Spain Raises Tension over Gibraltar

In 1704 the rocky outcrop of Gibraltar was seized by British and Dutch forces during the Spanish Wars of Succession. It was later formally ceded to Britain by the Treaty of Utrecht in 1713. Since then the Spanish have longed for the return of Gibraltar going as far as to besiege Gibraltar in 1727 and also between 1779-1783.

The current inhabitants of Gibraltar are most certainly not Spanish and consider themselves as British as you can be. In 1967 and 2002 referendums were held regarding Gibraltan sovereignty, the Gibraltans voted 99.64% and 98.48% to remain British respectively.

The actions of successive Spanish governments has been to reject Gibraltan democracy and demand the British open talks over Gibraltan sovereignty. In response to the 1967 Gibraltan referendum, Spain, under dictator Francisco Franco, closed the border between Spain and Gibraltar until Spain's accession to the EU in 1985.

In recent days the dispute has flared up again. The Spanish have tightened security along the Gibraltar-Spain border, causing queues that last over seven hours. Unbearable in the south Mediterranean heat. To make matters worse border controls have started to charge people crossing over €50! This is in reaction to Gibraltar creating an artificial reef, which Spanish fisherman claim damages their livelihoods. Tensions were heightened as British war ships will be stopping off in Gibraltar on their way to military exercises in the Mediterranean.

It is not just the Spanish governments that believe that Gibraltar should be Spanish, it is the Spanish people. Yet the Spanish fail to understand their extreme hypocrisy, Spain has two cities on the Moroccan coast, Ceuta and Melilla, very similar to Gibraltar. A 2007 poll showed 88% of Spaniards considered the cities Spanish and 50% said that they did not understand the Moroccan claim! Now I fully support the ability of the citizens of Ceuta and Melilla to decide their own fate - but for Spaniards to claim Gibraltans have no right to decide their own fate, is pure hypocrisy.

The Rock of Gibraltar, as seen from Spain
source: www.euroreporter.co

Euorzone Crisis

For all of 2012 the crisis in the Eurozone dominated the news in Europe. As always Greece got the bulk of the attention, the problem for Greece is that every budget it passes has to have massive cuts mandated by the Troika. If they don’t pass the cuts then Greece doesn’t get the bailout money and it defaults on its debt. But everytime a budget comes out there are protests on the streets as people are fed up with the austerity. It didn’t help that Greece was forced to elect a new government twice. You see, Greece’s economy is in a death spiral, Greece struggles to pay its debts so gets a bailout from the troika. In exchange for money the troika force Greece to pass tough austerity, this forces the Greek economy to shrink as there is less money. This causes businesses to lay off workers or close altogether, adding to the government’s unemployed lists and causing the economy to shrink. This means less taxes are collected by the Greek government and more spending on unemployment benefits causing Greece to be unable to pay its debts. This forces Greece to go to the Troika for money and... you get the picture. Some fear that this death spiral could cause Greece’s economy to shrink by 25% of its pre-crisis level.

Spain had a bad year too, it was forced to bailout one of its largest banks, Bankia. Thankfully the Spanish government itself did not need a bailout, but was pressured to accept one. After summit talks in June Spain’s Prime Minister, Mariano Rajoy, got a massive victory; Merkel softened her hardline approach and allowed the Eurozone to bailout banks directly (rather than bailing out countries who had bailed out banks). This also brought the Eurozone to a banking union.

There were many fears that Italy could require a bailout to stay afloat; there was a problem. Italy is one of the world’s largest economies and there wouldn’t be enough money to save it. Thankfully Mario Monti, the country’s technocratic Prime Minister, has been able to steer Italy through this crisis pretty well. Unfortunately for Italy, Silvio Berlusconi is not quite gone, he is going to run for election this year. This spooked the markets as Berlusconi is a synonym for incompentence.

In the past couple of months the Eurozone has been much quieter and many are beginning to say the worst is over. And although I am optimistic, I agree with Merkel when she says the crisis is ‘far from over’.

