Xiamen, China BRICS 2017 Summit

Taken from our blog “Brink of economic thoughts”

Xiamen, China BRICS 2017 Summit

 

 

BRICS nations have gathered to attend the meet at Chinese city of Xiamen for the 2017 summit from 3rd -5th September. Given the uncertainty which is happening in the region due to Korean peninsula situation and sanctions on Russia by USA {as of interference in 2016 US presidential elections, Crimea and military operations in Eastern Europe}, BRICS was becoming a ground where it was expected that some new declarations will be made which will reshape the world.

BRICS as a block represents nearly 40 % population of the world. Also collectively 5 nations have total GDP of US$16.6 trillion, equivalent to 23 % of global GDP.World bank has estimated that the group nations will grow at a pace of 5.3 % for the year 2017.BRICS as a meet not only allows the nations to discuss multilateral issues, issues related to global economy and climate change, but along the side lines provides the opportunity to discuss bilateral issues.

History

BRICS has come a long way since its formation in 2009.Initially it had Brazil, Russia, India and China as the founding nations. By 2010 South Africa was also included into the group. So formally BRICS as an organisation was formed in 2011 intended to enhance economic, cultural and political ties.BRICS so far has not only formed a financial institution to counter west dominated IMF and World Bank, but also started financing the infrastructure projects in the nations.BRICS has come up with the Contingent Reserve arrangement and Payment system in 2015.BRICS was coined by Jim O Neil, paper  Goldman Sachs Asset Management,  in his research publication Building Better Global Economic BRICS.Currently many nations are willing to join the group, namely AfghanistanArgentinaIndonesiaMexico .While EgyptIranNigeriaSudanSyria  Bangladesh and Greece have also expressed interest in joining BRICS.

 

What importance does this meet hold?

 

This can be referred to the joint statement which has been released by the nations. The theme of the summit is “BRICS: Stronger Partnership for a Brighter Future”. It shows the resolve to share a common vision for the future development of the participating nations.BRICS leaders also praised the formation of New Development Bank (NDB) and the Contingent Reserve Arrangement (CRA), formulating the Strategy for BRICS Economic Partnership. Recalling the success of past summits it has been expected that nations will continue to participate with each other for people’s welfare.BRICS now believe that they have potential to lead towards a more  just and international economic order .Same way these nations expects that world will continue to operate to safeguard international peace based on the central role of United Nations.

Excessive focus has been made on mutual economic cooperation. BRICS have broadly agreed on encouraging and improving trade cooperation and investment cooperation mechanism among them. Nations agreed among the finance ministers and central bank governors about cooperation on Public Private Partnerships (PPP).It is also agreed to financially integrate the network of financial institutions, within the nation’s regulatory framework and WTO compliances. A understanding has been made to promote innovation, industrial cooperation, research development, BRICS energy cooperation, green development, environmental cooperation, agricultural cooperation, wildlife conservation assistance for African continent,anti corruption cooperation, more interaction for manufacturing, e-commerce and skill development, strong labour market information system, competition protection, trade facilitation, mutual respect for use of outer space for space activities, natural disaster management and risk mitigation, making and economic order which gives voice to emerging market and nations, reiteration  towards commitment to the implementation of the outcomes of G20 summits, to achieve a fair and modern global tax system .

The declaration also had points to clarify the BRICS stand on international security.BRICS committed to   enhance communication and cooperation on issues concerning international peace and security.BRICS reaffirmed commitment to the United Nations as the universal multilateral organization entrusted with the mandate for maintaining international peace. Concerns have been made about Terrorist attacks and organisation in the region.BRICS reaffirmed the commitment to fully implement the 2030 Agenda for Sustainable Development. Need of Reform in UNSC were made.

BRICS are looking forward to 2018 summit to be held at South Africa.

 

What is in it For India ?

 

Russia

 

 

Modi and Russian president met along the sidelines of the BRICS meet. Putin thanked Modi for India’s high-level participation at the Eastern Economic Forum, being held in Russia’s eastern port city of Vladivostok.

Both leaders discussed several aspects of bilateral issues in sectors like cooperation in the natural gas and oil sector

 

 

China

India has been having lots of issues related to trade ties with China. We have a huge trade imbalance with China, heavily in favour of China. Our borders have not yet been demarcated properly and local standoffs have been taking place. Use of Brahmaputra river has also become a issue of conflict between China and India due to construction of Zangmu dam and Lalho dam by China .Same way the issue of India’s inclusion to NSG have to be discussed. In the bilateral meet between Chinese premier Xi Jinping and Indian PM Narendra Modi, views were exchanged with regards to mutual cooperation, and non interference among member nations. Recall of Panchsheel to mutual respect for each others territorial integrity have been made.

As of now it seems that both nations have decided to move with mutual dialogue to resolve the issues given a fact that both nations are large and are bound to have differences. Indian PM and Chinese Premier bilateral meet can be considered forward looking to enhance mutual trade. Peace along the border is important .There is a difference in opinion in both nations’ media. Chinese media has considered Indian army troops move as forceful trespassing on Chinese land. But they never make mentions about Chinese excursion deep into Indian territories. Same way the pain of suffering of terrorist activities in India has to be understood.

