Kebijakan Politik Luar Negeri Gordon Brown-UK dan Angel Merkel-Germany dalam menghadapi krisis finansial global: A comparative study
Global Financial Crisis yang dimulai sejak 2008 hingga memuncak Oktober 2008 membawa dampak cukup signifikan dalam perkembangan politik luar negeri. Pengambilan kebijakan luar negeri negara-negara di dunia saat itu sangat dipengaruhi oleh isu ekonomi yang mengemuka akibat krisis supreme mortgage di Amerika Serikat. Salah satu dampak yang cukup signifikan terlihat dari pengambilan kebijakan luar negeri di Jerman dan Inggris sebagai sekutu dan partner Amerika Serikat serta sebagai dua kekuatan utama Eropa dalam bidang perekonomian. Baik pemerintahan Inggris maupun Jerman berusaha mengeliminir akibat dari krisis finansial yang dapat membawa dampak negatif bagi perekonomian dalam negeri. Kedua negara ini pada awalnya mempunyai kebijakan yang berbeda mengenai bagaimana masing-masing negara akan menghadapi resesi ekonomi yang terjadi di negara mereka. Merkel dan Brown sebagai kepala pemerintahan juga memberikan pengaruh yang cukup besar dalam proses pengambilan keputusan tersebut. Namun, pasca London Summit pada bulan April 2009, pemerintah Inggris dan Jerman menyekapati sebuah kebijakan ekonomi global untuk menanggulangi dampak krisis finansial global ini.
Melalui paper ini, aspek-aspek yang menyebabkan perubahan kebijakan luar negeri kedua negara akan dibandingkan melalui perspektif neo-realis secara khusus melalui game theory. Pendekatan yang digunakan terutama merujuk kepada pendekatan ekonomi kedua negara dalam mengambil kebijakan.
Introduction
The outset of global financial commenced as equal as the rapid expansion of international finance raise as well as the raise of global information revolution (Allen, 1999). The expansion and globalization of financial markets that has caused rapid expansion and globalization of financial markets shadows most other recent developments in international economics. This hypothesis is defined by what caused it: developments in information-processing technologies; government deregulation; and the more global nature of all economic activity.
An understanding of these structural changes and new equilibrium provides necessary introduction subsequently, where it will be argued that the financial globalization processes have increased the risk of economic crises. It will also be argued that financial market globalization has been a driving force behind the large US trade deficits and other controversial new trade patterns. As a part of this global nature of economic activity, it is not all surprising that such global success (as one can argue) of economy can actually become a global disaster as what we have seen with the experience of Great Depression. The huge amount of various actors involve with very close financial link sees that the global economy has the possibility of actually failing if one of the links break and spread like a chain reaction.
The 2008 Global Financial Crisis proves this assumption with the failure from one economic actor and the spread towards many area and thus becoming a global disaster. Interestingly, the way that each actors, especially state, behave in the face of a crisis or disaster becomes a fascinating case to study. Comparative foreign policy analysis often chooses case study in which certain situation forces actors to behave differently as what they have previously. As a comparative research, this paper will look at the affects of the global financial crisis between United Kingdom and Germany, how they respond to this crisis, what policies have been put out, and most important, why, if there’s any, is there a change of policy between two countries.
- 1. Background
1.1Global Financial Crisis: What it Means and To What Extent[GER1]
The global financial crisis started in the United States, most believed. The condition begin where the export surplus by China and the oil-exporting Arab countries invested in western financial institutions, particularly in the United States. This provided the countries of the West with limitless credit, enabling them to keep interest rates exceptionally low. This gives the opportunity for the public to borrow above their capacity, especially since the banks in US enabled subprime mortgage. When the US Federal Reserve increased interest rate due to sharply rising costs of living, including that of oil (caused in part by the wars in Iraq and Afghanistan), millions of borrowers could not pay their mortgages. The banks which had lent money to them could not recover their assets. The situation had reached a point where the economy was operating on the basis of lending. The consumers purchased goods and services by borrowing money from financial institutions (banks) even without much reference to their earning capacity. When the lending was no longer available, the capacity of consumers to buy goods and services produced in the economy was reduced sharply. The crisis affected not only the banking sector, but the economy as a whole. Factories producing such goods (e.g. cars), and businesses buying and selling those goods, were unable to trade. Unemployment began to rise, further reducing the demand for goods and services, thereby accelerating economic decline. This scenario was not confined to the United States. It spread around the world. In fact, the same process was at work in other countries, particularly in the West (Fazal, 2009).
