The Globalist Daily online magazine on the global economy, politics and culture Sun, 24 May 2015 20:57:06 +0000 en-US hourly 1 Climate Change: Like an Asteroid Sun, 24 May 2015 12:52:47 +0000 By Gernot Wagner and Martin L. Weitzman

The threat of climate change must be taken far more seriously, before it is too late.

Credit: klem@s - threat of climate change must be taken far more seriously, before it is too late.

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By Gernot Wagner and Martin L. Weitzman

The threat of climate change must be taken far more seriously, before it is too late.

Credit: klem@s -

If a civilization-as-we-know-it-altering asteroid were hurtling toward Earth, scheduled to hit a decade hence, and it had, say, a 5% chance of striking the planet, we would surely pull out all the stops to try to deflect its path.

If we knew that same asteroid were hurtling toward Earth a century hence, we may spend a few more years arguing about the precise course of action.

Clear and present danger

But here’s what we wouldn’t do: We wouldn’t say that we should be able to solve the problem in at most a decade, so we can just sit back and relax for another 90 years.

Nor would we try to bank on the fact that technologies will be that much better in 90 years, so we can probably do nothing for 91 or 92 years and we’d still be fine.

We’d act – and soon. Never mind that technologies will be getting better in the next 90 years. Never mind, either, that we may find out more about the asteroid’s precise path over the next 90 years that may be able to tell us that the chance of it hitting Earth is “only” 4% rather than the 5% we had assumed all along.

That last point — increased certainty around the final impacts — is precisely where climate change has proven so vexing. Our estimate of the range of climate sensitivity — what will happen to temperatures as concentrations in the atmosphere double — isn’t any more precise today than it was over three decades ago.

And the chance of eventual climate catastrophe isn’t 5%. Our own calculation based on IEA projections shows that it’s likely closer to 10% or even more.

Dealing with uncertainty responsibly

Climate change is beset with deep-seated uncertainties. They prevent us from simply translating temperature changes into economic damages.

One thing is clear, though: Because the extreme downside is so threatening, the burden of proof ought to be on those who argue that fat tails don’t matter, that possible damages are low and that discount rates ought to be high.

As little as we know about many of these uncertainties, we do know that the chance of eventual catastrophic warming of an additional 6°C (11°F) or more isn’t zero. In fact, it’s slightly greater than around 10%, under our conservative calibration.

Where does all of that leave us?

If the question is what single number to use as the optimal price of each ton of carbon dioxide pollution today, the answer should be at least $40 per ton of carbon dioxide, the U.S. government’s current value.

We know that number is imperfect. We are pretty sure it’s an underestimate. We are confident it’s not an overestimate. It’s also all we have.

And it’s a lot higher than the prevailing price in most places that do have a carbon price right now — from California to the European Union. The sole exception is Sweden, where the price is upward of $150. And even there, key industrial sectors are exempt.

Any benefit-cost analysis relies on a number of assumptions — perhaps too many — to truly come up with a single dollar estimate based on one representative model of something as large and uncertain as climate change.

A precautionary principle?

Since we know that fat tails can dominate the final outcome, the decision criterion ought to focus on avoiding the possibility of these kinds of catastrophic damages in the first place.

Some call it a “precautionary principle” — better safe than sorry. Others call it a variant of “Pascal’s Wager” — why risk it, if the punishment is eternal damnation? We call it a “Dismal Dilemma.”

In the end, it’s risk management — existential risk management. And it comes with an ethical component. Precaution is a prudent stance when uncertainties about catastrophic risks are as dominant as they are here. Benefit-cost analysis is important, but it alone may be inadequate, simply because of the fuzziness involved with analyzing high-temperature impacts.

With the immense longevity of atmospheric carbon dioxide, “wait and see” would amount to nothing other than willful blindness.

Editor’s Note: This essay is adapted from “Climate Shock: The Economic Consequences of a Hotter Planet” by Wagner and Weitzman (February 2015).

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India: When Populism is Not Sustainable Sat, 23 May 2015 06:00:03 +0000 By Sanjeev S. Ahluwalia

Why is the Delhi's Chief Minister Kejriwal’s popularity plunging?

Credit:  Don Mammoser - Shutterstock.comWhy is the Delhi's Chief Minister Kejriwal’s popularity plunging?

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By Sanjeev S. Ahluwalia

Why is the Delhi's Chief Minister Kejriwal’s popularity plunging?

Credit:  Don Mammoser -

The Kejriwal government in Delhi is coming across as populist, as anti-reform and as organized against the private sector. Add to this its lack of administrative experience and it appears ham-handed at doing what it wants.

The result is that inept execution warps even good intentions. This matters all the more as this government already had a brief stint in power (from December 28, 2013 to February 14, 2014).

Given all that, it is puzzling why Delhi Chief Minister Arvind Kejriwal and Deputy Chief Minister Manish Sisodia seem bent upon wasting time and political capital on burnishing their populist image. There are, after all, still more than four long years to go before elections.

That Mr. Kejriwal looks to the common man for his support is welcome. After all, more than 40% of Delhi residents live either in slums or in slum-like colonies. But more than “freebies” — like cheap power and free water — what each of these “slum dwellers” really wants is a job and a realistic prospect for a better life for their children.

Generating new jobs

Generating one million “good” jobs in Delhi over the next four years is a colossal task and the Chief Minister would do well to focus his energies on this task. He will need the active collaboration of the private sector to achieve this goal.

The continued availability of reasonably priced, good quality electricity will be crucial, so tinkering with what is working well (privatized electricity utilities) is dangerous and irresponsible.

It is all very well to grandstand by disallowing the entry of multi-brand retail outlets in Delhi.

In any case, these space-intensive, “deep pocket” entities which seek to provide a “complete shopping experience” should be located in, say, Gurgaon where commercial space is cheaper. 

But what does the Delhi government plan to do to “clean up” the existing local market places and make small shopkeepers more competitive?

Why not create new jobs by servicing public spaces better with private security? Or have better overall maintenance? Sufficient toilets? Rest spots?

How about green spaces and parking facilities to enhance the shopping experience? The popular Dilli Haat market, started two decades ago is one such example.

Make the rich pay for using public road space

Delhi has around two million cars. Most of them are parked overnight on the streets and adjoining sidewalks. Why not charge car owners for this privilege?

A flat charge per car of 500 rupees ($7.90) per month would yield an additional revenue of 1000 rupees crore ($157 million) per year (rule-of-thumb basis), equal to 3% of the 2015-16 budget estimate of 35,000 rupees crores ($5.5 billion).  

The incremental proceeds could be used, in the area where it is collected, to provide and maintain roads, drains, sewage systems, streetlights and water supply systems.

More important, the fee acts as a disincentive to own multiple cars, encourages owners to dump old, unused cars, and free up public parking, cycling and walking space.

Public transport

Ensuring a 24-hour x 7-day public transportation system, which is secure and accessible within a maximum ten-minute walk from any urban mohallah (community) is an enormous challenge. It goes well beyond just buying more buses.

Meeting this public transport infrastructure gap will hurt one of the Chief Minister’s support groups the most — the 100,000 auto rickshaws who provide an inefficient, insecure and costly substitute for public buses.

But if he implements such a bus system well, he can garner the support of all those who cannot afford private motorized transport and depend on the bus system. Sixty percent of the 25 million residents of Delhi fall into this category.

There are still more than four years to go for the Delhi elections and it is sad to see the Kejriwal government not using this time to deliver substantial gains to Delhi citizens.

Grandstanding by “taking on” the Government of India via the Lt. Governor is unlikely to get votes. Delhi is not a city that tolerates “whiners.”

BJP municipalities provide no benchmark competition

The only silver lining for Mr. Kejriwal is that the three Municipal Corporations, all controlled by the BJP, are even worse. It is shocking that the Modi “magic” has not brushed-off on its local worthies. The municipalities remain mired in inefficiency and corruption.

Far from setting governance standards that would force Mr. Kejriwal to rev up his game and perform better, the Delhi municipalities are making it absurdly easy for Mr. Kejriwal to “shine” by comparison. This is shortsighted of the BJP and bad for Delhi citizens.

End game

Mr. Kejriwal has already lost the support of the middle class. Sadly, he is in danger of losing the poor also, unless he takes service delivery beyond the level of rhetoric. He knew the limited character of the Delhi government before he entered the contest.

If he now feels that his power is constrained, he has to wait till 2017, when he will get a chance of consolidating his power base in the three municipalities.

Alternatively, he has to wait till 2019, in the hope of getting a congenial partner at the national level, who will cede fuller powers to the Delhi State.

Either way, he has a clear three years to focus on improving what lies squarely within his sphere today — electricity supply, roads, public lighting, water, drains, sewage collection and treatment and social services. Even this seems a handful, given the shallow bench strength of his party, the AAP.