Post border standoff between it was a meet that had to be successfully conducted. Nations expect the next decade to be golden decade for BRICS. We must look forward to more and more cooperation among the BRICS nation so as to benefit the populace of the emerging nations.

 

Harsh Vardhan Pathak.

 

 

 

 

 

 

 

 

A short analysis of Chinese Intellectual property conflict with USA.

Taken from our wordpress blog.”Brinks of economic thoughts.”

 

A short analysis of Chinese Intellectual property conflict with USA.

 

 

 

An introduction

 

WTO Uruguay rounds meet of 1986-94 did make an introduction of Intellectual Property Rights within the multipolar trading system in the world due increasingly interconnected trade system. New innovations form a significant part of the human evolution. Ideas, inventions, scientific discoveries not only pave way for betterment of humans but also do bring along with them a financial worth for the creators. Innovators are assigned with a legitimate right to not only own their creation, but also prevent others from using their inventions.

There is a considerable variation in which these rights have been created and enforced in nations. With the passage of time these differences have led to bilateral and multilateral tensions in economic relations. These rules were actually supposed to settle the disputes in a systematic manner.

 

USA-China Relations-A very short insight.

 

The relationship between USA and China has been regarded by many as the most important bilateral relationship in this century.USA has the world’s largest economy while the People ’s Republic of China has the second largest economy. These 2 nations have come a long way since June, 1844 when formal diplomatic relations were established between the Chinese empire and the USA government. Post WW2,USA recognized Republic of China based in Taiwan, as the Chinese government.USA formally recognized People’s republic of China in 1979.Since that time relations between both nations have seen conflicts to mutual support on varied range of issues.

 

USA-China Intellectual property rights conflict

 

USA government now has formally launched an investigation into the Chinese conduct with regards to the Intellectual property rights under section 301 of Trade Act of 1974.

The investigation will be looking after the cases to conclude whether acts and practices of the Government of China with regards to technological use, IPRs and innovation are discriminatory and restrict U.S. interests. US President’s Donald Trump’s memorandum clearly notified that US is one among the forerunners of free and fair trade practices in field of research and development globally. And he will be more than willing to take any sufficient measure to ensure that US innovators, researchers are properly rewarded. On a broader scale it is clearly evident that US has concluded that practises adopted by China with regard to Intellectual property matters is violation of set rules of WTO laid Intellectual property Right rules. The section 301 authorises the US trade representative with the power to take steps where they feel US interest have been hampered by unfair trade practises.

Although one irony can be seen in the opposition of protectionist steps taken by the Chinese administration.USA has been opposing heavy subsidies which are given to the domestic industries in China. It hampers any prospect for the foreign player to operate in the market. These subsidies are already prohibited under the WTO rules. At same time we see USA on a conflict with the developing world on huge agricultural subsidies given to its agricultural sector and farmers.

US trade representatives have been long concerned about deficit which exists in the bilateral trade with China, which currently stands at around 325 Bn $.Total trade between these 2 neighbours stand at around 650 Bn $.USA has been arguing that some reason of this deficit have been that China has been copying US products and services and then selling them back to USA.There have been serious issues with counterfeit goods and even online piracy.

US firms were especially upset about certain partial rules which required local association or disclosure of intellectual property to enter into the Chinese market, which they insisted facilitates transfer and copying of their original ideas.

Commission on the Theft of American Intellectual Property has come up with indicative figures that the annual cost to the US economy from pirated software and theft of trade secrets is ranging anywhere between $225bn and $600bn.China is blamed for nearly 90 % of US items coming back into the US markets.

USTR report clearly made conclusions that few Chinese practises have been a cause of concern for USA’s interest. The report has also made a series of disclosure of steps which USA can take to WTO with regards to Chinese compliance with the Intellectual Property Rights.

After its accession to the WTO, China undertook a revision of framework of laws and regulations with regards to IPR of domestic and foreign stake holders. Protection of trade secrets in China has become a serious problem. Registration of trade marks in bad faith has been one among the major concerns raised.

China has been aggressively insisting on the import restrictive policies, thus setting a limited market scope for the foreign goods, manufacturers and service suppliers. China has also been pointed out for deploying export restraints, on number of goods where it holds leverage as it is one among the biggest producers of such goods globally.

China has also been one among the largest producers of steel. The Chinese government actions have led to consistent overproduction of steel thus resulting in distortion in global markets. China has imposed ban on import of remanufactured products.

The biggest cause of concern has been about sharing of innovation and technology of a product. In notable number of cases Chinese officials have forced foreign operators to licence their technology and Intellectual property on unfavourable terms. China has investment restriction into many service sectors companies.

 

In increasingly interconnected world financial services have emerged as major front. Financial economy has a significant impact on geo-economics. But China has still not opened its banking and financial industry to outside players. Same can be said about insurance, telecommunications, and internet, legal and other services.

Overall report indicated that many steps have to be taken by China in order to fulfil its commitment to WTO compliances.WTO membership has introduced China to best global practises ,but still much needs to be done on the forefront of transparency.

Report has been very much critical of land laws, licensing laws and administrative laws which in a way prohibit possibilities of foreign players to participate, or rising of barriers to make entry of outside playersdifficult.

