August 2015 - Blogging 101:
'via Blog this'
Tuesday, July 28, 2015
Friday, July 3, 2015
Japan Looks to Southeast Asia to Counter China’s Assertiveness - Geopoliticalmonitor.com
Belligerent and provocative behavior by China’s People’s Liberation Army Navy (PLAN) and the construction of bases on reefs threaten the open sea lanes that the Japanese economy depends on. In response, Tokyo has been looking to expand the scope of its Maritime Self-Defense Force activities in order to secure its interests beyond its immediate shoreline by creating new defense agreements with Southeast Asian nations, whilst simultaneously augmenting its Maritime and Air Self-Defense Force capabilities.
For now and for the foreseeable future, Japan and China are locked in a regional great power competition that is fuelled by historical legacies and escalating quickly.
Japan’s Military Posture
Since the onset of the Cold War, Japan has adopted a self-subordinated role to US security interests. Over the past few decades since the end of the Cold War Japan has been orientating itself to be more self-reliant and less dependent on United States for its defense. Now, Japan’s Maritime and Air Self-Defense Force boasts a very impressive force that is orientated towards blunting and denying Chinese naval and air activities in the South China Sea. JMSDF and ASDF platforms are intended to raise the risk for Chinese naval incursions into the South China Sea, at least those which are deemed encroaching on territorial waters of other nations in the region.
Recent JMSDF maritime procurements, such as the Izumo class vessels and upgrades to the MSDF’s Aegis destroyers are incremental and signify a continuation of Japanese anti-submarine warfare efforts and anti-ballistic missile defense, respectively. These procurements are in line with Japan playing the ‘shield’ to America’s ‘spear’ that provides power-projection and offensive capabilities, such as aircraft carriers as well as (supposedly) a nuclear umbrella. Nevertheless, at the behest of Washington, Japan has taken on more security responsibilities in its region, highlighting a more autonomous role, and it is in a position to defend itself and others unilaterally against potential Chinese conventional incursions in nearby waters.
Provocative behavior by the PLAN and unreasonable territorial claims in the South China Sea have led to new security responsibilities in the form of bilateral defense agreements between Japan and Vietnam, Malaysia, Indonesia, and the Philippines in order to balance and counter Chinese aggression. These countries perceive Japan as a viable partner to secure their national security interests and a hedge against a possible over reliance on Washington. For Japan, agreements with these countries are intended to diversify its national defense apparatus and balance against China. For instance, in June this year, Japan secured basing rights with the Philippines, which will allow Japanese Self-Defense Forces to refuel ships and aircraft and allow troops to be rotated through. This is a monumental step for Japan because it is the second time since the end of World War II that Japan has struck an agreement with a second party to be allow basing rights abroad.
In March this year Japan and Indonesia signed a defense agreement expanding security ties on military training and technology. In April, Japan conducted naval exercises with Vietnam, which is part of a growing security relationship between Tokyo and Hanoi. In May, Japan and Malaysia signed an agreement covering defense technology and equipment transfers. These agreements and activities are in line with Prime Minister Shinzo Abe’s attempt to revive Japan’s military standing in order to secure its national interests in the region in the face of perceived Chinese belligerence. More importantly, it highlights the shared understanding these nations have and that they are willing to respond positively to Japanese security guarantees and disregard Japan’s imperial legacy, which has often shaped relations.
Shinzo Abe’s decision to join the F-35 program is another step to respond to China, but also earmarks Japan’s national security interests to be involved in multilateral military innovation, whereas previously it has depended on bilateral military innovation agreements mainly with Washington. Given Japan’s declining population, it will need to be a qualitative force dependent on innovation at the high-spectrum level – their BMD and anti-submarine warfare capabilities are exemplars. Whilst the F-35 program is a few years off at this stage, it will challenge China’s naval incursions nonetheless.
For now and for the foreseeable future, Japan and China are locked in a regional great power competition that is fuelled by historical legacies and escalating quickly.
Japan’s Military Posture
Since the onset of the Cold War, Japan has adopted a self-subordinated role to US security interests. Over the past few decades since the end of the Cold War Japan has been orientating itself to be more self-reliant and less dependent on United States for its defense. Now, Japan’s Maritime and Air Self-Defense Force boasts a very impressive force that is orientated towards blunting and denying Chinese naval and air activities in the South China Sea. JMSDF and ASDF platforms are intended to raise the risk for Chinese naval incursions into the South China Sea, at least those which are deemed encroaching on territorial waters of other nations in the region.