Populism is the downside of political contests in a poor democracy. The big fear is that populism could trump substantive gains for citizens in India’s fractured polity.

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Moldova: Children of Migrants Abroad Fri, 22 May 2015 05:30:38 +0000 By The Globalist

Moldova's weak job market forces migrant workers to leave their families.

Anastasia (16) nach dem MittagessenMoldova's weak job market forces migrant workers to leave their families.

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By The Globalist

Moldova's weak job market forces migrant workers to leave their families.

Anastasia (16) nach dem Mittagessen

Andrea Diefenbach is a German photographer who works for magazines and on personal projects. Her work about labor migrants from Moldova and the children they leave behind has just been published as a book, Land Ohne Eltern (Land Without Parents).

•  •  •

In Moldova, Europe’s poorest country, 40% of people live below the poverty line. With jobs both scarce and badly paid, more than one-third of adult Moldovans work abroad, the highest proportion of any country worldwide. Remittances from these migrant workers help keep the country from economic collapse. However, in many cases, their children are left behind.

Text and photographs by Andrea Diefenbach

Olga, Carolina and Sabrina were twelve, ten and seven when their mother, Tanja, left to work in Italy five years ago. For three years they lived by themselves until other families in their neighborhood took them in.

Carolina speaking with Tanja. Her mother paid traffickers €4,000 to transport her to Italy, where she earns €850 a month working illegally as a carer for elderly people.

A baby whose father and grandmother work in Italy.

Alexandra lives with her older sister in a house their mother is gradually building with money from her work in Italy. The mother left Moldova almost seven years ago, paying people smugglers €3,700 to help her make her way on foot over the Carpathian Mountains. She now earns €750 a month working as a carer for elderly people. She was unable to return home during her first three years away, but since then she has made annual trips to see her children.

Gabriela and Marina live with their brother, and sometimes their father. Their mother went to Italy eight years ago. For a long period they heard little from her, but recently she has started sending them occasional parcels. Their father works in Moscow, returning home between jobs.

Andrea Diefenbach is a German photographer who works for magazines and on personal projects. Her work about labor migrants from Moldova and the children they leave behind has just been published as a book, Land Ohne Eltern (Land Without Parents).

The Other Hundred is a unique photo-book project (order here) aimed as a counterpoint to the Forbes 100 and other media rich lists by telling the stories of people around the world who are not rich but who deserve to be celebrated.

Its 100 photo-stories move beyond the stereotypes and cliches that fill so much of the world’s media to explore the lives of people whose aspirations and achievements are at least as noteworthy as any member of the world’s richest 1,000.

Selected from 11,000 images shot in 158 countries and submitted by nearly 1,500 photographers, The Other Hundred celebrates those who will never find themselves on the world’s rich lists or celebrity websites.

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Why Moldova Won’t be Russia’s Next Target Fri, 22 May 2015 05:30:06 +0000 By Raluca Besliu

How Russian pressure on Moldova has given the EU a chance to prove itself as an economic partner.

Credit: S. Solberg J. / WikimediaHow Russian pressure on Moldova has given the EU a chance to prove itself as an economic partner.

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By Raluca Besliu

How Russian pressure on Moldova has given the EU a chance to prove itself as an economic partner.

Credit: S. Solberg J. / Wikimedia

On April 9, 2015, Russian military forces conducted a drill in Transnistria, a predominantly Russian ethnic breakaway territory situated in Moldova’s eastern border with Ukraine, which opposes pro-Western initiatives.

The Transnistrian conflict was triggered by the self-proclaimed independence of this Moldovan region in 1990 and frozen in place by the 1992 ceasefire. It remains an unresolved post-Soviet conflict.

The drill may be a scare tactic to end Moldova’s growing closeness with the European Union (EU). But Russia is unlikely to take military action against the country, which ratified its EU Association Agreement in July 2014.

Russia’s meddling continues

The Agreement’s ratification in Moldova was far from unanimous, due to the potential retaliation from Russia. Only 57 MPs out of 101 total voted in favor. There is ample room to try to exploit these divisions by other means.

Instead of invasion, Russia will increase economic pressures on the impoverished Eastern European country. It has already been heftily applying them since Moldova started showing renewed interest in joining the EU.

These measures, however, will probably not prevent closer EU-Moldova ties. In fact, they might grow even closer. Already, Moldova has distanced itself from Russia’s earlier entreaties to join the Eurasian Union — a key test in the EU-versus-Russia quandary facing countries like Moldova.

The Germany effect

Russia’s recent military drill in the autonomous region quickly followed the German Parliament’s ratification of the EU Association Agreement with Moldova, Ukraine and Georgia.

Germany’s seal of approval after years of uncertainty between the European Union and those three countries – due in part to their Russian influence – could accelerate the rate at which other EU countries adopt the agreement.

(For the agreement to come into force, all EU Member States and the EU Parliament have to ratify it. The latter already backed the agreement in November 2014, while Moldova’s neighbor Romania was the first EU country to complete the ratification procedure.)

Why Russia won’t invade

Still, despite the consternation the German vote may have caused Russia’s leaders, and although Russia wants Moldova to end its movement toward the EU, the drill in Transnistria is unlikely to foreshadow war for a number of reasons:

1. After the intervention in Ukraine, sending troops into Moldova would be a sign of weakness in front of the EU’s expansion. It would indicate that Russia feels that its only way of maintaining its influence over the former Soviet Union countries is by invading.

2. In its Ukrainian actions, Russia was trying to send a message to all former Soviet states tempted to enter into new agreements with the EU: Western Europe will not defend its eastern friends against Russia on the battlefield.

While this proved true in the Ukrainian situation, this did not prevent Moldova and Georgia — or Ukraine itself — from seeking to expand their engagement with Europe anyway. There is little point in trying to send that message again after the first one failed.

3. A military intervention in Moldova would never receive the same support from Russian citizens as the one in Ukraine did. This is partly because of the stronger ties between Russia and Ukraine, which is considered an estranged cradle of Russian civilization.

By contrast, Transnistria has already been functionally a Russian outpost since 1992. And – unlike southern Ukraine – the rest of Moldova never had a particularly close or enduring relationship to Russia, even in the 19th century.

It is also partly because of the tremendous economic burden that annexing Crimea currently represents for Russia, which has to invest in the region’s transportation, utility and financial infrastructure, while equalizing its wages and salaries.

So, instead of launching a costly conflict that would likely be unsuccessful, Russia is taking retaliatory economic measures against Moldova. At the end of July 2014, Russia imposed a temporary ban on some vegetables and all fruit imports from the Eastern European country.

The existing ban on Moldovan wines, which represent 10% of all wine drunk in Russia and one of Moldova’s largest exports, was adopted in September 2013 as a pressure tactic to discourage Moldova from signing the EU agreements, even before the Ukraine crisis began.

In October 2014, Russia took an additional step, by imposing a meat ban on all products from Moldova, invoking sanitary violations.

Counterbalancing Russian punishments

These trade restrictions seem to have strengthened the EU-Moldova relationship, as the Union has showed solidarity with Moldova and adopted solutions to counterbalance Russia’s bans.

In December 2014, the European Parliament voted to allow Moldova to export duty-free 40,000 tons of fresh apples, 10,000 tons fresh table grapes and 10,000 fresh plums. The Eastern European country is hoping to extend the trade to meat as well.

Russia also has energy control over Moldova, because of the latter’s dependency on oil supplies. Once again, Europe has shown its support to Moldova, by providing $7 million out of $26 million to build the first pipeline connecting the EU to Moldova, the Iasi-Ungheni pipeline, between Romania and Moldova.

The gas line opened in March 2015 and will provide 1-2% of Romania’s total production capacity. The pipeline’s inauguration allows Moldova to diversify its energy supplies and gain more independence from Russia. The EU has allocated an additional $10 million to extend the line to Chisinau, Moldova’s capital, over the next three years.

The long view

The EU’s measures in response to Russia’s action in both Moldova and the Ukraine have indicated that while the EU may not be willing to respond militarily, it is also not capitulating in front of Russia’s offensive tactics.

Rather, it is counterbalancing Russian actions and proving to be a viable trade and political partner for the Eastern European countries.

Thanks in part to the EU’s encouraging measures, Moldova seems determined to ignore Russia’s increasingly harsh trade measures, become part of the EU and avoid Russia’s Eurasian Union.

With Ukraine, Moldova and Georgia leaning toward the West, the latter project is likely doomed to fail. At the moment, only Russia, Kazakhstan and Belarus are currently part of it.

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The European Union as a Foreign Policy Weakling Thu, 21 May 2015 05:45:31 +0000 By Denis MacShane

Does the EU lack the will to deal with its eastern “partners” at Riga?

