Insight and Analysis

At the end of March, NATO announced its selection of former Norwegian Prime Minister Jens Stoltenberg as its next Secretary General. Stoltenberg, who will succeed current NATO chief Anders Fogh Rasmussen on October 1st, 2014, will take over at a critical juncture for the organization, with a newly assertive Russia serving as a reminder of NATO’s importance. His time as Norway’s head of state has made him uniquely qualified to facilitate cooperation among NATO member states, but he will also need to continue his predecessor’s strong leadership in a shifting geopolitical landscape.

Stoltenberg’s selection garnered wide praise from world leaders, both within and outside NATO. Although a fixture of the Norwegian left, his supporters are quick to point out his strong and friendly relations with German Chancellor Angela Merkel, a leading figure in Europe’s center right. In the nearly ten years he served as Prime Minister, he headed unusual coalition governments and was seen as a gifted consensus builder. Jens, as he is familiarly known to many heads of state, will be well positioned to rebuild support for NATO, flagging in recent years in all but a few member states, namely those bordering Russia.

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On May 22-25, Europeans will go to the polls to elect a new European Parliament. Although the Parliament’s 766 members (MEPs) represent the world’s second largest electorate, after India, many observers discount the importance of the twice-a-decade vote. On one hand, the EP seems to face a crisis of relevance: voter turnout has declined in every election since voting began in 1979, reaching a low of 43 percent in 2009 with only 29 percent of 18-to-24-year-olds participating. Yet this election, taking place during a time of political and economic crisis in Europe, is being carefully watched as an indicator of changing attitudes toward European integration and EU policies.

Recent polls indicate that the EP’s two largest parties, the center-left S&D (currently with 194 seats) and the center-right EPP (now with 275), will receive nearly identical shares of votes, leaving both with about 214 MEPs. This projected leveling out comes with a shift away from the center, with far-left and far-right parties gaining seats.

Against the backdrop of struggling national economies, austerity policies and rising unemployment — increasingly attributed to intra-EU immigration — populist “euroskeptic” parties are ascendant. Polls indicating that euroskeptic parties may even win the plurality of votes in the United Kingdom and France have led some to predict that the May election could be a referendum on European integration.

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When Janet Yellen faced Congressional questioning on February 11^th for the first time as the newly minted Federal Reserve Chair, it was against a backdrop of precarious economic health.

Just days prior to her inaugural hearing before the House Financial Services Committee, the Labor Department had released another lackluster jobs report, suggesting that the US recovery may be weaker than many experts anticipated. In addition, the long-planned reduction – or taper – in the Fed’s stimulus program had shaken international emerging markets and raising global fears of a bursting bubble.

Congress wasted no time pressing her on all of these issues – and it is clear that the Fed’s first female Chair will have little, if any, honeymoon period. Markets, too, are looking to Yellen to provide guidance on how and when the Fed will execute the taper. In her first press conference as Fed Chair last week, Yellen spooked traders by implying that the Fed would begin to raise interest rates in as little as six months. Even though her answer was purposely vague and open to revision, stocks fell and rates rose as markets absorbed what they considered to be the bad news.

But it is also clear that Yellen will not shrink from continuing the Fed’s extraordinary measures to bolster the US recovery. In her hearing, she drove home her view that the labor market recovery, in particular, is “far from complete.” Indeed, after Ben Bernanke’s eventful eight years at the helm, Yellen will be inheriting a Fed which has taken a more activist stance towards fighting recession and financial collapse than perhaps ever before – with all the inevitable controversy that entails.

Yet to an underappreciated extent, the central bank has been left to fight the recession on its own. Chairman Bernanke was forced to push monetary policy to its limit because the only other institution that could make a difference – the US Congress – has been largely unable to provide legislative responses to help boost economic growth or improve the labor market.

The Fed has stretched its intellectual and institutional resources to the limit in fighting the recession. The Bernanke-led Fed launched unprecedented policy measures, the centerpiece of which was the $3 trillion bond-buying program known as Quantitative Easing (QE). Estimated at putting about $85 billion of liquidity into the economy each month, QE was itself necessary only because the Fed had already pushed interest rates to the lower zero bound.

In addition to QE, the Fed took another unusual step by softening its stance toward inflation. In order to set growth-oriented expectations, the bank issued an explicit inflation target of 2 percent, and vowed that its unorthodox monetary policy would continue until that target was reached or unemployment fell to an acceptable level.