Recent JMSDF maritime procurements, such as the Izumo class vessels and upgrades to the MSDF’s Aegis destroyers are incremental and signify a continuation of Japanese anti-submarine warfare efforts and anti-ballistic missile defense, respectively. These procurements are in line with Japan playing the ‘shield’ to America’s ‘spear’ that provides power-projection and offensive capabilities, such as aircraft carriers as well as (supposedly) a nuclear umbrella. Nevertheless, at the behest of Washington, Japan has taken on more security responsibilities in its region, highlighting a more autonomous role, and it is in a position to defend itself and others unilaterally against potential Chinese conventional incursions in nearby waters.
Provocative behavior by the PLAN and unreasonable territorial claims in the South China Sea have led to new security responsibilities in the form of bilateral defense agreements between Japan and Vietnam, Malaysia, Indonesia, and the Philippines in order to balance and counter Chinese aggression. These countries perceive Japan as a viable partner to secure their national security interests and a hedge against a possible over reliance on Washington. For Japan, agreements with these countries are intended to diversify its national defense apparatus and balance against China. For instance, in June this year, Japan secured basing rights with the Philippines, which will allow Japanese Self-Defense Forces to refuel ships and aircraft and allow troops to be rotated through. This is a monumental step for Japan because it is the second time since the end of World War II that Japan has struck an agreement with a second party to be allow basing rights abroad.
In March this year Japan and Indonesia signed a defense agreement expanding security ties on military training and technology. In April, Japan conducted naval exercises with Vietnam, which is part of a growing security relationship between Tokyo and Hanoi. In May, Japan and Malaysia signed an agreement covering defense technology and equipment transfers. These agreements and activities are in line with Prime Minister Shinzo Abe’s attempt to revive Japan’s military standing in order to secure its national interests in the region in the face of perceived Chinese belligerence. More importantly, it highlights the shared understanding these nations have and that they are willing to respond positively to Japanese security guarantees and disregard Japan’s imperial legacy, which has often shaped relations.
Shinzo Abe’s decision to join the F-35 program is another step to respond to China, but also earmarks Japan’s national security interests to be involved in multilateral military innovation, whereas previously it has depended on bilateral military innovation agreements mainly with Washington. Given Japan’s declining population, it will need to be a qualitative force dependent on innovation at the high-spectrum level – their BMD and anti-submarine warfare capabilities are exemplars. Whilst the F-35 program is a few years off at this stage, it will challenge China’s naval incursions nonetheless.
Puerto Rico is Bankrupt: Will the IMF Bail-Out Puerto Rico? | Global Research - Centre for Research on Globalization
Puerto Rico is bankrupt according to Governor Alejandro Padilla because it is mathematically impossible to pay its $73 billion debt it owes to creditors. In an interesting turn of events, the Associated Press reported that Padilla met privately with the New York Times before he met with Puerto Rico’s political leaders to discuss the uncontrollable debt problem the island-nation was facing. Padilla was quoted as saying that “the last four administrations have kicked the can down the road,” he continued “At this point; there is no more can to kick. So we’re going to take some very strict measures and some very profound measures. It’s going to hurt, but there’s no way out” the AP reported.According to a Reuter’s article titled ‘Report Gives Damning Review of Puerto Rico’s Finances, Calls for Reforms and Restructuring of Debts’:
Puerto Rico needs to restructure its debts and should make reforms including cutting the number of teachers and raising property taxes, a report by former International Monetary Fund economists on the Caribbean island’s financial woes said. The report, which was obtained by Reuters, gave a damning review of how Puerto Rico has arrived at its current state, which it said requires both structural reform and debt restructuring to fix. “Puerto Rico faces hard times,” the report said. “Structural problems, economic shocks and weak public finances have yielded a decade of stagnation, outmigration and debt… A crisis looms
The report titled ‘Puerto Rico-A Way Forward’ was produced by Anne O. Krueger, Ranjit Teja and Andrew Wolfe, all former members of the Washington, D.C. based International Monetary Fund (IMF). The report determined that Puerto Rico will need to “restructure its debts” which will include eliminating public school teachers, raising property taxes and suspending minimum wage laws. According to Reuters, Anne O. Krueger mentioned that “the situation is dire, and I mean really dire” she said “the needed measures may face political resistance but failure to address the issues would affect even more the people of Puerto Rico”. Reuters also reported that the White House “is not contemplating a federal bailout of Puerto Rico to help the island deal with its debt crisis”. Can the IMF bail-out Puerto Rico if Washington steps aside? The Puerto Rico government and hedge fund companies did seek financial advice from former officials of the IMF earlier this year. There is no indication that the IMF would get involved at this point, but the main-stream media, in this case the Wall Street Journal suggested otherwise. The article titled ‘Puerto Rico, Investors Enlist Ex-IMF Officials’ from April of this year said that Puerto Rico “resembles” emerging-market countries, a qualification that can possibly enlist the help of the IMF as an option:
Puerto Rico has retained Anne Krueger, the IMF’s former first deputy managing director, as a consultant, while a committee representing the hedge funds is in talks about an engagement with Claudio Loser, the former director of the IMF’s Western Hemisphere department, said people familiar with the matter.