Western Europe proved especially vulnerable to the 2008 global financial crisis. This is due to the fact that finance and real estate typically make up between a fifth and a third of GDP of Western European economies (Eghbal, 2009). The sector employed an average 12.8% of the employed population in Western Europe in 2007. Thus, financial losses and layoffs had a considerable impact on the region’s economy. Due to the crisis in the financial sector, consumers and businesses are having difficulties obtaining credit and so demand and investments are softening. In countries with falling housing markets, such as the UK, Spain and Ireland, difficulties in obtaining credit reinforce the downward trend of housing prices. The damage to the real economy was almost immediate. The region’s major economies, Germany, UK, Italy, and Spain contracted in the third quarter of 2008, with France growing by a mere quarterly 0.1%. Most major economies in the region entered recession in 2008-2009 (Eghbal, 2009).
1.2Crisis Effect on Germany and England
As mentioned above, the crisis hit very badly in Western Europe. Two major economy in Europe, United Kingdom and Germany, are among the worst hit by the crisis. [GER2] Historically, these two countries have had their share in economic crisis. Frankel (1989) has shown that domestic versus international own-currency interest rate differentials for Germany collapsed in 1974 when most capital inflow restrictions were removed. Also, Artis and Taylor (1989) have shown that this differential tended toward zero in the United Kingdom after inward and outward capital controls were removed in October 1979 (Allen, 1999). So how did the global financial crisis affected United Kingdom and Germany?
- United Kingdom
UK is expected to be among the worst hit by the crisis, mainly due to its bursting housing bubble, high household debt, a large government budget deficit and overdependence on the troubled financial sector. The UK’s problems have been exacerbated in Q4 (fourth quarter) 2008 by the depreciation of the Sterling. The currency depreciation increases the price of imports, thus burdening consumers and businesses who are already suffering because of the recession. The UK economy is expected to shrink by -1.3% in 2009.
- Germany
The German economy is heavily dependent on its exports, and these would clearly suffer if world economic activity declined. Furthermore, as we have seen, the fallout from the US credit crunch can affect the balance sheets of German banks. Germany’s economy, while in ‘technical recession’ after shrinking -0.4% in Q2 (second quarter) 2008 and -0.5% in Q3 (third quarter) 2008, remained less troubled by the mortgage crisis and consumer confidence is higher than in other economies. Yet Germany’s dependence on exports puts it in a weak position and its economy is expected to contract by -0.8% in 2009
- 2. Problematique
2.1Initial Policy of Britain and Germany
After the economic collapsed since the global financial crisis, both states, United Kingdom and Germany which effected worst, tend to isolate their policy in order to recover the domestic [GER3] [GER4] economic. This initial policy could be examined by the first phase after the financial crisis. The first phase has been intervention to contain the contagion and strengthen financial sectors in countries (Nanto, 2009). Both of states, on the macroeconomic level made the policy action include lowering interest rates and expanding money supply. On the micro level, the action to resolve the crisis were guaranteeing the banks deposits, infection of capital, and restructuring debt. Passing the “panic” phase, the second phase of the crisis is less uncommon except that the severity of the macroeconomic downturn confronting countries around the world is the worst since the Great Depression of the 1930s. (Nanto, 2009). The real economic sectors started the negative phase and force the countries to resolve the pulled down capital stock market and the failure of export and commodity prices. The governments’ role in the economy and financial part of the countries continued to be more specific and returned to the traditional policy in order to avoid the declining of tax revenue and rising unemployment. The third and forth phase of the crisis examine the progress of the global economic fluctuation after the G20 London Summit which would be explain later. The third phase of the crisis, was tend to make changes in the financial system in order to reduce risk and prevent future crises, and the forth is dealing with political, social, and security effect of the financial turmoil.
Examining the initial policy from both government, there was similarity that both governments have responded to this financial market and real economy crisis with fresh money and propositions for new rules both nationally and globally. (Schirm, 2009). There were three major ways to face and resolve the crisis at first. The first one were rescuing the trouble financial institution (such as Northern Rock in UK and Hypo Real Estate in Germany) with high injection and being guaranteed by the government. The second, government gave high stimulus to resolve the real economy problem with the stimulus program reach 1,5% in UK and 3,4% in Germany of GDP. The last one, government of each state engaged in multilateral consultation to make a new deal in order to avoid and prevent the future global financial crisis, as we know that both states are joining the G-7 and G-20 which regularly held summit and other meeting to finish the problem[GER5] .
At the beginning, Germany who strongly recommended for the strict financial regulation criticizes the “Anglo-American” economic model. Knowing this fact, it is needed to make a “new order” which is hoped to avoid the crisis in the future. Besides, Germany together with France who tend to have industrial economic system tried to make a new formal regulation which could concern about the financial system [GER6] as a whole. In Great Britain, at first, just did the same as Germany administration in order to resolve the domestic problem. But, if Germany tried to make new rules to border the market fluctuation, and since Brown avoided making UK as an isolationist state, UK considered that the regulation and coordination of economic sector would decrease the market efficiency. Also, UK which is usually based on the US-centris in making the policy, saw the open market would give more benefit and would responsible more to face the crisis rather than the regulation which made by Germany.