Report has commended the Chinese intent to allow US service provider to operate into maritime sectors.

 

Chinese reaction

 

Chinese commerce ministry has issued a statement showing its concern and the potential of the matter to affect the bilateral relations. The remark clearly made that if any kind of disrespect is made towards the trade rules, Chinese administration will not be sitting idle. Official media has been also critical of the possible steps taken by USA.

 

 

Conclusion

 

Trade matters are nowadays deciding the bilateral and multilateral relations. Given the way global community is exhaustively interconnected it leaves no chance to not gain by mutual interactions. World order has moved for its betterment to multipolar realities, much better than earlier existing bilateral blocks. Owing to this fact trade and commerce has also gained momentum among the major powers. Any kind of discrimination done intentionally to harm this spirit must be dealt strictly. People do gain by innovation, not only financially at an individual level, but also impact the society on a larger scale in a positive manner.

One true opinion also exists; there had been many cases of investigation under section 301 of US Trade Act. But as USA worked ,a more proper dispute settling system evolved  up with WTO, where best global practises could have been adopted ensuring mutual benefit among participating parties. In case if USA tries to leave aside the system for whose formation it played a prominent role, it might set an example to other nations to take similar steps unilaterally. This may then become a bigger problem.

 

 

Harsh Vardhan Pathak

 

References

 

(http://www.wipo.int/treaties/en/ip/paris)

 

(http://www.wipo.int/treaties/en/ip/berne/)

 

https://www.wto.org/english/thewto_e/whatis_e/tif_e/agrm7_e.htm

 

https://ustr.gov/about-us/policy-offices/press-office/press-releases/2017/august/ustr-announces-initiation-section

 

https://ustr.gov/sites/default/files/2016-China-Report-to-Congress.pdf

 

 

 

 

 

 

 

 

Will French elections decide European Union future

Taken from our blog,”Brink of economic thoughts”

Will French elections decide European Union future

 

  • France is finally ready to grape its presidency, It advents towards its 2017 General Elections, with its two final charismatic candidates Macron and Pen. It will be very early to elucidate whether the essence of election will decide European Union integration with France, but down the line both the candidates fighting fiercely in their ongoing campaign are competing on the issue related towards central debate in France for last many years such as (illegal immigrants, anti Semitism, job creation, freedom from monetary union and autonomy for controlling nation borders).It has been observed in disintegration of Great Britain from EU, Illegal immigrants and unemployment had played a significant roll seceding from EU, so no wonder Frexit. Republican Francois Fillon conceded within less than an hour of polls closing after placing third with a projected 19.9 percent, while Socialist Benoit Hamon trailed in fifth place with just 6.4 percent. Communist-backed Jean-Luc Melenchon was at 19.6 percent and refused to concede. On seventh of May 2017 France will get its newly elected President in office it will be either of Marine Le Pen or Emmanuel Macron we will be witnessing soon.
    Macron as pro businessmen:
    Macron enjoys legacy of investment banker, also severed as economic advisor with Franci Hollan regime, jeopardising entire businessmen across Europe and within France. According to Bloomberg entire lobby of investment banker’s proponent raising toast for Macron victory. From very begging, while presidential debate Macron has elucidated his vision for France masses, which can be ramify as following:
    1. If Macron wins promises to save businesses and corporate houses across the France soil, there are many businessmen who presently working in entire Europe, Macron already advocated EU integration and its dirigisme.
    2. Secondly Macron also advocated for single visa and work permits for European people.
    3. Brussels has come out openly supporting Macron.
    4. Integration with entire Europe or single market, free trade and free flow of labours supply will create more demand boosting more employment and revival of economy accord Macron.
    5. After the first round of election, Macron stayed at first position by defeating Le Pen, euro has shown strong signal and appreciated, this clearly showing optimism of various investors in Macron.
  • Marine Le Pen as anti immigrants
    Le Pen is perceived as a dynamic personality akin as of her father as both of them belong to far most rightist group, Le Pen also known for improving her father and his party radical image several times but last day of election will determine whether she succeeds or not for the elevated office. As contrast to Macron policies as for wider vision for France President elect Pen has also elucidated her stand on reluctance towards EU, freedom from monetary union, autonomy towards securing their borders, increasing taxes on foreign workers, halting immigration from entire Europe.
    Her vision can be ramify in following reasons.
    1. Le Pen fighting election on issue of illegal immigrants across from Europe and from rest of the world in her presidential speech she have mentioned several time to abandon Europe from immigrants .
    2. Pen also prepared to tax foreign workers more as compare to France workers; basically advocating rational being towards securing French workers, providing them priority before having it to foreign hands.
    3. As the part of EU France is also part of monetary union though (UK was not) being part of monetary union EU central bank have all the autonomy to tinker with all the bank rate, credit supply, financial decision, fund allotment to various investment projects, International treaties with different nations including, taxation autonomy depends with EU central bank dirigisme. As according to her promise if she becomes successful, it will be France to control its central bank thought which can be only possible in occurrence of Frexit.
    4. Simple Labour law can Boost economic growth, according to Le Pen promise its is pertinent to improve labour laws, basically France worker are authorised to work for 35 hours a week, but many firms refusing to pay wages if they working more. Increase in working hours should also increase incentives of works which will further impinge economic growth, along with increment in investment on training programs and education accord Le Pen.
  • According to (Snap Ipsos Survey) Macron is way ahead from Le Pen, but incidents like Brexit, US election result have already failed all the predictions in past. As anti immigrants policy Le Pen may face problem while persuading minorities population, there are more than 10 per cent of Muslim population living in France who will definitely remain reluctant for Pen. Therefore Pen may acquire votes from rest of the 88per cent of population which are Catholic as Le Pen. Her anti immigration policy may impress rest 88 per cent population as though happen in America with coming to power of U S President Donald Trump.

