With Spain as the current hotspot in the European financial crisis, it is easy to lose sight of the broader features of the Spanish predicament, which, I submit, was political and cultural before it emerged as financial. One reason for the dramatic escalation of the risk premium on Spanish bonds is the government’s low credibility - itself the consequence of a heady mix of self-contradiction, lack of transparency, and downright lying. On November 20, 2011, after years of corrosive opposition, Mariano Rajoy rose to the presidency of the government on assurances that he understood the crisis and knew how to handle it.  He now feels trapped in a situation he cannot control, not least because much of the damage is of his own party’s making. To be sure, the socialists contributed mightily to the public debt, exacerbated it by denying the crisis when it was already in evidence, and worst of all, did not act to control the housing bubble, which left in its wake banks filled with toxic assets and a severe credit crunch. But at the root of the housing and mortgage bubble were the dangerous liaisons between the banking system and regional governments such as those in  Madrid and Valencia, that have long been steeped in the Partido Popular’s reckless politics and corrupt practices (epitomized by Bankia’s lurid ambitions and costly rescue.)

The banking crisis is dragging down the Spanish economy and bringing the country’s financial structure into uncharted territory. This is a seemingly paradoxical outcome for a country that a few years back boasted a positive balance and a higher growth rate than its neighbors. What happened to upend the triumphant rhetoric of presidents Aznar and Zapatero? To a certain extent the markets appear to have overreacted, and their knee-jerk response to rising debt caused in part by investors’ demand for higher interest on Spanish bonds threatens to bring about a self-fulfilling prophecy. Before the market developed these jitters however, Spain’s public debt was in fact lower than Germany’s, even as the latter functions as the basis against which the financial risk of other countries is measured. In the last week of June 2012, the distance between Spain's and Germany's debt risk was 504 basis points, while that between the US and Germany was only 13. In relation to GDP however, Spain’s public debt remains significantly lower than that of the U.S. At the end of 2011, Spain’s public debt was 68.5% of its GDP, while the US’s was 110.2%.  In spite of this, the US continues to have no trouble financing its debt, and the American dollar has been rising in recent months and continues to be regarded as a safe haven, while the euro is at risk.

Why all the fuss about Spain? The answer lies in a combination of causes.  In the first place, there is the big hole punched into Spanish banks by the large-scale default on loans irresponsibly pushed on overly optimistic borrowers; and then there is the unlikelihood of an economic recovery vigorous enough to guarantee the debt’s financing. Saddled with debt, subjected to salary cuts, and adrift in a dwindling job market, Spanish consumers will hardly be able to fuel a meaningful recovery for some time.  At present, the combined debt ofSaish families is nearly 100% of national GDP. Corporate debt is even larger. And it is not the private sector alone that is stuck. The loss of confidence also affects the Bank of Spain. For a long time the country’s central banking authority turned a blind eye to the bad lending practices of private institutions, and so it shares the blame for the illusion of an ever-expanding and ever-appreciating housing sector. When the fantasy receded, thousands of families, as well as the owners of small and middle-sized companies, were left stranded in a financial desert; and once the economy actually began to shrink, the government increasingly lost its ability to finance the debt.

Is Spain at risk of leaving the Eurozone? While this cannot be ruled out, it is unlikely. The possibility of going back to the peseta is precluded by the fact that foreign, mostly German and Chinese, investors, whose money helped pump up the housing bubble, now make up the bulk of Spain’s creditors. They will hardly sit by and allow Spain to devalue its way out of the mess. Although he dragged his feet, Rajoy has finally applied to Brussels for rescue funds and will submit to European oversight.  The proposed solution will undoubtedly involve further dismantling of services, salary cuts, and higher unemployment.  This is a bitter pill that will test Spain’s already shaky social cohesion. Rajoy will dispense it because he has no alternative, or rather because the alternative—letting the sick banks fail instead of nationalizing their losses—is not acceptable to the financial markets. Adding to the markets’ nervousness is the fact that Rajoy has proven to be singularly maladroit at administering the medicine.  This is where politics and culture come into the picture.