EU (Blue) and EaP (Orange) map. Credit: Kolja21 - WikimediaDoes the EU lack the will to deal with its eastern “partners” at Riga?

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By Denis MacShane

Does the EU lack the will to deal with its eastern “partners” at Riga?

EU (Blue) and EaP (Orange) map. Credit: Kolja21 - Wikimedia

It used to be said about NATO that it was designed to keep the Russians out, the Americans in and the Germans down.

In a similar vein, the EU’s foreign policy vis-à-vis its unhappy neighbors consists of giving Russia too much say, while the Balkan and other non-EU Eastern European nations are offered an unfortunate mix of too little hope, too many lectures and not enough solidarity.

As a result, the hopes that the European Union would transform non-EU European states into functioning market economy democracies appear to be hollow.
And once again, the EU seems unable to stop Russia from being the tail that wags the EU foreign policy dog in the near neighborhood that Russia and the EU share.
Given the weight of history, all of this is unfortunate.  It has been 20 years since the Katyn-style massacre in Srebrenica, when 8,000 European Muslims were taken out by Serbs and slaughtered in cold blood.  

But the state of Bosnia-Herzegovina is no closer to Europe today than when its young men were killed by Serb war criminals, few of whom have ever answered for their acts.

Four hundred miles further south in Macedonia, deadly violence has erupted, as Macedonian politics is conducted in a way that guarantees conflict and no sense of alternating parties in power.
Meanwhile, the EU has all but given up on twisting arms, offering inducements or even getting all its own member states to do simple things like recognize Kosovo and Macedonia.

The EU plus Six (really Seven) at Riga

At the May 21-22 EU Summit in Riga, EU officials will try to show that Europe can change its eastern neighbors for the better. Six countries – Armenia, Azerbaijan, Belarus, Georgia, Moldova and Ukraine — will sit down with the EU to draw up a summit declaration.
The eighth participant in the Riga summit is Russia. It has not been invited and does not have its flag at the table. However, through its client state, Armenia, the Kremlin will seek to influence the summit.  

This influence will primarily occur through the positions taken on Azerbaijan, where Armenia occupies part of Azeri sovereign territory — in defiance of both the UN and the Council of Europe.  The case is similar to Russia now occupying a chunk of Ukraine via Crimea.
The inability of the EU to shape a policy to deal with Russian aggression in Ukraine has left the Russians feeling cocky and on a roll. 

Russia has a plan

The Russian foreign minister, Sergei Lavrov, has just visited Belgrade in an effort to shore up Serb nationalist positions on Kosovo and present Russia as the region’s friend.  

Lavrov’s bigger point, of course, is that Russia has a plan — in contrast to the EU, which is unable to offer effective solutions, such as were found to allow Croatia and Slovenia to enter the EU.  Russia does not intend to leave other post-Yugoslav states in limbo.
Russia is central to the EU’s inability to develop a relationship with its eastern neighbors. 

The Kremlin is engaged in a variety of maneuvers — military support of Armenian irredentism in Azerbaijan, destabilizing Moldova with its troops in the breakaway Moldovan frontier region of Transnistria, and all but annexing outright the Georgian regions of Abkhazia and South Ossetia.
Ukraine remains the biggest headache. Russia skillfully keeps tensions aflame, with a carefully stage-managed sending of troops and arms to separatists. Russian support in Eastern Ukraine is calibrated to ensure permanent destabilization of Kiev, but is not so crude as to produce a firm and united EU response.

Washington tilts and the EU fumbles

Washington’s tilt away from Europe under Obama has placed responsibility on the EU to sort out its backyard. However, despite grandiose claims to a European foreign policy, the nation states of the EU, as well as Brussels itself, cannot get their act together.
There are demands that the six eastern partnership states clean up their democracies and raise human rights standards.

Human Rights Watch has just cited Armenia for detaining opposition activists who wanted to stage a peaceful demonstration about lack of freedom in Armenia.
Meanwhile, Georgia is demanding that Ukraine hand over former Georgian president Misha Saakashvili, who put his country on the global map after tackling corruption and growing the economy.

Saakashvili is now an advisor on economic and institutional reform to Ukrainian President Petro Poroshenko. The former Georgian leader is Putin’s International Public Enemy Number One and few doubt his fate if Kiev handed him over.
True, ballot box and media freedoms are not much in evidence in Belarus and Azerbaijan.  But is the EU’s inclination to treat their governments as perpetual pariahs or political lepers an effective policy?
In short, Europe has no offer, even in modest areas like visa liberalization, student scholarships, or trade and transport contacts that can turn the hopes of an effective EU Eastern Partnership policy into delivered reality.
A year after the new EU Commission arrived in office, its foreign policy successes are meager.

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Polish Lessons for the Ukrainian Economy Wed, 20 May 2015 05:30:14 +0000 By Wolfgang Schüssel

Can Ukraine fix its dire economic situation by taking lessons from Poland?

Credit:  Musia-97 - WikiMedia CommonsCan Ukraine fix its dire economic situation by taking lessons from Poland?

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By Wolfgang Schüssel

Can Ukraine fix its dire economic situation by taking lessons from Poland?

Credit:  Musia-97 - WikiMedia Commons

What a difference a few decades can make. Not long ago, Ukraine and Poland weren’t all that different in their economic performance. When the Soviet Union collapsed in 1991, Ukraine was only lagging slightly behind Poland in term of average income.

It had a better industrial base and far less foreign debt than Poland. Ukraine is also much more richly endowed in terms of mineral deposits, climate and soil than its neighbor. Yet, a quarter century later, the gap between both countries has become enormous.

While Poland has created remarkable growth and prosperity in the intervening decades, production in Ukraine has dropped by a third. As a result, Ukraine’s per capita GDP now is only a third of what it is in neighboring Poland. The war in Eastern Ukraine is doing enormous damage to the economy.

Understanding the disparity

What did Poland do better? How can Poland’s remarkable success be transferred to Ukraine? What role should Europe play?

Those are key questions that need to be addressed if Ukraine is to gain a better and more stable future. Poland’s success wasn’t due to any kind of magic trick.

The vast difference that has emerged by now boils down to one straightforward reason: Poland, after 1990, managed to implement fundamental legal and constitutional reforms which created the conditions for a competitive and dynamic market economy.

In contrast, Ukraine’s state was captured by oligarchs’ interests from early on. Under the control of the oligarchs, successive Ukrainian governments failed to institute a reform of the economy as well as of the state at large. Even the latest elections haven’t really brought about comprehensive change.

Anti-oligarch reform is one area where European involvement in Ukraine could be very beneficial. Since the Maidan revolution in 2014, Ukraine has received six billion euros in grants and financial aid from the EU. It desperately needs more funds in order to keep afloat.

This gives the Europeans an enormous amount of leverage that should be used to push for progress on the legal system, severing the ties between business and politics, taxing oligarchic fortunes and confiscating illegally amassed wealth.

Save energy, save the economy

Both the Vienna Institute and Johannes Hahn, the European Commissioner in charge of European Neighborhood Policy, put forward another crucial area of reform in Ukraine: energy saving. If Ukraine could achieve a level of energy efficiency comparable to the EU average, the country would be self-sufficient in gas.

Just imagine: Ukraine would not need gas imports from Russia anymore – what a game changer that would be! More energy efficiency would also greatly help the competitiveness of Ukraine’s industry. Right now, every unit of GDP produced in Ukraine requires three times as much energy as it does in the West.

To return Ukraine’s economy to growth, the deep structural split between the east and the west of the country needs to be taken into account. Ukraine’s industrial base lies in the east and is highly dependent on exports to Russia and other post-Soviet countries. The west traditionally is more agrarian and also much poorer.

What this means is that every effort needs to be made to improve economic structures in western Ukraine. Measures to be taken include fostering trade with the EU, facilitating foreign direct investment as well as cross border production linkages with the central European economies.

A long road ahead

None of this will be easy. For Ukraine’s economic misery, no quick fixes exist. Enormous political will is going to be needed – both for Ukraine’s friends and creditors, who must push the country in the right direction, and for the Ukrainians themselves.

Much of Poland’s political and economic success can only be explained through the Polish people’s determination to decide their own future. Today, Ukraine faces a similar situation.

It is the Ukrainians themselves who need to muster the political will to institute the reforms for a better future that will bring them closer to Europe. The European Union will be their trustful and constructive partner.

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Indonesia at a Critical Juncture Tue, 19 May 2015 13:09:42 +0000 By John West

Great political and social hurdles stand in the way of Indonesia’s development.

Credit: uyeah - political and social hurdles stand in the way of Indonesia’s development.

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By John West

Great political and social hurdles stand in the way of Indonesia’s development.

