Europe’s response to plastic issues

Over the past fifty years, global production of plastic has multiplied by twenty, and so has its waste. Since you began to read these words, between one and a half and four kilogrammes of plastic waste has ended up in the oceans, representing approximately between five and thirteen million tonnes of plastic leakage every year. At this speed, scientists say that by 2050 there could be more plastic than fish in the oceans. In addition to obvious environmental issues, this could also have an impact on human health. For example, microplastics, tiny pieces of plastic smaller than five millimetres, have been found in the air, drinking water, fish, salt, and honey. By 2030, environmental damages could be valued at twenty-two billion euros.

European citizens generate around twenty-six million tonnes of plastic waste every year. An average of thirty percent of this amount is recycled (this number varies a lot across European countries); the rest is either incinerated or landfilled. A substantial share is sent to third countries to be treated, where different standards apply. Most of this share is shipped to China, a situation that may soon end as China has now banned certain types of foreign plastic waste. Although incineration can be a tempting alternative to landfill, it produces a high amount of CO2 and destroys raw materials after a very short lifespan. On top of the dependence on fuel extraction for production, plastic’s environmental footprint is significant and growing; in fact, its production is expected to double over the next twenty years. What happens with traditional plastic also applies to plastic labelled as biodegradable. The latter actually degrades under very specific conditions that may not be easily met in natural environments and therefore still causes degradations. If other alternatives are available, the share they occupy in the market remains modest. For example, bio-based plastic, plastic made out of carbon dioxide or methane have a lower impact on the environment. Even though they have the same features as traditional plastic, they struggle to expand and to replace it.

Europe is now responding to this plastic crisis by taking several measures, particularly by banning the ten single-use plastics products most frequently found on European beaches and in lost fishing gears, which together account for seventy percent of marine litter. Single-use plastic products such as cigarette butts, balloon sticks, plastic bags, straws, cutlery, and so on, are often used away from home and are thus very difficult to recycle. The Members of the European Commission (MECs) have announced that by 2021, all these products will have to be replaced by non-plastic alternatives. Some of them will be banned immediately since alternatives are already available. MECs also introduced the so-called producer responsibility strategy: producers of cigarette filters, wrappers, and other plastic products will have the obligation to support the waste management cost of these items.

As sixty percent of plastic waste comes from packaging, the European Commission published a report on the “Strategy for plastic in a circular economy”. Recyclable or reusable plastic is currently meeting six percent of the total plastic demand; the objective for 2030 set in the report is a hundred percent of plastic packaging composed of this particular type of plastic. That way, a significant amount of waste could be avoided as the raw material could be reused. However, this policy implies a proper waste collection and investment in recycling capacities. Lately, product brands and manufacturers have been reluctant to use recycled plastic because they fear that it could not meet their needs of constant quality, high-volume, and reliable plastic. Therefore, this sector has suffered from uncertain outlets and low profitability. Moreover, the success of such a measure rests upon the goodwill of all the actors of the plastic chain, as mostly non-coercive actions have been announced.

The creation of a virtuous circle for plastic is one solution that Europe chose to implement. In order to limit plastic pollution, would it not be easier to eliminate the problem at the root by directly banning any plastic packaging, which is the main source of plastic waste? However, consumers and brands might not be ready yet for such a drastic step, as this implies making an effort or giving up on a considerable marketing tool.

by Noémie Martin

 

*Featured image: A plastic-throwing dragon was set up in front of the European Commission by the NGO Rethink Plastic.

English after Brexit

As the reality of Brexit approaches at a fast pace (at least, it seemed so by the time this article was written), the European Union faces many troubling issues to be solved. One of the less known – and arguably less important as well – is of linguistic nature: The EU´s most commonly used language will lose almost all of its native speakers. English will then be spoken as a first language only by most of the country´s 4.5 million Irishmen and around half a million Maltese. That is roughly one percent of the entire EU population.

