In this paper, we take a closer look at the so-called “saving glut” and the role of the OPEC countries and China therein. For this purpose, we illustrate the mechanism by which higher oil prices might lead to lower interest rates if we take into account the global external savings equilibrium. This has interesting implications for how one views the huge US current account deficit and how the emergence of China's savings surplus and oil supply shocks impact the global economy. Moreover, we argue that the lower real interest rates resulting from excess OPEC savings have facilitated the adjustment to the subprime crisis. Finally, international liquidity spill-over effects may occur regardless of the exchange rate system. Hence, the need for more international policy coordination might arise.
In general, the savings glut in the emerging world was in large part a result of policies that emerging market economies put in place when the global economy started to recover from the 2000-01 recession. Since it was spurred by monetary and fiscal stimulus in the US, some call it the liquidity glut. The rise in the international supply of savings from emerging market economies combined with a fall in investment in OECD countries pushed real interest rates to record lows. The deflation scare that emerged from the combination of the bursting of the stock market bubble, the shocks that ensued from the corporate scandals and geopolitical events, combined with the entering of China and India into the world trading system, provoked in response a policy of aggressive lowering of nominal and real interest rates. An initial saving glut thus became a liquidity glut.
The governments of the oil-exporting economies opted to save most oil windfall—at least initially. Those policies intersected with distorted incentives in the US and European financial sector—the incentives that made private banks and shadow banks willing to take on the risk of lending to ever-more indebted households laid the foundation for trouble. In order to assess the impact of global liquidity on the emergence of the subprime crisis, we investigate the interactions between money and goods and asset prices at the global level. Using aggregated data for major OECD countries, our VAR results support a significant impact of the liquidity glut on asset prices such as house prices and, thus, on the trouble starting from the US housing sector.

JEL-codes : E31, E52, F32, F41

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The severe recession in the EU economy after the September 2008 Lehman shock was caused by vulnerability in the EU financial systems. Why did the problems in the US mortgage market explode throughout Europe? Were there any deficiencies in the EU financial regulatory and supervisory system? These problems should be solved within the framework of the EU integration studies.
To tackle these problems, sections I and II of this paper consider these issues by focusing on problems the EU financial institutions faced prior to the financial crisis. The present regime of EU financial institutions was established through (1) domestic consolidation during the 1992 Internal Market period, (2) cross-border consolidation during the 1999 Monetary Integration period and (3) the one way entry into emerging markets through EU enlargements in 2004 and 2007. This paper focuses on how the financial institutions reacted to the new environment of historically low profitability in the first half of the 2000s, and divides the banks into two groups according to their business strategy for higher profitability: (1) Some banks attached greater importance to the so called “trading book” business, which is associated with the “Shadow Banking System” in the US. (2) Other banking groups expanded their branch network, i.e. “banking book”, throughout the new EU member states.
Sections III and IV describe the global financial crisis by distinguishing between its two phases. PhaseIwas the “trading book crisis” period when risks that had accumulated during the worldwide “excess liquidity” environment gradually materialized after 2006 and finally exploded in September 2008. In the current post-Lehman shock Phase II, the EU economy faces a traditional “banking book crisis” due to the accumulation of non-performing loans.
The issues concerning the EU financial regulation and supervision are reviewed in section V. The present crisis can be described as the first truly pan-European financial crisis since the decentralized system of EU financial regulation and supervision was established in 1992. In the face of such a challenging environment, there has been significant progress in EU financial regulation laws. Also concerning financial supervision, both the ESFS (European System of Financial Supervisors) and the ESRB (European Systemic Risk Board) have been established. The global financial crisis has thus urged the EU to establish a more integrated financial regulatory and supervisory system.

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The European single currency euro was introduced in 1999, 10 years after the fall of the Berlin Wall. The German unification and the establishment of the European Union (EU) were one and indivisible. Both the events led to significant changes in German politics and economy. The development of the EU caused simultaneously the transformation of the domestic system. This article analyzes the interaction between the German domestic politics and the development of the European single currency, and at the same time the influence of the euro to the German domestic politics.
In the first section, German discussion on the introduction of the single currency and the characteristics of Germany's European diplomacy are examined. The historical development of the discourse of the currency has the decisive influence on the German policy discussions. And it is discussed that the system of the euro and the introduction of the Stability and Growth Pact (SGP) were strongly influenced by the German policy ideas. In the second section, the period after the introduction of the euro is discussed to analyze the institutional and policy changes in Germany after the introduction of the euro. The domestic economic reforms necessary to respond to the changed environment and the changes in the German political process is discussed. In the third section, political developments under the grand coalition (2005-2009) are discussed. The grand coalition was one of the answers to the social hardship caused partly by the euro and its budgetary discipline. Despite the financial crisis in 2008, Germany introduced a new constitutional fiscal discipline. The stable majority by the grand coalition and the discourse on budget consolidation made this reform possible.
The case of the euro and the SGP shows that the domestic politics and the European developments are inseparably interconnected. Germany tried to upload its discourse and the system of monetary stability to the European system. At the same time, the constraints set at the European level caused changes in the domestic system.