Spain’s troubles go back to the origin of its current regime in the late 1970s. They are rooted in a faulty transition that was expected to convert a country without democratic traditions into a full-fledged western democracy. But today all of Spain’s core institutions have fallen into disrepute: after years of covering its scandals, the monarchy has finally disgraced itself irreparably; the Supreme Court is affected by corruption at its core; the president of Madrid's regional government (a militant and vocal member of the extreme right wing of the Partido Popular) is calling for the dissolution of the Constitutional Court (i.e. for a return to undisguised authoritarian rule); and the tone of the debates in Congress could hardly fall to a lower level. Spanish democracy is ailing, but for anyone who has observed it with attention since its inception, the confirmation of what was once merely an inkling can hardly be cause for surprise.

In the 1970s, Spain’s bid for democratic legitimacy and admission to the European Community required the restoration of Basque and Catalan self-government, which Franco had suppressed. At the time, the provision of institutional guarantees for these nationalities was seen as a requirement of justice meant to correct decades of persecution. The Basque Country and the semi-Basque region of Navarre emerged from the transition with an important privilege. They collect their own taxes. From this revenue they transfer an amount to Madrid and use the rest as they see fit. Fiscal independence in the hands of a responsible government led to a clear improvement in the Basque standard of living and, and, not incidentally, to a certain insulation from the current crisis. Catalonia, with a larger economy, was denied that privilege. In fact the opposite occurred: its economy was made hostage to a state that, under the pretext of redistribution, severely impaired its growth and development.  Since Franco’s death, Catalonia’s leading position within Spain and its capacity to compete globally (it still accounts for 25% of all Spanish exports) have been eroded through an unfair fiscal burden and hostile decisions in matters of territorial development. Year after year, Spain’s government has defaulted on the execution of public works approved for Catalonia in the former's budget, thus retarding the latter's modernization and straining its finances to the breaking point.  Rajoy’s government will not even honor the state’s appropriations for Catalonia mandated by current fiscal law. In a display of cynical reason, the central Spanish government now blames regional governments for Spain’s public debt, obscuring the fact that the combined debt of the 17 autonomous communities is only 16% of the total, while that of the central government accounts for 76%. The remaining 8% is municipal debt. By shifting the responsibility for the crisis to the regional governments, Rajoy is patently using the current emergency as an opportunity to dismantle the structure of regional autonomy enshrined in Spain's current constitution.  The result of course would be to abrogate the limited degree of self-government that Spain only grudgingly conceded to Catalonia in the former's hour of democratic need.

As usual, propaganda is based on plausibility. It is true that Spain’s system of regional governments is costly, and a revision is long overdue. Most autonomous communities were invented ad hoc by the central government for the purpose of generalizing the autonomy principle and dissolving Catalonia’s historic claim to autonomy within a so-called “autonomous common regime” that as popularized at the time as “coffee for all.”  While history required the articulation of a state with two or three autonomous regions based on tangible cultural differences, Madrid’s politicians created 17 “autonomous communities” by administrative fiat. And since Madrid was unwilling to slim down the state’s bureaucracy, parallel administrations were created, adding to the cost of government. Since the beginning, the unwieldy system of “autonomous governments” was financed through the transfer of funds from the most productive to the least productive regions with a regularity and volume that ended up crippling the donors. These have been, with predictable monotony, the regions on the Mediterranean seaboard that possess a distinct culture and language: Catalonia, Valencia, and the Balearic Islands. So striking is the fiscal imbalance that for decades Spanish governments have refused to publicize the figures, even though this refusal constitutes the violation of a standing congressional order to make them available. But how the cookie crumbles is made evident by the president of Extremadura’s admission that a new fiscal deal for Catalonia would be catastrophic for his region. Catalonia suffers from a political paradox. As a “wealthy region” in a “poor country,” it never benefited from the European structural and cohesion funds of which Spain was the largest recipient, but instead became a net contributor on a level higher than France. Economists calculate that the Catalan fiscal deficit, that is, the percentage by which taxation exceeds allocations, rests anywhere between 8 and 10% of Catalonia’s GDP (roughly $20 billion annually for a region of 7,000,000 people.) Over time, the magnitude of such siphoning of resources impacts an economy, leading to obsolescent infrastructure, the impoverishment of the service sector, the deterioration of the educational system, and the inevitable loss of competitiveness. Catalonia’s public debt in 2011 was $52 billion, approximately 20.7% of the Catalan GDP. Two and a half years of a balanced fiscal relation with the rest of Spain would have sufficed to mop up all Catalan public debt.

