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economy

Will Italy leave the European Union

Following a decrease of 0.1% in the third quarter of 2018, Italy’s economy contracted of 0.2% in the final quarter of the same year. As such, Italy is now officially in technical recession; just when it seemed to be recovering from the effects of the debt crisis. This has sparked an intense political debate and has cast doubts over its economic prospects. But what does this actually mean for Italy and the EU?

Technical recession: the domestic debate

The news that Italy has entered into technical recession have immediately triggered a mutual-blaming quarrel between political forces. The governing coalition formed by the Five Star Movement and the League attributed the fault to the former ruler, the Democratic Party; who, on its part, accuses the economic policies of the current executive.

In reality, the situation is way more complex, and the responsibility cannot be ascribed to a single reason. As in all economic issues, there are multiple factors in place whose interplay determines the growth on a given period; therefore, it is difficult to clearly find out who or what is responsible. Economic performance is a long-term issue. Amazon’s CEO Jeff Bezos once said that “if we have a good quarter it’s because of the work we did three, four, and five years ago. It’s not because we did a good job this quarter”. His sentence does also apply to states. So, part of the responsibility can be imputed to the previous governments who, in spite of having managed to reassure the markets and bring Italy back on the path to a limited growth, failed to reduce the country’s huge debt. But it is equally true that the current executive, in power since June 2018, has raised the concerns of investors with the economic policies it has implemented or proposed.

First, it attempted to adopt an expansionary fiscal policy to boost growth by increasing public expenditures. However, this alarmed the EU Commission: even though Italy’s budgetary plan did not break the Union’s rules, it was still considered too risky as it would have caused a fiscal deficit and increased the already enormous public debt. This resulted in a standoff that was ultimately solved when the Italian government partially backed down and reduced the planned spending. Yet, the episode caused stress on the financial markets and harmed trust among investors. Another controversial topic in the economic policy of the incumbent government is the introduction of a basic income for unemployed people: it would increase public spending, but its future benefits are dubious.

Technical recession: the external factors

Apart from the policies of this government or the previous ones, there are many other external factors that the executive cannot control and that probably have had a more important impact on Italy’s economic performance. The country’s GDP contractions comes amid a global slowdown. The growth of the EU as a whole has been limited to 0.3% in the final quarter of 2018. There are some issues on trade as well. China, the world’s second-largest economy and a non-negligible export destination for Italy, is also growing at a slower pace than before. Problems exist also with another and more important trading partner: the United States. President Trump’s protectionist policies have surely had a negative impact on the EU and on Italy. At the end of May 2018 the US imposed 25% tariffs on steel and 10% ones on aluminium. In 2016, Italian metal exports to the US were worth almost 2 billion dollars. This is not an impressive figure, but more important industries could soon be hit and this eventuality could have had an impact. Trump is threatening to put tariffs on cars, that always in 2016 represented 9.5% of total Italian exports to America for a total value of more than four billion dollars. Again, this is not an extraordinary amount, but the spill-over effects on related industries should also be considered. The EU is trying to reach a deal on trade with the Trump administration, also by menacing to impose counter-tariffs wort 23 billion dollars on US products, but in case it fails Italy will surely be negatively affected. The looming possibility of a no-deal Brexit in recent months might also have had a role. The UK is a more important destination for Italian export than China and the US, and the prospect of a no-deal scenario may have had an impact, even though it is still too early to evaluate this. But the most important point probably concerns energy supplies. Italy is dependent on petroleum imports, and the price of oil surged in 2018 to reach the climax at the beginning of October, thus covering much of the period in which the Italian economy has contracted. The price went down since then, and the effects will probably be felt in the coming months.

These are only some of the numerous factors that may have determined Italy’s recession in the second half of 2018. What is important to understand is that the issue is very complex and easy explanations are not effective indicators of the reasons behind the GDP contraction. But what about the future prospects for Italy? Will it leave the Eurozone?

A prelude to leaving the Euro?

Since the debt crisis of 2011 and the subsequent austerity policies, Euroscepticism has become common in Italy’s political discourse. EU institutions were criticized and perceived as technocrats at the service of financial interests, and some even advocated for Italy to abandon the EU or at least the Euro. The most recent recession, albeit marginal by now, might reopen the debate, especially if it were to continue. After all, the two ruling parties were among the most vocal anti-Euro political forces, even though they took more moderate positions later on.

This is a political choice that Italy will have to make, but it will have of course major economic implications. According to the optimum currency area theory, it is economically beneficial to have a single currency in case the region is strongly integrated by intense trade exchanges and a great mobility of production factors. So, a country evaluating whether to enter or leave a common currency area should assess its degree of economic integration with other participants. As a matter of fact, the higher the level of integration, the greater are the benefit and the lowest are the costs of renouncing to monetary sovereignty to have a single currency. For what concerns the benefits, the main advantage of a common currency is to eliminate transaction costs due to exchange and interest rates and their variation. If the economies are closely intertwined with an elevated trade volume and a strong mobility of workers and productive factors, having different currencies brings very high costs that partly eliminate the gains of trade; and adopting a single currency removes these costs. But having a common currency also brings its own costs, because it makes it impossible for states to use monetary policy to counter asymmetric economic shocks, namely recessions that hit only that country but not others. If it has its own currency whose value can freely float, its automatic depreciation will boost export and counter the economic slowdown. But if it has renounced to its monetary sovereignty by adopting a common currency like the Euro, this mechanism is impossible. However, a high degree of economic integration minimizes this inconvenience, as it also allows to reduce the recession’s effects. If the country’s economy is closely intertwined with that of its fellow partners, the diminution of the price of its products will encourage others to buy them, thus increasing its exports. Similarly, if there is a high mobility of workers, then jobless people will be able to emigrate to other countries thus re-equilibrating the domestic labour market. In short, if the economies are strongly integrated, the benefits of having a single currency are high and the costs are low; so, it is wise to adopt the common currency. Now, is it the case of Italy?

