Politics is local but most problems are international. That is the fundamental problem for national governments caught between the twin forces of globalization and voters’ anger. The European refugee crisis, for example, seems to cry out for a continent-wide solution. But the tide of migrants has been vast and national governments have been tempted to put up barriers first, and answer questions later. The latest example saw Sweden introduce checks on those travelling from Denmark, leading the other country, in turn, to impose temporary controls on its southern border with Germany. Anti-immigration parties have been gaining in the polls, with the exception of the German Chancellor; mainstream politicians want to head off the challenge. In a way, this looks like the same mismatch that has plagued the euro, a single currency without a unitary fiscal and political authority.
Many economists have advocated much greater integration of the euro zone in the wake of the bloc’s crisis. The European banking system would be stronger if there was a comprehensive deposit insurance scheme, the economy would be more balanced if there were fiscal transfers from rich to poor countries. But such plans are unpopular with voters in rich countries (who perceive them as handouts) and in poor countries (who worry about the implied loss of local control that reforms would require). All that the European Union’s (EU) leaders have managed so far is to cobble together solutions (such as the Greek bail-outs) at the last minute.
Gone is the pledge of unity of the G20’s summit in London in 2009, when leaders agreed on a co-ordinated stimulus in response to the financial crisis. Central banks are now heading in different directions; the Federal Reserve has just tightened monetary policy while the European Central Bank and the Bank of Japan are committed to easing. Trade creates tighter links between countries, but global trade growth has been sluggish in recent years. The OECD thinks that trade grew by only 2% in volume in 2015. No longer is trade rising faster than Global GDP, as it was before the crisis. International agreements require compromise, which leaves politicians vulnerable to criticism from inflexible components. Voters are already dissatisfied with their lot after years of sluggish gains (or declines) in living standards. When populist politicians suggest that voters’ woes are all the fault of foreigners, they find a ready audience.
Furthermore, economic woes can lead to much more aggressive foreign policy. In the developed world, demographic constraints (a static or shrinking workforce) may limit the scope for the kind of rapid growth needed to reduce the debt burden and make voters happier. Boosting that sluggish growth rate through domestic reforms (breaking up producer cartels, making labor markets more flexible) is very hard because such reforms arouse strong opposition from those affected. The danger is that a vicious cycle sets in. Global problems are not tackled because governments fail to co-operate, voters get angrier and push their leaders into more nationalistic positions and conflict which poses a threat to all.
Example 1What can be concluded from the example of the Greek bailout cited in the passage?
(a) There is tremendous political turmoil in Greece.
(b) The approach to the Greek financial crisis by Euro zone was not appropriate.
(c) Greece has recovered from the financial crisis.
(d) A comprehensive system of deposit insurance need not to be effective.
Example 2Which of the following is the central idea of the passage?
(a) A unified approach to regional issues is unwanted and impractical.
(b) Globalization is on the decline which will reduce social unrest.
(c) Unlike America and Asia, Europe is in severe financial difficulty.
(d) International co-operation is declining which is dangerous.
Example 3Which of the following has/have been the outcome(s) of economic woes?
(A) Uncompromising or antagonistic foreign policy.
(B) An all-powerful single financial regulator for Europe.
(C) Drop in trade volumes.
(a) Only (A) (b) Only (B) (c) (A) and (C) (d) (B) and (C)
Example 4Which of the following is true in the context of the passage?
(a) It is difficult for developed countries to achieve a high growth rate at present.
(b) Europe needs greater economic integration.
(c) Politicians need to take the right steps rather than popular ones.
(d) Anti-globalization sentiment is quite high.
Example 5Which of the following can be said about the G20 summit in London in 2009?
(a) It was organized to address the fallout of the financial crisis.
(b) Countries did not follow-up with a harmonized approach to the crisis.
(c) Sentiments of unity were expressed at the summit.
(d) It was unsuccessful as assurances did not translate into action.
Which of the following best explains the phrase ‘The danger is that a vicious cycle sets in’ in the context of the passage?
(a) Failure to sacrifice individual interests for common good perpetuates global problems.
(b) With rise in income, consumption is boosted and so is debt.
(c) Having common reforms takes away a country’s autonomy.
(d) Boosting trade with OECD countries makes economies vulnerable to oil price fluctuations.
Example 7Which of the following is the author’s view on the refugee crisis?
(a) It is an unmanageable problem controlling Europe and Asia.
(b) To stem migration, rich countries need to safeguard their orders.
(c) Politicians have responded appropriately.
(d) A joint approach is required to resolve the crisis.