With the EU having a colourful history of bitter disputes over its use of languages, this is a fact looking for trouble. Within days of the Brexit vote, politicians from continental Europe proposed to knock English out from the list of official languages. Theresa May, the current British Prime Minister even had to dismiss reports claiming that Brexit negotiations would be held entirely in French. Nonetheless, are these suggestions realistic motions or mere cravings for long lost power?

Today the European Union has 24 official languages, which can be used in parliament and for official correspondence. Three of them, English, French, and German, are used for work at the commission. In its day-to-day reality, however, they are not equal. German is barely spoken whereas English dominates being used in most meetings and for most reports.

That has not always been the case. Before the entrance of the UK to the European Economic Community, the EU´s predecessor, in 1973, only French and German had been the club´s official languages. Nonetheless, becoming an official language did not help much to stop the domination of French. Only in the 1990s, English started to become important with the admission of the Scandinavian countries. They have always been much closer culturally and linguistically to Great Britain than France, and therefore have a greater inclination to discuss in the corresponding language. The eastern enlargement of the EU in 2004 and 2007, as well as the growing global dominance of English, finally put it in the place it holds today in the union.

Is the exit of the UK likely to change this? Among the EU´s citizens, English is much more commonly used than the other contenders are. According to Eurobarometer, 51% of EU-citizens were able to converse in English in 2012. French, although frequently used by bureaucrats and diplomats, was spoken by only 26% of the EU total population, even below German’s 32%.

Anyway, the future seems to belong to English. Two thirds of EU-citizens deem English to be a useful language compared to only one sixth who hold this belief for German or French. Additionally, over 80% of primary school children are taught English whereas other languages are usually brought in much later, if at all. Part of the rise of English can be explained by the relatively few grammatical hurdles learners face in early stages. Setting up simple conversations is easier than in most other `natural` languages with plenty of conjugations and declinations. The more difficult parts come up only later, for example, the often seemingly arbitrary pronunciation. Nevertheless, if someone has already made it to that point she is unlikely to give up.

This, of course, does not have to imply that the Union’s parliament and administration follow these trends, especially because the Union has, from time to time, struggled to be seen as down-to-earth and close to its citizens. Still, the power balance in the EU has shifted in the last 30 years. The traditional Franco-German alliance has lost its clout due to the massive enlargement of the EU and the internal rifts. For example, during the Euro crisis when France `led` the southern alliance of Mediterranean countries, pushing for more spending and a devaluation of the Euro. On the opposite side, Germany represented the northern countries advocating for austerity measures.  It is unlikely that other countries just let these two have their cake and eat it. Ireland and Malta want to protect ´their´ English and other large countries could seize the opportunity to advertise their national languages as well.

In fact, even within Germany and France, not everyone promotes their own language with absolute vigour. Although a supporter of the French language, Emmanuel Macron likes to spice it up with English terms such as `bottom-up`. Among the first ones to refute suggestions of using less English was the German commissioner Günther Oettinger. Ironically, when he was initially sent to Europe in 2010, his poor command of English was largely ridiculed by the German media.

Furthermore, the biggest advantage of English is not even internal but external. It is the language of a globalised world. It is the mostly spoken language worldwide, over half of all websites on the internet are in English, all aviation communication is conducted in English and all major economics journals are published in English. Even here at TSE most courses are taught in English. Considering this power, it is doubtful whether the EU can afford to rely on a rather inward looking language like German when the rest of the world uses one global language.

Finally, the loss of most of its native speakers does not have to be a bad thing for the significance of the English language in the EU. Instead, it could benefit from posing as a `neutral` language. If an Austrian and a Latvian speak German, the former is more likely to feel comfortable while doing so. If they instead speak English, no one can build on a natural advantage.

It could pose as a modern-day Esperanto. This language was designed in Eastern Europe at the end of the 19th century to promote understanding between different groups of the population by using a neutral language. It borrows from Romanic, Germanic, as well as Slavic languages, and uses straightforward declinations and conjugations without many irregularities. Estimates of speakers range from half a million to two millions. It is tough business to create a new language from scratch and compete against existing and deep-rooted contenders, so these figures should not necessarily be seen as failure.

