as ‘the crisis’.

But what should we get from this mysterious no-

tion? The man on the street tends not to be eco-

nomically literate, but we expect better of the var-

ious media that report on ‘the crisis’. Sadly this

has not always been the case. Roughly speaking,

we can divide our walkthrough into three main

parts. These are the global financial crisis of 2007-

2008, the worldwide 2008-2012 recession and the

European sovereign debt crisis. These three stages

in the development of what is generally spoken

‘the crisis’ are all of a seemingly similar, yet rad-

ically different, nature. It is true that the afore-

mentioned stages are not strictly cleavable, yet

causally linked, which makes this overview only

an attempt to materialise the reality.

The starting point, if there truly is one, of the

2007-2008 global financial crisis that dominated

the world’s news can be put in August 2007. In

this month the first signs of a budding crisis start-

ed to surface when the British branch of BNP Par-

ibas and Northern Rock, signalised “a complete

evaporation of liquidity”. This lead to one of the

first ‘bank runs’ since the 1929 Great Depression.

All of this had been caused by overstretching the

practice of ‘leverage’, where a company funds its

activities with money from loans or mortgages.

Normally this can be conducted without huge

risks, if it was not for these interbank loans being

resold in the form of intricate (later ‘toxic’) finan-

cial derivatives and mortgages being refinanced

causing the so called housing bubble.

Whilst the 2007-2008 financial crisis was the

spark that ignited a whole firestorm of events, the

2008-2012 global recession showed that there was

a more systemic problem than just some defaulted

banks. The recession affected the world economy,

in some countries more heavily than in others. The

greater financial and economic structures seemed

to be affected by the aforementioned practices of

derivatives and mortgage-backed securities, testi-

monial for a lack of a sustainable long term view

on public monetary policy and private financial in-

stitutions. This global recession is leaving its trac-

es up until today as the economic side effects of

the European sovereign debt crisis, accompanied

with slowing US and Chinese growth figures con-

tinue to provide severe obstacles to global eco-

nomic growth.

The European sovereign debt crisis, generally

known under the more common denominator ‘the

Eurozone crisis’, is one of those nasty crises that

was cracked open by the 2008-2012 global reces-

sion. Through this recession, the lingering prob-

lem of great public debt in the EU suddenly turned

into a crisis on its own with Greece as a prime

example.

With this being said, my hope is that the stere-

otypical bar discussion on ‘the crisis’ suddenly

reaches new heights of nuance. The financial and

economic problems that the world is facing at this

very moment have an unseen complexity that is

hard to grasp for even the brightest among us, but

at least now we can conclude that there is no such

thing as ‘the crisis’.

THERE’S NO SUCH THING AS THE CRISISJonathan Piepers looks at the underlying problems of the crisis in the European Union and explains why he believes that there is indeed no such thing as the crisis.

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Since 2008 the world has faced the most severe

economic crisis since The Great Depression.

The attempt of a comparison between the two

events seems obvious. Let us stop for a moment

and ask ourselves if there is a lesson to be learned

from the crisis in 1929?

On the one hand, we have economists and aca-

demics saying that this crisis is almost identical

to the crisis in 1929. Some on the other hand

claim they cannot be compared as the world has

changed too much; we are now working within the

structures of more globalised and interdepend-

ent international governance. The media and the

policy makers talk about an unprecedented event

that reaches levels never attained before. Some go

further saying that there is an effort to make this

crisis look worse, talking about a ‘big conspiracy’.

What should we believe?

Trying to analyse the crisis in a historical perspec-

tive might help us in looking for differences and

similarities with the ‘Great Slump’.

The current crisis linked to the financial crisis in

the US inter alia caused by lax regulatory over-

sight, relaxed standards of prudent lending and

abnormally low interest rates. The boom in the

housing market affected both the banking system

and the economy. In 2007 the interbank lending

market system faced a first freeze, then rescued by

the injection of liquidity from the Federal Reserve.

In 2008 the crisis worsened and banks had to be

rescued. The turn for the worse happened with

the bankruptcy of Lehman Brothers. The liquidity

crisis turned into a global stock market crash. In

October the global interbank system ceased func-

tioning and the crisis spread to Europe and emerg-

ing markets. We all what happened from there on.

There definitely seems to be a pattern: in both

cases a period of economic boom and general

well-being is followed by a crash and a virulent

crisis; in both cases the global crisis is triggered by

a crash in the US financial market. In fact, the cur-

rent crisis seems to fit very well into the cycle de-

scribed by Irving Fisher in 1933. According to Fish-

er, the business cycle is driven by an exogenous

event that provides new profitable opportunities

for investments leading to an investment boom

financed by banks. Investors have a hard time

distinguishing between sound and unsound pros-

pects. In this climate, a crisis is easily triggered by

errors in judgement as the environment changes

from monetary ease to monetary tightening, lead-

ing to bankruptcies, failures and recession.