Credit: uyeah -

Today, the Indonesian economy stands at a critical juncture. Prices of its substantial commodity exports have been falling since 2011, and Indonesia’s oil and gas production is in long-term structural decline.

More recently, China, an important trading partner, has moved to a lower growth trajectory. At the same time, Indonesia has the potential to exploit a demographic dividend, as the working age population could increase by 15 million to 190 million from 2013 to 2020. Already some 43% of Indonesia’s population is below the age of 25.

Navigating this critical juncture will not be easy

Indonesia’s new President, Joko Widido (“Jokowi”) is a breath of fresh air after years of policy drift under President Susilo Bambang Yudhoyono. A self-made businessman, Jokowi is now a reform-minded politician, who is untainted by accusations of corruption.

But Jokowi has his work cut out for him. His political allies do not hold a majority in the parliament. The pace of reform has slowed since the Asian financial crisis. And protectionist tendencies have been evident, such as in the ban on the export of unprocessed mineral resources.

Indonesia is not an easy country in which to do business. It ranks only 114th in terms of the ease of doing business among the 189 countries surveyed by the World Bank.

Indonesia ranks even worse than the Philippines (95th), China (90th) and Vietnam (78th). And for some criteria, its rank is simply appalling, such as the 153rd for dealing with construction permits, 155th for starting a business and 172nd for enforcing contracts.

The OECD estimates that Indonesia has the fourth most restrictive policies towards FDI of the 58 countries it surveyed. Inflows of FDI are lower than in Indonesia¹s ASEAN peers.

Corruption stymying growth

Corruption is endemic in Indonesia, with Transparency International placing it at 107th out of 174 countries, way behind problem cases like China (100th), the Philippines (85th) and India (also 85th). In particular, corruption is widespread in the judiciary and law enforcement, according to the World Justice Project.

Indonesia’s poor infrastructure is legion, with the World Economic Forum ranking it 61st out of 144 countries surveyed. It is hardly surprising that Jakarta should have the worst traffic in the world. The Indonesian road length only grew by 35% over the past decade, while vehicle growth was 300%! The country’s infrastructure deficit has been a significant drag on economic and productivity growth.

Logistic bottlenecks are also preventing better integration into global value chains. Poor inter-island transportation prevents Indonesia from being an effective single market. It is often more expensive to ship goods from one Indonesian island to another than it is to ship from Indonesia to Singapore, China and even Rotterdam.

Access to financial services is very limited according to the OECD. A large proportion of poor households, micro-businesses and SMEs are excluded from formal banking and lending services. Overall, only 20% of adults have an account at a formal financial institution, compared
with 35% in India and 64% in China.

If only Indonesia could improve its business and investment climate, it has great opportunity to unleash the productivity potential of the economy, and become an industrial power.

China, which became the factory of the world in the 1990s and 2000s, has been suffering from rising wage costs and a declining workforce due to population aging — thereby creating a window of opportunity for countries like

But to exploit this window of opportunity, Indonesia needs not only a more business-friendly environment. It also needs a massive improvement in the quality its workforce to lift its productivity and GDP per capita.

Educating the masses

In the 2012 OECD PISA study, which focused on the education abilities of 15 year old students in 64 countries, Indonesia had the second lowest score (in contrast, fast-growing Vietnam, which still has a lower GDP per capita, ranked 17th). Over 50% of Indonesian 15-year olds do not even master basic skills in reading or mathematics.

The fact that the equivalent of almost six years of schooling separates the highest and lowest average scores in PISA 2012 highlights how far behind Indonesia is. Indeed, some 70% of Indonesian manufacturers indicate that it is very difficult to fill skilled positions.

Regrettably, a familiar refrain emerges in the education sector — around one-third of Indonesia’s education budget is misappropriated according to Indonesia Corruption Watch. And some 20% of Indonesian teachers are absent from the classrooms every day.

Improving economic opportunity for women could also greatly improve Indonesia’s economic prospects. It ranks a lowly 97th out of the 142 countries surveyed in the World Economic Forum¹s global gender gap index. Female participation in the workforce is relatively low, and many of those with jobs have part-time employment in the informal sector.

Another group regrettably deprived of economic opportunity is Indonesia’s indigenous people. They number some 50-70 million, out of a total population of 250 million and suffer terrible human rights abuses, especially in West Papua. Close to 40% of the West Papua population lives in poverty.

One factor holding Indonesia back has been the decentralization of government administration since the early 2000s. This may have brought government closer to the people. But it has also led to many inefficiencies in service delivery, and increased local level corruption.

President Jokowi’s challenges

President “Jokowi” has made an impressive start to his presidency since he took office in October 2014. His decision to abolish most fuel subsidies was a courageous decision, even if it was facilitated by the sharp fall in world oil prices. These savings will hopefully contribute to tackling poverty and improving education and infrastructure.

Over the coming decade, Indonesia will need economic growth rates of over 5% to avoid serious unemployment problems and the risks to social and political stability that this entails. Already, more than 20% of the youth population is unemployed. To make serious progress in climbing the development ladder would require growth rates around 10%.

Indonesia has great potential to succeed in its development challenge. But with a multitude of political and social hurdles, it will not be easy to make the necessary difficult decisions.

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Greece: “Creative Ambiguity” or Progress? Mon, 18 May 2015 05:30:42 +0000 By Christian Schulz

Creative ambiguity is not going to help secure money from Europe.

Credit: EU Council Eurozone  - ambiguity is not going to help secure money from Europe.

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By Christian Schulz

Creative ambiguity is not going to help secure money from Europe.

Credit: EU Council Eurozone  -

Greek Finance Minister Yanis Varoufakis’ recent soundbites have been promising:

    “Greece’s social security system not sustainable.”

That statement could soften the red lines of raising pensions and not raising effective retirement ages.

    “Greece will sink without reforms.”

This statement could justify new reforms and keeping some of the labor and other reforms previously agreed in place — instead of reversing them.

    “No haircut on official sector debt.”

This statement sounds as if he now recognizes the importance of political support in the creditor nations to secure any new funding. Threatening not to repay the bail-out loans in full will not deliver a positive vote in Germany’s Bundestag for a third bail-out this summer.

    “Greece needs realistic asset sales targets.”

Translation: Sales from privatizations may be lower than the creditors would like, but they won’t be zero.

    “Greece needs to make compromises with its creditors.”

With this statement, Varoufakis might be taking on the fiercest left-wing hardliners in Syriza.

On the other hand

As always with Mr. Varoufakis, the positive interpretations above may turn out to be wishful thinking. If Varoufakis was employing his cherished “creative ambiguity” to the full, he could also mean that:

1. the social security system needs to be expanded to ease Syriza’s “humanitarian crisis”,

2. better tax enforcement is the only “structural reform” Greece has needed since 2007

3. instead of defaulting on loans, they would be converted into zero-interest perpetual bonds (i.e., gifts),

4. realistic asset sales targets might not be zero, but much lower than creditors would like

5. the creditors really need to compromise with Greece.

So far, the only compromise Greece seems to be offering is raising a plethora of tax rates from VAT to luxury taxes. Such promises might have pleased the troika five years ago, but today the focus is much more on growth-enhancing structural reforms.

Mr. Varoufakis implicitly acknowledged that Greece will need a third bail-out this summer, not least to make the nearly €7 billion in repayments due to the ECB in July and August. Greece does not want to default on these, but hopes that the European Stability Mechanism (ESM) will somehow pay them for Greece, which is the precisely the definition of a Eurozone bail-out.

Such a bail-out would require parliamentary approvals in several Eurozone countries, not least in Germany. Germany’s government has the necessary majority and political capital to go against public opinion which is by now, thanks to Mr. Varoufakis’ constant flow of antics, firmly against any new aid for Greece.

In contrast, an end of “creative ambiguity” and some trust-inspiring measures such as legislated reforms would greatly enhance Germany’s willingness to help.

That leaves two important questions:

1. When will Mr. Varoufakis introduce legislative proposals for social security and labor market reforms, which are necessary to secure the €7.2 billion left from the old bail-out?

2. Will the Greek government manage to get these approved in parliament without losing its own majority over it?

Traditionally, governments expel dissenters from their parliamentary groupings. Prime Minister Tsipras may get the tough reform legislation passed through parliament with support from the opposition, but he may lose his majority and thus his job over it.

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India: Maneuvering Among China, the US, Europe and Russia Sun, 17 May 2015 16:51:34 +0000 By Sanjeev S. Ahluwalia

Prime Minister Modi faces a real foreign policy “trilemma.”

Credit: VectorWeb www.shutterstock.comPrime Minister Modi faces a real foreign policy “trilemma.”

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By Sanjeev S. Ahluwalia

Prime Minister Modi faces a real foreign policy “trilemma.”