2.2[GER7] The Result of London Summit
As the main turning point of the changing policy of United Kingdom and Germany, it is important to have an understanding of what is actually happening in the London Summit. The London Summit is a G20 meeting which occurred in April of 2009 as a part of the third phase of the financial crisis. As mentioned at the previous section, the second phase of the crisis sees that Germany and United Kingdom are heading different ways in terms of the policy they use to improve their economy. Germany, along with France and other western european countries, chose to regulate the market (China View, 2009). This policy lies by the belief that crisis originated in USA happens because of the lack of regulation by the US government. On the other hand, United Kingdom chose the path which US led. UK proposes the policy of stimulus by cutting taxes to increase the consumption of the public, which is to restore confidence and invigirate growth (China View, 2009). UK and US believes that the way to revive the economy is by boosting the consuming capability of the public and market. The problem raised in this paper is the changing policy of UK and Germany between the second phase and the third phase marked by the result of the London Summit. Below is the summary of key points from the G20 commitment at London Summit (BBC News, 2009) :
Financial Regulation
Tax Havens
IMF
Global Trade
Protectionism
Fiscal Stimulus
|
With all these points stated in the communique of the London Summit, the main point in this concensus is that a large part of deal agreed by the world leaders is destined to the International Monetary Fund (IMF). However, this money is does not function for this leaders to direct use for the recession but it is to become loans which will be used to offer more loans. The big IMF member countries are offering to lend money to the IMF. The IMF will then have more resources available to help countries if they are hit by the crisis. The commitment for IMF include: 1) $500 billion for the IMF to lend to struggling economies. 2) $250 billion to boost world trade. 3) $250 billion for a new IMF “overdraft facility” countries can draw on 4) $100 billion that international development banks can lend to poorest countries. 5) IMF will raise $6 billion from selling gold reserves to increase lending for the poorest countries (Walker, 2009).
With this deal, ultimately question the intentions of the members of G20 and also how this will affect the function of IMF itself. One of the headline in the news even mentioned that would this deal be an attempt to create a new world economic order? Be that as it may, with this deal, IMF will play a bigger in the global economy. IMF will have bigger power such as the power to regulate foreign exchange rates. However, what is most disturbing in this turn of events is the change of policy between UK and Germany. The very fact that these two country opposed each other in their understanding of economy and their policy (both of which were more concerned on the domestic recovery of crisis), is very much surprising for many. At one point, before the summit is held, Angela Merkel along with Nicholas Sarkozy wanted to boycott the Summit (Chrissafis, 2009). [GER8] Knowing this it is a very problematique phenomenon when in the end, UK , Germany, and the other G-20 contries agreed to a global concensus at the London Summit.
The Change of Policy: UK and Germany
One of the ways to analyze the foreign policy of a state is to look at the changes of such policy. Changes can happen from the source of policy, the process of policy making or even the implementation of policy making (Dugis, 2008). Foreign policy analysis sees that these changes can be thoroughly seen by comparing the policy of one state as opposed to another state. United Kingdom and Germany, as the two major power in Europe, as mentioned previously, has also been affected by the crisis. Each government have put out policies in regard to containing the crisis and even to heal the domestic economy. When UK and Germany show a shift in their policy making, this become the basis of this research. Why did UK and Germany, which had very opposing policy previously, concluded to a consensus in the London Summit and agreed to the same policy?
- 3. Research Methodology
3.1Level of Analysis
3.1.1 Individual
3.1.1.1 Gordon Brown
James Gordon Brown born on February 20th, 1951 in Scotland. As the son of a Church of Scotland minister, Brown has many talked about what he called a moral compass. He becomes The Prime Minister of the United Kingdom on June 2007 and the Leader of the Labor Party. In 1983 he gained a reputation as a serious politician with a powerful intellect and a passion for detail. In education world, he had been known as the rector of Edinburg University and in 1976 worked as a lecturer in politics at Glasgow College Technology. This is simply saying that he is acknowledgeable on technology matters. He has been experienced also as the chief secretary to the Treasury. Once he ever became as the trade and industry spokesman.