Why did Esperanto never really take off? Like many international projects, it flourished before the first-world war and had a revival in the interwar period. Many 20th century regimes, however, did not like its cosmopolite sprit and therefore tried to suppress it. After the wars, it lacked the political and intellectual support required to reach the critical mass a language demands. Later, with the rise of global English, the need for an artificial international language has strongly deteriorated. At the beginning of the 21st century, Europe seems close to reach the goal of having a neutral language for international communication set by the Esperanto´s creator L.L. Zamenhof. Only that it is not Esperanto but English.

Being a neutral language also offers other opportunities. No longer under the watchful eyes of British language puritans, English could flourish and create its own style: Euro-English. Whereas a cynic might decry the downfall of culture and civilisation, one could also embrace these new developments. In reality, the first steps towards this new language have already been made. The term `handy`, for example, is recognised by eurocrats more often as the slightly bizarre German word for `mobile phone` rather than the original English meaning of `easy to use`.

Overall, we do not have to worry about the position of the English language in the EU after Brexit. It is likely to dominate further even though it might develop its own distinct style, as it is no longer being under the protection of the United Kingdom.

by Robert Lindner

The price of two percent inflation

Though it is still considered a rather unconventional form of monetary policy, quantitative easing (QE) has become a commonly used tool of central banks around the world. It involves the central bank purchasing government bonds and other financial assets from the market.  First used in Japan in the 2000s and later in the US in the wake of the 2008 financial crisis, with the Federal Reserve consecutively launching three QE programmes in order to stimulate the economy. Other central banks such as the Bank of England and the European Central Bank (ECB) soon followed.

Quantitative easing is an expansionary monetary policy in which the central bank buys vast amounts of debt to increase liquidity and stimulate the economy. When a country is faced with the threat of deflation, a common response of the central bank is to decrease the key interest rate and thus raise inflation. However, when the interest rates are already at around zero, the central bank is caught in a liquidity trap, where standard monetary policy becomes ineffective. Then, it resorts to QE to prevent deflation. On top of increasing liquidity, buying large quantities of government debt allows it to influence long-term interest rates, something on which its standard monetary policies have no effect.

One of the primary tasks of a central bank is to provide price stability, which means keeping the inflation rate close to zero. However, as common practice, central banks often try to keep inflation at around two per cent, since this is neither high enough to be harmful to the economy, nor is there an immediate risk of deflation.

As a response to the European debt crisis, the ECB has lowered the key interest rates close to zero. Thus, when in 2014 inflation in the euro area dropped, with core inflation just above 0.5% and the consumer price index even turning negative, the European System of Central Banks (ESCB) started the asset purchase programme (APP), a QE programme where the government debt of each eurozone state was acquired by their respective central bank. The programme started in March 2015 with an average monthly net purchase of 60 billion euros. As the graph shows, this amount varied throughout the following years, peaking at 80 billion euros and being reduced to a minimum of 15 billion in September 2018, as the programme is supposedly coming to a gradual end. In total, the ESCB currently holds around 2.5 trillion euros as a result of APP.

Second picture
Inflation in the Euro area

An intervention of such a magnitude on financial markets does not go without less intended effects. Let us start by stating the seemingly obvious: inflation in the euro area increased throughout (as it can be seen in the graph) and most probably as a direct result of APP and is now at approximately the targeted level of two per cent. Thus far, QE achieved its purpose.

Curiously, the effect of APP on the inflation rate turned out considerably smaller than anticipated. Apart from intriguing macroeconomists around the globe, this phenomenon poses a potential risk to the European economy. Could the effect on the inflation rate simply be delayed, resulting in excessive and harmful inflation in the coming years? Critics of QE often name this as a risk of the policy. However, the central bank usually has the possibility to counterbalance this effect by reducing its holdings, which would usually diminish inflation.  This strategy too has its own risks. If applied too drastically, it could lead to deflation, the very phenomenon QE is trying to prevent. In between 2012 and 2014, the ECB reduced its holdings by around one trillion euros and simultaneously core inflation dropped by one percentage point, which arguably caused the ECB to create the current QE programme. It seems like preventing either too much or too little inflation is just a matter of finding the right equipoise. It is important to note that our understanding of inflation is at best incomplete and, thus policy makers should be on guard for potential unforeseen effects.