The involvement of IMF veterans highlights how market perception of Puerto Rico—a former darling of the $3.7 trillion municipal-bond market—has changed. The IMF serves as the lender of last resort to emerging-market countries, something some investors say Puerto Rico increasingly resembles
The Wall Street Journal also says that Puerto Rico qualifies for IMF assistance since they borrowed excessively; are inconsistent with their financial reports and administer an inefficient tax collection policy. Can Puerto Rico become a potential candidate for IMF loans? The Wall Street Journal says Puerto Rico is similar to countries whose economies are under IMF supervision:
As a U.S. commonwealth, the island also doesn’t qualify for IMF aid, but the excessive borrowing, inconsistent financial reporting and low tax collection that landed Puerto Rico in hot water are common in the developing countries that IMF economists deal with. Like a lot of those countries, Puerto Rico is wrestling with how to make politically contentious budget cuts and tax increases without strangling already-weak economic growth
The Bureau of Labor Statistics (BLS) estimates that Puerto Rico has the highest unemployment rate in comparison to other U.S. states with 12.4% as of May of this year. Of course the numbers are much higher if you count those who dropped out of the labor force. One third of the Puerto Rican population receives food stamps. Since there is also a steady rise in crime, more gated communities have sprung up for security concerns. There is a mass exodus of Puerto Ricans ending up in the already struggling U.S. states such as Florida and New York. Many Public Schools have shut down due to the declining population and hazardous buildings that have never been repaired due to budget shortfalls. Puerto Rico’s has a lower income per capita than any State, including Mississippi which happens to be the poorest state in the U.S. mainland. Small businesses have closed due to high electricity, water and tax bills. Retailers have also seen a decline in sales since many live on maxed-out credit cards and public assistance. Poverty in Puerto Rico is close to 45 percent but will increase dramatically if Padilla follows through with the IMF’s proposals. Padilla said that Puerto Rico’s economic situation is in a “death Spiral” which happens to be accurate. Puerto Rico carries more debt than any U.S. state and it is much worse than Detroit’s debt crises which declared bankruptcy in 2013.
What will happen if Puerto Rico Defaults?
Puerto Rico cannot file for bankruptcy under current U.S. bankruptcy laws including chapter 9 of the U.S. Bankruptcy Code which is for municipalities such as Detroit, Michigan or Chapter 11 which is another option for business entities. Puerto Rico does not qualify for any form of bankruptcy because it is under the “Commonwealth” status; it is not a state of the union. Many questions linger about Puerto Rico’s possibility of defaulting on its loans. Will the Puerto Rico government shutdown if it defaults? Will the U.S. congress pass emergency measures with a bailout plan that will leave U.S. taxpayers footing the bill? Or will Washington allow Puerto Rico to fail so that the IMF can impose a bail-out plan that would include a structural adjustment program? So far there is no indication that the IMF or Washington for that matter will bail-out Puerto Rico at this time. One thing is certain; there is an unpredictable financial crisis that will make its way to the U.S. mainland since Puerto Rico’s bonds are traded in the U.S. municipal bond markets affecting other debt-ridden states.
If Puerto Rico were to move forward with recommendations from the IMF, it would result in an economic disaster. Countries that followed the IMF’s prescription, for example during the 1995 Mexican Peso Crisis due to the Mexican government’s currency devaluation are an example of how the IMF’s recommendations resulted in more poverty and despair. According to Global exchange.org “Under the IMF imposed economic reforms after the peso bailout in 1995, the number of Mexicans living in extreme poverty increased more than 50 percent and the national average minimum wage fell 20 percent.” The IMF managed a $50 billion bail-out plan for Mexico which led to hyperinflation and a collapse of the banking institutions who were exposed to bad loans. Interest rates increased on home mortgages resulting in repossessions leaving tens of thousands of Mexicans (many were the new middle-class) homeless. Extreme poverty increased, real wages plummeted and the unemployment rate nearly doubled.