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The deep recession caused by the U. S. subprime problem and ensuing global financial crisis has inevitably affected employment adjustment in the EU. Looking back over the mid 1970s to mid 1980s, structural unemployment caused mounting job losses and unemployment even though the economy bottomed out twice. While the development of EU integration and reform of labour markets helped improve employment conditions from the mid 1990s, the concern today is that the current crisis threatens to rekindle structural unemployment.
This paper examines the current recession's severity compared to previous recessions, employment trends leading up to the financial crisis, and labor market diversity within the EU. We then present an interim assessment of employment and wage adjustment and policy actions being taken in the current recession.
Notably, the pace of employment adjustment has increased due to structural changes in recent years such as the greater diversity of employment types, especially part-time workers and fixed-term employment. Meanwhile, policy measures have helped save jobs by encouraging work sharing and work hour flexibility, thereby reducing volatile employment adjustments.
However, key problems remain unresolved, including the dual labor market structure of regular (permanent contract, protected) and non-regular (temporary contract, unprotected) employment, as well as wage rigidity. In this respect, two concerns are the growing number of youth-unemployment, which threatens to aggravate structural unemployment, and wage growth amid the recession.
From a policy standpoint, the establishment of EU labor market reform guidelines, multinational monitoring, and open method of coordination (OMC) have helped to reduce the risk of repeating the policy mistakes that characterized the 1970s and 1980s. However, since national policies are implemented under the OMC framework, domestic conditions and fiscal constraints facing individual member states could generate large disparities in their policy actions and results.

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During the first ten years, the European Union (EU) has made remarkable progress in the security and defence matters. Twenty-three civilian and military ESDP missions have been staged for the crisis management in Europe, Africa, the Middle East and Asia and contributed thereby greatly to international peace and security. In July 2009, Javier Solana, the EU's High Representative for the Common Foreign and Security Policy (CFSP), looking back on the last decade, concluded that ESDP is no longer an aspiration, but a reality and the EU is a global actor with an important role in the management of global challenges.
However, the Member States have to do still more for implementing ESDP missions effectively. Among others, ESDP's capabilities need to be developed. Especially, in the case of military missions, ESDP frequently suffered both from the delay of the operation-beginning and from the shortage of the personnel. Notwithstanding the fact that nowadays the battlegroups (BGs) are available and deployable at very high readiness, they cannot never be used, because the Member States cannot agree on the role of the BGs and ESDP itself. The discrepancy in Member States' foreign policy priorities hinders the ESDP missions from getting adequate strength.
To be able to go into action rapidly, ESDP would also need a permanent Headquarters to plan and conduct ESDP's operations autonomously, and the relations with the NATO activities would have to be defined without ambiguity. Since the USA has great influence on European countries, there is some fear that ESDP may be incorpolated into the NATO operations and serve only as the civilian and financial resources. If the fear turned out true, ESDP would lose its characteristics as a civil-military global power.
To sum up, the Member States have to make advances in finding a common foreign policy ground and genuinely speak and act with one voice. This is the most important thing for the ESDP in coming years, “to reinforce the European identity and its independence in order to promote peace, security and progress in Europe and in the world” (The Treaty on EU).

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This paper analyses EU's contribution in order to stabilize the Middle East particularly from the point of view of preventive diplomacy. Preventive diplomacy has been recognized since the 1990s especially in the United Nations in a broad sense and in a long-term context including not only the prevention of conflict but also conflict resolution and peace building; this framework will be suitable for the EU's case towards the Middle East.
Though there is no consistent EU's Middle East policy (this paper refers mainly to the East Mediterranean region), policy frameworks exist separately through the bilateral and multilateral forms of the “Conflict Prevention Model,” as well as through the “Conflict Resolution Model.” The 2003 European Security Strategy represents the response towards the conflict resolution stage of the Israel-Palestine conflict, where efforts towards conflict resolution and post-conflict stabilization are concentrated on the civic fields. Short-term aims of avoiding violent conflict as well as long-term plans of injecting concepts of democracy, protection of human rights and the rule of law are done through multilateral dialogue and cooperation frameworks such as the 1995 Barcelona Process and the 2008 Union for the Mediterranean, as well as through bilateral framework such as the 2004 European Neighbourhood Policy. The pluralistic and multi-layered outcomes of these policy frameworks, which aim for the construction of a societal structure that prevents the build up of conflict in the Middle Eastern region, has contributed to the promotion of long-term preventive diplomacy.
The processes that exert influence in the Middle East through these frameworks are thus given: the compulsory pathway, the enabling pathway, the institutionalizing pathway, the connective pathway and the constructive pathway. Although the pathway process taken differs with each policy framework, these processes have pluralistic functions which have given way to distinct accomplishments in preventive diplomacy.
Nevertheless, challenges still remain, as it is imperative to coordinate between policy frameworks as well as to secure and improve the trust with Middle East actors including Israel.