Spain’s troubles were political before they became financial, but politicians will not resolve them. The country needs to be further integrated into the European structure through a common fiscal policy and a commonly regulated banking system; more importantly however, Spain needs to be politically accountable to Brussels and meet European standards of justice and democratic procedure.  This would do much to bring about economic rationality. A country on the brink of default cannot afford to build unprofitable fast-speed trains to provincial destinations, boondoggle expressways in a radial system stemming from Madrid, or airports without air traffic.  Nor should it insist on an extravagant freight train route that requires drilling through the thick of the Pyrenees instead of building a cheaper and commercially sensible coastal itinerary, a plan that, without Brussels' better judgement, the Spanish government would have rejected for the ostensible purpose of isolating Barcelona’s harbor, the busiest in Spain.  The senseless megalomania and castigation of specific territories cannot be explained along traditional ideological lines — such projects have been developed by socialists and conservatives alike — but by long-term cultural continuities. The recent bout of megalomania was buoyed by billions in structural funds, while the territorial grievances, notorious to anyone who is conversant with Spanish history, went on as before, shielded by Spain’s membership in the core Western institutions.

Spain would gain much from trading sovereignty for rationality, and from being forced to invest for economic rather than merely symbolic payoff. A dishonored monarchy, a politicized justice, and a corrupt party system are as much toxic assets as those the banks hold, and if intervention is inevitable, the discipline mandated from outside ought to touch the country to the quick. If and when Brussels decides to put the Iberian house in order, it ought to recognize which administrations have practiced fiscal restraint and are capable, under good governance, of meeting European standards. Spain could well be the last ditch of the European monetary union and of the political union itself. But timely political reform in Spain could be the last opportunity not only to keep the country within the EU but also to hold it together as a meaningful political project.

Former U.S. Ambassador to Afghanistan Karl Eikenberry has been awarded a William J. Perry Fellowship in International Security at Stanford’s Center for International Security and Cooperation (CISAC), where he will continue to address emerging security challenges facing the United States.

Ambassador Eikenberry has an ambitious agenda for the coming academic year, which includes teaching and mentoring students, public speaking and working closely with former Secretary of Defense William Perry. He also will take part in activities at the Walter H. Shorenstein Asia-Pacific Research Center (APARC), such as the new China and the World research initiative.

“It’s a lifetime honor to receive the Perry Fellowship,” says Eikenberry. “I can’t think of an American in modern times who has better exemplified inspirational commitment to public service than Dr. William Perry. And I can’t think of a better institute of higher learning to be associated with than Stanford University.”

Ambassador Eikenberry has been at Stanford since September 2011 as the Frank E. and Arthur W. Payne Distinguished Lecturer and is an affiliated faculty member for CISAC, APARC and the Center on Democracy, Development and the Rule of Law (CDDRL), as well as research affiliate at the Europe Center – all policy research centers within Stanford’s Freeman Spogli Institute of International Studies.

Before coming to Stanford, Ambassador Eikenberry led the civilian surge directed by President Obama from 2009 to 2011 in an effort to reverse the momentum gained by insurgents, and set the conditions for a transition to Afghanistan sovereignty. He retired from his 35-year military career in April 2009 with the rank of U.S. Army Lieutenant General after posts including commander and staff officer with mechanized, light, airborne and ranger infantry units in the United States, as well as Korea, Italy and as the Commander of the American-led Coalition Forces from 2005-2007.

"Karl Eikenberry's record of public service amply demonstrates his unique qualities, not only as a leader of the American military at a challenging time, but as a strategic thinker and an insightful diplomat,” says CISAC Co-Director Mariano-Florentino Cuéllar. “He has a rare understanding of the profound challenges facing our world, and has been a tremendous asset to CISAC and Stanford.”

Ambassador Eikenberry’s research areas include U.S. strategy in the Asia-Pacific region; China’s evolving security strategy; the United States and NATO; the future of the U.S. military; Washington’s policies in Central and South Asia; and assessing the risks of military intervention.

The fellowship was established to honor Perry, the 19^th U.S. secretary of defense and former CISAC co-director, and to recognize his leadership in the cause of peace. Perry is co-director of the Preventive Defense Project and the Nuclear Risk Reduction Initiative at CISAC and is an expert on U.S. foreign policy, national security and arms control. Perry Fellows spend a year at CISAC conducting policy-relevant research on international security issues. They join other distinguished scientists, social and political scientists and engineers who work together on problems that cannot be solved within a single field of study.