 

Mohit Pandey
M.S.C Economics
mohit.doon98@gmail.com

New Development Bank-Its Indian projects

Taken from our blog,”Brink of economic thoughts”

New Development Bank-Its Indian projects

 

New Development bank was in news last week as of the approved projects in Indian state of Madhya Pradesh for infrastructure projects, to be exact about the district road up gradation projects. Just recently  New Development bank ,{which is a collective step of BRICS nation and has headquarters at Shanghai,China}and Government of India signed an agreement of loan provision for financing road up gradation worth 350 US $ in Indian state of Madhya Pradesh. This is going to be the first such project which is going to be financed by this new BRICS initiated financial institution in India. It holds very much significance for a nation like India since; we are also one among the founding members of the financial institution. Among the concerns which are raised about some form of competition among the NDB and various older institution existing like World Bank, IMF, or even upcoming institutions. This is a great development-centric declaration and move. Since its start various bodies have shown willingness to work with BRICS conceptualized bank. Obvious reasons indicate a fact that a population which is significant on planet cannot be neglected which is one among the fastest developing population Bloc.

This was one among the objectives of the formation of this new BRICS bank which was established in July 2014 .It had been one among the brainchild of BRICS leadership .It had been largely felt to have a need to a new financial group which could look after the capital needs of the BRICS nation and also generate the funds for infrastructure related projects.

 

Main objectives of the New development bank can be categorically summarized as to promote socially and environmentally sustainable projects ,{like way of issuance of green bonds} and also to enhance a multilateral collaboration with different global bodies in terms of generating projects which are fulfilling the requirements and providing growth momentum to the member countries.

 

We have seen till now the main  focus of NDB has been towards green financing. We also need to have  clarity about what exactly are green bonds and what significance do they hold in modern global economy, along with the challenges also posed in front of them.

Green Bonds are instruments in which the proceeds will be exclusively applied (either by specifying Use of Proceeds, Direct Project Exposure, or Securitization) towards new and existing Green Projects – defined here as projects and activities that promote climate or other environmental sustainability purposes.

There are 4 types of Green bonds

 

1-Green Use of Proceeds Bond

2-Green Use of Proceeds Revenue Bond

3-Green Project Bond

4-Green Securitized Bond.

 

 

New Development Bank has shown the interest in development of projects related to highways. Railways etc and funded promoting highest environment sustainability concern.

 

As of now the NDB has approved major 7 major projects in all the member nations.

 

In July 2016, NDB had successfully reported about issuance of bank’s first green financial bond with issue size of RMB 3 billion. The bond’s nominal interest rate stood at 3.07%. The bank became the first international financial institution that issued a green financial bond in the China onshore bond market.

 

 

Even in Indian markets, NDB plans to raise around 500 mn US $ via use of Masala Bonds {rupee denominated bonds}.Masala bond is a term used to refer to a financial instrument through which Indian entities can raise money from overseas markets in the rupee, not foreign currency. Indian spices have been popular all over the world since ancient times.  ‘Masala’ bonds reflect the Indian angle to it.

 

In other words, they are rupee-denominated bonds issued to overseas buyers. This is how it is different from other instruments.  Before Masala bonds, corporate had to depend on avenues such as External Commercial Borrowings (ECBs).

By issuing bonds in rupees, an Indian entity is shielded against the risk of currency fluctuation, typically associated with borrowing in foreign currency. 

The first masala bonds were issued by the International Finance Corporation (IFC), an arm of the World Bank, in the year 2013. Similar offerings from other countries have also been after the food or culture of that country like “dim sum” label for Chinese offshore issues or “Samurai” bonds for Japanese offshore issues.

 IFC was established in 1956 and owned by 184 member countries

As masala bonds are denominated in rupees, foreign investors will be taking the currency risk. So the key for the success of these bonds will be a stable exchange rate. Masala bonds are the first rupee bonds listed on the London Stock Exchange.

Owing to the needs which nation like Indian has had and vast diversities witnessed within our geographical stretches, we have to find the partners for our developing stories of our time. It will also be interesting to see the way in which NDB will later takes its shape in running profitable projects and also at same time addressing challenges faced.