Due to Kirkaldy, Scotland where Brown once grew up, it makes Brown aware about the poverty and unemployment and it is hugely affect Gordon political beliefs (Pettinger, 2007). Kirkady was formerly known to have a long history of mining and heavy industry but as the young Gordon was growing up these industries were closing down, it had created a massive unemployment. And this perhaps had urged Gordon to join a Labor party. Graduated in University of Edinburg, he was the television journalist and has been a Member of Parliament since 1983. Perhaps ironically, Gordon Brown took a great interest in the early founders of the Labor party and their ideology. He wrote a book about James Maxton, one of the early founders of the Labor Party. His book “Values, visions and Voices” was an in depth look at the Socialist ideology of the first Labor MPs. In 1997, New Labor won a landslide victory creating a real sense of optimism and sense of change. Tony Blair, the charismatic figurehead, captured the imagination of the public and became the symbol of what New Labor stood for. Gordon Brown, on the other hand, took more of a background role. However, as chancellor of the exchequer he wielded tremendous influence over the economy of the UK.
On the problem of the global financial crisis, Mr Brown said the reality was that without working at an international level the recovery would be much slower (Crichton, 2009). The British prime minister is nothing if not ambitious and fervently believes great things can be achieved at the G20 summit in London. The prime minister is a long-standing enthusiast for beefed-up international regulation – a cause he promoted after the Asian financial crash – and global institutions. Completing the Doha world trade round is “an obsession” according to aides. In London Summit, Mr Brown has talked about the need for “a new Bretton Woods” and perhaps sees himself as a latter day John Maynard Keynes, the great British economist who helped to create the new post-war economic order.
Mr Brown has thrown himself into summit preparations with almost missionary zeal, last week taking his message on a 17,000 mile trip to the European parliament in Strasbourg, business leaders in New York, and to Sao Paulo and Santiago in South America.
Politically weakened at home and facing a general election by June 2010, he wants the British electorate to see him as he is sometimes perceived abroad. There are seceral international parameters restricts Brown’s ambition to be a hero in the summit of London and Washington.
Just before the London summit is held, Brown was travelling a lot between UK and US to invite US join the summit meeting. Facing the economic crisis by himself, he seems to be little bit frustrated because not everyone sees the urgent of G20 summit as he is seriously. During the meeting, Mr Brown will also have to contain tensions between western leaders and those from the developing world, who feel their views in the economic crisis have often been overlooked (ignored). President Lula of Brazil told Mr Brown: “This is a crisis that was caused by white people with blue eyes.” (ft.com, 2009).
But the prime minister knows the political risks if the summit is deemed a failure. Images of violent anti-capitalism demonstrations across the City while politicians frame empty communiqués behind the barbed wire would be a presentational disaster. Mr Brown may want to save the world, but he also wants to save his own job, as George Parker Says (http://www.ft.com/cms/s/0/2bf18b92-1ade-11de-8aa3-0000779fd2ac.html, 2009)
3.1.1.2 Angela Merkel
On the contrary, Angela Merkel has won German’s highest position as a chancellor in 2005 and subsequently reelected. Her political party is largely shaped by Christian Democratic Union in which she begins her career as politician (BBC, 2009). Her political views are dominantly realistic. For example, Mrs. Merkel was outlining her new coalition government’s policies in a speech to parliament. She said her focus was on stimulating growth in Europe’s biggest economy, but added that “the problems will get bigger before things can get better (BBC News, 2009). She’s delivering courage in possibility for Germany that German jobless figures will rise despite her new government’s focus on tackling the financial downturn.
The German Chancellor’s personal popularity is said to comfortably exceed that of her party. Supporters wave posters that say simply “Angie.” This year Angela Merkel came top in Forbes list of the 100 most powerful women in the world for the fourth year running (Egan and Schoenberger, 2009). But she has a reputation for being uncharismatic, boring and dowdy to the point of frumpiness. However, discussion by Labor MP Gisela Stuart and journalist Anne McElvoy in BBC Radio for women, stated that in fact what many ordinary people called Angela as a boring personality, she implied that Angela has a strong character and suited with a growing statue as a chancellor (BBC Radio, 2009). She has very different style while making herself more appealing in front of public. She’s known as a conventional politician. Therefore, some critics directed to Angela say she’s really boring is quite different with the way she manages herself in front of public.
She’s very obvious to put a head of her country. The fact that she came from and her birth is on East Germany, she had been educated well in West Germany and travelled either for physical science purpose or politic between East and West Germany. Therefore, Labour MP, Gisela Stuart stated that it didn’t play a huge matter on Angela political thought based on wherever she was originally came from (BBC Hall of Fame, 2009). Some other politician say that Angela is capable to make herself in the right may and the right place. According to majority of Germans assume her as the mother of national.
As Tony Barber says in Financial Times (http://www.ft.com/cms/s/0/fff92242-a7d8-11de-b0ee-00144feabdc0.html, 2009) the affect of her political background to her visions individually leads her to second term of German Chancellor. Social Democrats or, as she prefers, form a government with the liberal Free Democrats. The identity of the CDU’s coalition partner is important for economic policy, because the Free Democrats stand for tax reform and extended use of nuclear power in a way that distinguishes them from the SPD. On the other hand, a Merkel-led government of whatever complexion will redouble Germany’s commitment to fiscal discipline. It will also aim to strengthen the overleveraged banking system and to restore the nation’s traditional model of export-led economic growth .