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India’s bland foreign policy has traditionally been based on the principle of “please all and offend none” with respect to the great powers and “ignore” the rest. Things changed under Indira Gandhi when India pivoted to the Soviets and teamed up with them against the “capitalists” in the West.

In the post-1990 era, once the Soviet Union disappeared, India reverted to the “offend none” tactic. That approach suited the soft-spoken Prime Minister Manmohan Singh quite well.

Things have changed since then. Prime Minister Narendra Modi, in office since late May 2014, is a muscular and energetic man. He wants his foreign policy to reflect that energy and purpose. But Mr. Modi faces the classic problem of managing an “impossible trinity” — an emerging China, the United States and a weakening Russia.

China today attracts allegiance from countries cutting across traditional power blocs. East Asia, including the often truculent Vietnam and Australia, feed off China’s economic growth. China’s GDP will rise by $6 trillion in the period from 2015-24. For East Asian nations, this is a powerful magnet that dulls the pain of negotiating with China over “disputed territory” in the South and East China Sea.

Similarly, Sub-Saharan Africa increasingly depends on Chinese investment “aid” and mineral exports to China. Even Russia prefers to diversify its energy exports away from Europe to China — but not to India or Japan.

Good fences make good neighbors

China is an immediate neighbor of India. A dispute over border demarcation in the west and east lingers. Neither party is really willing to resolve it.

For China, the ongoing border dispute presents it with an opportunity to build roads through Pakistan-occupied Kashmir (PoK). Beijing can thus link into Karachi on the Arabian Sea and the still-to-be-built Chinese port of Gwadar in Baluchistan province, next to the Iranian border.

For India, the border dispute — in particular, China’s crafty moves to build infrastructure through PoK (with Pakistan’s support) — also serves to legitimize a tit-for-tat aggressive development of Arunachal Pradesh, a border territory claimed by China. The area has significant hydropower potential, estimated at around 30 gigawatts. In addition, it is of strategic importance to safeguard the northeastern states of India to its south.

It is fashionable to cast India’s need for China in commercial terms — trade and investment. But China is a much more efficient manufacturer than India. That, in effect, makes India the junior exporting partner, as evidenced by a trade deficit of $40 billion, or more than one half of bilateral trade. This is also evidence of China’s relative competitiveness, although Indian exporters cry foul about informal barriers to imports.

Seeking investment from China is one way of plugging the hole created by the trade deficit. This offers a great business opportunity for China.

India’s growth story, while not as impressive as China’s, is sufficiently dramatic in these economically hollow times to have caught global attention.

From the Chinese perspective, growing economic ties with India — soon to be the fourth-largest economy in the world (after the United States, China and Japan) — enhance China’s “strategic prestige.” This is the “pull” factor.

There is also a “push factor,” which Indian strategists tend to pay great attention to — that is, China’s latent paranoia that India may become part of a U.S. effort to encircle China, along with Japan.

India: A link in a chain to contain China?

In my view, this “fear factor” is exaggerated. China knows full well that the Indian psyche favors reconciliation rather than confrontation. India routinely prefers turning a blind eye to occasional intransigence, even though it abhors subjugating its sovereignty to any foreign influence — a legacy of its colonial mindset. Either way, India could never be a subaltern link in an American chain to “contain” China.

China is remarkably unconcerned about future competition from the United States. Over the next 30 years, the United States has to contend with four big challenges that will reduce that nation’s strategic heft in the global arena. The United States will:

1. Morph demographically into being dominated by fast-growing Hispanic and African-American communities.

2. Deal with an aging, minority white population.

3. Cope with the inherited disadvantage of high wages and even higher citizen expectations.

4. Face up to a degrading infrastructure and increasing inequality.

What this will mean for the “can do” spirit and mojo which define the United States is unclear. Of course, other nations -– including China — face significant challenges of their own. But China does not have to contend with the downside of participative democracy — long lead times in decision making.

Despite such uncertainties, the United States remains a long-term natural ally of India. Its pluralistic culture, democratic values, federal institutional arrangements, history of innovation, and well-grounded belief in religion and the “family first” mantra fit in well with India’s characteristics.

A weakening United States and a strengthening India make a perfect combination.

How to deal with China? Despite all the hype about the latter country, the combined GDP of the United States, India and Japan will be double China’s GDP in 2024. That sheer economic size attracts allies around the globe.

Knowledge of this reality is reflected in the determined efforts of Mr. Modi to establish India as a trade, investment and communication bridgehead with the United States, Japan, Germany and Australia.

The toothless bear plagued by a weak economy

The traditional third leg of the India’s foreign policy trinity has been Russia. But the gains from trade or strategic alignment with that country are scarce. A close strategic friendship with Russia elicits no apprehension in Beijing. Russia is viewed there today as a “toothless bear” plagued by an overly natural resource-export dependent economy.

Russia, ruled by oligarchs, has to reform and shed its macho image. Its best bet is to integrate into Europe, where it belongs. Consequently, the “real” third leg of the trinity in India’s future is Europe, with Germany and Russia as possible focal points.

Mr. Modi’s strategy to navigate the impossible trinity of the United States, China and Europe-Russia is clear. It has three core elements:

1. Engage with the United States, Japan and Germany aggressively and integrate into their value chains.

2. Keep expectations low but exchange lofty targets with the Chinese and the Russians.

3. Most important, gear up India’s economy.

India’s best friend for the future clearly is its own strength and resilience.

Editor’s Note: This feature was adapted from an earlier version that appeared in Asian Age.

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China: Peaceful Rise to Great Power Status Won’t Be Easy! Sat, 16 May 2015 16:00:36 +0000 By Jean-Pierre Lehmann

Can the West constructively encourage China’s peaceful rise?

Credit: Oxana Stepanova - www.shutterstock.comCan the West constructively encourage China’s peaceful rise?

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By Jean-Pierre Lehmann

Can the West constructively encourage China’s peaceful rise?

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In 2006, China Central Television (CCTV) produced a documentary series entitled “The Rise of the Great Powers.”

For China, the journey started in the early 15th century. That was the extraordinary time of the maritime exploits of the Chinese imperial navy, which occurred under the command of Admiral Zheng He. Back then, it seemed as if China were destined to become the first truly great global maritime power.

In a remarkable turnaround, however, the Ming Emperor Xuande in 1433 forbade any further trips and had the ships destroyed. Instead, by the end of the 15th century, the global Portuguese seaborne empire emerged. China had lost its place as a world-shaping power. Arguably, six centuries later its time has come.

The CCTV series asked a pertinent question: How did the great powers of the past rise?

In the well-researched and cinematographically sophisticated documentary, the inquiry spans the period from the 15th to the 20th centuries in successive chapters devoted to the emerging great powers: first Portugal, followed by Spain, the Netherlands, Britain and France. The last four great powers emerged in the late 19th and early 20th centuries: Germany, Japan, Russia/USSR and the United States.

One inescapable conclusion is that every single rising power of the past achieved its status through wars. The wars generally included plunder, massacre, slavery, rape and pillaging of sacred sites.

Wars also occurred between the great powers – for instance, Britain versus the Netherlands, Germany versus France, or in World War II, Germany and Japan against Britain, Russia and the United States. Or the wars were imperialist, such as Britain’s conquest of India, the opium wars against China or the Boer wars in South Africa.

The United States got to become a great power due to a number of factors that included the slave trade from Africa, the genocide of native American Indians, war against its neighbor Mexico, expansion of hegemonic control over Latin America through the Monroe Doctrine (1823) – and, at the end of the 19th century, the war against Spain which led to the colonization of the Philippines.

China: Targeted and humiliated

Not only did China fail to become the first great global maritime power. It also became instead a plundered target of the great powers.

On the eve of the first Opium War (1839), China accounted for over 30% of global GDP. At the time of Liberation in 1949, that figure had dropped to less than 4%.

The “era of humiliation” involved political, military, economic, psychological and cultural humiliation. In the second Opium War, British and French troops destroyed and pillaged the Summer Palace in Beijing – akin to Chinese troops destroying and pillaging the British Museum and the Louvre.

The Japanese committed atrocities during the Pacific War (1937-1945), including the Nanjing Massacre and the lethal experimentation on Chinese civilians of biological and chemical warfare by the Imperial Army’s Unit 731 in Northeast China.

In the decades following World War II, until the mid- to late 1970s, the People’s Republic of China was ostracized from the “international community,” primarily at the insistence of Washington.

Since the turn of the 21st century, China has been back in the international community (i.e., it became a member of the WTO in 2001). It is now well on its way to becoming the world’s next great power.

Therefore, history presents a number of factors that give one pause:

1. The undoubted historical pattern of the correlation between rising great power status and warfare.

2. The understandable sense of bitter revenge many Chinese feel from the humiliations and atrocities perpetrated by some of the great powers in the past.