 

 

HARSH VARDHAN PATHAK

 

email—–harshvardhanpathak88@gmail.com

European Union on Bumpy Ride

Taken from our blog,”Brink of economic thoughts”

European Union on Bumpy Ride

Introduction

World economic forum is contention about contingent possibility of European Union future. It can be possible that EU may face isolation, due to US election, Mr. Trump republican candidate enhancing each and every co-operation and treaties of US, he might be pondering not to triumph that can increase US defence expenditure, including more than 5 decades of protection ensured by the US to Europe, Trump might be reckoning these aids as groaning for US strain, which can isolate EU completely and Trump interest for Russia can ruin EU hegemony in entire Europe. This article will be penetrating on the relation of Italy with EU. The subheading 2.1 assess the political scenario of Italy and depicting instability in Italian politics, 2.2 subheading will pave Italian banking history, 2.3 will justify causes behind the banking fiasco, 2.4 will determine present status of banking sector, 2.5 will be conclusion.

Abstract:

This article impending Italian banking crisis and its root causes, it also examines the legacy of Italian banking system from the era of Great depression and after World war second, how Italian leading banks like Monte Dei Paschi Di Siena (MPS) fallen under debt crisis with cascading effect of state sovereign crisis. This article further tries to reckon futuristic existence of EU with Italy, it also impend present Italian banking crisis, at last it suggest the panacea to tackle this bewildered situations by implementing various monetary methods.

Political instability by Referendum 2.1:-

Poola Gentiloni look office after this parliamentary colleague Prime Minister Matteo Ranzi  resign due to humiliating rejection of his constitution reform a referendum on November 2016. Italy got this constitution after the World War 2nd the primary motive behind Italy constitution was to prevent rise of leader like Mussolini, Prime Minister Ranzi wanted to revamp the constitutional changes, he wanted to provide more autonomy to lower house, strengthening the central government and curbing autonomy of upper house (the senate). This is because he wanted to ease legislation bills more smoothly without less intervention by senate, he believes that with this referendum central government will quickly able to pass pertinent decisions which will further develop trust in investors and therefore it will act as a catalyst to economic growth. But unfortunately opponents’ parties like Right wing northern league and Anti establishment five star movements does not agreed with Ranzi and argued that after this referendum it will give immense powers to Prime Minister therefore it can be harmful in long run, many of his proponents agreed with Ranzi referendum. But I think Ranzi have taken referendum personally by announcing his resignation if he fails.

Italy Banking History 2.2:-

Italy not only faces instability in banking system, but also resurrection in level of unemployment with measurable gap between developmental activities in its Northern and Southern hemisphere. Before I start penetrating on various causes for Italian banking crisis I would like to retrograde Italy banking history after 1930 era including World War 2nd blot. In 1930 and after that Italy has started its economic growth, it also started the proliferation of its banking sector and banks like Monte dei Paschi and other have also started its banking activities in Italy but these banks primarily do not have profit motive, they were operated by the public bodies and help to promote the society for betterment, competition and profit motive was remaining absence. But after end of 1989 these saving banks gained licence and inspiration for profit, law called Amato Carli named after (two state strain ministers) which gave freedom to every public bank to earn profits in slew. The profit maximise competition was started with in banks and single licence system broke the boundaries for Italian banks to operate in entire Europe. In 1993 the EU has passed the Consolidation law under which EU has got the power to incubate number of Italian banks by guiding, instructing them in various monetary policy issues and even deciding the exchange rate for currency by eradicating Italian Lira. This implies Italy banking system completely dissuade by EU central bank, the Consolidation law EU again amended as DE facto law in 1998 which have legislation that private entrepreneur’s can acquire shares of various public banks, not only in Italy but in entire Europe. The situation became more alarming after 2000 when all Italy public banks were totally privatise.

 

Monte dei Paschi di Siena MPS crisis 2.3:-

Monte dei Paschi di Siena the leading bank of Italy which have more than 50 per cent share in banking sector. After 2000 the Italian Governor (Antonio Fazio) started to impede foreign invasion in banking sector by dirigisme approach, even auctioning for banks (like Banca Marche). Symptom of Italian banking crisis was not primarily subjected to only bad loans, but the connection between the local politician and Italian banker’s patronage for piling up revenue deficit catalyzed crisis.

 

As after the proliferation of De facto and consolidated law it was easier to acquire number of share in various banks.  MPS regularity were getting injection from the European central bank and the Deutsche bank of 2011 got bail for 2.5 billion, latterly in 2013 two more bail of 3.3 billion dollars were allotted by the ECB. The EC have taken this matter seriously and it investigated the crisis under leadership of EC commissioner Jaoquin Almunia his report suggested that the connection between local politicians with the major banks was primary cause of failure. This investigation further discovered that Monte dei Paschi di Siena Foundation one who has more than 50 per cent share in banking system has pave  profits to finance societal activities, financing for soccer team, hospital aids, museums and even provided the aids for lower housing cost while construction.

 

Present scenario of Italian banks 2.4:-

The government has created more than 20 billion reserved for future uncertainties mainly backing for crumbling banks, this primarily indicating decreasing trust of Italian government on banking sectors. It has been observed that after 1999 when euro was introduce the growth rate of Italy has downgraded, Italy has more than 18 per cent bad loan (None performing asset NPA) which approximately equal to 360 billion euro. This figure alarming dangerous spectre in banking sector but these uncertainty may revamped by adopting various monetary instruments. They are:-

  1. By tapering lending rate can infuse increment on loan payment and can even reduce NPAs.
  2. Italian authority can launch open market operations for ebbing extra amount of money from Italian market.
  3. Italy government can dissuade its taxpayer to pay for banking crisis.
  4. Italian government can indentify its performing assets and therefore write off all NPAs and then start allocating fresh prime loans.