It is important to remember that the IMF published a report in October 2013 that called for “global wealth confiscation” with new capital controls and exit regulations. The Report titled “Taxing Times” calls for the confiscation of household assets through a “Capital Levy” against citizens who have a “positive net wealth” to pay outstanding debts and stabilize global bond markets. This is something Puerto Ricans should be seriously concerned with.
If the IMF were to administer a rescue package for the Puerto Rican economy, it will be devastating. Former IMF officials are already proposing that the Puerto Rican people must face “tough austerity measures”. What will happen to Puerto Rico’s economy if the Padilla administration were to follow through with austerity measures? There is the real possibility of civil unrest. Will the Puerto Rico government and the people finally cut its financial and political ties with its colonial masters to the North? No one knows, but maybe it’s time to think about a future without the U.S. government, a government that will eventually default on its own debt obligations. The U.S. currently holds the largest debt in financial history with over $70 trillion according to University of California-San Diego economics Professor James Hamilton. U.S. colonialism has turned Puerto Rico into a modern day slave plantation where the people are dependent on public assistance, food stamps and government jobs (although public school teacher positions will face job losses with IMF proposals).
Austerity is Killing the European Union. The Tremors of “Exits” are Everywhere | Global Research - Centre for Research on Globalization
“When you are driving down the autobahn, and everyone else is driving in the opposite direction, you may think what you are doing is right, but you are still wrong.”[1] That, coming from Germany’s finance minister, Wolfgang Schäuble, could not state the position more starkly. ComeSunday, the Greek people may well have a voice in terms of whether they will accept the latest round of brutal austerity measures, but that is no where near as important as the sovereign entitlement of the creditors.
The critics of the Greek crisis continue to demonstrate a profound ignorance of that basic concept of risk in any business of borrowing. The creditor is treated as a supreme being, and can avail itself of a range of options, including that erroneous notion of full recovery of its loan. The debtor is only superficially treated on an equal footing, receiving credit in order to undertake immediate tasks. The freedom to contract has always distorted such relations, hiding inequalities and obscuring the realities of the external environment.
Layer this with a financial zone where decisions are made hundreds of miles away from the relevant country suffering a debt crisis, and the problem is compounded. What the Tsipras government is currently relying upon are decisions being made, to take one example, in Frankfurt, where the ECB is proving drip-feed finance for the Greek banking sector. This is not a sustainable, let alone justifiable arrangement. Europe’s populist parties agree.
Schäuble’s statement also has another, even sinister dimension. It is clear that Germany is driving one way, and other European states are going in another. It might not be an autobahn, and that may be precisely the problem. We can see this manifest in such comments as those of Mike Gonzalez, writing inForbes magazine (Jul 1).[2] His warning starts off with a premonition: what will other anti-austerity parties in Europe do? “Sick of what Greece is doing to your 401(k)? Well, there’s bigger threat looming in the form of a far leftist movement in a larger Mediterranean country.”
That movement finds form in Podemos, a force snaking its way through local elections and threatening at the national level. Their narrative is not so much anti-European as anti-austerity and reformist. Dead ideas should be cut away to make way for the new. That still bothers Gonzalez, as the “We Can” movement “doesn’t care about your capitalist savings.”
Spain’s Podemos, expressing noisy dissatisfaction from the barricades of the Left; the National Front of Marine Le Pen in France articulating her disagreement from the sceptical forces of the Right. All furious at what has gone wrong, all, curiously and in some ways disconcertingly united in one barn storming message. That is what the Greek crisis, and the national referendum on the austerity plan, has done to Europe.
On Bloomberg Television, Le Pen was pointed: “Today we are talking about Grexit, tomorrow it will be Brexit, and the day after tomorrow it will be Frexit.”[3] With a flourish, Le Pen suggested that she would be “Madame Frexit if the European Union doesn’t give us back our monetary, legislative, territorial and budget sovereignty.”