For what concerns trade, in 2016 Italy’s exports to Eurozone alone was worth 192 billion dollars, over a total amounting to 450 billion. In the same year, its imports from other Eurozone countries amounted to 207 billion on a total of 397. This shows the importance of its exchanges with the other countries using the Euro. Moreover, its economy is also integrated with the Eurozone via mutual investments, expats, joint-ventures, services and others. If it abandoned the Euro, then it would lose all the advantages of having the same currency as its main economic partners. In addition, if it came back to the lira it would have to face the short-term shock. The currency would rapidly depreciate, and while it is true that this would boost export, it would also bring back consistent transaction costs. Moreover, inflation would erode the people’s purchasing power and there would be deep consequences on its debt with soaring spread and strong difficulties to obtain new loans. The situation would surely stabilize with time, but all in all, this does not seem to be an economically-convenient move for Italy.

Conclusion

The fact that Italy has entered in technical recession is surely no good news for it and the EU. Blaming each other at the political level will not solve the issue, also because there are many factors at play and responsibility cannot be fully attributed to anyone. Much will depend on future economic developments; but the contraction is limited by now and, in spite of the Eurosceptic positions of the current government, there is nothing that indicates that Italy will leave the Eurozone anytime soon.

Geopolitics of Brazil

Brazil is South America’s emerging power. It is the largest and most populous country in the continent; and it benefits from a favourable geographic position, important natural resources and a growing economy. As such, it is taking a more active international role both in the region and beyond. Yet, it must also face notable challenges; notably corruption, criminality, inequality and others; all of which may undermine its rise as a great power.

Geography and Brazil’s rise

Like any other country, Brazil’s geopolitics can be examined as a combination of three factors: dimension, configuration and position.

Brazil covers a total area of about 8,515,000 square kilometres, making of it the 5th country in the world in terms of size. This puts Brazil in a favourable position to dominate the continent, as it can access any region with relative ease. Similarly, its 7,500 kilometres-long coastline on the Atlantic Ocean enables Brazil to easily project its power abroad and to engage in lucrative maritime trade.

In terms of configuration, Brazil’s territory can roughly be divided in two parts. The north-west is centred on the Amazon river basin and its vast rainforest, the largest in the world and a real treasure in terms of biodiversity. The south-east is made up of ridges and mountain ranges crossed by the Parana river. As a matter of facts, watercourses are an important feature in Brazil’s geography: the country has a complex hydrographic system that brings significant benefits to electric power generation and agriculture, which is also favoured by Brazil’s warm climate. Most of Brazil’s 208 million citizens, the majority of which are young people, live in the cities along the coast. This has resulted into vast metropolis where economic prosperity meets overcrowded slums.

But position is Brazil’s most important characteristic. It borders ten nations, meaning all the countries in South America except Ecuador and Chile. None of its neighbours represents a real threat, and not only because relations are generally good: Brazil is simply more powerful than any of them. Even Argentina, the second most influent country in the continent, cannot seriously challenge Brazil’s supremacy due to a worse geopolitical and economic situation. Other states are not a real matter of concern; yet, they are important for Brazil’s own geopolitical ambitions. Brazil wants to extend its influence westwards to connect the Atlantic and the Pacific Oceans so to unlock its innermost territories, become the centre of coast-to-coast trade and increase its regional influence. To reach this objective, Brazil needs to keep the URAPABOL area in its sphere of influence. This zone takes its name after the three states composing it: Uruguay, Paraguay and Bolivia. They are seen as South America’s geopolitical pivot, meaning that the power who controls them can extend its influence over all the continent and obtain a dominant position. Moreover, the URAPABOL states were also seen as useful buffer zone against foreign threats and Argentina in particular; even though today the likelihood of a war is really remote. For these reasons, Brazil is attentive to maintain a solid political, economic and demographic presence in these three countries. But Brazil’s is also located along the Atlantic’s coasts, meaning that it can easily reach the large American and European markets to the North; as well as Africa with its natural resources and many fast-growing economies. So, Brazil also wants to become a naval power to boost its economy and develop its Navy to project its power abroad.

Brazil’s economic & military outlook

Apart from geography, Brazil also has natural resources, a considerable economic potential and important military means.

Brazil is certainly South America’s leading economy, but its outlook is made of mixed figures. This year, its GDP is projected to reach 1.9 thousand billion dollars, which goes to 3.5 thousand in terms of Purchasing Power Parity. The expected growth rate is of 2.4% in current prices. Brazil was at the 9th place on the list of the world’s largest economies in 2018, and it is expected to reach the 5th position by 2050. Its per capita GDP will stand around 16.7 thousand dollars in 2019, a relatively low figure to be combined with an unequal distribution of wealth. After years of high inflation, the price growth seems to have stabilized at around 3.5%. The debt of the central government is on the rise, amounting to almost 79% of the GDP in 2017, Along with a slight budget deficit of around 1%, this trend can become problematic in the long term. Unemployment affects 10.7% of the population today, and 4% of Brazilians lived below the poverty line in 2016. The trade balance has been in constant surplus for years, sustained by agriculture and manufacturing exports. As a matter of fact, Brazil is a true agronomic giant and its industry is also developing in many sectors. In addition, it also hosts significant hydrocarbon and mineral reserves, and is a leading producer of biogas. However, this has negative environmental consequences: huge swathes of the Amazon rainforest have been cut to grow the crops required for producing biogas; and also for other reasons like timber production. Brazil has nuclear reactors for energy generation and infrastructures are being improved, but much work remains to be done.

This overview shows that Brazil is indeed an emerging country, but like other economies in analogous conditions it has still considerable challenges to deal with. Corruption, poverty and inequality continue affecting its economy. This has important repercussions on the country’s political life, since similar matters are a cause of social unrest and high crime rates. In fact, Jair Bolsonaro has been elected President largely out of promises of tackling corruption, reforming the economy and crushing criminality.