Yellen seems a perfect fit for these uncertain times. Much of her academic career has been spent studying the root causes of unemployment and how central banks should respond to it. She has argued persuasively that the Fed must sometimes focus its firepower on reducing persistent unemployment, even if it means accepting moderately higher inflation. From her position on the Federal Reserve board since 2010, she helped build consensus for the current inflation target.

Thus, while Congress presses Chairwoman Yellen for answers, the unresolved question remains if those same legislators will take action to back up the Fed’s own approach. Even the savviest Fed leader can only do so much on her own, and at some point, Congress will need to make the kind of investments America needs to return to sustained growth.

Unfortunately, growth is still anemic, inequality is at record levels, and unemployment has been reduced below 7 percent only due to large chunks of the population dropping out of the labor force. Meanwhile, the sequester and other spending cuts have led to mounting public sector job losses and contracted the economy further.

Given that the US’ problems continue to be based on weak demand, one clear option for Congress is to get more money into the hands of consumers. Thus, the push among Congressional Democrats for a national minimum wage increase. In real terms, the minimum wage is lower now than it was in the 1960s, and much of the available evidence suggests that raising it will give workers higher purchasing power with little, if any, negative impact on hiring.

Other potential initiatives await consideration as well. Many economists suggest, for instance, that raising the Earned Income Tax Credit (EITC) for large families would be one of the most cost effective ways to put more money into the hands of struggling workers and thus bolstering consumer demand.

Then there is the nationwide backlog of infrastructure and transportation projects, which would not only provide millions of jobs directly, but which are also critical to facilitate all types of economic activity.  

Janet Yellen is not only a brilliant scholar, but also someone with an understanding of the real world costs of economic stagnation and long-term unemployment. As Fed Chair, she will surely bring all her resources to bear on the problem. But it remains to be seen if the Fed’s actions will be paired with coordinated action from US lawmakers.

From March 1-2 of this year, the Prime Minister of Macedonia, Nikola Gruevski, convened his Investment Advisory Council for the purpose of developing a strategy to attract more foreign direct investment – and the jobs such investment creates – to his country.

In attendance were a number of high level government economic policy advisors, including most notably the Prime Minister himself as well as Bill Pavlevski, the Minister of Investments, and a number of other government advisors. Also attending was the Chief Operating Officer of Blue Star Strategies, Sally Painter, who was there among other prominent global executives.

Primary among the topics of discussion was the economic situation in Macedonia, which has demonstrated both encouraging successes and areas for growth.

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Mexico is in the process of overhauling its energy sector with reforms that would bring outside investment for the first time in decades. Since President Peña Nieto took power in 2012, the reform effort has already overcome one of the biggest hurdles, the need to change the constitution.  

And this past week, the energy reforms moved into a major new stage – the so called “Round Zero”, in which state oil company Pemex negotiates with regulators over which oil fields it will be able to keep before the sector is opened to new investors. To manage this process, the National Hydrocarbons Commission (CNH) has been expanded and strengthened, and developments are being closely monitored by outside experts.

But there is already controversy and scandal, testing the President’s mettle for reform. 

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Since the financial crisis of 2008, the issue of income inequality has leapt to the forefront of American politics. Not only have millions of people lost their jobs, but the crisis revealed a longer term structural issue in the economy: the share of America’s wealth that poor and middle class workers are taking home has stagnated since the 1960s, while the incomes of wealthiest have skyrocketed.

The federal government has taken dramatic action, from the 2009 stimulus plan to the Federal Reserve’s unprecedented “quantitative easing,” to set the country on the path to sustained recovery. But the American economy is far from healthy: growth remains slow while unemployment remains high. According to the National Poverty Center, poverty rates have risen to 15.1 percent, the highest rate since 1993. Meanwhile, the country is witnessing the highest concentration of wealth since 1928.

Thus, political leaders in the US are searching for policy responses that can serve a dual purpose: reduce poverty and inequality, and also return the country to robust growth. Indeed, these two areas are closely related – a growing economy would create more jobs and opportunity, and by the same token, more people with higher incomes would increase consumption, putting more money back into the economy and boosting growth further in turn.

In this context, one such idea that has come to the forefront has been the proposal to raise the Federal minimum wage.

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The 2014 North American Leaders Summit, held on February 19^th in Toluca, Mexico, sent relatively mild signals to the international community. Many opinion leaders and pundits complained that the few “key deliverables” – that is, concrete agreements – avoided the most significant issues. While no one went as far as calling the summit a failure, it appears that for many commentators, the summit did not deliver as much as expected.