The New World Order

Between the Age of Discovery in the 15^th century and World War Two, European nations ruled the world, both directly and indirectly. The colonial Empires of Spain and Portugal dominating in the early years of Empire, but they were eventually leapfrogged by the French and British Empires, and to a lesser extent the Dutch Empire. Russia, Germany, Austria and Italy also played an important role, especially in the later years. By the time the 20^th century dawned the world was changing, Japan and the US were emerging powers and Germany was threatening the balance of power within Europe itself. The two World Wars that followed devastated Europe, both economically and politically, immediately after WWII the empires of France and Britain fell apart and the UK handed superpower status to the USSR and USA. Yet Europe was far from unimportant, the USSR was a European country after all, and Germany, France and Britain still commanded significant influence. But with the fall of the USSR in the early 1990s, for the first time in modern history, the most powerful and important nation was not a European one, rather the USA.

So I think I’ve made my point, countries rise and fall and everyone has to adapt to the new world order brought about every century or so. Although Europe is still far from unimportant, of the top 20 economies, nine are European and of the five countries with a veto on the UN Security Council, three are European.

The Question is where is the world heading? Who will be the new countries on the scene, which nations will challenge western power?

The truth is nobody really knows, but there are certainly contenders. Over the next few days I will write about countries I believe could take the mantle of power from the West. The big debate surrounds whether China will eventually best the USA or will another country be the one to overtake America?

The following are the countries I believe have a chance of besting the west:

1.       China – the favourite to become the next superpower

2.       India – A rising nation with a population set to become bigger than China

3.       Brazil – the big boy of the South American economies

4.       Mexico – the rising star that may not be if drug lords have their way

5.       Indonesia – the island nation could be a surprise winner

6.       Africa – as a continent it will not take power any time soon – but its day will surely come 

New World Order Countries in red

*sigh* More Crisis in the Eurozone

The Eurozone crisis continues to dominate the airwaves today with reports that Spain will ask for a bailout by this afternoon. Despite these rumours the Spanish government is denying that it will ask for a bailout and it will be able to sort itself out. Yesterday Obama urged Europe to try and sort things out; he is fed up with the dithering and the lack of leadership at the heart of Europe. Obama knows that if Europe doesn’t sort itself out then the American recovery will be blown off course months before a re-election. Yesterday news came that Spain’s credit rating was downgraded to BBB by the ratings agency Fitch, which estimates that Spain will need between €60 and €100 billion to save its banks, pushing Spanish debt to 95% of GDP. This is unsustainable; the austerity already underway in Spain is only going to cause debt to rise and the economy to contract. Not what we want.

To be frank I’m fed up with the crisis in Europe, it’s CONSTANTLY in the headlines. Barely an evening passes by when I’m not hearing about the crisis in the Eurozone. The only break we got from it was when the news was all about the Jubilee last weekend! Europe has shown extremely weak leadership in this crisis and we are the only ones able to decide our fate. Europe must stand up and tackled the debt crisis, if we do not find a strong leader within the next few months the Euro, Europe and the social order of earth is doomed (OK – so a slight exaggeration, but my point is still valid). 

Spanish Bailout Crisis

The Spanish economy is in tatters, and Spain has finally admitted it. Spain has asked the EU for a bailout, but they want one that is very different from the type received by Greece, Portugal and Ireland. In these three countries, in exchange for the money they had to accept crippling austerity and other restrictive measures. Spain does not want to humiliation of having to accept the extraordinarily harsh terms that would be imposed on Spain.

So what deal is Spain trying to get from Brussels and Germany? Well firstly the Spanish government is claiming that they’ll only need €40 billion worth of bailout money, most economists believe that they’ll need closer to €100 billion, with some economists predicting a bailout as big as €400 billion. Regardless, there is enough money set aside in the European system to cope with a big bailout, so that is less of the problem. It is how Spain wants to receive the money, as I’ve explained the Spanish government would be humiliated if told what to do by Brussels and Angela Merkel. Instead rather than the EU/IMF giving money to the Spanish government, which would in turn use the money to recapitalise the banks, the Spanish government wants the bailout to be given directly to the banks so that they don’t have to endure even more austerity.

Currently Spain is playing a game of brinkmanship with (mainly) Germany, neither of them want the destruction of the Spanish economy especially considering the contagion would spread extremely fast around the globe. Although I believe that the crisis will end in a compromise (a direct bank bailout with some austerity and restrictions) I do believe that Germany will be the first to blink as it has much farther to fall the Spain.