Nothing seems too different so far. It is true, how-

ever, that the current crisis shows a series of mod-

ern twists, such as the role played by the banks

and the different responses of the policy makers.

During the late 1920s Europe was strongly affect-

ed by the war and was therefore extremely de-

pendent on US loans. In a globalised world, this

does not seem to be the case and Europe has an

economic influence of its own.

Is it really true that nothing different could have

been done this time? Was there not a lesson to be

learned in order to avoid this historical pattern to

be repeated?

1929A LESSON TO BE LEARNED?

Camille Dugay Comencini clarifies whether a comparison between The Great Depression and the economic crisis in 2008 could have led to better solutions to the current economic crisis.

7

The Alpha

The euro crisis first gained mass public atten-

tion in 2010, when the reality of the situation

in Greece became evident to everyone. But does

this mean we should we blame only Greek politi-

cians? Allan Little from the BBC traced the Euro

crisis back to the fall of the Berlin Wall. Indeed,

we could point out that this event, even if it might

not have been the starting point, lead to a hasty

integration process. With the introduction of the

Euro with the Maastricht Treaty 1993, it became

possible for one of the 17 Eurozone countries to

borrow at much cheaper rates than previously as

the European Central Bank (ECB) set low interest

rates. The only barrier that could have prevented

them from excessive lending was the Stability and

Growth Pact which was set up to ensure that the

Eurozone members states’ debts did not exceed

60% of the Gross Domestic Product (GDP) and

that any budget deficit should not exceed 3% of

the GDP: however, countries were free to define

their own fiscal policy and this is what they did.

Nevertheless, in the beginning of the 20th Cen-

tury, the Euro still had its best time ahead. What

went wrong?

Mr Wren-Lewis proposed an answer to this ques-

tion. When the core countries of Europe set up

the Euro, they did not take the macroeconomics

consequences of a common currency into consid-

eration. Instead they opted for an inadequate na-

tional limit on public debt, agreed on weak guide-

lines that were never followed through. Portugal,

Ireland, Italy, Greece and Spain, also known as

the PIIGS, borrowed too much and cooked their

books. The media usually point the finger to the

PIIGS for their supposed decisions that dragged

the euro down.

But what about the EU’s most powerful members?

Did political ambitions triumph over economic re-

ality? Indeed, its seems that England, France and

Germany have always tried to shape integration ac-

cording to their own interests. The German news-

paper Bild gave a striking example of this. Even

though Germany lent 46,1€ billion to Greece, the

country saved 60€ billion on its own debt. How?

Berlin recuperates the investments that used to be

put into the Greece’s and Spain’s economies.

The experts reacted to this crisis differently.

Whereas some of them, like Lucas Papademos,

think that “it’s often discussed that leaving the

Euro is an option for Greece. I think this is real-

ly not an option”, the other half believes that the

euro has no future; Sean Hannity declared that

“the euro’s going to collapse; it’s done. The world

has to accept it. And if they sustain it artificially

for a long period, that’s a bigger mistake ‘cos we’re

just kicking the can down the road”.

So, could we have avoided the crisis? The 2007

Nobel Prize Winner in Economics, Erik Maskin,

admitted that the crisis could have been prevent-

ed if there had been a fiscal union in conjunction

with the monetary union. What’s the next step,

European Union?

THE EURO CRISIS: THE END OF THE GAMEAfter then years of a common currency, the future of the Eurozone is debated passionately. Celia Poncelin looks back to understand what went wrong.

So what is the purpose of the chairs team at

the International Session in Amsterdam?

To make fools out of themselves for your ben-

efit ? To provide you with all the answers?

Surprisingly not. The role of a chair is broad,

tough but nevertheless very fulfilling. Their

aim is to facilitate discussions and help you on

the way to finding the best possible solution

for the problem at hand. Simply put – without

them you would be quite lost.

So far you have just seen them playing with or-

ange balls, pasta and marshmallows. This may

make you wonder why these people have been

entrusted to look after you for the next seven

days but do not worry. Under that warm, uni-

corn-like façade there is a very serious person

waiting to get their masterplan out.

If you do not believe us just take a look at

the topic overviews; each one carefully brain-

stormed, planned and written for your benefit.

We are well aware that you may have thought

the teambuilding games were randomly slot-

ted in just to avoid awkward moments – you

are wrong. Every single game was planned in

advance to ensure you got the maximum out

of the first two days.

So make sure that you listen to every word

they say. Every piece of advice they give you is

valuable, every little line that will be dropped

is dropped for a reason. Heed their advice and

committee work will be as productive and en-

joyable as it can be!

Good luck with committee work!