 

Conclusion:- 2.5

It will be difficult for European central bank (ECB) to triumph or feed its tentacles peer to peer by every time bailing each tentacle for this failure. Therefore if Italy would have monetary policy independency he could depreciated or appreciated its currency by its own, even tinkering with its fiscal measure for balancing the crisis. For ECB it can have serious implications, increment in number of bail outs will shrink ECB strain and therefore possibility for crashing Euro may jeopardise. I think every time history tries to teach us some lesson, too much dirigisme by the government cannot not succeed for last long. How can we forget what happen to Greece while of 2011 crisis why he had to squeeze its economy even though Greece economy was creeping for stimulus, demanding liquidity injections for increase in pension payment, for improving its medical facility, for infuse its economic growth but unfortunately he had to do just opposite due to dirigisme of EU.

 

 

Mohit Pandey

Pursuing Economics Honours  3rd year.

Doon University Dehradun. (Uttrakhand)

Gmail address: Mohitpande2@gmail.com, Mohit.doon98@gmail.com

Languishing Socialism of Venezuela

Taken from our blog,”Brinks of economic thoughts”

Languishing Socialism of Venezuela

Languishing Socialism of Venezuela

Introduction

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Hugo Chuveg took office after 1998 as President of Venezuela, he started its punitive injections of socialism in entire economy, eliminating private enterprises, blocking foreign investment, converting big industries who are earning plethora of profits into government enterprises, fixing and monitoring output by government officials, redistributing wealth, tinkering with prices of commodity.Venezuela has a dominant-party system, dominated by the United Socialist Party of Venezuela.

Venezuela Present President, Nicolas Maduro government has tried to ape India’s Demonetization drive on 12 November 2016 but unfortunately it resulted unprecedented for Maduro government. Venezuela according to IMF report bears world highest inflation rate of more than 475%, this implies, Venezuelans are facing daily resurrection in food and other essential commodities price. Venezuela also blessed with the bounty of world highest crime rate also acquiring second last position on list of ease of doing business. But the question pertains, why Maduro government had chosen to scrap 100 Bolivar denomination as a panacea to track Venezuela economy.

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  • Smuggling on borders

Basically Venezuelans shares its boundaries with Columbia and Brazil, the primary cause to disintegrate 100 Bolivar note was due to daily smuggling of Bolivar and dollar across the country and selling it at subsidised price to smuggler for buying drugs and other illegal stuff. After the announcement on 12 November to demonetise 100 Bolivar within 10 days, Venezuela converted into chaos, every mall, every shop has looted by lynch mob, serpentine queues front of banks to exchange their 100 Bolivar, repercussion finishing life essential commodities like  medicines and important drugs became fewer, number of crime ignited over night, as compare to India situation remain under pontificate, Venezuelans are not willy-nilly supporting Maduro government, repercussion of which Maduro decided to retrograde his decision of 2ndJanuary 2017.

 

 

 

  • Currency Exchange rate System

In every country is strictly band to purchase anything from foreign currency, but in Venezuela many of the trading have started in dollars (this was showing distrust in Bolivar), due reduction in value of Bolivar as dollar (less than 15 cent of 100 Bolivar). Unanimously Venezuela has operating three standards to rate his currency, first ‘Dipro standard’ reckon by government (100 Bolivar per USD), ‘Dicom standard’ by private player (800 Bolivar per USD) and Black market value (1600 per USD).Due this multiple standards confidence in Bolivar has almost vanished, as economic student I have learned the most imperative asset in economy is Confidence, “confidence of people in government, confidence of domestic and foreign investors in government”. The fair of smugglers incumbent Venezuela central bank official to print new currency in abroad(Spain).

  • International oil prices

The reduction in oil price from 2013 resulted cascading effect on Venezuela revenue account it further negatively deviated growth numbers for Venezuela oil industry, Venezuela is blessed with bonanza of oil reserve, near 98 per cent of its economy operated on oil export. Hipper inflation caused to stop oil production because demand of food products was resurrected. Maduro government have not saved oil revenue while oil export boom before 2013, despite of this, huge amount of 300 billion dollar scam was executed by Maduro official on oil revenue. Venezuela export industry primarily based on oil export. Therefore it acquire 80 per cent of GDP from its oil industry, tapering of oil prices globally started reduction in revenue earning and increment in deficit of Maduro strain started booming up. Due to affirmation reasons Maduro government financial backbone was completely dislocated, this impinging proliferation for losses was reckoning on almost every sector of economy.

Conclusion:

As compare to India, Venezuela execution while demonetization was completely naive, but surely both the countries have different prospective. India demonetise its 500 and 1000 rupee note to curb anonymity wealth, seized funds of terrorist and curbed inflation. Maduro government has executed this to prevent its currency from smuggling and increase confidence in currency. In India large proportion of people supported government move and endure all the pain and sufferance, while engaging in little quarrels and scuffling with bank officials due to lack of cash. But Venezuelan heavily protested against the Maduro government which gradually converted into sanguine and genocide.