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This article aims to analyse changes in Britain's policy towards the EEC between January 1963, when the first British application for EEC membership was turned down, and March 1966, when Harold Wilson's Labour government won the general election for the second term and began seriously to contemplate the possibility of second application.
There have been a number of studies on the failure of the first UK application, and in recent years, several studies have been published on the Labour government's decision for the second application. However, no substantial historical account has been published yet on the attitudes of the Conservative governments of Harold Macmillan and Sir Alec Douglas-Home towards the EEC between January 1963 and October 1964, the period between General de Gaulle's veto and the British general election. It seems as if there were a vacuum of policy towards the EEC within the British government in this period. We do not know precisely how the British government reacted to the failure of the first application, how they reformulated their policy towards the EEC, and how this process of policy re-examination under the Conservative governments affected the Labour government's policy towards the EEC in their first term in the office.
In this article, the following points will be shown by examining archival materials in the National Archives, UK;
Soon after the breakdown of the negotiation for EEC membership, the Macmillan government came to the conclusion that in the long term there was no alternative other than seeking eventual EEC membership. They also concluded that there was no hope of a second try in the short term as long as General de Gaulle remained in power. The immediate objective for Britain became establishing and maintaining a link between the EEC through such existing devices as ministerial meetings of the WEU. After October 1963 when Douglas-Home became the Prime Minister, this policy remained largely unchanged and a serious study began at an official level of the long-term implication of EEC membership for Britain's future. This study was completed shortly before October 1964, reaffirming the desirability and inevitability of EEC membership.
Policy re-examination carried out under the Conservative governments thus set the tone of opinion among key officials in key departments of the Whitehall in favour of EEC membership. This official attitude was part at least of the reason why the Wilson government, after an initial period of hesitation over the issue of EEC membership when they toyed with ideas like reinvigorating the Commonwealth or a bridge-building between the EFTA and the EEC, came to the same conclusion as the previous governments and began serious consideration about how to achieve the long-term objective of EEC membership.

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The aim of this paper is to specify those features of the three Baltic economies that explain why they were the countries worst affected by the 2008-09 financial crisis.
There was a clear divergence among the new EU member countries prior to 2007: while three Central European countries relied on FDI as the main type of foreign capital inflow, Hungary relied mostly on portfolio inflows and Baltic economies relied mostly on other investment.
The paper demonstrates that credit booms characterized the dynamic economic growth of Baltic economies from 2001 through 2006. A distinct feature of the credit booms was a large share of household loans in foreign currency. Credit expansion in the Baltics that was funded by large borrowing from foreign parent banks helped to create property bubbles, which proved unsustainable even before the 2008-09 financial crisis in the EU.
The case of Baltic economies after 2007 illustrates the vulnerability of open economies that are over-dependent on large foreign capital inflows (not in the form of long-term FDI).
This paper also points out the following specific features of Lithuania and Latvia. With a relevant share of FDI in manufacturing, Lithuania had a more balanced structure of bank loans to the private sector and a lower level of household indebtedness. With the lowest level of foreign bank ownership, Latvia's case demonstrated how domestic banks become the ones most vulnerable to liquidity risk. After Parex Bank was nationalized in December 2008, Latvian foreign reserves decreased significantly and the country had to apply for IMF-led financial assistance. Latvia is the only Baltic country without a currency board, thus its fixed exchange rate came under the most pressure.
Scandinavian banks in the Baltics have taken several measures to strengthen their capital base, which implies that foreign banks (unlike Latvian Parex) can cope with economic downturn in these countries, and that they are committed to their Baltic subsidiaries.
In the future, policy decisions in response to credit booms will be conducted within the new EU regulatory and supervisory framework. From a long-term perspective, more FDI into tradable sectors could provide Baltic economies with more balanced and sustainable economic growth.

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The economic history of the ten new EU member states (EU-10) has been offering economists for some time interesting perspectives on what contributes to a successful transition to the market economy. Since 1990 the ten countries have built new systems and have made progress towards growth and development.
It is clearly understood that foreign direct investment (FDI) plays a key role in contributing to the growth of economies; especially for countries undergoing transition FDI is an effective tool because it transfers knowledge and technology, increases productivity, improves state budgets, balances deficits, and most important in the case of the EU-10, it contributed to privatisation and reform. At present the EU-10 economies are competing to attract more FDI since they have outgrown the privatisation-led type. In order to attract higher inflows they need to either offer new attractive determinants or develop existing ones.
In trying to find new relevant determinants to attract FDI, corporate governance is signalled out as belonging to a new type of determinants that are part of competitive economies. The aim of this paper is to support the hypothesis that good macro corporate governance principles attract Japanese FDI in the EU-10 countries; corporate governance matters for foreign investors, especially for the Japanese investors who take into careful consideration a number of determinants before entering new markets. An empirical analysis employing OLS pooled regression is carried out to observe the correlation between Japanese direct investments in the EU-10 and corporate governance.
Japanese investments are of a high importance for the EU-10 countries since Japan represents a major part of the automotive hub in Central and Eastern Europe. The subcontractors that follow the big corporations are a significant source of inflows. In order to attract Japanese corporations, the EU-10 countries must present attractive determinants for FDI.

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