February 14, 2013

On Europe, Rhodes said he believes it is crucial for European countries to get out of the crisis quickly, since over the long run the European trading bloc acts as a significant contributor to global financial stability. He also criticized lack of action on the part of European authorities to get the EU out of the crisis. The reluctance comes from the deficiency of leadership, which is largely due to national politics. He predicts that after Germany’s elections in September, the situation will improve as Angela Merkel takes a more confident leadership role. Rhodes argued that the primary contributor to continued weakness within the Euro area was that individual countries did not initially anticipate systemic risks posed by highly indebted Eurozone states. Rhodes’s advice for the EU is that a common regulatory union – such as the FDIC in the United States – be formed in order to guarantee a Europe-wide guarantee for savers to their funds. This will avoid runs on banks and could ultimately form a well-built banking system allowing for sustainable growth. Rhodes also suggested that a fiscal pact among the European countries, one that determines how much of a deficit each country could carry as a percentage of GDP, would also enhance stability.

Rhodes also briefly touched on the situation in Asia, namely the conflicts among China, Japan, and Korea. He predicts severe political risk, with the potential for a currency war, if the current situation over the Senkaku/Diaoyu islands is not resolved quickly and diplomatically. His suggestion is to form a northeast pact among the leading countries in that area in order to maintain order and provide for continued diplomatic dialogue.

-- Andreas Maerki MPA '14