The European Central Bank looms large over the Euro debt crisis. Photo: soumit (flickr)

As Europe attempts to thwart a broader global recession, it is facing what many economists refer to as a trilemma, and poorer countries could be the victims.

A financial trilemma is comprised of three goals that policy makers try to achieve: (1) a stable/fixed exchange rate; (2) an economy open to international flows of capital; and (3) a sound monetary policy to stabilize the economy.

Here's the catch: In reality you can only achieve two of these goals, not all three.

In 1999, the Eurozone decided to give up the third goal, independent monetary policy. In exchange, they enjoy a common currency across 17 member nations and the freedom to exchange money and goods across borders. Though the European Central Bank creates monetary and fiscal policy for the European Union, each member nation relinquishes its own control.

This becomes an issue when a country gets into financial trouble and must defer to the European Central Bank or greater European Union. This was recently evidenced with the bailout and continuing debt problems in Greece.

Potential for problems arise due to our ever globalized, interconnected world. Eurozone policies are far-reaching, extending their grasp to neighboring emerging markets dependent on foreign dollars. With austerity measures becoming the norm, lenders are avoiding risk and could cut foreign lending in favor of keeping business in their own backyard. The Economist references a speech by the Financial Stability Board head, Mark Carney, in which he warned about the damage if the European bank were to deleverage on the world economy.

Many emerging economies in Eastern Europe depend on both foreign aid and outside investment. If the Eurozone's financial well runs dry the effect will ripple throughout Eastern Europe, even the U.S. Poorer E.U. members worry that they'll emerge the victims. French president Nicolas Sarkozy rocked the political world after his comments at a University of Strasbourg debate on November 8, where he described a proposal for a two-speed Europe, presumably divided between richer and poorer nations.

What part does the European Central Bank (ECB) play in this? That’s the question everyone is asking. Similar to the U.S. Federal Reserve, the ECB has the power and leverage to swoop in and bail out E.U. members on the brink of collapse. They are hesitating, however. Germany feels the ECB should step in only as a last resort. Many policymakers in Germany believe that the current crisis is forcing reform and thus serving a purpose, as recently expressed in The New York Times.

With optimism waning on debt solutions for the U.S. and abroad, tensions mount and consensus becomes imperative. Politics need to be set aside before any sort of real dialogue can exist. Will the E.U. decide on a two-speed Europe? Will any countries abandon the Euro? The implications for emerging markets are considerable; several outcomes could result in global recession.

Calls to make changes to our international financial system are being heard. Will they be listened to? Photo: itspaulkelly (Flickr)

Mass unemployment, an overwhelming sense of unfairness and a loss of hope need no translation. Even without written demands, the sentiments of Occupy Wall Street have been interpreted through similar protests in 941 cities in 82 countries - and counting.

Global leaders are taking note. And they agree: A lot has gone wrong in the banking sector. While the basic purpose of the financial sector must remain intact, it’s gotten off track. After all, we still need a secure place to store our money, we still need credit and loans, and advice on how to grow our nest eggs. We need banks.

Can we hit the reset button?

The global financial crisis we’re in is incredibly complicated, and it’s not going away soon. And sadly, there’s no reset button. But changes are needed and changes are happening.

In forthcoming posts, we’ll explore the origins of the crisis, key players, innovative solutions, how the decisions made by developed world financial sectors affect the global poor, how local protests affect global politics, and where we go from here. And we hope to hear your thoughts, too.

Our Series Begins:

An historical look at "too big to fail," in four acts:

•      Act 1: The battle over the lessons of the Great Depression.
•      Act 2: The first bailout leads to the next, and the next.
•      Act 3: The value and perils of deregulation.
•      Act 4: Banking crises go global.