Mohit Pandey

Pursuing Economics Honours 3rd year.

Doon University Dehradun. (Uttrakhand)

Gmail address: Mohitpande2@gmail.com, Mohit.doon98@gmail.com

 

 

Brexit Obsolescence Globalisation

This has been taken from our blog,”Brinks of economic thoughts”

Brexit Obsolescence Globalisati

 

On 23rd June, 2016 in United Kingdom (UK) a  referendum was passed which ignited debate, on world forum, whether to leave decision will lucrative for UKs future or not. Many economists argue to leave which can impact UK adversely and can further create a deficit or tapering of UK economy. But before being Pedant whether referendum was right or wrong, I would retrograde towards the formation of European Union. The establishment of EU was initiated in 1993 in Maastricht treaty, to foster economic growth of entire Europe while reducing all the tariffs of native countries and amalgamation of entire Europe counties under single market. But the question is why Euroscepticism and a version for EU immerged. For example, after the formation of EU, UK fishermen got the licence for fishing in European states, but gradually big fishing companies of France, Germany and Italy have acquired entire UK fishing market and home businesses for UK, including many bourgeoisies.

 

Ms. Theresa May, the new president of UK is facing two major problems while maintaining balance between Hard and Soft Brexit. As Hard Brexit advocates to revamp all the immigration rules, new tax slabs for European companies, stiff commuters from entire Europe in UK (as labour and goods), therefore soft Brexit includes relaxation of tax’s for European companies and  no tariffs on goods movement in entire UK from rest of Europe. But here came Donald Tusk (President of EU), who did not negotiate with Theresa on soft Brexit since she did not allowing free flow of labour from entire Europe to UK. Well, according to me, the migration from rest of the Europe to UK acted as a catalyst to Brexit referendum. Theresa May in her last speech spoke about Article 50, which will be implemented till 2019, which includes,  the outlines of trade with rest of the world and with entire Europe after Brexit, stirring tax slabs for European companies operating in UK and unleashing most pertinent question (Immigration policies).

 

In entire Europe, including America, Theresa May and Stephen Crabb (influential peoples of UK) were not in favour to leave, as said to leave would be a terrible belief. But the question is, how a country can resurrect its growth,  if all the economic decisions, are decided by members of different countries, by  European  council, where total  members of UK was 29 in council, as 1/15 UK  members taking decision in favour of UK. It is so true that Germany, France and Italy, were over dominant to entire European Union, which is a deadly combination, as it was observed in past after 2008 crisis, where entire Greece was left with amnesty, awarded by these three nations. But the question prevails, whether Brexit was indication of aguish caused by globalisation or whether it will be exacerbated for the UK, we will see. But after 2019 UK, will enjoy its freedom while taking its Economic and social decisions……

 

Mohit Pandey

 

Pursuing Economics Honours  3rd year.

 

Doon University Dehradun. (Uttrakhand)

 

Gmail address: Mohitpande2@gmail.com, Mohit.doon98@gmail.com

 

Eurozone Financial Crisis-An anatomy of the crisis

This has been taken from our blog”Brinks of economic thoughts”

 

Eurozone financial crisis-An Anatomy of the Crisis

[This was one of assessment of eurozone financial crisis and it was also used by my then instructor MR Siba Sankar Mohanty in his website Lok katha. Although it was the times of Greek bailout and given that last year we saw unexpected BREXIT,this article is little irrelevant. But this was among the old blogs which I had written.]

 

 

 

Euro as a common currency was introduced in 1999.Unified interest rates post euro’s introduction allowed members to borrow heavily .Bonds which were issued by southern countries were considered to be equally safe as the ones issued by nation like Germany. Nations like Greece, Italy & Spain lie in southern Europe.

We can relate crisis of US sub –prime mortgage market which further got transmitted to European nations. Easy availability of money encouraged a debt –fuelled boom in PIGS nation which witnessed real estate growth on unprecedented scale.

 

 

US housing prices peaked in late 2006, whereas   European housing prices did peak a year later.

We all are aware of the manner in which financial crisis  did  strike  US  from  later part of 2007 & start of 2008 when Bear Sterns ,Fannie Mae were taken over by US government.

 

Later in month of September, we saw Lehmann Brothers filing for bankruptcy, which triggered financial crisis globally. Sub-prime debt obligations made in US held around the world caused global financial shock & worldwide housing bubble bursted in UK, Spain, Ireland as well as US.

 

American International Group required 180 billion $ bailout to cover CDS[Credit Default Swaps],insurance against bond defaults underwritten without reserves. Stress on banks around the world led to shrinkage in availability of credit.US government however released bailout packages of 700 billion $,then 800 billion $ & then 847 billion $,There was a significant  decline in exports of nations worldwide as US imports dropped.

 

It was conceived that Euro as a currency  would compete effectively with American $ and Chinese Yuan [RMB].However this aura of invincibility did not sustain.

