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Monday, January 31, 2011

The Future of the Eurozone and U.S. Interests

Raymond J. Ahearn, Coordinator
Specialist in International Trade and Finance

James K. Jackson
Specialist in International Trade and Finance

Rebecca M. Nelson
Analyst in International Trade and Finance

Martin A. Weiss
Specialist in International Trade and Finance

Seventeen of the European Union’s 27 member states share an economic and monetary union (EMU) with the euro as a single currency. Based on a gross domestic product (GDP) and global trade and investment shares comparable to the United States, these countries (collectively referred to as the Eurozone) are a major player in the world economy and can affect U.S. economic and political interests in significant ways. Given its economic and political heft, the evolution and future direction of the Eurozone is of major interest to Congress, particularly committees with oversight responsibilities for U.S. international economic and foreign policies.

Uncertainty about the future of the Eurozone grew in early 2010 as a result of the onset of a sovereign debt crisis in Greece that spread to Ireland later in the year. These concerns, in turn, took on added significance because the euro is considered a cornerstone of the European integration process.

One important cause of the crisis stemmed from flaws in the architecture of the currency union, including the fact that the EMU provides for a common central bank (the European Central Bank or ECB), and thus a common monetary policy, but leaves fiscal policy up to the member countries. Weak enforcement of fiscal discipline, over time, led to rising public debts, contributing to the 2010 Eurozone debt crisis. The problems were compounded by rapid expansion private sector debt in a number of countries, most notably Ireland.

In response, European leaders and institutions have adopted financial assistance packages for Greece in May 2010 and for Ireland in November 2010, combined with proposals to reform the currency union. These reforms center heavily on creation of a permanent liquidity facility (European Stability Mechanism or ESM) and real economy measures involving austerity and structural reforms to lower deficits and increase the competitiveness of the most highly indebted Eurozone members. These reforms do not contemplate sovereign debt restructuring, a break-up of the Eurozone, or movement towards a political or fiscal transfer union.

The reforms, if implemented, could strengthen the foundation of the Eurozone and bolster confidence in the euro. Given that the currency union is largely a political undertaking and a major symbol of European integration, European leaders may be expected to support reforms which keep the currency union intact. Moreover, the proposals under consideration introduce institutions and policies that did not exist prior to the crisis, and represent higher levels of integration and commitment to strengthening the EMU.

At the same time, a number of factors could weaken or even perhaps undermine the sustainability of the Eurozone. In the event of sovereign defaults by some members, public support in fiscally sound Eurozone countries for resource transfers to highly-indebted countries could decline. Shared responsibility for defaults could also lead to divisions among Eurozone members, causing some members to reconsider the costs and benefits of membership. In addition, the fiscal problems some Eurozone members face stem from economic imbalances that may be very difficult to resolve without a shift in economic policies by its members, particularly Germany.

If the Eurozone survives largely in its current form or strengthens, the impact on U.S. interests is likely to be minimal. However, if the Eurozone were to break-up in a way that undermines the functioning of Europe’s single market or resurrects national divisions, the impact on U.S. economic and political interests could be significant.

Date of Report: January 10, 2011
Number of Pages: 32
Order Number: R41411
Price: $29.95

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Friday, January 28, 2011

The European Parliament

Kristin Archick
Specialist in European Affairs

Derek E. Mix
Analyst in European Affairs

The 736-member European Parliament (EP) is a key institution of the European Union (EU), a unique political and economic partnership composed of 27 member states. The EP is the only EU institution that is directly elected. The EP plays a role in the EU’s legislative and budgeting processes, and works closely with the two other main EU bodies, the European Commission and the Council of the European Union (also known as the Council of Ministers). Although the EP does not formally initiate EU legislation, it shares legislative power with the Council of Ministers in many policy areas, giving it the right to accept, amend, or reject proposed EU laws.

Members of the European Parliament (MEPs) serve five-year terms. The most recent EP elections were held in June 2009. The EP currently has seven political groups, which caucus according to political ideology rather than nationality, plus a number of “non-attached” or independent members. The EP has 20 standing committees that are key actors in the adoption of EU legislation and a total of 41 delegations that maintain international parliament-to-parliament relations. The EP is led by a President, who oversees its work and represents the EP externally.

Once limited to being a consultative assembly, the EP has accumulated more power over time. Experts assert that the EU’s latest effort at institutional reform—the Lisbon Treaty, which entered into force on December 1, 2009—significantly increases the relative power of the EP within the EU. The Lisbon Treaty gives the EP a say equal to that of the member states in the Council of Ministers over the vast majority of EU legislation (with some exceptions in areas such as tax matters and foreign policy), as well as the right to decide on the allocation of the EU budget jointly with the Council. The treaty also gives the EP the power to approve or reject international agreements and expands the EP’s decision-making authority over trade-related issues.