Brazil is the main power in South America also in military terms. It spends regularly more than 1.32% of its GDP on defence, and it possesses large and well-equipped armed forces who remain politically influential. The Army includes, among others, specialized units for jungle warfare and a vast park of vehicles. It also maintains the Strategic Rapid Action Force, ready to be deployed anywhere in the country at a short notice. In recent years, due to better relations with Argentina and in accordance to its strategy to extend its power westwards, it has relocated many units in the Amazon area. The Air Force operates fighters, cargos and airborne warning & control planes. But the Navy is the most notable component of the Brazilian military, as it is a powerful mean of power projection. Today, it includes diesel-electric submarines, landing ships and a helicopter carrier plus naval aviation and marines; and it also plans to deploy a nuclear-powered attack submarine by 2025. Finally, Brazil also possesses a considerable defence industry and carries on its own space program.

Brazil’s foreign relations

Brazil’s foreign policy is largely based on multilateralism. It maintains pretty good relations with its neighbours, and it is a member of the main regional bodies like the Organization of American States, the Union of South American Nations and the Southern Common Market; where it plays an important role in promoting integration. It provides economic aid to developing countries, notably African ones; but this is also motivated by economic interests, like accessing resources and opening new markets for Brazilian firms. It also takes part to UN missions and promotes the enlargement of the UN Security Council. Moreover, it is a member of the informal BRICS group along with Russia, India, China and South Africa; and it keeps cooperating with all of them all while maintaining good ties with the US and with European countries.

Now that Bolsonaro is President, US-Brazil relations will receive a boost: Bolsonaro is openly pro-American and share many similar views with Trump: they oppose immigration, they are close to Christian and conservative groups, they promise to crush criminality and fight terrorism, they are favourable to death penalty, they support the rights of gun owners, their economic policy focuses on privatization and deregulation at home while protecting their industry from foreign competition by introducing tariffs, they criticize authoritarian regimes and are very friendly towards Israel and other pro-US states like Japan or South Korea, and they are hostile to foreign (and especially Chinese) economic penetration in their countries. Since Brazil is the main power in South America and the only one capable of countering US supremacy to some degree, Bolsonaro’s election is a gift for America: it virtually ensures that Brazil will remain friendly and that it will oppose rival powers like China and Russia. Both of them are indeed expanding their presence in South America to access resources and to subtract the area from American influence, but now their efforts risk being thwarted. Nevertheless, China remains a central economic partner for Brazil, and along with Russia it will continue to extend its presence in South America. Brazil, on its part, will maintain its multilateral approach to diversify its partnerships, maximize its benefits and increase its global influence.

Conclusion

Brazil is South America’s main power and its influence in international affairs will certainly increase in the future. Yet, its economic growth is not as spectacular as China’s or India’s; and it has to face many challenges like poverty and inequality, environmental degradation, corruption and social unrest. All such factors will limit its geopolitical role. But Brazil, is that contrarily to other emerging countries, it is not involved in rivalries with other states and it is not challenging the existing international order. Instead, it focuses on multilateralism and mutually-beneficial cooperation. This is probably the most remarkable aspect of Brazil’s rise: at least by now, it looks that it will be peaceful and not destabilizing.

The role of ports in the global economy

Ports are maritime commercial facilities usually located on a coast or shore that contains one or more harbours where ships can dock and transfer cargo as well as people. Ports constitute a major component of the global transportation sector and are linked to the expanding world economy. In other words, ports are a means of integration into the global economic system.

As the WTO-agreements since the 1980s lifted several pre-existing international trade barriers, manufacturers all over the world vertically disintegrated their production systems into geographically dispersed and flexibly organised supply chain systems . The international trade regime began allowing manufacturers to relocate their production and assembly plants to more cost-efficient locations in developing economies.

Ports have been at the hearts of commerce for centuries and they only kept gaining more significance . Before the invention of aeroplanes, sea had been the main mode of transport for settlers, travellers and migrants for centuries. They played important roles in the industrial revolutions and act as a catalyst to industrialisation. While early ports were mostly used as harbours, today they are more often referred to multi-modal distribution hubs having transport links using sea, river, canal, road, rail and air routes.

Is China the new tiger of Bangladesh?

Bangladesh and China have maintained good relations for much of history. Today the two countries share a strong strategic relationship, with China playing a vital role mainly in terms of economic and infrastructure development of Bangladesh. However things weren’t so good especially during the time when Bangladesh gained independence from Pakistan and the subsequent years until around the mid 1970s.

During Bangladesh’s War of Liberation in 1971, there was a outbreak of complex geopolitical rivalries. India had allied with Bangladesh due to their long-term conflicts with Pakistan, and more so because Bangladesh was actually a part of Pakistan after the end of the British empire since 1947. China had been allied with Pakistan for most of history, and the ties strengthened especially around the time of the Sino-Indian war in 1962. As a result China opposed Bangladesh’s independence and vetoed their UN membership until 1974.[1]

It was only after the military coup in Bangladesh in 1975 that relations between Bangladesh and China started to improve. Prime Minister of Bangladesh since their independence, Sheikh Mujibur Rahman had close ties with India, and only months after the military takeover, China eventually recognised Bangladesh as an independent state as diplomatic relations were secured.[2] This dramatic transformation was fascinating, but it did not come as a surprise as the military rule led by President Ziaur Rahman distanced Bangladesh from India and the Soviets[3], which can possibly be regarded as one of the most significant reasons for their improved relationships. Ziaur Rahman helped restore free market economy in Bangladesh[4] and made a visit to China in 1977 which is regarded as a crucial step in laying groundwork for bilateral cooperation, which was followed by Chinese visits to Bangladesh in the late 1970s. Since then state visits between the two countries have been regular most of which have resulted in positive discussions and signings of agreements on political, economic and security issues.