Another side effect of QE is the inevitable decrease in profitability of saving. Whether you are putting aside money for your retirement or the education of your kids, the growth of your savings is dramatically decreased by low interest rates. A less commonly named, but nonetheless momentous cause of the growing support for right wing populist parties, is voters having the feeling of being cheated for their saving yields. In addition, the low interest rates do not only disadvantage private savers, but also any institution financing itself through capital gains on a capital fund.

What differentiates APP from previous QE programmes in Japan or the US is the fact that because of the common currency, it has to be applied simultaneously in all eurozone states, in order for it to be effective. This can create several major complications.

First off, in any country applying QE, there is risk that the debt bought by the central bank is not repaid. In the case of private debt, this is a minor problem since the amounts bought from one institution are relatively small. Further, as long as the state is in a “healthy” situation regarding its debt, purchases in the public sector bear little risk since they effectively only consist of money transfers between two components of public authority.

However, the situation becomes significantly more complicated in the multinational construct of states. Let us take a closer look at the way the European QE programme is constructed. APP is the superordinate term comprising several different programmes, the largest of which is the public sector purchase programme (PSPP) making up around 80% of the APP.

First picture
APP monthly net purchases, by programme

The government bonds are acquired by the ESCB, in the way that each central bank buys exclusively from the government of its country. This regulation was created to prevent one country (or their central bank) having to step in to avert the bankruptcy of another state. This, in principle seems to be a clear regulation consistent with article 125 of the Lisbon treaty (TFEU), better known as the “no bail out” clause, stating that the union or any member state “shall not be liable for or assume the commitments of central governments”. However, the PSPP resolution empowers the ECB council to distribute the liabilities for the acquired bonds on all eurozone states in exceptional circumstances. In such an event, would a redistribution of liabilities be in accordance with the treaties, and what would be its consequence for the eurozone states?

In July 2012, Mario Draghi announced, “the ECB is ready to do whatever it takes to preserve the euro.” This statement was put into consequence through the OMT (Outright Monetary Transactions) programme announced in September 2013. Yet, the programme was never actually executed since the mere announcement was sufficient to calm financial markets. Investors no longer feared that a European state would be unable to repay its debts.

The significance of Mario Draghi’s statement is twofold. On the one hand, it succeeded in averting a possible crisis. On the other hand, it shows the ECB’s determination to prevent a state bankruptcy even if this means making other member states liable for the commitments of the insolvent state, the legal status of which is at least questionable.

However, the problem has another, more structurally profound component. The assurance that a state facing bankruptcy will be saved, leads to the moral hazard of no state having a sufficient incentive to reduce its debt. Why restrict yourself to a balanced budget or at least one leading to a sustainable debt situation, when you can have the benefits of an expanded budget without having to suffer its negative consequences?

In the eurozone this problem of moral hazard is not only embedded in the possibility of OMTs, it is already in practice through quantitative easing. Firstly, states are almost encouraged to incur more debt by the ECB keeping the interest rates artificially low. Secondly, the ECB is practically providing the money for them to incur more debt by buying their bonds. Now, article 123 of the TFEU states that “direct purchases” of debt of member states’ government institutions by the ESCB are prohibited, but since the QE purchases are exclusively conducted on secondary markets, it is not clear whether this actually counts as a “direct purchase”. This question along with the one on a possible breach of article 125 TFEU as explained above is currently being debated before the European Court of Justice.

Putting aside the legal controversies surrounding QE in Europe, the question arises whether the risks connected to this policy do not outweigh its benefits. Is it beneficial to condone low saving yields, uncertainty of future inflation, and the moral hazard of incentivising the issuance of debt, just to raise inflation to two per cent? Or is the financing of indebted states part of an unofficial purpose of APP? Both questions are hard to answer. Independent of any precise answer or opinion, it is important to realise the functioning and the effects of APP that distinguish it from precedent QE programmes in other countries.

by Konrad Lucke