3.1.2 State
Second level analysis is a state level analysis which focusses on internal factors. to the state as those that compel states to engage in certain foreign policy behaviors. Such analysis include the relationships between the executive and legislative branches of government; the organization of the government bureaucracy; whether a state is democracy; domestic consitutuencies (such as interest groups, ethnic groups or public opinion more generally); economic conditions, and also the state’s national history and culture. At this level of analysis, the emphasis is on how factors internal of the state influence the behavior of that state on the global stage. From a decision making perspective, these factors are often characterized as constraints that determine the parameters of the possible for the leaders. Of course the relationship between leaders and the domestic encironment is much more complicated than this simple characterization suggests (Breuning, 2005)
3.1.2.1 United Kingdom
As we know before US placed as the hegemonic state, UK was one of the most influence states in the world during the colonialism era. Since there were many territory was owned by UK, the language, culture, and political system could influence in every territory in the world. During that era, the foreign policy of UK was to enlarge the territory in order to improve their industry. It was because the Industrial Revolution just came up. After the America’s independence, their role as hegemon of the global world started to end. But, the influence of UK still remained. Since most of the people in the new world, United States came from the Britain, and also the next hegemon would be this states.
UK’s global posture and priorities in the global society are to stay close to the US; cautious linkage with Europe; rhetorical homage to multilateral institutions; a wariness towards Russia; ambivalence about Afghanistan; a polite increase in economic pressure on Iran; and general encomiums about development, democracy and human rights, and free trade. (Inboden, 2009). By this, we could examine since the Second World War, UK always stayed by the US side. Another things from the foreign policy making of UK is not always based on the party which dominante the House. That is why the direction of the policy tend to be the same.
In facing the global financial crisis, again, UK’ foreign policy is in line with US. The British economy shrank 0.4% in the third quarter, surprising forecasters and dashing hopes the country would follow France and Germany out of recession. The disappointing figure leaves Britain in the grip of the worst downturn since official records began in 1955. The British economy shrank 0.4% in the third quarter which leaves Britain in the grip of the worst downturn since official records began in 1955 and piles pressure on Prime Minister Gordon Brown’s government ahead of next year’s general election. Britain was hit particularly hard by the global credit crunch because of its huge financial sector, where the government was forced to carry out a multibillion pound bailout of major banks, and higher levels of personal debt among consumers. Like the U.S., it also faces a collapsed real estate bubble. Like many other forecasters, Capital Economics believes that Britain will struggle to reach growth in gross domestic product, which measures the total amount of goods and services produced by a country, of 1% next year (Wardell, 2009).
3.1.2.2 Germany
In the age of globalization, foreign policy is, more than ever before, the world’s domestic policy. States, societies and economic zones are all becoming networked. The end of the East-West conflict has opened up new opportunities for German foreign policy–both within Europe and worldwide. Germany has accepted the international responsibility that has evolved for the country in the wake of dramatic changes with regard to world politics, and, together with its European and transatlantic partners, is deeply committed to the causes of democracy, human rights and the dialog between cultures. The prime objective of Germany’s foreign policy is to maintain peace and safety in the world (Facts about Germany, 2009). One of the key features of Germany’s political culture has always been its focus on maintaining a broad consensus on foreign policy issues and on maintaining continuity in specific areas.
German foreign policy takes into account the far greater international responsibility which Germany now has at the request of the world community: In this context Germany is pushing for a comprehensive reform of the UN’s organizational structures, including a wish for a permanent seat in the Security Council.
By means of common policy, Germany has forged firm links to partners who are its neighbors and with Europe it has both once again achieved unification and also gained respect and a voice in the world. For the Germans, the peaceful balancing of interests with its neighbors and the world has thus become the recipe for success in European integration, the importance of which was re-emphasized by the German Presidency of the Council of the European Union in first-half 2007. Federal Chancellor Merkel and Foreign Minister Steinmeier skillfully used Germany’s respect and trust in Europe to solve the institutional crisis. The strength of German foreign policy has laid in ensuring Franco-German relations were firmly aligned to EU policy, on the one hand, and the close ties specifically to the smaller member states, on the other. Repeatedly, numerous hurdles to decisions have been overcome and key stages in the history of the EU have been successfully tackled as a result of Germany’s efforts and its willingness to compromise.
3.2Scope of Research
This research will analyze the events between the time frame of the second phase of the crisis on 23 October 2008 until the third phase on 2 April 2009.