Current relations

Bangladesh and China share a very strong relationship that ranges from the spheres of the economy, politics, development to defence and security. Today, Bangladesh considers China an “all-weather friend and a trusted ally”[5]. The cooperation dates back to Bangladesh’s  military rule in the mid-70s, however the democratically elected governments since 1991 have been able to keep up the good relations. In a 2010 visit to Bangladesh by then Chinese Vice President Xi Jinping, he stated that Sino-Bangladesh relations would remain strong regardless of any change in the domestic or international situation.[6] Bangladesh Prime Minister Sheikh Hasina on the other hand reiterated the importance of the country’s bilateral relations with China considering them a major ally of the highest significance.[7]

Economic ties

One of the most important aspects of the Sino-Bangla bilateral relations is the economic cooperation. China are by far the largest trading partner of Bangladesh with the latest World Bank figures revealing that Chinese exports to Bangladesh to be worth over US$ 10 billion (in 2015)[8]. On the other hand Bangladesh is China’s third largest trade partner. Majority of Bangladesh’s imports from china consist of raw materials for clothing and textile.[9] However the balance of trade between the countries is significant with Bangladesh having a deficit of approximately US$ 9 billion.[10] Reduction in trade deficit has been a primary concern for Bangladesh over the years, and following negotiations China agreed to provide duty-free access to around 5000 Bangladeshi products to the Chinese market under the Asia Pacific Trade Agreement (APTA) which has so far resulted in a slight decline in the ratio of trade deficit[11].

Possible Free Trade Agreement?

Talks have been in progress for several years about Bangladesh seeking a zero-tariff access of 99 percent items including Ready-made garments products in order to improve balance of trade. China’s meteoric rise in becoming the 2nd largest economy in the world only behind the United States by toppling Japan was possible largely due to its diversified economy, while having 14 FTA’s with developed as well as developing countries around the globe.

However there are some challenges of the FTA, mainly with regard to China’s ‘Made in China 2015’ industrial policy plan. There are significant restrictions on investing in China, and also preference is given to state-owned enterprises that control 38 percent of industrial assets in China, skewing competition in the market in favour of those.[12] Also another concern for foreign investors is the ‘Chinese ways’ of implementation and enforcement of laws and regulations which tend to be ambiguous and lax.

A major geopolitical challenge concerning the FTA would come from the United States and India, especially with India also having a strong alliance with Bangladesh. Chances are that India may take the Chinese assertion in its backyard as a means of increasing influence in India’s sphere, while the United States may consider an FTA as a geostrategic obstacle in containing China at the Bay of Bengal and the Indian Ocean region. However, if Bangladesh wants to achieve a fairly unrestricted access to Chinese markets it needs to keep pushing further on the negotiation table, while asserting to their other major allies, India and the United States that the actions are for their own best interests mainly in terms of economic development.

Will the US-China trade war have an impact on Bangladesh?

The recent trade war instigated by Donald Trump with his protectionist approach, with Chinese retaliations following by, has had impacts in the Bangladeshi economy. There has been a rise in steel prices (mainly rods) in the domestic market threatening both the major public infrastructure projects and the real estate market due to the US imposing tariff on US$ 34 billion worth of exports from China, while the latter imposed tariff on American cotton, and while China plan on importing cotton from India, the prices had already increased by 10-12 percent. It must be noted that more than half of Bangladesh’s cotton imports are from India  [13]. Soaring cotton prices would significantly hurt Bangladesh’s economy as they would affect the readymade garment sector.

Despite having strong economic ties there have been disagreements; a significant one is Bangladesh’s refusal of agreeing to China’s terms and conditions for the construction of the Sonadia deep-sea port in 2014.

Defence and Security Cooperation

Defence cooperation has been one of the major strengths in the bilateral relations between the two countries. China happens to be the only country that Bangladesh has signed a defence agreement with, which was done in 2002. Since then China had been the largest supplier of weapons and military equipment to Bangladesh, with latter being the 2nd largest recipient of Chinese arms in the world between 2011 and 2015[14]. Between 2013 and 2017 China has provided Bangladesh with 71 percent of all their arms purchases[15]. Bangladesh also recently purchased their first submarines to add to their naval fleet causing concerns in India. The Bangladeshi armed forces have acquired large numbers of tanks, large-calibre artillery, armoured personnel carriers, small arms and light weapons (SALW) as Chinese arms are the Bangladeshi Army’s weapon of choice while the Navy use Chinese frigates with missiles, missile boats, torpedo boats among others. China have also been supplying fighter jets and training aircraft to the Bangladeshi Air Force since 1977[16].

Very recently China and Bangladesh made crucial developments in security cooperation. The bilateral relations between the two countries have been elevated to ”Strategic Partnership of Cooperation”. The deal is aimed at intelligence sharing and counterterrorism activities, although other important matters such as cybercrime, militancy, transnational crimes, narcotics, fire service, and visa issues were also discussed during the signing of this major agreement[17].

Development cooperation/ Infrastructure development

Development cooperation is an integral part of the bilateral relations between China and Bangladesh. China has played a crucial role in the infrastructure development of Bangladesh over the years. It has assisted Bangladesh in building bridges, roads and railway tracks and power plants. The development assistance from China to Bangladesh and other developing countries mostly come as LOC’s. During a recent Bangladesh visit in 2016, President Xi Jingping promised US$24 billion in economic assistance to Bangladesh mainly as LOCs related to 24 projects[18].

China assisted Bangladesh in the construction of six bridges commonly known as the ““China- Bangladesh Friendship” bridges[19]. China also helped Bangladesh in constructing the Barapukuria coal-fired power plant located in Dinajpur in the North West of Bangladesh and was commissioned in 2006[20]. During Jingpin’s visit to Bangladesh in 2016, the countries signed agreements for two 1320 MW coal-fired power plants- one Payra, Patuakhali and the other in Banshkhali, Chittagong- making China the largest energy partner to Bangladesh overtaking India[21].

China has also provided economic assistance to Bangladesh in terms of free aid and token gifts. Two major agreements were signed in 2010 for establishing a fertiliser factory, and telecommunications network systems in Bangladesh- that were to be set up with a US$ 770 million LOC from China with a two percent interest rate payable within 20 years[22]. There had been discussions for several years on potential road and railway connections linking Chittagong with Kunming that would boost the economies of both the countries however that has not materialised as of yet[23]. Currently China is developing a 750-acre industrial park in Chittagong which will take five years to become fully operational and it will largely be used by Chinese manufacturing firms[24].