Former UK minister for Europe, Denis MacShane, has peered over the fence of the Brexit camp, and finds enthusiasts chortling with joy at the Greek malaise. “Greece makes their case.” For MacShane, Britain’s conservative politicians have taken the crude tools of 18th century surgeons to bleed the patient that is Europe. “They are gloating in exultation now” (Politico, Jul 2).[4] Should Brexit result, however, it will not be because of any cooling to austerity dogmatism. The Tories have always been the party of scorched earth economics. Their loathing is, rather, for Europe as an idea. Brussels was always the enemy in their schema.
To the west, Ireland is also appearing on the radar of anti-austerity politics. Much of this was triggered by the daft proposal for a water tax. Such a measure would have made the Troika proud. For such reasons, Greece’s Syriza can count on friendly support from such groups as the Anti-Austerity Alliance and Sinn Féin. In an Irish Times poll conducted in May, the latter party came in behind Fine Gael, with 21 percent.
In Italy, where public debt exceeds 2 trillion euros, the Greek situation is also providing fuel for anti-austerity parties sceptical of Europe’s bullying tactics and pro-creditor bailiffs. While the leadership of Prime Minister Matteo Renzi and President Sergio Mattarella march to the tune of German austerity, the Five Star movement of Beppe Grillo and the Left Ecology Freedom movement of Nichi Vendola do not. According to Metapolls, they trail Renzi’s Democratic Party by only 12 percent, and represent a quarter of Italians at the polls (International Business Times, Jul 2).[5]
The tremors of such exits are everywhere and the calculators have come out examining the possible losses that might happen to an assortment of industries. German car manufacturers, to take one example, warn that a British exit from the EU will cause far more harm than any Greek variant. A fifth of all cars made in Germany, totalling some 820,000 vehicles, went to the British market (Financial Times, Jul 2).
Ever having his industry’s interest at heart, Matthias Wissmann of the VDA, Germany’s automotive industry association, said on Thursday that, “Keeping Britain in the EU is more significant than keeping Greece in the euro.”[6]
Greece’s finance minister, Yanis Varoufakis, has not suggested thatSunday’s referendum will finalise anything by way of a high noon shoot out. It is, rather, the means of bringing greater negotiating power to the table, in the event that his government gets a “No” vote. “People have described this as a Wild West showdown but it is not a ‘yes or no, take it or leave it’ situation.”
Those on the other side of the monetary equation are suggesting that such a view is sentimental at best. Emergency Liquidity Assistance, claims Josef Bonnici, a member of the European Central Bank Governing Council, “is not an infinite fund.”
Austerity is not only killing Greece; it is poisoning the European idea. Opponents are mustering their forces. The unravelling of that idea will have devastating consequences far beyond the boring chatter of dividend returns, accumulating interest, and bond yields. That is the calamity the Troika should well worth consider ahead of July 5.
Why would Turkey invade Syria? | Brookings Institution
You were probably just thinking to yourself that the civil war in Syria isn’t complicated enough, that there aren’t enough warring parties, and that the constantly shifting sides have become predictable and tired. Well, don’t despair, there are now rumors emerging out of Turkey that may introduce enough new dimensions to the conflict to keep you confused well into the next decade.The Turkish press is reporting that the Turkish government may be about to invade Syria along a 70-mile stretch of Turkey’s border with Syria to create a 20-mile deep safe zone. This issue is currently the subject of heated speculation and controversy in Ankara, making it quite difficult to figure out what is really happening.
But beyond the fevered speculation, why would Turkey want to invade Syria anyway?
Syria has long been a threatening mess, but neither Turkey nor anyone else has exactly been lining up to send their national armies into Syria. Sure, foreign fighters are plentiful in Syria and all of the regional powers, as well as the United States and Russia, have supported proxies there. But even after more than four years of bloody, destabilizing warfare, national armies have avoided it like the plague. The reason is quite simple: The complicated Syrian civil war has quagmire written all over it. As hard as it is to send a foreign army into Syria, it would be harder still to get it out.
In Turkey, particularly, the idea of military intervention into Syria remains very unpopular among the populace. The possibility that intervention might backfire and unleash Islamic State (or ISIS) terrorism within Turkey, or even reignite the bloody Kurdish insurgency in Turkey’s southeast, remains an ever-present fear.
Now, however, the theory goes that Syrian Kurdish advances against ISIS have caused such concern in Turkey that the Kurds will create some sort of state or autonomous region along Turkey’s southern border. To prevent that outcome, the Turkish government, we are told, is finally willing to intervene in Syria.
