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Friday, August 26, 2011

Greece’s Debt Crisis: Overview, Policy Responses, and Implications


Rebecca M. Nelson, Coordinator
Analyst in International Trade and Finance

Paul Belkin
Analyst in European Affairs

Derek E. Mix
Analyst in European Affairs


The Eurozone is facing a serious sovereign debt crisis. Several Eurozone member countries have high, potentially unsustainable levels of public debt. Three—Greece, Ireland, and Portugal—have borrowed money from other European countries and the International Monetary Fund (IMF) in order to avoid default. With the largest public debt and one of the largest budget deficits in the Eurozone, Greece is at the center of the crisis. The crisis is a continuing interest to Congress due to the strong economic and political ties between the United States and Europe. 

Build-Up of Greece’s Debt Crisis 


In the 2000s, Greece had abundant access to cheap capital, fueled by flush capital markets and increased investor confidence after adopting the euro in 2001. Capital inflows were not used to increase the competitiveness of the economy, however, and European Union (EU) rules designed to limit the accumulation of public debt failed to do so. The global financial crisis of 2008-2009 strained public finances, and subsequent revelations about falsified statistical data drove up Greece’s borrowing costs. By early 2010, Greece risked defaulting on its public debt. 


Policy Responses with Limited Success 


EU, European Central Bank, and IMF officials agreed that an uncontrolled Greek default could trigger a major crisis. In May 2010, they announced a major financial assistance package for Greece, and the Greek government committed to far-reaching economic reforms. These measures prevented a default, but a year later, the economy was contracting sharply and again veered towards default. European leaders announced a second set of crisis response measures in July 2011. The new package calls for holders of Greek bonds to accept losses, as well as for more austerity and financial assistance.

These responses have prevented a disorderly Greek default, but the prospects for Greek recovery remain unclear. The economy is contracting more severely than expected, and, as a member of the Eurozone, Greece cannot depreciate its currency to spur export-led growth. Unemployment is close to 16%.

Additionally, the policy responses have not contained the crisis. Ireland and Portugal turned to the EU and IMF for financial assistance. In the summer of 2011, interest rates on Spanish and Italian bonds rose sharply. 


Broader Implications 


Greece’s economy is small, but its crisis exposes the problems of a common currency combined with national fiscal policies. Additionally, its crisis set precedents for responding to crises in other Eurozone countries; highlighted concerns about the health of the European financial sector; created new financial liabilities for other Eurozone countries struggling debt; and sparked reforms to EU economic governance. It has also revealed tensions among EU member states about the desirability of closer integration. 


Issues for Congress 

  • Impact on the U.S. economy: U.S. exports to the EU could be impacted if the crisis slows growth in the EU and causes the euro to depreciate against the dollar.
    Through the first quarter of 2011, growth in the Eurozone was strong, but it may be starting to weaken. There has not been a clear depreciation of the euro against the dollar since the start of the crisis. As the crisis continues, increased perceptions of risk are impacting U.S. financial markets. If the crisis spreads in the Eurozone, the impact on the U.S. economy could be much greater.
  • Exposure of U.S. banks: U.S. banks have little direct exposure to Greece ($7.3 billion), but other potential exposures (derivative contracts, guarantees, and credit commitments) to Greece are much higher ($34.1 billion). U.S. banks are more heavily exposed to Spain and Italy, with direct and other potential exposures totaling nearly $450 billion. 
  • IMF involvement: Some Members of Congress are concerned about IMF involvement in the Greek crisis. In 2010, Congress passed legislation aimed at limiting IMF support for advanced economies (P.L. 111-203). In 2011, legislation was introduced in the House and the Senate to rescind some U.S. contributions to the IMF (H.R. 2313; S.Amdt. 501). The Senate voted down this legislation in June 2011.

Date of Report: August
18, 2011
Number of Pages:
24
Order Number: R
41167
Price: $29.95

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Wednesday, August 24, 2011

The European Union: Foreign and Security Policy


Derek E. Mix
Analyst in European Affairs

The United States often looks to Europe as its partner of choice in addressing important global challenges. Given the extent of the transatlantic relationship, congressional foreign policy activities and interests frequently involve Europe. The relationship between the United States and the European Union (EU) has become increasingly significant in recent years, and it is likely to grow even more important. In this context, Members of Congress often have an interest in understanding the complexities of EU policy making, assessing the compatibility and effectiveness of U.S. and EU policy approaches, or exploring the long-term implications of changing transatlantic dynamics.


Date of Report: August 1
5, 2011
Number of Pages:
29
Order Number: R419
59
Price: $29.95

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Document available via e-mail as a pdf file or in paper form.
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.

Thursday, August 18, 2011

U.N. Convention on the Law of the Sea: Living Resources Provisions


Eugene H. Buck
Specialist in Natural Resources Policy

The United Nations Convention on the Law of the Sea (LOS Convention) was agreed to in 1982, but the United States never became a signatory nation. The Senate Committee on Foreign Relations reported the LOS Convention on December 19, 2007. The Senate may choose to address the ambiguities of the LOS Convention with its power to make declarations and statements as provided for in Article 310 of the LOS Convention. Such declarations and statements can be useful in promulgating U.S. policy and putting other nations on notice of U.S. interpretation of the LOS Convention.