Conclusion

The good relations shared between China and Bangladesh have always been of mutual interests and both countries benefit from that. Although the growing relations between China and Bangladesh raise geopolitical tensions in the South Asia region and the Bay of Bengal, there should not be much doubt that China’s primary interest lies in the booming economy of Bangladesh, which has been ever so dependent on their bilateral trade relations. Bangladesh Prime Minister Sheikh Hasina has recently said that there is nothing to be concerned about for India while not explicitly mentioning China or any other country, and that Bangladesh need funds for the sole purpose of development and that she would welcome any country that is willing to invest in the country; she also urged India to maintain cordial relationship with all its neighbours[25]. Keeping close ties with Bangladesh will no doubt be hugely beneficial for China as the demand for oil and gas have risen largely owing to its growing industries, and having a strong geopolitical presence in the Bay of Bengal and the littoral countries could give them an advantage in terms of accessibility to various ports. On the other hand Bangladesh can only benefit from the cooperation with a major economic power as it has done so in terms of their diplomatic, economic and security affairs and would be keenly anticipating further developments in their bilateral cooperation.

[1] http://countrystudies.us/bangladesh/108.htm

[2] https://www.researchgate.net/publication/320546820_SINO-BANGLADESH_RELATIONS_AN_APPRAISAL

[3] http://countrystudies.us/bangladesh/108.htm

[4] http://siteresources.worldbank.org/EXTPREMNET/Resources/489960-1338997241035/Growth_Commission_Working_Paper_22_Economic_Reforms_Growth_Governance_Political_Economy_Aspects_Bangladesh_Development_Surprise.pdf

[5] https://www.orfonline.org/expert-speak/41935-decoding-china-bangladesh-relationship/

[6] Xinhua, 16 June 2010.

[7] “China pledges free market access”, The Daily Star, 19 March 2010.

[8] https://wits.worldbank.org/CountrySnapshot/en/BGD

[9] https://www.thedailystar.net/op-ed/politics/expanding-the-bangladesh-china-trade-frontier-1296583

[10] https://www.orfonline.org/expert-speak/41935-decoding-china-bangladesh-relationship/

[11] https://www.thedailystar.net/op-ed/politics/expanding-the-bangladesh-china-trade-frontier-1296583

[12] https://www.dhakatribune.com/opinion/op-ed/2018/05/18/free-trade-agreement-with-china-a-necessity

[13] https://www.thedailystar.net/opinion/more-just-facts/what-does-the-us-china-trade-war-mean-bangladesh-1604986

[14] https://thediplomat.com/2017/01/why-chinas-submarine-deal-with-bangladesh-matters/

[15] https://www.sipri.org/sites/default/files/2018-03/fssipri_at2017_0.pdf

[16] https://www.researchgate.net/publication/320546820_SINO-BANGLADESH_RELATIONS_AN_APPRAISAL

[17] https://www.dhakatribune.com/bangladesh/nation/2018/10/26/bangladesh-china-sign-3-agreements-on-security-cooperation

[18] https://www.orfonline.org/expert-speak/41935-decoding-china-bangladesh-relationship/

[19] https://www.researchgate.net/publication/320546820_SINO-BANGLADESH_RELATIONS_AN_APPRAISAL

[20] https://china.aiddata.org/projects/33957

[21] https://www.thethirdpole.net/en/2016/10/18/china-becomes-bangladeshs-largest-energy-partner/

[22] Rezaul Karim Byron, “$ 770 million Chinese loan tied with conditions”, The Daily Star, 28 September 2010.

[23] https://www.thedailystar.net/news-detail-259521

[24] https://www.reuters.com/article/us-bagnladesh-china/china-to-develop-bangladesh-industrial-zone-as-part-of-south-asia-push-idUSKCN1HB1M2

[25] https://economictimes.indiatimes.com/news/politics-and-nation/india-need-not-worry-about-bangladesh-china-ties-sheikh-hasina/articleshow/63037906.cms

Will the EU Collapse and lead to a Civil War?

The last decade has been a difficult one for the European Union. In the wake of the 2009 debt crisis, much debate has arisen around its nature, its powers, its governance and its policies.

The situation got only worse when the migrant inflow boomed in 2015, triggering a EU-level crisis.

In this strained socio-economic context, diverging views on the EU as a polity have emerged at the political level both inside the single member states and inside the organization’s institutions.

Recently, two events have revived once more the debate. The first is the re-election of Viktor Orbán, a prominent conservative and Eurosceptic politician, as Prime Minister of Hungary.

The second is the statement by France’s President Emmanuel Macron that the EU is facing a “civil war” on its fundamental values resulting from different opinions between its Western and Central-Eastern members.

This affirmation seems exaggerated, at least at a first glance. But in such a turbulent political context, it raises a legitimate question: is the EU on the edge of a civil war?

The Conditions of a Civil War

To answer this question, the first thing to do is determining in which conditions a civil war does start. Essentially, this happens when two or more socio-political groups belonging to the same political entity disagree on the existing and/or future institutional order; and, being unable or unwilling to peacefully find a compromise through the existing institutional mechanisms, opt for armed conflict to impose their view and determine who will (re)shape the existing order by the use of coercion. Usually, a civil war opposes one group fighting to preserve the standing institutional framework (along with the prerogatives it enjoys thanks to it) and another group who wants to dismantle it (and set up a new order more favourable to its interests).

That said, history is full of examples of civil wars; from those which paved the way to the end of the Roman Republic centuries ago to the ongoing conflicts in Syria and Yemen. But one is particularly significant due to its similarities with the situation the EU is facing today: the American Civil War.

The American Civil War

The US Civil War, also known as War of Secession, was an armed conflict that split the United States between 1861 and 1865.

The contenders where two: one was the Union (the North), formed by states that remained loyal to the government of the United States;

and the other was the Confederacy (the South), made up of states which seceded from the US and form a separate political entity known as the Confederate States of America (CSA).

Usually, this war is portrayed as a fight over the issue of slavery, with the Union supporting its abolishment and the Confederacy favourable to its preservation.

But even though slavery was indeed a central issue in sparking the conflict, the situation was far more complex than a clear-cut black-vs-white clash between conservative and progressist ideals. As a matter of fact, there were also major political, juridical-institutional and economic factors linked to the debate over slavery and human rights.

To understand this, it is necessary to perform a rapid historical overview on the prelude to the conflict. After being recognized as a sovereign polity by the Paris Treaty that officially ended the War of Independence in 1783, the United States began developing and expanding to the West. Rapidly, new states were founded and admitted to the Union.