Surrounded by financial chaos, developing nations start throwing up barricades

For China, flush with cash, the financial crisis may mean political opportunity

Europe's financial troubles worry its neighbors

Amid financial crisis, China is the new champion for carbon reduction

East Africa seeks to learn from the Eurozone's mistakes

A new model for Middle East economic practices starts with Tunisia, Libya

Bank transfer day: A symbolic move

Related Past Posts:

Microfinance and the Economic Crisis: What to Believe?

A Triple Threat: Food, Fuel and Financial Crises in the Developing World

One Big Deal

The IMF Boosts Financial Aid to Poor Countries

Rural China Could Gain from Financial Crisis

Goodbye Piggy Banks, Hello Working ATMs: Why the Middle East May be More Sheltered from the Global Financial Crisis

Social Workers Getting to the Root of Debt

Some say a transaction tax could put humans back in charge of financial markets. Photo: RoGb77 (flickr)

As lightning-fast computer programs replace human brokers on Europe's virtual trading floors, anti-poverty warriors want to slow things down.

There's never been a better time, they say, for a redistributive "Robin Hood tax," which would slap a fee on each financial transaction, deterring meaningless trades and putting the revenue toward fighting poverty and climate change. The center-right leaders of France and Germany called for such a tax last month, Reuters reported, and leftish outlets like The Guardian have happily joined their choir: "Even if such a tax was levied at just 0.05%, it could raise hundreds of billions of dollars, which could be ploughed into development projects," the paper wrote of a petition signed by 1,000 economists from around the world. The EU plans to gather support for a tax at November's G-20 summit, says Reuters.

Political attacks on money-changers are nearly as old as money itself. What's new is that the usual arguments against such a tax – that it'd reduce trading volume and hurt the economy by making financial markets more volatile – may be getting weaker. In fact, people like former London Stock Exchange executive Martin Wheatley now argue that computer-driven trades make volatility worse.

Exhibit A: Wall Street's May 2010 "flash crash," in which computer algorithms temporarily wiped 10 percent off major stock indexes in a squall of rapid transactions, apparently because they saw one another doing the same thing.

On the Robin Hood Tax website, spokesman Richard Gower called this "casino capitalism cyborg-style" and suggested that humans could tax irrational computer programs out of the market.

Others use less colorful language.

"For the first time in financial history, machines can execute trades far faster than humans can intervene," Bank of England executive Andy Haldane said in July, according to The Telegraph. "Grit in the wheels, like grit on the roads, could help forestall the next crash."

Haldane was speaking in favor of internal or regulatory changes, not a redistributive "Robin Hood" tax. But with Western economies in a skid, some think financial markets might be safer with Robin behind the wheel. After all, at least he's human.

India — a leading producer of generic medicines — has earned the title, "pharmacy of the developing world." Photo: iwishmynamewasmarsha (flickr)

Medical experts fear that clauses in the EU-India Free Trade Agreement (FTA) could leave millions of the world's most vulnerable people without access to the lifeline India presently provides: cheap, generic medicines, reports Al Jazeera.

The debate over generic drugs goes to the heart of the way medicines are produced and distributed around the world. India's pharmaceutical industry makes most of its money producing cheap generic versions of drugs patented by its Western counterparts, bypassing a system designed to ensure drug developers are rewarded with a period of exclusive sales rights for new medicines.

The patent system is supposed to incentivize the production of new treatments and ensure that research costs are recouped. But it also creates a monopoly, allowing drug companies to charge whatever they see fit for their products…

The concern is that the FTA may disallow India from continuing to sidestep this system. This could limit the capacity of India's generics industry to produce and distribute these cheap medicines, which are primarily channeled to other developing countries.

India's pro-public health laws allow multiple manufacturers to compete for India’s medicines market. According to an opinion piece written for the Bankok Post by Paul Cawthorne of Médecins Sans Frontières' campaign for essential medicines, this has driven "prices for the most-affordable drug combination down by more than 99 percent over the last decade."

That India can provide essential medicines at this price explains the fact that at least half of Africa’s five million AIDS patients already undergoing treatment use Indian-made generic drugs, says to Dr. Hans Hogerzeil, who heads the World Health Organization's essential medicines and pharmaceutical policies department.