3. The inevitable rivalry between the established great power of the United States and the rising great power of China.

4. The geopolitical fault-lines, including numerous territorial disputes, in the Asia Pacific region and especially the East and South China Sea.

Can China’s rise to power avoid war?

Considering those factors, it would seem almost inevitable that China’s rise to great power status will, as in the case of the nine preceding rising great powers, involve war. After what happened in the 20th century, that is a truly cataclysmic perspective.

It has been argued – notably by Zheng Bijian in “China’s Peaceful Rise to Great Power Status” – that China’s case will be different for a number of reasons.

Although it is now the world’s second-biggest economic power, China still has a relatively poor population. Thus, priority must be given to domestic development, as opposed to external expansion.

Though it may appear formidable due to its sheer size, China remains a fragile great power. For example, it has 18% of the world’s population, but only possesses 7% of the world’s arable land. No wonder food security is a national obsession, as is access to energy.

True as well that China is building up its military and especially its naval capability. But it will be decades before it is anywhere near competing with the United States.

A narrative of war or peace?

Those are important considerations. But they do not necessarily mean that war is impossible – all the more so as we know from history that the outbreak of wars does not follow logic.

In addition, different logics may apply from different perspectives. Imagine, for example, that the Chinese feel constrained by the United States and its allies in its rise as a great power and what it sees as its legitimate aspirations. Under those circumstances, China may feel impelled to act what it considers defensively before it becomes even more constrained.

Whether China’s rise to great power status turns out to be a narrative of war or peace will depend on two factors — internal Chinese political dynamics and how the outside world reacts and adjusts to China’s rise.

Amends, not sermons

So far, the record is not especially encouraging. To anybody who even knows just a little bit of history, the Western preaching to the Chinese about “international standards” and the “importance of rules” must smack of unbelievable hypocrisy in light of past acts. What rules did the West and Japan adhere to when plundering China?

The challenge for Washington especially, but also for London, Paris and Tokyo — all China’s imperialist predators in its quite recent past — is not how to contain China’s rise, but how to engage China constructively. In so doing, one must recognize that China harbors a justifiable grudge. Amends, not sermons, are in order.

To escape the bellicose syndrome of the rising powers of the past, in particular the 19th and 20th centuries, we all have to work arduously to create a new paradigm, one in which, for the first time in history, a great power will rise peacefully. It won’t be easy, but we have to try!

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UK’s Cameron: Caught in the Syriza/Tsipras Trap Fri, 15 May 2015 06:00:43 +0000 By Stephan Richter

Why Britain won’t get a “new deal” from Brussels and Europe.

Credit: frees - www.shutterstock.comWhy Britain won’t get a “new deal” from Brussels and Europe.

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By Stephan Richter

Why Britain won’t get a “new deal” from Brussels and Europe.

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Who would have ever thought that the outcome of the British elections would be that Britain’s reelected Prime Minister David Cameron now finds himself in the very same predicament politically as his Greek counterpart Alexis Tsipras?

Mr. Cameron promised the British electorate something on which he ultimately cannot deliver – a better deal from Europe. That is his price for preserving British membership in the European Union. Tspiras and Co., too, wanted a new European deal (although one that, on substance, would run in the very opposite direction of what London has in mind).

Voters now expect Cameron to make good on his word to renegotiate Britain’s deal with Europe. This effort will prove to be a non-starter – and consequently lead to great disappointment in England.

Why negotiations will fail

There are two principal reasons why it will be so: First, the EU’s rules are those of a club – which means they are to be respected by all members. If any people in Europe should have an innate appreciation of what it takes to be a club member and follow the rules, it is the British – by far the clubbiest of all European societies.

Second, Mr. Cameron will find out soon to his utter dismay that, just like Alexis Tspiras did at the opposite end of the ideological spectrum, he will end up unifying those who might be his allies in principle against his mission and his cause.

The Brexit debate will thus have a stunningly similar effect on the EU as Mr. Tspiras of Greece had before. In the Greek case, the French and the Italian governments initially leaned over backwards to help him and express solidarity with his cause. Now, they have turned away from him, basically in disgust.

Cameron will find the same result, although vis-á-vis a different set of partners: The Germans and the Nordic countries are generally sympathetic to the cause of an economically dynamic, less bureaucratic Europe.

These countries will find that Mr. Cameron will overshoot his targets. They also realize that any deal cannot apply to just one country – and it must be made as part of the rule-making in the club.

Britain’s true moment of denouement will come when Cameron is told there won’t be a special deal for him – that Britain, in effect, cannot be treated better than Greece. The rules, after all, are the rules.

That means that Cameron will only “succeed” in the most cosmetic matters, to give him a (barely) face-saving way to change his course.

This forces a very real choice onto the British Prime Minister: Essentially having failed to bring home real “bacon,” he would schedule a referendum to keep up his campaign promise, while arguing for staying inside the EU anyway.

The basic fact is that the country has very limited economic options. An island nation in a cold, damp part of Europe, its economy and wealth generation – at least the parts not derived from being servile to Russian oligarchs and Saudi princes – is heavily dependent on membership in the EU.

Time for a wake-up call

The reasons for applying a tough line to Cameron’s demands ultimately have to do with forcing a moment of realism onto Britain. For Europe’s long-term future, and that of the UK itself, it is far better to force a decisive vote in the minds of the British people about where they stand.

The special status game has been going on for many decades. So has the fence sitting. Neither game has strengthened the British economy. Membership in the EU has, even if English nationalists don’t want to accept that fact of life.

The preposterousness of Cameron’s endeavor to get a new deal is also clear from the extensive, over 3,000 page study – the Balance of Competences report — which his own government conducted about the benefits of EU membership. Covering all 32 policy areas of the EU, they were found to be so plentiful and well-balanced that the Cameron team promptly decided to bury the study.

The choice of being inside the EU or on the outside of the EU is a sovereign choice of the British people. They should choose and finally come to terms with their own destiny. The eternal inclination to sit on the fence is not good for any nation.

As it turns out, Britain’s options – not least at a time when Washington is mightily unimpressed with its British cousin – are far more limited than the elites in London let on.

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Grexit and Brexit: Some Stunning Parallels Thu, 14 May 2015 15:26:04 +0000 By Denis MacShane

Both Greece and Britain could face referendums that would change their place in Europe.

Credit: Theophilos Papadopoulos - Greece and Britain could face referendums that would change their place in Europe.

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By Denis MacShane

Both Greece and Britain could face referendums that would change their place in Europe.

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Alexis Tsipras and David Cameron — respectively, the Greek and British prime ministers — were both elected with 36% of the total vote this year. And both men surely managed to turn an otherwise meager margin of victory into a most amazing election win imaginable. In both cases, that was due to the vicissitudes of their unusual national election systems.

Both prime ministers want national EU governments and the Brussels institutions to be more flexible, offer a specific national deal and bend the rules to fit in with their demands. The difference lies in the fact that, on substance, they want the very opposite of what the other man claims.

But then again, look for another parallel in the two negotiating teams: The lead negotiators for Britain and Greece – George Osborne and Euclid Taskalotos — are both graduates of the elite London private school, St. Paul’s.

Fear the referendum

Where the two countries part company is that the Greek government apparently now does not want to hold a referendum over the economic package the EU and the other institutions offer to Greece. Syriza is quite possibly afraid that the Greek people would vote for a tough deal (viewed from the Greek vantage point), just so their country can stay in the Eurozone.

Syriza’s dislike of a referendum, despite its constant referral to popular will, stands in stark contrast to then Greek Prime Minister, George Papandreou, who did want to hold a referendum on whether to accept the economic rescue package offered to his government.

However, in November 2011, Nicolas Sarkozy and Angela Merkel put immense pressure on Papandreou not to hold such a vote. He buckled and gave in to the Geran and French governments.

But his instinct was correct. It would have been better if Greece had faced up what was needed to be done through a referendum as Greece’s discredited political class no longer has any moral authority over the nation.

The need for democratic legitimacy, in a curious reversal, is now also recognized by Germany. Its finance minister, Wolfgang Schäuble, a hardliner on economic reforms, says a referendum in Greece might be necessary to get the Greeks to decide once and for all if they will pay the necessary price for being an EU and Eurozone member.

This suggestion of a Greek referendum reinforces the parallels between Greece and Britain.

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David Cameron, the Minimalist Thu, 14 May 2015 15:25:59 +0000 By Denis MacShane

Cameron has set the barrier for the EU so low even Jean-Claude Juncker could hop over it.

Credit: Number 10 - has set the barrier for the EU so low even Jean-Claude Juncker could hop over it.

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By Denis MacShane

Cameron has set the barrier for the EU so low even Jean-Claude Juncker could hop over it.