Many analysts note that the EP has not been shy about exerting its new powers under the Lisbon Treaty, and in some areas, with implications for U.S. interests. In February 2010, the EP rejected the U.S.-EU SWIFT agreement allowing U.S. authorities access to European financial data to help counter terrorism. Although the EP eventually approved a revised U.S.-EU SWIFT accord in July 2010, it did so only after several EP demands related to strengthening data privacy protections were agreed to by the United States and the other EU institutions.

Although supporters point to the EP’s growing institutional clout, others assert that the EP still faces several challenges of public perception. Skeptics contend that the EP lacks the legitimacy of national parliaments and that its powers remain somewhat limited. Some analysts observe that the complexity of the EU legislative process contributes to limited public interest and understanding of the EP’s role, leading to declining turnout in European Parliament elections and wider charges of a democratic deficit in the EU. Criticism has also been directed at the costs incurred by what many consider duplicate EP facilities in several European cities.

Ties between the EP and the U.S. Congress are long-standing, and institutional cooperation currently exists through the Transatlantic Legislators’ Dialogue. In light of the EP’s new powers following the entrance into force of the Lisbon Treaty, the EP and its activities may be of increasing interest to the 112
th Congress. Also see CRS Report RS21372, The European Union: Questions and Answers, by Kristin Archick and Derek E. Mix, and CRS Report RS21618, The European Union’s Reform Process: The Lisbon Treaty, by Kristin Archick and Derek E. Mix.

Date of Report: January 21, 2011
Number of Pages: 16
Order Number: RS21998
Price: $29.95

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Wednesday, January 26, 2011

Missile Defense and NATO’s Lisbon Summit

Steven A. Hildreth
Specialist in Missile Defense

Carl Ek
Specialist in International Relations

For several years, the United States and NATO have pursued parallel paths to develop a ballistic missile defense (BMD) capability to defend U.S. troops and European populations against potential ballistic attacks from countries such as Iran. At the November 2010 Lisbon Summit, alliance heads of state approved a plan to integrate existing NATO member BMD capabilities as part of the overall alliance defense posture. NATO officials have placed the estimated cost of the new territorial BMD system at 200 million euros (approximately $260 million), to be borne among all 28 member states over the next 10 years. Industry analysts, however, believe that the cost could be significantly higher. The Obama Administration’s program to deploy a regional BMD capability in Europe, called the Phased Adaptive Approach (PAA), will now proceed with the NATO effort on an integrated basis.

The Lisbon Summit agreement is significant in that NATO officials identified territorial missile defense as a core alliance objective and adopted a formal NATO program in response. The agreement further outlined the development of territorial missile defense through an expansion of NATO’s ALTBMD (Active Layered Theatre Ballistic Missile Defense) program and its integration with the U.S. Phased Adaptive Approach. As a first step, alliance leaders tasked NATO staff “with developing missile defence consultation, and command and control arrangements” for NATO’s March 2011 Defense Ministerial. The next step will be to draft an implementation plan for missile defense for the June 2011 Defense Ministers meeting.

NATO decision makers took another significant step at Lisbon during the NATO-Russia Council (NRC) meeting, at which Russian President Dmitry Medvedev endorsed cooperation between the alliance and Moscow in the area of missile defense. Many observers believe that Russia’s pledge to participate removes a major stumbling block to the development of a European territorial missile defense program.

Analysts have noted the distinct advantages for NATO in adopting missile defense as a core alliance objective. Some of these include increased protection against potentially devastating ballistic missile attacks into Europe, strengthened relations with the United States, economic benefits that might flow from this effort, and opportunities to engage Russia constructively. Some have also questioned, however, whether this alliance effort is really necessary or whether such an effort is technologically feasible. Some are also concerned over the degree to which the United States will have command and control decision-making authority relative to others, and whether the combined NATO-U.S. programs might cause problems with how Russia views potential challenges to its own nuclear deterrent forces.

Congress has taken an active interest in missile defense, and has largely given bipartisan support to the Bush and Obama Administrations’ plans to guard against the threat of Iranian ballistic missiles through the deployment of radar and interceptors in Europe. NATO’s adoption of such a capability, and its close integration with the U.S. Phased Adaptive Approach, also will likely raise several issues that Members of Congress may choose to address, including command and control protocols, technology transfer, participation by Russia, and the extent to which European allies contribute to the common effort.

Date of Report: January 11, 2011
Number of Pages: 14
Order Number: R41549
Price: $29.95

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Monday, January 24, 2011

United Nations System Funding: Congressional Issues

Marjorie Ann Browne
Specialist in International Relations

The congressional debate over United Nations funding focuses on several questions, including (1) What is the appropriate level of U.S. funding for U.N. system operations and programs? (2) What U.S. funding actions are most likely to produce a positive continuation of U.N. system reform efforts?