Ambassador Eikenberry is a graduate of the U.S. Military Academy, has master’s degrees from Harvard University in East Asian Studies and Stanford University in Political Science, and was a National Security Fellow at the Kennedy School of Government at Harvard. He earned an Interpreter’s Certificate in Mandarin Chinese from the British Foreign Commonwealth Office while studying at the United Kingdom Ministry of Defense Chinese Language School in Hong Kong, and has an Advanced Degree in Chinese History from Nanjing University in the People’s Republic of China.

Eleven talented Stanford seniors have completed the Undergraduate Senior Honors Program at the Center on Democracy, Development, and the Rule of Law (CDDRL) to graduate with honors in democracy, development, and the rule of law. Completing their theses on issues of global importance ranging from the impact of technology on government openness to the effectiveness of democratic governance projects, CDDRL honors students have contributed original research and analysis to policy-relevant topics. They will graduate from Stanford University on June 17.

Over the course of the year-long program, students worked in consultation with CDDRL affiliated faculty members and attended honors research workshops to develop their thesis project. Many traveled abroad to collect data, conduct interviews, and to spend time in the country they were researching. Collectively, their topics documented some of the most pressing issues impacting democracy today in China, Sudan, Greece, Zimbabwe, Ghana, Latin America, and beyond.  

In recognition of their exemplary and original senior theses, Mitul Bhat and John Ryan Mosbacher received the CDDRL Department Best Thesis Award for their research exploring welfare programs in Latin America and the developing oil industry in Uganda, respectively. Otis Reid received the David M. Kennedy Honors Thesis Prize and the Firestone Medal for Excellence, the top prizes for undergraduate social science research, for his thesis on the impact of concentrated ownership on the value of publically traded firms on the Ghana Stock Exchange.

After graduation, several honors students will leave Stanford to pursue careers at McKinsey & Company consulting group, serve as war crime monitors in Cambodia, work at a brand and marketing consultancy in San Francisco, conduct data analysis at a Palo Alto-based technology firm, work at a Boston-based international development finance startup using targeted investment for poverty alleviation, and conduct research in the political science field. The rest will be pursuing advanced and co-terminal degrees at Columbia Journalism School, the University of Chicago, and Stanford University.

A list of the 2012 graduating class of CDDRL Undergraduate Honors students, their theses advisors, and a link to their theses can be found here:

 

Mitul Bhat	Not All Programs are Created Equal: An Exploration of Welfare Programs in Latin America and their Impact on Income Inequality Advisor: Beatriz Magaloni
Shadi Bushra	Linkages Between Youth Pro-Democracy Activists in Sudan and the Prospects for Joint Collective Action Advisor: Larry Diamond
Colin Casey	Waging Peace in Hostile Territory: How Rising Powers and Receding Leadership Constrained US Efforts in Sudan  Advisor: Francis Fukuyama
Nicholas Dugdale	Is Reform Possible at a Time of Political Crisis?: An Assessment of Greece's Efforts to Combat Tax Evasion and Shadow Economy Participation  Advisor: Francis Fukuyama
Daniel Mattes	Nunca Más: Trials and Judicial Capacity in Post-Transitional Argentina  Advisor: Helen Stacy
Hava Mirell	Keeping Diamonds “Kosher”: Re-evaluating the Kimberley Process Certification Scheme in the Wake of Zimbabwe’s Marange Diamond Crisis  Advisor: Kathryn Stoner-Weiss
Jack Mosbacher	Bracing for the Boom: Translating Oil into Development in Uganda  Advisor: Larry Diamond
Jenna Nicholas	21st Century China: Does Civil Society Play a Role in Promoting Reform in China?   Advisors: Francis Fukuyama & Thomas Fingar
Daniel Ong	Beyond the Buzzword: Analyzing the "Government 2.0" Movement of Technologists Around Government  Advisor: Larry Diamond
Annamaria Prati	United Nations Development Programme: An Analysis of the Impact of the Structure on the Efficacy of its Democratic Governance Projects Advisor: Stephen Stedman
Otis Reid	Monitoring, Expropriating, and Interfering: Concentrated Ownership, Government Holdings, and Firm Value on the Ghana Stock Exchange Advisor: Avner Greif

 

 

Stanford seniors Stephen Craig and Clay Ramel have been awarded The Firestone Medal for Excellence in Undergraduate Research and The William J. Perry Prize, respectively, for their theses on German's foreign policy and the global politics of oil.

Both recipients are students of the CISAC's Undergraduate Honors Program in International Security Studies and will graduate next week.