- 4. Theoritical Framework
4.1Economy as the main power of state
Post World War II trade system originated from the conflict between US and UK in the Bretton Woods conference in 1944. US wanted a free market and opening the foreign market as soon as possible. UK also committed to free market, however UK gave more attention to the dollar shortage. In 1948, US established General Agreement on Tarriffs and Trade (GATT) to introduce freer and fairer trade. The most important change, of course, has been the end of Cold War. The Cold War and its alliances structure provided the framework within which the world economy functioned. With the end of Cold War, US leadership and the close economic cooperation among the capitalist powers grew larger. Simultaneously, the market oriented world grew even more as formerly communist and Third World countries became more willing to participate in the market system, shown by the increasing number of less developed countries becoming member of the World Trade Organization (Gilpin, 2001).
This description gives a perspective of how deeply involved states are in the market.[GER9] This means that economy plays an important role in the livelyhood of state. Hegemonic capability theory sees that a hegemon’s capability rests upon the likes of a large, growing economy, dominance in a leading technological or economic sector, and political power backed up by projective military power. Economy becomes one of the main power of state in should be thoroughly considered as one of the main variable that affect the foreign policy of states especially regarding the eagerness of states to the dominant state in their region. UK and Germany, being the two major economy in Europe, certainly understands the importance of economy as their bargaining power in the international system. With this theoritical framework, an analysis of the relation between the economy of Germany and UK and the policy making will see to the arrangements of politics and economy especially as the main driving force for a foreign policy to be made, considered or implemented.
4.2Crisis situation factor in the foreign policy decision maker (Valerie Hudson)
In the individual level of decision maker, Hudson (2007) explained eight hypotheses to examine the leader characteristic. One of the hypotheses is about the crisis situation. During this condition, psychology of an individual decision maker could be examined by how he or she reacts to resolve the situation. Since, the leader matters the most in decision making process, how a leader handled a crisis situation is always becoming important factor. If the crisis is so extreme that that the country’s survival is stake, a leader may try to keep his or her psychological predispositions in check in order to avoid making unnecessary mistakes. (Hudson, 2007)
This paper would like to examine how both of Merkel and Brown’s decision making to face the global financial crisis during their administrations. Based on the facts and administration program from each personal, the similarities and the differences of each could be understood. Since the global financial crisis happened to be one of the crisis situation during their administration, the paper would analyze how Merkel and how Brown resolve and recover their states’ economic situation.
4.3State’s rationality in determining its foreign policy
The assumption of state rationality has a long history in the study of international relation. One of the main arguments of realism and neo-realism theories (as the mainstream theory in international relations) is the belief that state act rationality in their interaction in the anarchial world system. Game theory, as one of the product of neo-realism, tries to give logic to this thought by defining this rationality into a more concrete manner and by showing the predictability of this rationality.
Game theory is a decision-making approach based on the assumption of actor rationality in a situation of competition. Each actor (in this case Germany and United Kingdom) tries to maximize gains or minimize losses under conditions of uncertainty and incomplete information, which requires each actor to rank order preferences, estimate probabilities, and try to discern what the other actor is going to do In a two-person zero-sum game, what one actor wins the other lose. In a two-person non-zero or variable sum game, gains and losses are not necessarily equal; it is possible that both sides may gain. This is sometimes referred to as a positive-sum game. In some games, both parties can lose, and by different amounts or to a different degree (Viotti, P. dan M. Kauppi, 1987).
Game theory has contributed to the development of models of deterrence and arms race spirals, but it is also the basis for work concerning the question of how collaboration among competitive states in an anarchic world can be achieved. With this model of rationality, it will become the basis of answering the problem of the change of policy by UK and Germany. The central problem is that the rational decision for UK and Germany may to taking a chance on collaboration with another state actor as opposed be to defect and go it alone (Viotti, P. dan M. Kauppi, 1987).
- 5. Problem Analysis
Before we begin to analyze the problem, we need to give clear difference of the initial policy between Germany and UK. This is important because we need to see a clear shift of policy for the purpose of a thorough foreign policy analysis. Previous section have started the differences of the initial policy between Germany and UK. However, in this part, we will try to conceptualize the differences of these policies.
Firstly, at the second phase of the crisis, UK decided to follow US’s path through stimulus by cutting taxes to increase comsumption. This sort of policy is what we call as a short-term policy. How so? Because it has a short term goal which is to boost the market initial. On the other hand, Germany followed the path of France to regulate the market and impose tighter rules. This kind of policy is seen as a long-term policy. It is because this policy works at a mone higher goal; to create a safer market. These different approaches by UK and Germany sees that they have different goals in mind. However, it needs to be underlined that these goals (from UK and Germany) are strictly domestic and region based approaches.
After we have clarified the initial difference, the section below gives analysis of problem based on the three theories describe of the theoritical describe at the theoritical framework.