It would be misleading, however, to infer from this event that the three North American countries’ relations and efforts at mutual cooperation are not still advancing. It would mean focusing on form and disregarding the substance. In other words, just because the meeting did not produce major headlines or redefine the North American agenda does not mean that the opportunities for better integration that do exist are going unaddressed, or that significant progress is not being made on a number of fronts.

One prime example of the opportunities for better integration that are being seized comes from the energy sector. North American energy independence, a long-desired strategic objective for the region is, for the first time, within reach. This is not only due to the game-changing exploitation of shale gas reservoirs in the US, but also due to the better integration of the energy sector – first with Canada and now with Mexico.

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In recent weeks, Venezuela has been convulsed by its biggest series of protests since the attempted coup d’état of then-President Hugo Chavez in 2002. Although sporadic protests against President Nicolas Maduro had continued since the April 2013 election, which saw opposition candidate Henrique Capriles narrowly defeated by Chavez’s hand-picked successor in elections marred by allegations of fraud, the opposition was reenergized by frustration over the regime’s failure to provide for the basic needs of its citizens. Shortages of essential goods, a crackdown on press freedom and a high violent crime rate, highlighted by the January murder of actress and former Miss Venezuela Mónica Spear, prompted a new wave of protests.

The regime’s harsh response to initial demonstrations has further stoked protests. But approaches to how to respond to the government’s crackdown has, at the same time, divided the opposition – illustrating the tough choices it faces between trying to push its advantage, on the one hand, or pushing for pragmatic concessions on the other. This choice comes as some in the opposition have taken to Twitter, especially given the media restrictions imposed by Maduro, to call for the outright ouster of the embattled president with the hashtag “#LaSalida” (the exit).

In both its confrontational attitude, and its urban, tech savvy nature, Venezuela’s opposition mirrors recent protest movements in countries such as Ukraine, Thailand and Egypt. In these countries, opposition groups, frustrated by the state’s failure to provide for the basic needs of its citizens, have taken to the streets in major cities, where they can put significant pressure on leaders due to the relative ease of mobilizing in dense urban areas.

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The news from Ukraine over the past few weeks has shocked and fascinated the world.  Protesters took to the streets in favor of closer economic integration with the EU via a trade deal, instead of with Russia in the form of financial bailouts. The protests and ensuing street conflicts led to 82 deaths, and, ultimately, to the ouster of President Viktor Yanukovych. 

The exact timeline of events is as yet still unclear, but Yanukovych seemingly fled Kiev and tried to leave the country after signing an EU-brokered deal with members of the opposition which would have permitted him to remain in power until elections were held. He is still on the run, and the interim government has issued warrants for his arrest on the grounds of mass murder. It has also asked the ICC to put him on trial.

In the meantime, the interim leadership of Parliament, which is led by Oleksandr Turchynov, the acting president and speaker of parliament, is working towards a political compromise. Thus far, they have announced that they plan on altering the Constitution so as to minimize the President’s power in favor of Parliament, and have called for presidential elections on May 25^th. This is the same day as the EU elections, and is being interpreted as a symbol of the interim government’s desire for a closer relationship with Europe. 

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2014 is going to be a great year for sports fans interested in international affairs (or international affair’s fans interested in sports).  In the coming weeks Russia will host the most expensive Olympic games in history.  If that were not a big enough challenge they will be hosting it in a city more known as a summer retreat than a winter-sports venue, all within 250 miles of territory in political upheaval, while simultaneously facing international scrutiny over their human rights record.

A few months later Brazil will host the FIFA World Cup.  When Brazil was chosen to host this event, it highlighted the infrastructure development, international prestige, and tourist dollars it would bring to the country—not to mention home field advantage.  Now only a few months from kick-off, the entire affair is mired in controversy as the infrastructure is questioned and the diversion of money away from social services is criticized.  Last weekend mass protests in the streets of Sao Paulo in protest of the World Cup led to 128 people being detained or arrested. 

Before the world competes in these events, however, the U.S. will see the championship game of American Football—the Super Bowl.  While the Super Bowl is the dominant sporting event in the United States and has an ever-expanding cultural presence around the world, it admittedly does not have the pomp and circumstance of these other weeks-long international festivals.  However, some of the same global policy challenges apply. 

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