Craig, a political science major, wrote "Tamed Tiger or Restless Beast? German Foreign Policy in the Post-Unification Period."

Ramel, a science, technology, and society major, wrote “Reconsidering the Roots of Crude Coercion: a Policymaking Analysis of `the Oil Weapon.'”

The Firestone Medal recognizes the top 10 percent of all honors theses in social science, science, and engineering. The Perry Prize is awarded to a student for excellence in policy-relevant research in international security studies. 

Greece's recent elections failed to produce a parliamentary majority, leaving the political system fragmented and the economy on the brink of collapse. A fresh round of voting is scheduled for June 17 amidst skepticism that Greece may withdraw from the eurozone and default on its debt. Like French voters who elected a new president this month, Greeks are railing against harsh austerity measures and the European model of economic liberalism.

CDDRL Visiting Scholar Ruby Gropas is now in Athens as a lecturer at the Democritus University of Thrace and research fellow at the Hellenic Foundation for European and Foreign Policy where she researches trends of protest and opposition to Europe. During this pivotal moment in European history, Gropas interprets the election results and what they mean for the future of Greece and the EU.

Was the outcome of the Greek election a surprise to you?

It was not a surprise, but an unpleasant acknowledgement of a grim reality. The messages and trends had been clear for awhile. It is only the intensity of the results that shocked political analysts, politicians and even citizens both in Greece and the world over.

How has the Greek political system and society been affected by this election?

The political system has imploded. The two main governing parties are severely weakened, beaten, punished, defied and delegitimized, leaving the political scene more fragmented than ever. The election plunged the country into even further political and economic uncertainty as 50 percent of the votes cast were in support of parties from both the left and right that reject the terms of the bailout and denounce the associated austerity policies.

Politics and society have become polarized once more along a new political cleavage that is formulated as pro or anti-bailout positions. Severe austerity policies against a background of poor governance, corruption scandals, economic mismanagement, and growing economic insecurity have pushed the electorate to vote for the extremes.

What can we expect from the run-off elections?

Given that all attempts at creating a coalition government of one form or another failed, two very different dilemmas are put to the electorate. The centrist parties are declaring that the conditions of the bailout cannot be denounced. But they are suggesting that that there is room for adjustment through negotiation with our European partners.

The parties opposing the conditions of the ‘Solidarity Pact’ refute this, arguing that the choice put to voters next month is about ending austerity. Regardless of what position one takes, forthcoming elections are essentially a referendum for or against Greece’s European future.

What do the election results in Greece and France mean for Europe and the future of the eurozone?

In Greece, the vote was a call for anti-austerity agendas and programs aimed towards Brussels, Berlin, and Frankfurt (the European Central Bank seat), just as much as its own politicians. The election results have led to an outburst of declarations and scenarios claiming that Greece’s exit from the eurozone is now inevitable and even more claims that a ‘Grexit’ is by no means an option. Continued instability and uncertainty – combined with volatile markets – are sending ripples across the entire eurozone, testing the limits of European solidarity and most likely the endurance of the euro.

French President François Hollande’s victory has given hope to those wishing to revisit the 'Merkozy' austerity program and envision a new role for the European Central Bank.

Do you think these developments will incentivize political change in the EU?

They already have. Yet much more is needed. What is clear now is that the current state of Europe and the eurozone's political integration are neither sustainable nor a viable pattern for the future. There has long been a disconnect between Europe’s political elites and its citizens and for too long the academic and public debate has stressed the need to bridge this disconnect. It is now imperative to organize politics in Europe and give the eurozone a political framework to generate the policy consensus that it needs to address current and future challenges.

What is the message the European voter is sending through the ballot box?

The core messages are “Yes to Europe," but "No to this kind of Europe.” These election results have shown that severe austerity politics are not working and that citizens are calling – in some cases demanding – for a change of politics. More strikingly, they have also highlighted that discontented citizens who feel marginalized, ignored and insecure turn to extreme right-wing nationalist and xenophobic forces. These are the same forces that the entire project of European integration aimed at eradicating over half a century ago.

Is there a silver lining to recent events in Europe?

European citizens have returned to politics and are driven by a desire to provoke change in the EU. The eurozone crisis has transformed the political debate in more EU member states on ‘European’ matters and on what sort of politics and policies need to be pursued at the EU level. This is crucial for the development of a long-aspired transnational political space within and across the EU, and a greater politicization of Europe.