Credit: Number 10 -

Perhaps he didn’t really mean it and is coming to his senses quickly. Or perhaps re-elected British Prime Minister David Cameron is finding that satisfying British business that wants to stay in the EU, British Tories who have drunk at the Eurosceptic well for years and 27 other EU heads of government is going to be difficult.

According to Nick Watt, The Guardian’s very well connected political editor, Britain’s re-elected Prime Minister David Cameron now wants very little from the EU in order to satisfy his demand for a “new relationship with Europe.”

In addition, he wants to end the specter — by calling the EU referendum for 2016 — well ahead of the French and German elections in 2017. That, too, is a smart move.

All four of Cameron’s “demands” are points so minimalist — and so far removed from what British Eurosceptics have been demanding — that it is hard to see how the EU, both the Brussels institutions and the 27 other member states, would have problems in conceding them.

The four demands are:

1. Allow at the next treaty discussions, probably after 2020, a protocol saying the UK is not covered by the words “ever-closer union of peoples” which has been in EU Treaty preambles since 1957.

The words were actually removed from the 2004 Constitution and it will be no problem to give UK its pathetic little extra paragraph at the end of the next major Treaty revision, whenever that happens.

2. Reform and limit access to social benefits for EU migrant workers. Again this no big problem, as the European Court of Justice (ECJ) has already signaled governments have power to do this.

The only hiccup would be if the proposal is to amend certain directives, which requires the assent of the European Parliament. In addition, some eastern EU governments will not accept discrimination against their citizens. But this is a matter of wording.

3. Give more power to national parliaments. Again this is already in the Lisbon Treaty but it means national parliaments have to create their own network and form a blocking group.

The EU cannot give each individual national parliament the right to veto directives or Treaties, but Commission First Vice-President Frans Timmermans has long argued for more involvement of national parliaments. Language can be found on this to satisfy Cameron with a promise to examine putting into the next Treaty more reference to national parliaments.

4. Agreement that the Eurozone cannot impose rules that discriminate against non-Eurozone countries. This battle has been won with the ECJ upholding a UK complaint against the proposal that Euro trades can only be carried out in a Eurozone country. The wording will be tricky but not impossible.

If these reports are right, then the Cameron list of what he wants from the EU is so minimalist as not to matter much. It is far removed from limiting immigrants, repatriating powers, allowing the House of Commons to veto EU law and policy and other demands that the Tories, Eurosceptic papers and UKIP have put forward.

There is nothing on Social Europe, so the demands from the CBI and other business organizations for more power for employers and less rights for workers have just been ignored.

Cameron the minimalist

Assuming these minimalist demands are all that Cameron wants, he can have those in time for the summer holidays.

Good news? Not quite. While Cameron’s spin doctors were offering the vision of a quick and cheerful easy deal, his Finance Minister, George Osborne, who is charge of the negotiations got a tongue-lashing in Brussels this week as fellow Finance Ministers told him to lower expectations.

The French finance minister, Michel Sapin, said Britain was like Greece in insisting on tortuous negotiations that would get no where.

Sapin insisted there was no question of changing the EU Treaty which many Tories believe is necessary to lock in any new relationship with the EU. The German Finance Minister, the hardline Wolfgang Schäuble, said that Osborne was “silly” and had made “unnecessary” remarks about the Eurozone to which the UK does not belong.

Small change of usual Brussels wrangling? Yes, but Finance Ministers do not usually insult a colleague on the record and Cameron’s softly-softly spin in London is not matched by the Varoufakis style hectoring from his chief negotiator in Brussels.

One of the most senior Commission officials until recently in charge of social and employment policy said in a Social Europe video discussion recorded at the European Parliament that Cameron’s call for different treatment of British and EU workers was discriminatory and would be rejected by other governments and the European Court of Justice.

It might be possible to reduce the level of benefit paid to children living abroad of workers in the UK to the norms in their home countries. Such ways of changing policy are possible, with the exception of the EU Treaty, which cannot be opened up for discussion until after 2019.

But in private discussions Tory MEPs in the European Parliament were insisting that limits on EU citizens coming to work in Britain did need to be agreed on, if they were to vote Yes to any agreement.

In the end, whatever deal is reached, there is no guarantee the Brits will vote to stay in. Even countries that have high levels of pro-EU feeling like the Netherlands or Ireland change once a referendum is called. The pleasure in voting down what the government elites propose becomes very strong.

Irrespective of any package Brussels fashions for London, Mr. Cameron’s plebiscite on Europe will unleash populist passions which have their own momentum and raison d’être and which very likely will not be assuaged by the minimalist deal he may secure.

The English people will be eager to have their own say on the European project that has for so long been denounced in Britain by many politicians and most of the press.

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UK’s Brexit Risk: Five Issues That Need Watching Thu, 14 May 2015 06:00:13 +0000 By Katinka Barysch

There is a low probability Britain will leave the EU, but if it does, the consequences will be tremendous.

Credit: Inductiveload - WikiMedia CommonsThere is a low probability Britain will leave the EU, but if it does, the consequences will be tremendous.

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By Katinka Barysch

There is a low probability Britain will leave the EU, but if it does, the consequences will be tremendous.

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Although the election result means that the United Kingdom should have a reasonably stable government in coming years, business and investors in Britain face considerable uncertainty. The big questions going forward concern the cohesion of the UK and its future in the European Union.

Mr Cameron promised during his last term to use a renewed mandate to get a “better deal” for his country in the EU and then ask the British people whether they want to stay or leave in a referendum.

Most observers consider the risk of the UK leaving the EU as tangible, but low. British voters seem a lot less interested in the “European question” than they were a couple of years ago. In the election campaign, the EU was hardly mentioned – despite the vocal campaign and strong result of the anti-EU UK Independence Party (which received 13% of the overall vote, but only one parliamentary seat).

When asked how they would vote in an EU referendum tomorrow, significantly more people now say they would opt for staying (45%) than leaving (36%).

Time to blow the all-clear signal then? That would be premature. Domestic uncertainties, in combination with European developments, make any forecast about the EU referendum at this point highly speculative. The following five issues can help us to assess the risk of Brexit going forward.

1. Current opinion polls are not a reliable guide the future.

Two years ago, over 50% of Britons wanted to leave the EU, compared with a quarter who wanted to stay. Only since the beginning of last year did the polls show a shift in favor of staying in the EU.

Voting intentions in the referendum could swing back towards “no” under any number of scenarios. If the eurozone crisis flared up again, for example, Britons would once again perceive the EU as a zone of economic instability and slow growth that is not worth belonging to.

2. The timing of the referendum will be important.

Under domestic considerations, Mr. Cameron might call the referendum sooner rather than later, perhaps as early as mid-2016. Eurosceptics would prefer an early decision. And so would business, which is keen to forestall the risk of prolonged uncertainty and a government distracted by EU negotiations.

Moreover, elections are due in both France and Germany in 2017, which will make the respective leaders of these countries less inclined to make concessions to the UK. On the other hand, an early referendum in 2016 would leave London a lot less time to negotiate a meaningful deal with the other European countries.

3. The UK cannot negotiate an entirely “new deal” with the EU.

In more nuanced opinion polls, a large majority of Britons would vote for staying in the EU if Mr. Cameron managed to negotiate a “better deal” for his country in the EU.

Mr. Cameron has so far said very little on what he thinks such a deal would look like. His strategy for the plebiscite will become clearer once he introduces the required “referendum bill” in Parliament, which could well be one of the first acts of his new government.

On issues such as subsidiarity and further market opening, Mr. Cameron can expect sufficient support from Germany and other member states. They would not, however, back the right of the UK to opt out of significant areas of EU policy and law.

Poland, the Czech Republic and other Central and East European countries have traditionally been allies of the UK in EU negotiations. They have, however, been antagonized by the Conservative party’s anti-immigration rhetoric of recent years.

What this means in practical terms is that, unlike in the past, Mr. Cameron and his cabinet will have to devote significant time to building coalitions in Europe to ensure that the negotiated deal is accepted by the other 27 member states.

The likely result of the negotiations will be a mixture of limited concessions and political pledges. Since some voters in Britain have incomplete knowledge of what EU membership actually entails, the government might be able to sell such limited results as the promised “better deal.” For others, whose objective it ultimately is to leave the EU, no result – however comprehensive – is likely to be good enough.

4. Party politics will be intractable.

Whatever the outcome of the negotiations, Mr. Cameron will have to campaign for a yes vote in the referendum. His party, however, will not necessarily follow him.

The Conservative grassroots have long been more eurosceptic than the population at large. In a poll in early 2015, for example, 58% of Conservative party members said they wanted their country to leave the EU, while 33% opted for staying. Even several members of Mr. Cameron’s new cabinet are on the record as saying they would vote no in a referendum.