The U.N. system includes the United Nations, a number of specialized or affiliated agencies, voluntary and special funds and programs, and U.N. peacekeeping operations. Participating states finance the system with assessed contributions to the budgets of the United Nations and its specialized agencies. In addition, voluntary contributions are made both to those agencies and to the special programs and funds they set up and manage. For more than 60 years, the United States has been the single largest financial contributor to the U.N. system, supplying in recent years 22% of most U.N. agency budgets. (See Appendix D for an organizational chart that illustrates the components of the U.N. system.)

Both Congress and the executive branch have sought to promote their policy goals and reform of the United Nations and its system of organizations and programs, especially to improve management and budgeting practices. In the 1990s, Congress linked payment of U.S. financial contributions and its arrears to reform.

This report, which will be updated, tracks the process by which Congress provides the funding for U.S. assessed contributions to the regular budgets of the United Nations, its agencies, and U.N. peacekeeping operation accounts, as well as for U.S. voluntary contributions to U.N. system programs and funds. It includes information on the President’s request and the congressional response, as well as congressional initiatives during this legislative process. Basic information is provided to help the reader understand this process.

This report replaces CRS Issue Brief IB86116, United Nations System Funding: Congressional Issues, by Marjorie Ann Browne and Vita Bite.

Date of Report: January 14, 2011
Number of Pages: 62
Order Number: RL33611
Price: $29.95

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Friday, January 14, 2011

Cyprus: Reunification Proving Elusive

Vincent Morelli
Section Research Manager

Attempts to resolve the Cyprus problem and reunify the island have undergone various levels of negotiation for over 45 years. On October 3, 2010, after almost two years of intense negotiations between Greek and Turkish Cypriot leaders, attempts to reach an acceptable solution for reunification had failed and the Republic of Cyprus celebrated its 50th anniversary as a divided country with a permanent solution far from being achieved.

Entering December 2010 Cyprus President Dimitris Christofias and Turkish Cypriot leader Dervis Eroglu had held 15 negotiating sessions focusing entirely on the difficult issue of property rights, an area where both sides have long-held and very different positions. The talks were then suspended as Eroglu had to undergo heart surgery in Ankara. The next session is scheduled for January 12, 2011. Although the negotiations have continued, they appear to have produced little progress and have increasingly exposed differences between the two leaders. In October 2010 it was reported that Eroglu had become so fed up that he may have suggested that Turkish Cypriots no longer believed in the possibility of a mutually agreeable settlement. For his part, Christofias told the United Nations Secretary-General Ban Ki-moon in September 2010 that both sides were not coming closer to a settlement. On November 18, 2010, Christofias and Eroglu traveled to New York to meet with Secretary-General Ban in what appeared to be another inconclusive attempt by the U.N. to boost momentum for the talks.

On November 24, 2010, Secretary-General Ban issued a status report on the progress of the negotiations. The report noted “sluggish activity” and, with important national elections in both Greek Cyprus and Turkey in 2011, expressed concern that the critical window of opportunity [for a settlement] was rapidly closing. Ban proposed another meeting of the three in late January and asked that at that meeting both sides report what progress they had achieved in all areas of negotiation and to present a plan to achieve a final solution. Some believe the outcome of this meeting could determine the future role of the U.N. in the negotiating process.

Tensions began to rise on the island during the final days of December 2010. On December 21 following a basketball match between Greek and Turkish Cypriot teams, a large group of Greek Cypriots tried to attack the Turkish Cypriot team, which had to be escorted from the stadium and remained overnight in Greek Cyprus under heavy guard. This prompted political condemnation from both Turkish Cypriots and Ankara. On December 25, Turkish Cypriot police interrupted and forced the cancellation of a Greek Cypriot Christmas mass in Karpass prompting calls of human and religious rights violations against the Turkish Cypriots. On December 28, Turkey declared 2011 the “Year of Northern Cyprus” raising questions about Turkey’s commitment to a political settlement. In his January 1, 2011, New Year’s address to the nation, President Christofias accused Turkey of not making any effort to promote a solution to the Cyprus issue.

The United States Congress continues to maintain its interest in a resolution of the Cyprus issue; lack of a negotiated settlement continues to affect relations between Turkey and the EU, Turkey and Greece, and the EU and NATO. The situation also warrants attention because of the U.S. interest in a strong relationship with Turkey. Congressional interest will likely continue throughout the 112
th Congress as the talks continue.

Date of Report: January 5, 2011
Number of Pages: 19
Order Number: R41136
Price: $29.95

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