5.1 Economic Factor: Liberalism System and Dominancy
Basically economy is one of the the most powerful yet crucial instrument for a state for a mean of success in this global world. As in Europe, British and Germany can be taken into account in representing the growth and advance of most developed country.
British has developed into the center of education, lifestyle, and fashion as well as Germany is broadly known as the center of technology and innovation. This progression never went far from the the economic history experienced by one another. British and German Economy have had a very long history from old imperialism and colonialism, 1933 great depression until a current 2008 financial global crisis. Thus has enabled British and Germany attain a firm economic growth. They confidently embrace a neoliberalism as their fundamental economic platform.
The fact that has brought about a 2008 financial crisis was one of the clash economic system between what British-US and Germany-France has brought up about. Previously their objective was economic within their border of European region. However, the fact that what global financial has caused and swept almost the significant world economic in the entire world had made them more aware that an opportunity to secure their economic system is to handle the impact of global financial crisis further than their region, so it won’t continously hit their economy and their economic system.
In doing so, their contribution is taken place within the London Summit meeting and Washington summit particularly disscussing regarding IMF matter. As one of the hegemon in Europe, they see no need to overlook within their region. This literally means that their economic region will only be secured whenever outter world is being taken into account. IMF as one on the international finance organization becomes a perfect tool to ensure the continuance of the free market system we are seeing right now.
They must secure their economical foundation by letting it ‘spread’ to other states. The key point is to allow another country see the benefit of neoliberalism as they do. Their primarily national interest have shifted which is for their economic system to not be seriously challenged by the presence of other economic paradigm such what has already emerged such as the presence of Chinese economic isolationism which is increasing stronger and firmer. The lure of this other paradigm to developing countries might caused a further crash on the current trade and finance neoliberalist system. To prevent the decrease of their dominancy in the international trade and finance, it is important for Germany and UK to ensure to existence of the very system that become the basis of their economy.
5.2Decision Making Brown and Merkel: Influence of Perception of Strength and Weakness
In crisis situation theory (Hudson, 2007) how a leader’s psychological aspect should be able to avoid making unnecessary mistake. This part of paper would analyze how both, Brown and Merkel individual traits and the policy which they made in order to bring their state to resolve the crisis. Both of them have different background and point of view during their administration. With their differences, we could also examine some similarities between them.
Brown, who came from the Labor Party, also continued from the preview prime minister, Tony Blair. From this background of politics, we could conclude that Brown tends to continue the US-centrism in decision making policy. This tendency also supported by the democratic ideology which brought by Brown’s party. It is because during the administration, most leader of the democratic party would focus better in international affairs. Then the domestic issue usually would not get very special attention. This could be seen from the role of two last leaders of UK, Tony Blair and Gordon Brown. Both of them tend to have the same characteristic with the US president from Democrat Party, such as Bill Clinton and Barrack Obama, which is both of them also, have good track in international relation and a conducive foreign policy. It is different from the era of Bush (senior and junior one) who tend to have a well-built in domestic policy than foreign one.
Also during the fight of global financial crisis, the decision making by Brown more less was influenced by the decision making in US. At the same time, the foreign policy which made by US’ administration was to give stimulus to the financial aspect and cut down the tax in order to increase the people’s economic capability to move the economic wheel as the framework. Economically, this action was based on a short term interest only. It could be because Brown’s economic focus is boosting the growth of the economy.
On the contrary, Angela Merkel who came from realist perspective gave more long term solution. Together with France, Merkel’s economic work is focusing on the macro economic development. Besides, during her second campaign to get her second chance to be Germany Prime Minister, her solution and focus economic was tackling the financial downturn. Especially, in this new coalition era during her second administration, she was on the track to stimulate the growth in Europe’s biggest economy.
Both of them might have a different background and different policy especially foreign policy, but at the end of phase two or after the London Summit both of the highest decision maker of UK and Germany started to join the agreement to make the regulation and new deal in global economic by IMF as a regulator and stabilizator .
5.3Rational Choice: Between Domestic Recovery and International Hegemony
Previously in London Summit and Washington Summit meeting; British and Germany both have different perspectives in managing global financial crisis. As before London summit meeting, British has come up with its short term in solving its financial crisis. Meanwhile Germany has presented its importance acquaintance and its role in Europe by bringing up the long term economic plan. Though their objectives are slightly clear, their thought basically rested on domestic competition because in which each of state tends to solve their own economic problem independently to secure their economic system.
British and US both arrange their short term economic plan by giving an economic stimulus and cutting taxes. While Germany chooses to arrange its long term economic plan onto set of regulations to prevent this crisis occurred in the future.
Separately from London summit, The Washington Summit meeting has come up with a new arrangement where British and Germany have agreed to provide an economic stimulus package embedded with expectations that global financial crisis will be managed well and fully by monetary interantional organization namely IMF. Some expertise called either in optimistic and pessimistic way towards this shifting agreement. However, the shifting is no of concideration if it is occupied with rational economic excuses.