Well, maybe. But, in our view, the reason that Turkey might now finally be contemplating such a step says more about changes in the domestic and international standing of the Turkish government than about the course of events in Syria.
Domestically, the outcome of the Turkish election of June 7 has seriously scrambled Turkish politics. After nearly 13 years in power, the ruling Justice and Development Party (AKP) lost its absolute majority in parliament. The AKP, which still holds a plurality of seats in parliament, has 45 days to form a government with at least one of the minority parties. But it seems clear that Turkish President Recep Tayyip Erdoğan has very little interest in coalition government. The leaders of the two main opposition parties, the nationalist Nationalist Action Party (MHP) and the center-left Republican Peoples Party (CHP), have both demanded the re-opening of corruption cases against the AKP. Erdoğan may fear that those corruption cases may eventually touch even his family.
Erdoğan would undoubtedly prefer an early election to his party or even his family to the indignities of prying prosecutors. But to achieve a better outcome than the AKP managed in June, he needs to demonstrate to the population the pitfalls of weak, coalition governments. As the possibility of intervention in Syria increases, as the markets spooks on the prospects of war, and even if a few bombs were to go off in the Kurdish areas, the growing sense of national insecurity would only serve to make Erdoğan’s case that the country needs the firm hand of one-party leadership. With a big enough victory, it might even serve to bring back prospects of constitutional change to increase the powers of the presidency. At that point, an early election would be worth having.
Insecurity works
Internationally, Turkey may be driven by the sense the White House now prefers their Kurdish partners in Syria to Turkey. The Turkish government is extremely angry about the emerging alliance between the United States and the Syrian Kurds, especially the Kurdish Democratic Union Party (PYD), a Syrian affiliate of the Turkish Kurdistan Workers' Party (PKK). They attribute Kurdish success against ISIS to the American willingness to support Syrian Kurdish forces with air power and supplies. In the Turkish view, the PYD is simply a branch of the PKK, which both Turkey and the United States have branded a terrorist group. Allowing the PYD to unite the Kurdish areas of Syria would therefore represent an existential threat to Turkey.
By threatening to intervene in Syria, the Turkish government seeks to change a U.S. policy that it finds potentially very damaging to Turkish interests. As Erdoğan no doubt reminded Vice President Biden when they talked the other day, Turkey has the ability to have a far greater impact on the fight against ISIS than the Kurds do. (The Turkish government might tell their domestic audiences that a prospective intervention in Syria is to stop the Kurds, but they will tell international audiences that it is to fight ISIS.)
Interestingly, to achieve both these international and domestic advantages, it is not necessary or even wise to actually go through with the intervention. Domestically, all that is necessary is to convince the population that the situation is sufficiently insecure to require firm, one-party leadership. Internationally, it just requires using the prospect of intervention to gain U.S. attention and convince the U.S. government to reduce its support of the PYD. At the current moment, the prospect of intervention is very useful for the Turkish government. Actual intervention, with all of the attendant risks of quagmire, is significantly less appealing.
So that means that it is probably not strictly necessary to spend your time trying to understand how the myriad factions within Syria will respond to the presence of the Turkish military on Syrian soil. On the bright side, you now have some really good reasons to enter into the nearly as confusing realm of Turkish domestic politics. Maybe start with our Turkish election series.
SOURCE : Why would Turkey invade Syria? | Brookings Institution'via Blog this'
Beyond the Greek Impasse | Stratfor
The Greek situation — having perhaps outlived the term "crisis," now that it has taken so long to unfold — appears to have finally reached its terminal point. This is, of course, an illusion: It has been at its terminal point for a long time.
The terminal point is the juncture where neither the Greeks nor the Germans can make any more concessions. In Greece itself, the terminal point is long past. Unemployment is at 26 percent, and more than 50 percent of youths under 25 are unemployed. Slashed wages, particularly in the state sector, affecting professions including physicians and engineers, have led to massive underemployment. Meanwhile, most new economic activity is occurring in the untaxable illegal markets. The Greeks owe money to EU institutions and the International Monetary Fund, all of which acquired bad Greek debts from banks that initially lent funds to Greece in order to stabilize its banking sector. No one ever really thought the Greeks could pay back these loans.