The Never-Ending Woes of the Eurozone

The never-ending Eurozone crisis has reached a new low today with the cost of borrowing for Spain rising to almost record levels, just a whisker below 6.7%. Tomorrow is also going to be an important day for the Eurozone, the Irish are going to the polls tomorrow to vote in a referendum on the new EU fiscal compact treaty. If the Irish reject the treaty, it will send shockwaves throughout Europe likely destabilising Greece and Spain even more.

More discussion has focused on the likelihood of Greece leaving the Eurozone. The Economist Paul Krugman who has written a book on, what he calls, an economic depression is becoming increasingly visible. He claims that a Greek exit would be “awful” for the world economy and that Greece may never recover, he believes that the austerity imposed on Greece and other Eurozone countries simply is not working. In the UK he is calling for the government to use the record low borrowing costs to borrow money to fund infrastructure projects and help to boost the economy.

Krugman has claimed that the crisis will send the world economy into chaos and he believes that if the leaders of Europe want the euro to survive there must be some form of political union. Although this appears unimaginable it does make sense, a political union would make it easier to spread the wealth around and allow Greece and Spain to become competitive again.

So what are the risks for the UK? Well we have very little exposure to Greece itself, but the fear of contagion if Greece defaults or leaves the Eurozone puts us at bigger risk. The exposure to Italy and Spain for Barclays, RBS and HSBC is about €10 billion each, but RBS’ exposure to the Eurozone as a whole is €70 billion. If Greece defaults and leaves the Eurozone it will have catastrophic consequences for the Eurozone. Krugman believes that unless Merkel and the Germans concede defeat and allow the Greeks to have more lenient austerity a Greek default is inevitable. 

US economist Paul Krugman

The Continuing Greek Tragedy

The crisis in Greece continues as the three main parties have failed to thrash out a coalition agreement. They have agreed that another general election will be held in the coming weeks, this election is completely unpredictable with some experts believe that after voting for anti-bailout parties in the last election, people will move back to the centre. Yet most experts believe that the anti-bailout parties will gain more ground the next time the Greeks go to the polls.

SYRIZA leader, Alex Tsipras

If the Germans and Brussels want to avoid the anti-bailout parties winning they must negotiate ASAP with the pro-bailout parties, give them some concessions. Then PASOK and New Democracy can go to the voters and tell them that the bailout can still work, in the hopes of marginalising SYRIZA. The reality is, if SYRIZA were able to form an anti-bailout party after the next general election, then Greece would almost certainly go bust and have to leave the Euro which would have devastating affects around the EU. Spain, where borrowing is almost unsustainable already, would need a bailout immediately and any chance of a recovery in Ireland or Portugal would be out of the question. Likely Greece would drag the rest of the world back into recession. This could result in a break-up of the Euro and a destruction of the economies of the PIIGS countries, this could be worse for Germany than many other countries, as Germany’s central bank has lent €644 billion euros to other European central banks and a break-up of the Euro would mean that it wouldn't get most of that money back. Germany must defend Greece from financial collapse, otherwise the country will suffer the consequences.

European Woes Continue

Europe’s economy is going from bad to worse to awful. According to recently released figures the EU’s economy is expected to not grow at all over the next year whilst the Eurozone’s economy is expected to go through a mild recession. Spain is the latest centre of the European crisis, the government of Spain has done a review and has given a €30 billion bailout to some of its biggest banks. Yesterday one of the country’s largest banks, Bankia, was part-nationalised (45% of the bank belongs to the government now) this is putting a serious strain on the Spain’s finances as Spain has massive debts. The cause of most of Spain’s woes is very similar to what happened in Ireland, there was a gargantuan property bubble that burst, there are now vast wastelands of uninhabited apartments and home built by developers but never purchased. Bankia, lent €38 billion to property developers, €32 of which is currently problematic and Bankia may never receive the loans. In the entire banking system there is a colossal €184 billion of bad loans, with Spain’s unemployment rate at 25% and the youth unemployment rate at 50% austerity is going to cause massive pains for Spanish people. So will Spain need a bailout? It’s too early to tell at this stage but there is a chance it will, if it does need a bailout then it will become the fourth European economy that has received one. The problem with Spain is its economy is significantly bigger than the Portuguese, Irish or Greek economies and a Spanish bailout may put too much strain on the system