In the 111
th Congress, Secretary of State Hillary Clinton, at her confirmation hearing before the Senate Committee on Foreign Affairs on January 13, 2009, acknowledged that U.S. accession to the LOS Convention would be an Obama Administration priority. Later in this confirmation hearing, Senator John Kerry, the committee chair, confirmed that the LOS Convention would also be a committee priority. However, the Senate took no action on the LOS Convention during the 111th Congress. In the 112th Congress, the Administration is continuing to encourage Senate action on the LOS Convention.

A possible benefit of U.S. ratification would be the international community’s anticipated positive response to such U.S. action. In addition, early U.S. participation in the development of policies and practices of the International Tribunal for the Law of the Sea, the Commission on the Limits of the Continental Shelf, and the International Seabed Authority could help to forestall future problems related to living marine resources. On the other hand, some U.S. interests view U.S. ratification as potentially complicating enforcement of domestic marine regulations, and remain concerned that the LOS Convention’s language concerning arbitrary refusal of access to surplus (unallocated) living resources might be a potential source of conflict (in addition to concerns about other provisions of the Convention). These uncertainties reflect the absence of any comprehensive assessment of the social and economic impacts of LOS implementation by the United States.

This report describes provisions of the LOS Convention relating to living marine resources and discusses how these provisions comport with current U.S. marine policy. As presently understood and interpreted, these provisions generally appear to reflect current U.S. policy with respect to living marine resource management, conservation, and exploitation. Based on these interpretations, they are generally not seen as imposing significant new U.S. obligations, commitments, or encumbrances, while providing several new privileges, primarily related to participation in commissions developing international ocean policy. No new domestic legislation appears to be required to implement the living resources provisions of the LOS Convention.



Date of Report: August 11, 2011
Number of Pages: 14
Order Number: RL32185
Price: $29.95

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Monday, August 15, 2011

The United Nations Convention on the Rights of the Child: Background and Policy Issues


Luisa Blanchfield
Specialist in International Relations

U.S. ratification of the United Nations (U.N.) Convention on the Rights of the Child (hereafter referred to as CRC or the Convention) may be a key area of focus during the 112th Congress, particularly if the Barack Obama Administration seeks the advice and consent of the Senate. CRC is an international treaty that aims to protect the rights of children worldwide. It defines a child as any human being under the age of 18, and calls on States Parties to take all appropriate measures to ensure that children’s rights are protected—including the right to a name and nationality; freedom of speech and thought; access to healthcare and education; and freedom from exploitation, torture, and abuse. CRC entered into force in September 1990, and has been ratified by 193 countries, making it the most widely ratified human rights treaty in the world. Two countries, the United States and Somalia, have not ratified CRC. The President has not transmitted CRC to the Senate for its advice and consent to ratification.

Despite widespread U.S. support for the overall objectives of the Convention, policymakers have raised concerns as to whether it is an effective mechanism for protecting children’s rights. The Clinton Administration signed the Convention in February 1995, but did not submit it to the Senate primarily because of strong opposition from several Members of Congress. The George W. Bush Administration opposed CRC and expressed serious political and legal concerns with the treaty, arguing that it conflicted with U.S. laws regarding privacy and family rights. The election of President Barack Obama in 2008 has focused renewed attention on the possibility of U.S. ratification. The Administration has stated that it supports the goals of the Convention and that any decision to pursue ratification of CRC will be determined through an interagency policy review. Perhaps more than other human rights treaties, CRC addresses areas that are usually considered to be primarily or exclusively under the jurisdiction of state or local governments, including education, juvenile justice, and access to healthcare. Some of these conflicting areas will likely need to be resolved by the executive branch and the Senate before the United States ratifies the Convention.

The question of U.S. ratification of CRC has generated contentious debate. Opponents argue that U.S. ratification would undermine U.S. sovereignty by giving the United Nations authority to determine the best interests of U.S. children. Some are also concerned that CRC could interfere in the private lives of families, particularly the rights of parents to educate and discipline their children. Moreover, some contend that CRC is an ineffective mechanism for protecting children’s rights. They emphasize that countries that are widely regarded as abusers of children’s rights, including China and Sudan, are party to the Convention. Supporters of U.S. ratification, on the other hand, hold that CRC’s intention is not to circumvent the role of parents but to protect children against government intrusion and abuse. Proponents emphasize what they view as CRC’s strong support for the role of parents and the family structure. Additionally, supporters hold that U.S. federal and state laws generally meet the requirements of CRC, and that U.S. ratification would strengthen the United States’ credibility when advocating children’s rights abroad.

This report provides an overview of CRC’s background and structure and examines evolving U.S. policy toward the Convention, including past and current Administration positions and congressional perspectives. It also highlights issues for the 112
th Congress, including the Convention’s possible impact on federal and state laws, U.S. sovereignty, parental rights, and U.S. family planning and abortion policy. In addition, the report addresses the effectiveness of CRC in protecting the rights of children internationally and its potential use as an instrument of U.S. foreign policy.


Date of Report: August 1, 2011
Number of Pages: 21
Order Number: R40484
Price: $29.95

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Document available via e-mail as a pdf file or in paper form.
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