 

Before formation of Euro , European leaders agreed to limit borrowings to just 3 % of their economies total output. This was expected that at least nations in Eurozone will not be accumulating too much debt..However in later years [Euro was formed in 1999], nations did not stick to the rule.

 

Germany, Italy & France , these nations started breaking rule of 3 %.IF we compare nations struck with crisis ,we will find that Spain’s government had smallest debts relative to size of its economy.

 

Greece had its own  wayward  ways on which it moved. Role of rating agencies such as Goldman Sachs did come under heavy scrutiny after the revelation that it artificially manipulated financial status of Greek  government  &  presented a nice image of Greek economy. Goldman Sachs had been deeply involved in covering up the Greek government’s mismanagement of its state budget & finances .IN 2001, after induction of Greece to European union  , Goldman Sachs helped the government quietly borrow billions.

 

Fact remain that birth of Euro came with an original  sin . Nation like Greece entered monetary union with bigger deficits than the ones permitted under the treaty that permitted common currency. Greek government is  blamed  as rather reducing spending ,it artificially reduced its deficits with derivatives.

 

Germany must have been under immense trouble as of its reckless borrowings , however that did not turn out to be the case. Germany had transformed its economy into an export power–house. It was exporting more to the rest of world than imports. And it had an excess of cash on its exports .Germany has been considered safe market ,with investors willing to lend even at historically low level[Germany 10 years bonds yield is merely 1.5%,,whereas as of now yield on Spainish bonds has been often crossing 7 %,,,which is considered unbearable level for a government to repay].This is not same with rest of European nations.

 

In late 2009, new Greek government found that its predecessor lied about its borrowing,& were running under huge debts. This revelation provoked  a drastic loss in investor’s confidence, spreading nervousness,, who started pulling their money out of the country 7 demanded punitive interest rates on its debt.

There were serious threats of sovereigns debt-default,& to avoid  it EU-IMF approved a 3 year emergency 146 billion $ credit line to Athens in May 2010.Investors had started turning to economies of Portugal, & Spain, but even losses as of bursting up of housing bubble saw nations like Ireland, Portugal & Spain seeking bailout packages.

 

EFSF [European Financial Stability Facility] was constituted in May,2010,intending to provide loans to countries in financial difficulties,& financial recapitalisation of financial institutions through loans to government. EFSF had a capacity to lend 440 billion euro.

 

This was supposed to be increased but then major nations of Europe saw a bifurcation of opinion among masses , like in Germany as majority of it would be provided by Germany & German masses were reluctant to allow German government to pay for it.

 

European financial institutions were under stress.,

 

  • BNP-Paribas was forced to close funds in August 2007.

 

  • German banks IKB ,West LB,& Saschen LB were bailed out by the government.

 

 

  • Irish banks were given government deposit guarantees.

 

European central Bank injected liquidity into European banks,& did not lower interest rates  until October 2008, as of it’s focus to curb on inflation.

EU approved additional 157 billion $ package in July,& parliament adopted strict austerity measures. Now Greece’s debt/GDP ratio had reached 115% in 2009.Greece’s government found itself in dilemma after it received bailout package .Greek government had to increase sales taxes ,reduce public sector salaries ,pensions ,elimination of bonuses ,reduction in minimum wages, liberalisation of labour laws which allows employers to increase working hours.

 

These strict measures have led to a deep contraction in growth , which has only further undermined confidence. Country received a second bailout of 130 billion euro from EU & IMF last  year. There were possibilities of Greece even exiting from Euro. Greece received 130 billion euro from IMF & other eurozone members , but it had to abide a condition that it will reach a deal with it’s existing private  sectors lenders to reduce it’s debts. This would be done through a swap of old bonds with newly issued bonds that would be worth a lot less & pay less interest. Private owners will take 53.5% nominal loss on Greek debt which will work out to be 74%.This way Greece will be able to wipe half of it’s debt of 485 billion euro.  Total aims are to reduce Greek government total indebtedness from 160% of GDP now to 120.5% by 2020.

WE can however learn few things from it about Euro.

 

European governments did try to act together , but did not successfully implement it. There was a limited impact of falling exports due to extensive internal trade relationships. And Greece as of now is facing difficult adjustment problems ,as European are avoiding losses on Greek bonds.

 

 

 

 

[SOURCE,,THIS WAS WRITTEN BY ME IN 2012 LAST PARTS,,LAST MONTHS,,,THIS HAS BEEN USED IN MY TEACHERS WEBSITE MR.SIBA SANKAR MOHANTY WEBSITE ”LOK KATHA”WITH NAME OF ‘’AN ANATOMY OF GREEK CRISIS’’..I AM USING ONLY THAT ARTICLE WHICH ACTUALLY HAD BEEN ASKED TO SUBMIT AS AN SUBJECT ASSIGNMENT WHEN WE WERE STUDYING PUBLIC ECONOMICS..DURING 3RD SEMESTER WHEN WE WERE STUDYING PUBLIC FINANCE]

I HAD USED NEWS FROM ONLINE AS MAJOR SOURCE,,,AND THEN ARTICLES FROM MAGAZINES,,,TRYING TO ENSURE THAT I CAN WRITE INCIDENCES PROPERLY,,,]

 

THANKS,]

harsh vardhan pathak

doon university