The European creditors — specifically, the Germans, who have really been the ones controlling European negotiations with the Greeks — reached their own terminal point more recently. The Germans are powerful but fragile. They export about a quarter of their gross domestic product to the European free trade zone, and anything that threatens this trade threatens Germany's economy and social stability. Their goal has been to keep intact not only the euro, but also the free trade zone and Brussels' power over the European economy.
Germany has so far avoided an extreme crisis point by coming to an endless series of agreements with Greece that the Greeks couldn't keep and that no one expected them to keep, but which allowed Berlin to claim that the Greeks were capitulating to German demands for austerity. This alleged capitulation helped Germany keep other indebted European countries in line, as financially vulnerable nations witnessed the apparent folly of contemplating default, demanding debt restructuring and confronting rather than accommodating the European Union.
Greece and the Cypriot Situation
For the Germans, Greece represented a dam. What was behind the dam was unknown, and the Germans couldn't tolerate the risk of it breaking. A Greek default would come with capital controls such as those seen in Cyprus, probably trade barriers designed to protect the Greek economy, and a radical reorientation of Greece in a new strategic direction. If that didn't lead to economic and social catastrophe, then other European countries might also choose to exercise the Greek option. Germany's first choice to avoid the default was to create the illusion of Greek compliance. Its second option was to demonstrate the painful consequences of Greece's refusal to keep playing the first game.
This was the point of the Cyprus affair. Cyprus had reached the point that it simply could not live up to the terms of its debt repayment agreements. The pro-EU government agreed under pressure to seize money in bank accounts holding more than 100,000 euros (around $112,000) and use that money to make good on at least some of the payments due. But assigning a minimum account balance hardly served to lessen the blow or insulate ordinary Cypriots. A retiree, after all, may easily have more than 100,000 euros in savings. And hotels or energy service companies (which are critical to the Cypriot economy) certainly have that much in their accounts. The Germans may have claimed the Cypriot banking system contained primarily Russian money, but — although it undoubtedly contained plenty of Russian funds — most of the money in the system actually represented wealth saved and used by Cypriots in the course of their lives and business. The result of raiding those accounts was chaos. Cypriot companies couldn't pay wages or rent, and the economy basically froze until the regulations were eventually eased — though they have never been fully repealed.
The Germans were walking a fine line in advocating this solution. Rather than play the pretend game they had played in Greece, they chose to show a European audience the consequences of genuine default. But those consequences rested on a dubious political foundation. Obviously the Cypriot public was devastated and appalled by their political leaders' decision to comply with Germany's demands. But even more significant, the message received by the rest of Europe was that the consequences of resistance would be catastrophic only if a country's political leadership capitulated to EU demands. Seizing a large portion of Cypriot private assets to pay public debts set an example, but not the example the Germans wanted. It showed that compliance with debt repayments could be disastrous in the short run, but only if the indebted country's politicians let it happen. And with that came another, unambiguous lesson: The punishment for non-compliance, however painful, was also survivable — and far preferable to the alternatives.
The Rise of Syriza
Enter the Coalition of the Radical Left party, known as Syriza, one of the numerous Euroskeptic parties that have emerged in recent years. Many forces combined to drive pro-EU factions out of power, but certainly one of them was the memory of the behavior of pro-EU politicians in Cyprus. The Greek public was well aware Athens would not be able to repay outstanding debt on anything even vaguely resembling the terms set by the pro-EU politicians. Cognizant of the Cypriot example, they voted their own EU-friendly leaders out, making room for a Euroskeptic administration.
Syriza ran on a platform basically committing to ease austerity in Greece, maintain critical social programs, and radically restructure the country's debt obligations, insisting that creditors share more of the debt burden. EU-friendly parties and individuals — and the Germans in particular — tended to dismiss Syriza. They were used to dealing with pro-EU parties in debtor countries that would adopt a resistant posture for their public audience while still accepting the basic premise put forth by Germany and the European Union — that in the end, the responsibility to repay debts was the borrower's. Regardless of their public platform, these parties therefore accepted austerity and the associated social costs.
Syriza, however, did not. A moral argument was underway, and the Germans were tone deaf to it. The German position on debt was that the borrower was morally responsible for it. Syriza countered that, in effect, the lender and the borrower actually shared moral responsibility. The borrower may be obligated to avoid incurring debts that he could not repay, but the lender, they argued, was also obligated to practice due diligence in not lending money to those who were unable to repay. Therefore, though the Greeks had been irresponsible for carelessly borrowing money, the European banks that originally funded Greece's borrowing spree had also been irresponsible in allowing their greed to overwhelm their due diligence. And if, as the Germans have quietly claimed, Greek borrowers misled them, the Germans still deserved what happened to them, because they did not practice more rigorous oversight — they saw only euro signs, just as the bankers did when they signed off on loans to Greece rather than restraining themselves.