But the economic outlook of the member states started diverging: those located in the North embraced industrialization, whereas the states in the South remained essentially agricultural.

There, rich landlords owned vast plantations, and exploited a large workforce of black slaves to work them. With time, this North-South gap became more and more marked, and it ultimately assumed a political dimension as well.

As a matter of fact, the Northern states needed cheap manpower to sustain their rapid industrialization. The mass of black slaves living in the South was the ideal solution, but it was impossible to hire them since they were a private property of the Southern landowners.

Consequently, the North states started calling for slavery to be abolished, provoking the firm opposition of the Southerners who needed slaves to cultivate the plantations that were the base of their local economy.

Besides, the two sides also diverged over trade policies: the North wanted protectionist measures to shelter its developing industry, while the South supported free trade as a mean to continue exporting its agricultural products abroad.

This led to an intense constitutional debate over slavery, and ultimately over the power of the federal government to introduce and enforce legislation on the matter all over the US territory.

Again, the opinion diverged between the North and the South: essentially, the former claimed the central government had this authority, whereas the latter considered this as a violation of the constitutional limitations on the powers of the federal institutions.

So, the debate took a dimension that went beyond the issue of slavery and focused on the nature of the US as a polity. The Union favored a strong central government having large powers,while the Confederates defended the rights and prerogatives of the single member states. The combination of all these factors finally led them to secede from the US in 1861 and form an alternative polity, the Confederate States of America (CSA).

The name itself is significant, as it reveals the different way these states interpreted the Constitution and conceived America as a political entity: they wanted a Confederation, so a polity granting more powers to the member states; in contrast to a Federation where the central authorities have larger constitutional competences.

Striking Similarities

Now, there are striking similarities between the situation of the US before the Civil War and that of the EU today.

The latter has also expanded during the previous decades by admitting new member states, with the most important “enlargement wave” taking place in 2004 with Central and Eastern European countries; and the most recent new member being Croatia, which joined the organization in 2013.

Again, similarly to America at the eve of the Civil War, the EU is also facing an intense debate over human rights that has greater economic, political and “constitutional” implications (there is not a proper EU Constitution, but the general sense of the term is still applicable to the Treaties at the base of the EU). In this context, two camps are identifiable, the complexity of reality notwithstanding.

Differences

As I argued in another article, one is formed by the original (or at least more ancient) members of the EU, concentrated in Western Europe; while the other includes the more recent ones, located in the Central-Eastern part of the continent and whose core is made of the four countries forming the Visegrád Group (Poland, Hungary, the Czech Republic and Slovakia; known also as V4).

The starting point to understand the divergence between these two “factions” is the migration crisis. As a matter of fact, the former group is demanding the Central-Eastern partners to accept a larger share of migrants. But the Visegrád states oppose these requests. As in the 1850s America, the issue is not merely humanitarian, since there are economic and political reasons behind the respective positions.

Countries like Italy, Greece and others (including France and Germany to some degree) worry that the migrant flow will put their socio-economic order under stress and that it may hamper the sluggish recovery from the recent debt crisis.

In contrast, the V4 and other states oppose such policies of migrant redistribution because they may slow down their ongoing economic development. But the divergence is also a matter of past experiences. Western countries have a long tradition of immigration from abroad (often as a consequences of their colonial past) and their societies are more used to the presence of foreigners; thus explaining their softer stance on immigration. This is not the case of Central-Eastern European states, that therefore prefer stricter measures in regard to immigration.

Finally, similarly to America before the civil war, the current debate in the EU also has a prominent institutional dimension. This can be explained from a historical perspective. Countries from the Western part of the continent took their current form as a result of a centralization process, which makes them more willing to accept devolving parts of their sovereignty to a supranational entity like the EU. That is why (in spite of mounting Eurosceptic forces) they remain favorable to further European integration; especially in the case of France, that appears willing to become the driver of deeper integration through devolving more powers to supranational institutions and by crating a true fiscal union (even though this met resistance from Germany).

On the contrary, the Visegrád states and those aligned with them oppose strengthening the powers of the EU institutions and want to preserve their fundamental sovereign rights. The reason lies in their past: these countries arose after the collapse of larger multinational polities affected by severe institutional deficiencies, and also had a long history of foreign domination and meddling which ended only in 1991 with the fall of the Soviet Union. As a result, they see the EU as another cumbersome supranational entity that will put them in a subordinate position and are therefore unwilling to devolve more powers to it.

Can they Compromise?

This underlying contrast over the powers of European institutions is the most important aspect in the current debate, because it will have direct repercussion over the future of the EU. Now, the problem is that, while opinions are discordant among the member states; the complex institutional mechanisms of the EU do not facilitate the search for a compromise

Introducing deep changes (both in the sense of increased integration and of more protection of the states’ sovereignty) requires a revision of the Treaties that form the bloc’s “constitution”; but this demands in turn a long and multi-stage procedure where reaching a consensus is hard and where a single “wrong” step can block the entire process (think of the French and Dutch referenda that sunk the proposed Constitutional Treaty in 2005).

Considering that the divergences are growing, finding a common agreement over the EU, its powers and its values may be impossible; and this could lead to an institutional stalemate.

Is a Civil War Inevitable?

And what then? Will the EU plunge into civil war as the US did in the past? Not necessarily. Modern-day European states and their societies are strongly averse to war, which is already a huge safeguard against extreme solutions.

And if it is true that European powers have been fighting themselves for centuries, it is also true that the EU was established after the trauma of WWII also as a mean to put a definitive end to that continuous bloodshed.

Moreover, in spite of its slowness and difficulties, the EU proved capable to adapt and preserve itself during the past. In more cynic terms, since the EU is not a state, even if one or more of its members decided to unilaterally “secede”, it would not have its own military means to enforce its rule and re-bring them in as the Union eventually did with the Confederates in 1865. Finally, this scenario is unlikely for the simple fact that the Treaty on the European Union (Art. 50) contains provisions allowing a member state to withdraw; as the United Kingdom decided to do after the 2016 vote on Brexit

But it is exactly a mass Brexit-like scenario what can raise concerns over the long-term tenure of the EU.