The millions who comprise this demographic stand to loose the most, as the "data exclusivity" provision of the FTA could make cheap generics significantly less accessible. It appears that this provision will effectively copyright data collected during clinical trials in a drug’s originator country, according to the Al Jazeera article. If this occurs, Indian generic drug manufacturers will be forced to choose one of two options to gain approval for marketing their generic version of a drug: Either wait for up to 10 years until the period of exclusivity ends, or re-conduct already-completed trials. Both options would likely hike up the prices and delay the market entry of essential medicines.

The European Commission (EC) says the purpose of this clause is to protect the intellectual property rights of the patent-holding pharmaceutical companies (mostly Western and transnational). Given that the clinical trials are so costly and long-lasting, this motive is logical. But according to Al Jazeera, members of the medical community suspect that in fact, the data exclusivity clause is a masked effort to buffer the profits of these companies from the competition India’s generics industry introduces.

The EC has yet to formally release the fine print, though the FTA is expected to be finalized by the end of 2010 or early 2011, according to Intellectual Property Watch, an independent news service which focuses on intellectual property policies. The Commission is steadfast (if vague) in its claims that these agreements will not adversely affect the Indian generic drug industry:

The EU fully acknowledges India's right and capacity to manufacture and export life-saving medicines to other developing countries facing public health problems. The [intellectual property rights] provisions proposed in the EU-India FTA are not intended to weaken this.

Only when the FTA is finalized will its full impact on India's generics industry be felt, and will it become clear whether or not India will be able to maintain its vital position as the "pharmacy of the developing world."

Vive la Révolution! Haitians rebel in the Battle at Sainte-Domingue. Photo: Wikimedia Commons

This week, the ghosts of colonial misdeeds returned to haunt France.

EU politicians and others wrote an open letter to President Nicolas Sarkozy, demanding that the French government compensate Haiti for a past wrongdoing, explains the Christian Science Monitor.

A petition signed by 100 artists, scholars, and EU politicians that was released Monday called on France to give Haiti $17 billion for earthquake reconstruction. The money would essentially reimburse a fee French King Charles X charged Haiti after a revolt that ended slavery there. King Charles justified the fee as compensation for the loss of slaves and other property.

In 1804, Haiti won a bloody independence from France. But the small Caribbean country was still economically shackled to France until 1947, when the Haitian government finally paid off interest from their lofty independence debt of roughly 90 million gold francs.

Today, that sum is worth about $17 billion — a chunk of change that could surely go to good use helping Haiti rebuild. Haiti remains knee-deep in rubble six months after the devastating earthquake killed thousands and left millions without homes or good health. Yet despite the petition's plea, French foreign ministry spokesperson Christine Fages stressed France's commitment to Haiti, when she spoke with the Christian Science Monitor:

France gives Haiti $25 million a year, has given $30 million in humanitarian aid since the earthquake in January that left some 250,000 dead, has erased a $72 million in debt, and plans a total of $420 million more in aid through next year.

Although President Sarkozy dismissed the petition, he recently stated, "Even if I did not start my mandate at the time of Charles X, I am still responsible in the name of France."

Let's hope so, Monsieur le Président.

Pigs in a crowded sty in Wieckowice, Poland. Photo: Wojciech Grzedzinski for The International Herald Tribune. visionshare (flickr)

Pork is a staple of the Romanian diet, and the country has become one of the largest producers of pig products in Europe. But it's not necessarily Romanians who are profiting from the growing industry.

U.S. agribusiness giant Smithfield Foods has carved its way into Eastern Europe's pork market, tapping European Union farm subsidies to set up shop in countries like Poland and Romania. Since its arrival in 1999, the Virginia-based Fortune 500 company has swiftly become Romania's top pork producer.