The story of Greece is a tale of irresponsible borrowing and irresponsible lending. Bankruptcy law in European and American culture is a system of dualities, where expectations for prudent behavior are placed on both the debtor and creditor. The debtor is expected to pay everything he can under the law, and when that is ability is expended, the creditor is effectively held morally responsible for his decision to lend. In other words, when the debtor goes bankrupt, the creditor loses his bet on the debtor, and the loan is extinguished.
But there are no bankruptcy laws for nation-states, because there is no sovereign power to administer them. Thus, there is no disinterested third party to adjudicate national bankruptcy. There are no sovereign laws dictating the point where a nation is unable to repay its debt, no overarching power that can grant them the freedom to restructure debts according to law. Nor are there any circumstances where the creditor is simply deemed out of luck.
Without these factors, something like the Greek situation emerges. The creditors ruthlessly pursue the debtor, demanding repayment as a first priority. Any restructuring of the debt is at the agreement of creditor and debtor. In the case of Cyprus, the government was prepared to protect the creditors' interests. But in Greece's case, Syriza is not prepared to do so. Nor is it prepared, if we believe what the party says, to simply continue crafting interim lies with the country's creditors. Greece needs to move on from this situation, and another meaningless postponement only postpones the day of reckoning — and postpones recovery.
The Logic and Repercussions of a Grexit
A Greek withdrawal from the eurozone would make sense. It would create havoc in Greece for a while, but it would allow the Greeks to negotiate with Europe on equal terms. They would pay Europe back in drachmas priced at what the Greek Central Bank determines, and they could unilaterally determine the payments. The financial markets would be closed to them, but the Greeks would have the power to enact currency controls as well as trade regulations, turning their attention from selling to Europe, for example, to buying from and selling to Russia or the Middle East. This is not a promising future, but neither is the one Greece is heading toward now.
Many have made a claim that a Greek exit could lead the euro to collapse. This claim seems baffling at first. After all, Greece is a small country, and there is no reason why its actions would have such far-reaching effects on the shared currency. But then we remember Germany's primordial fear: that Greece could set a precedent for the rest of Europe. This would be impossible if the rest of Europe was doing well, but it is not. Spain, for example, has unemployment figures almost as terrible as Greece's. Some have pointed out that Spain is now one of the fastest-growing countries in Europe, which would be impressive if growth rates in the rest of Europe weren't paralyzed. Similarly, Spain's unemployment rate has fallen — to a mere 23 percent. Those who are still enthused about the European Union take such trivial improvements as proof of a radical shift. I see them as background noise in an ongoing train wreck.
The pain of a Greek default and a withdrawal from the eurozone would be severe. But if others see Greece as a forerunner of events, rather than an exception, they may calculate that the pain of unilateral debt restructuring makes sense and gives Greeks a currency that they can at last manage themselves. The fear is that Greece may depart from the euro, not because of any institutional collapse, but because of a keen awareness that sovereign currencies can benefit nations in pain — which many of Europe's countries are.
I do appreciate that the European Union was meant to be more than an arena for debtors and creditors. It was to be a moral arena in which the historical agony of European warfare was abolished. But while the idea that European peace depends on prosperity may be true, that prosperity has been lost. Economies rise and fall, and Europe's have done neither in tandem. Some are big winners, like Germany, and many are losers, to a greater or lesser degree. If the creation of a peaceful European civilization rests on prosperity, as the founding EU document claims, Europe is in trouble.
The problem is simple. The core institutions of the European Union have functioned not as adjudicators but as collection agents, and the Greeks have learned how ruthless those agents can be when aided by collaborative governments like Cyprus. The rest of the Europeans have also realized as much, which is why Euroskeptic parties are on the rise across the union. Germany, the country most threatened by growing anti-EU sentiment, wants to make clear that debtors face a high price for defiance. And if resistance is confined to Greece, the Germans will have succeeded. But if, as I think it will, resistance spreads to other countries, the revolt of the debtor states against the union will cause major problems for Germany, threatening the economic powerhouse's relationship with the rest of Europe.
'via Blog this'
Thursday, October 18, 2012
Subscribe to:
Posts (Atom)