A full-scale civil war seems unlikely (unless the international situation becomes so severely deteriorated in economic and political terms to bring states to the point of using war to secure their interests); but if the existing divergences continue to mount and no solution is reached, then it is still possible that some member states (most likely the V4 ones) will decide to leave the EU.

The consequences are difficult to predict, ranging from an easier path to greater integration between the remaining like-minded members to a dissolution of the organization. In any case, the EU would be weakened at the international level, possibly leaving room for alternative blocs. All this would bring uncertainty in political and economic terms, and (especially if the EU were dismantled), it would certainly be a turning point in European History, as the Civil War was in America’s.

Can India become a global power?

India is a country that is expected to play a central role in the 21st century. Having a large and fast-growing economy, it is also strengthening its military and is well positioned to dominate South Asia and extend its influence beyond it. But it must also face notable challenges, both domestically and geopolitically.

THE GEOGRAPHICAL BASES OF INDIA’S POWER

To understand India’s current international role and to anticipate the one it will have in the coming decades, it is necessary to analyse the geographic fundamentals of its power.

The first thing to consider is its dimension. India is a vast state and this has several positive and negative implications. On the one hand, this means that India can benefit from a notable strategic depth, but on the other it also means that connecting all the parts of its territory is a difficult endeavour.

This must be considered along with India’s configuration. Its territory presents a wide range of environments and climatic areas. Far to the north there are the towering mountains of Himalaya, a formidable geographic barrier that separates it from China. This is important, considering the complicated relations between the two powers.

Then, there are the fertile valleys of the Ganges and other rivers, which are vital sources of water and useful communication lanes that have favoured agriculture, industrialization and energy production.

The Deccan Plateau that occupies the southern part of the Peninsula is another notable geographic feature, also because of its mineral resources.

India holds quite abundant ore deposits that have helped its industrialization. In terms of energy, while it has its own production of oil and other fossil fuels, this is not sufficient to meet the country’s large and expanding needs.

Other areas include jungles, arid deserts and tropical shores; which all present both advantages and challenges: for instance, the Thar desert between India and Pakistan is a useful buffer zone, but is also a problem for economic development.

Finally, in terms of position India occupies most of South Asia, and its location favours both defence and power projection. As seen before, it benefits from good natural barriers to the north, but at the same time its neighbours are not friendly.

To the north-east, China is getting everyday more powerful and its geopolitical ambitions are a matter of concern for India.

To the north-west lays Pakistan, which apart from being India’s arch-nemesis since the 1947 partition has also built close ties with the PRC. But while the situation to the north is very challenging for India, its southern borders are very favourable.

There, the coast extends for thousands of kilometres on the open Ocean. This means three things: first, that there are no hostile powers at the border that threaten India’s security; even though it does not see positively China’s activities in that maritime area.

Second, this grants India an easy access to offshore resources and most importantly to sea trade. This is also favoured by the fact that India is located mid-way between East Asia and Europe, two of the world’s richest economic areas, plus to the Middle East and its energy resources. Third, this enables India to project its power with little effort, notably through its Navy.

Yet, there are also challenges deriving from India’s position, notably linked to climate change. Having a typical monsoon climate characterized by cycles of abundant rainfalls and dry periods, South Asia is extremely exposed to its effects, as demonstrated by the seriousness and frequency of recent phenomena like drought, floods, and violent storms. Moreover, this also favours the spread of pests and disease. All such factors bear enormous costs both in the form of direct damage and of prevention efforts, and is a notable obstacle to India’s development.

India’s economic and military power

The rise of India as a major power largely lays on its economic development. In 2017, its GDP rose by 6.7% and today it is the world’s fourth in terms of Purchasing Power Parity. Its economy is diversified and several Indian firms have become major players in global business. Financially, India is generally stable, even though it experienced some troubles in recent years.

But the country is not yet fully developed. Infrastructures remain insufficient, and inefficiency exist in various sectors. While unemployment is low (less than 9% in 2017), larger shares of the population continue to live below the poverty line, and traditional agriculture still absorbs a considerable portion of the workforce. Income inequality remains strong, with large differences in wealth distribution between upper and lower classes and between different regions.

In the demographic dimension, India has a population of around 1.28 billion people, making it the second largest in the world just behind China, and it is expected to surpass it in the coming years. Most Indians are young, which is positive for its economic development. But at the same time having a big population also brings several challenges: achieving food and energy security becomes more difficult, as well as providing public services such as a healthcare.  Moreover, this raises the problem of overcrowding and pollution, especially in large cities. Finally, the differences in wealth distribution can result in to social tensions: most of the population lives in the north, where a considerable Muslim minority is also present, but these areas are poorer than the southern parts of the country. In this regard, it should be noted that India has been fighting for decades against the insurgency of a Maoist group called the Naxalites.

Nevertheless, India continues its rise, also in military terms. It can field a large force that regularly participates to international exercises, and over the past few years it has been spending around 2.5% off its GDP in defence expenditures to modernize its armed forces. The Navy holds a particular importance, as it represents the mean to project its power across the Indian Ocean. As of today, the Indian Navy operates a large fleet that includes an aircraft carrier, a nuclear-powered attack submarine and several other units. In cooperation with Russia, India is also developing the BrahMos hypersonic cruise missile. Finally, it must not be forgotten that India is a nuclear power with an estimated stockpile of more than 100 warheads.

India’s geopolitics and foreign policy

For decades, India has maintained a nonaligned policy, of which it has been one of the leaders. But non-alignment does not mean neutrality.  As a matter of fact, India has pursued its own national interests and has been involved in several conflicts.

Its oldest rival is of course Pakistan. Immediately after the partition in 1947, the two fought a major war, followed by another two in 1965 and 1971, plus series of skirmishes. Today, the relations remain tense, but the conflict remains frozen because both states have developed a nuclear strike capacity.

The main point of the divergence is Kashmir, which remains divided between India, Pakistan and China (who controls the Aksai Chin since the 1962 war with India). Apart from having become a symbol of the Indo-Pakistani rivalry, Kashmir also has a strategic importance for these powers.