Smithfield has upended traditional ways of doing farming in Romania, one of Europe's poorest countries. The New York Times reports that 90 percent of the country's small farmers have lost their jobs in the last six years. Many have been forced to leave home in search of construction jobs in other EU member states.

The impacts of Smithfield's empire can be tracked all the way to West Africa, where the company exports cheap pork scraps to markets in Liberia, Equatorial Guinea and Cote d'Ivoire. In these countries, frozen offal sells at half the price of local pork — a bargain for consumers that again comes at the expense of local farmers.

“My farm isn’t working,” said Cote d'Ivoire farmer Patrice Yao, who told the The New York Times that he owns 45 hogs compared to the 100 he had three years ago."The Europeans are sending all their cheap meat to our market."

Latvia's government collapsed following weeks of financial instability. The New York Times explains some of the events leading up the resignation of Prime Minister Ivars Godmanis:

[T]he country’s export-driven economy, which burned red-hot when easy credit flooded the world banking system, has ground to a halt. Unemployment has rocketed in Latvia, while those who have managed to hold on to their jobs are receiving significantly less pay. Public discontent, unsurprisingly, is rising, while trust in the government has plummeted. Violence broke out in January after about 10,000 people gathered for a peaceful demonstration. Scores of protesters battled police officers and ransacked stores, and 40 people were injured.

Last month GDP shrank by 10.5 percent and is expected to shrink 12 percent by the end of 2009 — a number some analysts say is optimistic. Latvia is the first member country of the European Union whose government has fallen as a result of the economic crisis.

An unexpected side effect of the increasingly open borders in the European Union: language confusion.

The BBC reports that Irish police recently cracked the mysterious case of Prawo Jazdy, a driver who was alleged to have racked up dozens of speeding and parking tickets throughout the nation.

It turns out that "Prawo Jazdy is actually Polish for driving license and not the first and surname on the license," Irish police determined. Searching the file, Guardians of the Peace of Ireland determined that traffic officers had cited "Mr. Prawo Jazdy" over 50 times.

Poles are the largest ethnic minority in Ireland, according to the 2006 Irish census. The majority of them are recent arrivals who immigrated to Ireland seeking work after Poland joined the EU in 2004.

"If nothing else is learnt from this driving-related debacle," the BBC writes, "Irish police officers should now know at least two words of Polish."

A Palestinian man looks out towards destroyed buildings following an Israeli air strike in Gaza City. Photo: Amir Farshad Ebrahimi (flickr)

A stated aim of Israel's military strikes in Gaza was to destroy underground tunnels between Egypt and Gaza because they're used by Hamas to smuggle in weapons.

But Gazans argue that there are two kinds of tunnels running from Gaza to Egypt: militant and civilian. Hamas-controlled tunnels are "supposedly steel-ribbed and large enough for a car to pass through," according to Time. And unlike civilians, who dig in plain sight of the Egyptian border security and Israeli surveillance aircraft, Hamas members are more secretive and obscure about the location of their tunnels.

Gaza's civilians claim their tunnels are necessary. Israel essentially sealed Gaza's borders to everything but humanitarian aid after Hamas took control of Gaza in June 2007, making the tunnels the only means for transporting everything from medicine, cement, chocolate bars, and even lion cubs for the zoo, according to Time.

"It's a lie to say that we use these tunnels to only bring in weapons. We're bringing in the ordinary stuff that keeps Gaza alive. If the Israelis opened the border crossings, we wouldn't have to be doing this," a Gazan resident tells Time.

According to the New York Times, the tunnels are also a primary source of income for some 25,000 young men. Tunnel diggers can earn $100 for every meter they dig — making the tunnels one of the biggest sources of employment in the territory. And they were back to digging as soon as the truce was signed.

"If Israel keeps the borders sealed off, we'll keep digging and only Allah can stop us. Let the Israelis drop their bombs. Without the tunnels we can't survive anyway," says Aymad, a tunnel digger. "And if a bomb catches me underground, well, they won't have to dig my grave."