Certainly, this decision is taken without no excuses. Several countries that has develop into British and Germany big concern. Those countries are Argentina, Mexico, and Iceland which currently fall into crisis. As IMF will supposedly operate as an economic referee, a further economic plan within IMF proposal is to provide an economic aid for them, so those three countries won’t exercise foreign policy of isolationism as China does. German and British put the same concern regarding this matter, if those countries were not given an accessible economic funding and turned to isolationism, it would threat their neoliberalism.
Additionally, within a frame of British and Germany national interest which particularly then is conducted into their basic initial asumption to foreign policy making; both concidered the third world as the primary consumer of Germany export oriented. Therefore, Germany has encouraged other European industrial countries to make a similar agreement allowing third world out off global financial crisis larger impact as soon as possible. This germany effort has been interpreted into economic stimulus for IMF (International Monetary Fund) to make realized.
- Conclusion
In the study of international relations, foreign policy is approached in many different ways. For states, as the main actor in international relations, it is crucial for them to define and construct what the states’ foreign policy will be. This is inherent with the fact that foreign policy is the manifest of states’ national interest at the world politics. World politics itself, is ever changing due to the dynamics of the interaction in the international system. Therefore, to analyze the foreign policy of one state, it is important to look at the changes of the variable itself. These changes may occur in the form of the issues, the regime, the policy makers, the support, etc. In comparative foreign policy, one of the ways to analyze the foreign policy is by looking at these changes by comparing or contrasting them. Therefore, for this comparative foreign policy paper, it has been compared between the policies of Germany and Britain during the global financial crisis.
After we have spread out the problem and analyze the problem, we have come to a conclusion. On the problem of the changing policy of Germany and United Kingdom during the global financial crisis is basically due to the fact that both countries wanted to take the problem solving from region level into problem solving at the international level. The different opinions between Germany and United Kingdom were accomodated through the global deal at the London Summit. Germany, who wanted tighter regulations, achieved this goal by giving IMF a bigger role in international finance to regulate the comings and goings of money flow between states. United Kingdom, who wanted to boost the growth and consumption, achieved its goal by giving IMF more money to lend to developing countries, which in turn will boost confidence thus boosting the consumption.
Importantly noted here is the role of both Germany and United Kingdom leaders and especially, the foundations of the free trade system. Firstly, with both leaders, Merkel and Brown, having direct focus and the issues of economy, Germany and United Kingdom have been very present on the making and implementation of policy at the international level. Secondly, the foundations of free trade system is important for Germany and United Kingdom to keep strong. The economic dominance of Germany and United Kingdom relies heavily on the sustainance of the system. The weighing of rational choices in the face of economic prosperity become the main factor in the change of policy between United Kingdom and Germany.
In conclusion, the change of policy in United Kingdom and Germany is highly driven by economic needs, leadership, and rationalization of choices and problems. This becomes the basis of change of foreign policy from a regional based policy into an international level policy making.
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[GER1]
GFC PARTICULAR CAUSES
- EXPORT SURPLUS BY CHINA
- OIL-EXPORTING ARAB COUNTRIES INVESTEDIN WESTERN FINANCIAL INSTITUTION, MOSTLY IN US
- THIS PROVIDES WEST COUNTRIES WITH LIMITLESS CREDIT
- THE INTEREST RATES ARE KEPT LOW
- PUBLIC BENEFITS FROM THIS CONDITION BY BORROW MONEY ABOVE THEIR CAPACITY
- LIVING CAUSED, ARE HIGH
- US FED
[GER2]It seems to make sense for it becomes the background reason why we decide to analyze Germany and UK
Does it then valuable to be called PROTECTIONISM?
[GER5]SIMILARITIES SHARED BY BOTH WAS
- BOTH ARE WORSTLY HIT BY CRISIS
- A NEW DEAL (BOTH ENGAGED IN MULTILATERAL MEETING EITHER TO AVOID AND PREVENT THE FUTURE CRISIS)
- STIMULUS PACKAGE
GERMANY AND FRANCE
ATTEMPT TO MAKE A NEW FORMAL REGULATION
BRITISH ARGUES THAT THE REGULATION AND COORDINATION OF ECONOMIC SECTOR WOULD DECREASE THE MARKET EFFICIENCY
I THINK IT’S A GOOD POINT WHERE THE GIANT COUNTRIES HAVE DIFFERENCES
COULD THIS MEAN THAT GERMANY AND FRANCE STILL OPPOSE THE SUMMIT RESULT?
WHICH THEN LEAD TO THE G20 SUMMIT MEETING IN THE PITTSBURG
THE NEO-REALIST PERSPECTIVES
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