Ruling it allows to control the flow of water along the Indus valley, with all the consequences for human and economic development. For India, Kashmir is the gateway towards Central Asia as well as a region to control in order to prevent Pakistan from cooperating with its powerful Chinese ally.

On the other hand, for Pakistan dominating it is necessary to have more strategic depth and to preserve its connection with China, especially now that they are working together to develop the China-Pakistan Economic Corridor (CPEC), an ambitious infrastructure project to connect the two countries and that Islamabad considers fundamental to boost its economy, even though there are concerns over the debts its completion will bring.

This makes it clear that Pakistan is not India’s only strategic problem, and not even the main one. In recent years, China has become the prominent national security concern for India. One reason is the former’s close ties with Pakistan, but there also direct disputes between Beijing and New Delhi, namely over the aforementioned Aksai Chin and Arunachal Pradesh. The latter belongs to India, but is claimed by the PRC, and it represents a unique strategic challenge for New Delhi. As a matter of fact, it is connected to the rest of India only via a narrow passage chocked between China and Bangladesh and known as the “chicken neck”.  India fears that in case of a conflict the Chinese will rapidly overtake the Arunachal Pradesh by attacking this passage and cutting it from the rest of its territory.

In addition, Beijing and New Delhi are engaged in a geopolitical competition in South Asia. In 2017, the two powers faced each other in a military standoff over the Doklam Plateau, a strategic territory belonging to Bhutan (traditionally close to India) but claimed by the PRC; and since then they have been building up their military forces along the border.

China is also establishing ties with Nepal, raising concerns that the country me fall under its control, which would allow it to directly threaten Northern India. New Delhi has similar concerns over Bangladesh, because if it were to adopt a pro Chinese stance, the “chicken neck” would become even more vulnerable.

But the Sino-Indian rivalry is not limited to South Asia. The two are also competing in Indochina, where each of them is promoting its own economic and political projects. New Delhi is doing so on the basis of its “Look East Policy” launched in the 90s, whereas the latter considers this region an important element of its broader “One Belt, One Road” (OBOR) strategy. In this regard, it is notable that India has refused to cooperate with China in this ambitious project.

Another country where their interest collide is Iran. India considers it a potentially precious ally, because it would allow to take Pakistan between two fires. Moreover, it is also a source of oil. But for these very same result and to counter the U.S., China is also interested in building a partnership with Iran.

Last but not least, there is the maritime dimension. Beijing is fostering its ties and establishing a greater presence in the Indian Ocean, in the optic of developing its Maritime Silk Road to connect its territory with Europe and the Middle East and by sea. But New Delhi considers this as “its own” Ocean and as an essential area for its plans to extend its influence on a global scale. Therefore, it is concerned by Beijing’s initiatives; notably in countries like Sri Lanka and the Maldives. In regard to the letter, the political turmoil that has affected the archipelago was largely to be interpreted in the optic of the Sino-Indian rivalry; and the recent electoral victory of Mohamed Solih seems to have marked a point in favour of India.

As a consequence of its rivalry with Beijing, New Delhi is also developing closer ties with other capitals that share similar security interests. The most notable trend is the gradual rapprochement with Washington. Even though it was never openly opposed to the US, during much of the Cold War India sympathized with the USSR and its relations with America were rather cold. But now that both are concerned over China’s rise, they are gradually establishing more cooperation, notably in security terms. India is following a similar policy with Japan and Australia, two other powers that are worried over the initiatives of the PRC. Together, these four states form the Quadrilateral Security Dialogue, an informal framework to ensure stability in the Indo-Pacific.

Two other noteworthy partners for India are Israel and the EU. The relations with the former are complicated by India’s tilts towards Iran, but the Jewish State remains an important partner as an arms supplier and for technological cooperation. On its part, the EU has a central role for India’s trade. Lastly, it should also be mentioned that New Delhi is increasing its economic cooperation with Africa as well.

Conclusion: India at the crossroad

This overview allows to draw some conclusion on India’s current and future role. The country finds itself at a crossroad. It has all the potential to emerge as a major world power, but to achieve this objective it must successfully solve the multiple challenges it is facing. Only time will tell to what extent it will manage to, but what is sure is that India is a power to monitor, and that in any case it will have a considerable impact in world affairs in the coming years.

This article was originally commissioned and first published by KJ Vids. It was written by Alessandro Gagaridis. You can visit his website at www.strategikos.it. Please request permission to info@kjvids.co.uk before re-posting.

China’s Risks and Challenges | The Rise of China Mini Documentary | Episode 2

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The “Rise of China” Mini Documentary | Episode 2 | China’s Economic Risks and Challenges

KJ Vids is pleased to have launched the second episode in our Rise of China 2017 documentary series. In this episode we will have a critical look on China Economy.

In the previous episode (https://youtu.be/MJLpGiHhr8E) we had a look at the scale of China’s Economy today and China’s economic development, to understand why China has become a favourite by analysts around the world to become the great power of the 21st century. In this episode we will take a look at the challenges that China will have to overcome in order to assert its influence over the world. Is there a China economic bubble? Will China’s Economy collapse? This video will hopefully develop your understanding of the Chinese Economy.

In May 2017, the Credit rating agency Moody’s cut China’s debt rating for the first time since 1989 and warned that the country’s financial health is suffering from rising debt and that China’s Economy is showing a slowing economic growth. More recently S&P Global Ratings downgraded China’s sovereign rating for the first time since 1999, citing the country’s greater economic and financial risks. Many other analysts also argue that there is a China debt crisis.

These Fears about debt levels in the world’s second-largest economy have reignited debate over the fundamentals of China’s future – whether the country is leaping over the middle-income trap with a leaner and more sustainable growth model or whether it is on a debt-fuelled path to disaster.

In this episode we will explain China’s economy and take a look into China’s Debt Bubble, China’s State Enterprise, China’s Employment, China’s Competition, China’s Fiscal System, China’s Real Estate, China’s Domestic Consumption and China’s Greatest Fear.

Watch Previous Episode of China Documentary | China’s Economic Miracle

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