The problems in Greece are continuing there has been no government since Sunday and there isn’t going to be one until new elections are held. The third placed party PASOK tried to get a coalition going but failed, so now new elections are going to have to be held. What some of the centrist parties, and Brussels, are hoping is that after voting in the extremes on Sunday people will move back to the centre. If the polls are anything to go by, this will not be the case, the second placed party, SYRIZA will win more than any other party as it is polling 27% of the vote. If it does manage to get this amount of the vote then there is a serious chance that it will be able to form a coalition and thus a government. The problem. SYRIZA opposes the bailout, if it does manage to form a government and Greece goes bankrupt, this could have devastating effects on the global economy.  One of the biggest worries I have is the rise of Golden Dawn, hopefully their vote share will go down, but I fear this is wishful thinking.

Empires Today

In 1997 the British handed Hong Kong back to Chinese, with a population of around 5 million this was the last major colony of any country. But the old colonial empires are not totally gone, their remnants still exist and although they are small, they do have major benefits for the countries that own them. Officially the only countries which still have empires are France and the UK, the USA also has areas similar to an Empire, but is not considered to be so. The UK has territories in the Mediterranean, Caribbean, Atlantic, Indian and Pacific oceans. These are mostly small islands with relatively small populations; the total population of all 17 is around 510,000 people. The benefit for the UK is not the people, but the location, being scattered across the globe means the UK can place military bases around the world. Akrotiri and Dhekeli and the creatively named British Indian Ocean Territory are mostly military bases. By nature of them being islands they significantly increase the size of the UK’s EEZ (Exclusive Economic Zone), this is the area over which a state has special rights on exploration or the use of marine resources and extends up to 200 nautical miles from the coast. The UK has 6.8 million km² of EEZ, mainly thanks to the overseas territories. This means that any oil found in that area would benefit the UK greatly.

France also benefits significantly from the remnants of the era of Empires although the system through which France governs them is more complicated than the UK. Contrary to what most people believe, parts of France are outside of Europe, such as French Guiana in South America. These are actually part of France in the same way that Paris and Marseilles are. France also has territories which are not part of France and she governs them similar to hoe the UK governs her overseas territories. France experiences significant benefits just like the UK from its overseas territories such as the ability to put military bases in any ocean and benefits from a huge EEZ, the second largest in the world!

Other countries have remnants of their colonial empires, parts of the Netherlands are in the Caribbean and Portugal owns a number of Atlantic islands. Norway controls a small island in the south Atlantic called Bouvet Island, Denmark controls Greenland and the Faroe Islands and Spain owns a few Atlantic islands. Even the USA owns a few islands in the Pacific Ocean and Caribbean. All these countries benefit significantly from the control of overseas territories. This scattering of islands owned by the west on every continent and in every ocean gives the west an advantage that the east will never be able to get. China and India will only be able to place military bases where they please if they harbour good relations with other countries.

The age of empires is long gone, but the legacy of that era still influences the world today. 

The Eurozone

This year saw the Eurozone go to the brink of collapse and it still hasn’t fully recovered. The issue was over the level of government debt, most worryingly in the “PIIGS” countries, the less than complimentary acronym for Portugal, Ireland, Italy, Greece and Spain. The turbulent year for the economies of Greece and Italy pushed out their heads of government and replaced them with non-elected technocrats. Many people feel that this threatens the Western ideal of democracy. Within a year of each other Ireland, Greece and Portugal all had to ask for bailouts from the EU/IMF to keep their economies afloat. Greece was constantly in our news especially in the latter half of our year as the country tinkered towards the edge of the abyss.

2012 will be an interesting year for Europe, each economist predicting different scenarios ranging from a complete Euro breakup to a tighter “Euro Compact” of the stable northern countries or just with a few of the peripheral countries leaving. It is difficult to tell what will happen in 2012, but nonetheless it will be a make or break year for the Eurozone.

A map of Europe

Red indicates Eurozone members

Blue indicates non-Eurozone members of the EU

White indicates European countries not in the EU

Grey represents non-European countries