Among the new Conservative members of parliament, one-third are said to prefer leaving the EU. Mr. Cameron’s slim parliamentary majority of only 12 seats strengthens the position of these eurosceptic backbenchers, who will now be in a position to “blackmail” the government into concessions over Europe.

Mr. Cameron will face an almost impossible balancing act between striking a pragmatic deal with the other EU governments and placating the hardliners within his own party. A number of Conservative politicians will reject any EU deal that does not restore significant powers from Brussels to London.

Since such a deal is not feasible, they will insist on the right to campaign against their own government. Therefore, the risk is high that the party will split during the referendum campaign, which might also imply a lost parliamentary majority and an early election.

5. Union questions will complicate the EU campaign.

Mr. Cameron will be distracted not only by European issues, but also by the pressing need to redefine the relationship between England and the other constituent parts of the United Kingdom, most notably Scotland.

Scotland’s nationalists have emerged strengthened from the election and they will demand that each of the four constituent parts of the UK must individually consent to a decision to leave the EU. Scotland is traditionally more pro-European than England.

If Scotland voted for staying in the EU, while England voted in favor of leaving, this split would almost invariably trigger another referendum on Scottish independence. The future of the United Kingdom is therefore one of the issues that voters will consider when they vote in the EU referendum.

Optimistic about the future

All things considered, there are still good reasons to assume that the UK will stay in the EU for the foreseeable future. If the British economy continues its recovery – and the good performance in the labor markets starts translating into wage growth – most Britons will have few reasons to opt for a radical change in the upcoming EU referendum.

Although some of Mr. Cameron’s EU-related decisions in the past appeared to be less than fully thought through, the prime minister is an experienced political operator who should be able to navigate the turbulences ahead.

The other EU countries are, on balance, willing to take a constructive attitude towards Britain’s demands for EU reform – provided the UK does not ask for unreasonable opt-out’s, for example from the free movement of labor.

And yet, the political landscape in both the UK and the EU has been changing so quickly in recent years that it is impossible to predict which constellation will prevail at the time of the referendum.

©2015 The Globalist


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Trade Deals and the Pursuit of Geoeconomics Wed, 13 May 2015 06:00:42 +0000 By Peter S. Rashish

Will trade deals such as TTIP and TPP change the world economic order for the better?

Credit: Chaser - WikiMedia CommonsWill trade deals such as TTIP and TPP change the world economic order for the better?

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By Peter S. Rashish

Will trade deals such as TTIP and TPP change the world economic order for the better?

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As the U.S. Congress debates whether to provide President Obama with Trade Promotion Authority, or “fast track,” to negotiate the Trans-Pacific Partnership (TPP) and the Transatlantic Trade and Investment Partnership (TTIP) effectively, it is important to remember what these deals are about.

Trade deals must make sense on their economic merits, and there is ample evidence that in the United States both export-related jobs and jobs in companies owned by foreign investors pay higher wages than the average.

As these deals open new markets for U.S. goods – and open the U.S. market to investment from abroad – they will create more widely based prosperity.

Making way for hyper-globalization

But beyond these more traditional benefits from trade liberalization, there is something else at stake in these two sets of negotiations. For the first time, the United States is pursuing trade deals under conditions of what could be called “hyper-globalization.”

Trade and investment are linking countries in a way that not only matches, but goes far beyond what was seen in that halcyon period before World War I when, as the economist John Maynard Keynes wrote, “The inhabitant of London could order by telephone, sipping his morning tea in bed, the various products of the whole earth, in such quantity as he might see fit, and reasonably expect their early delivery upon his doorstep.”

No, economic interdependence did not prevent the Great War from occurring then, and it is not a guaranteed insurance policy against inter-state conflict today. But unlike 100 years ago, now countries, companies and people are intertwined not only by goods that flow either in or out of one particular market.

Today, goods travel back and forth several times, in and out of multiple markets, each time adding inputs before final assembly, export and consumption. It is no longer so clear what is an import and what is an export, and what national label should be fixed on the back of a mobile phone, car engine or medical device.

This phenomenon of global value chains has not only reshaped the way that trade and investment take place, but has also changed the way countries can pursue their national interests.

For in a hyper-globalized world, where every country harbors companies that are actual or potential commercial partners, a government must think twice before engaging in direct conflict that could damage its own interests as much as those of a country somewhere across the globe.

A new layer of international relations

At the same time, because of this complex web of interdependence, governments have new trade and economic levers they can pull to pursue their geostrategic goals – they can engage in the practice of geo-economics.

A modern trade agreement, for example, one that covers an unprecedented range of commitments including the rule of law, the role of the state in the economy, investment protection, Internet freedom and environmental and labor standards, can do as much to cement common interests between two countries as a formal political or military alliance.

But it is not only that we are witnessing the rise of an age where the more indirect art of geo-economics can be as effective as the more confrontational one of geopolitics.

What also characterizes today’s international economic system is its diversity – the coexistence of a range of economic models, from statist to free-market to somewhere in between. Think of China or Russia in the first category; the United States, the EU or Japan in the second; and in the third, countries like Brazil or India – strong democracies, but ones that do not readily fit into either economic mold.

China’s rise is the most notable event in this context. But discussions about how to engage with a China that will soon become the world’s largest economy would not be so focused if it were like a large Switzerland, firmly committed to the rule of law and a free-market economy. It is as much China’s distinct way of organizing its economy as its size that gives rise to debate.

It is true that nearly all countries trade and invest with each other today despite differences in their economic models. And that is a welcome phenomenon, because it maximizes global welfare.

But because of diverging concepts of how both domestic economies and the international trading system should be organized, there is a need to find a minimum of common ground that levels the playing field, allowing companies to compete fairly (or to cooperate to greatest positive effect).

Pioneering international trade

This is where the two mega-regional trade deals, TPP and TTIP, come in. In the best of all worlds, it would be the World Trade Organization (WTO), the multilateral body with nearly universal membership, that would determine how to structure international trade.

But because of the increasing diversity in the global economy, the WTO’s Doha Round of trade negotiations has been in low gear for several years now. It has not been possible to find consensus among such a large number of countries that span the full range from statist to market economy and points between.

In retrospect, it does not appear a coincidence that the term BRICs – which has become a kind of shorthand for the rise of emerging economies – was coined in November 2001, the same month that the World Trade Organization launched the current Doha Round of trade negotiations.

For there is no denying that as a result of their strong rates of growth, the BRICs (or BRICS, adding South Africa to Brazil, India, Russia and China) and other emerging economies now carry more relative weight in the global economy, and are better able to have their diverse voices heard in the WTO.

This is a natural state of affairs, and one that has raised millions out of poverty, but it has complicated the task of global economic governance.

Neither TPP nor TTIP was the cause of the WTO’s current woes, or of the increasing diversity of the international economic system, but rather reasonable responses to it.

Expediting international trade

Within a challenging international economic landscape, these deals are not an end run around the multilateral system. They rather aim to create a multi-speed approach to trade reform and liberalization.

This approach would be faster within these regional trade deals where like-minded countries can make quicker progress and slower in multilateral ones where the complexity of the trading system is fully present. But all would be heading in the same direction of a more integrated international trading system.

Neither the Trans-Pacific Partnership nor the Transatlantic Trade and Investment Partnership is a closed shop. Both are in principle open for other countries to dock onto if they can meet their rules governing investment, innovation, digital commerce, the environment, labor and other areas.

Countries like Korea or Colombia are natural candidates to join TPP, just as Switzerland, Norway and Turkey may seek to join TTIP once it is concluded. And these countries are only a start: Eventually, TPP and TTIP can serve as a model for how trade can be organized at global level.

This is an optimistic vision and there should be no turning back. A world without TPP and TTIP would mean neither the status quo nor even more protection against the challenges of hyper-globalization.

It would mean a world of greater international economic disorder, one without rules reflecting U.S. values and consonant with U.S. interests, and where the fate of U.S. companies and workers would increasingly be determined by others. It’s time to seal the deals.

©2015 The Globalist


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Germany: David Cameron’s Chance for Redemption Tue, 12 May 2015 06:00:41 +0000 By Stephan Richter

After two world wars and a lost century, Britain and Germany must recognize at long last they have a common future.

Credit: Sebastian Zwez - WikiMedia CommonsAfter two world wars and a lost century, Britain and Germany must recognize at long last they have a common future.

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By Stephan Richter

After two world wars and a lost century, Britain and Germany must recognize at long last they have a common future.

Credit: Sebastian Zwez - WikiMedia Commons

Last week the United States and much of the world — including a peaceful, democratic Germany — celebrated the 70th anniversary of VE day. Ironically, on the same day, we were treated to the results of a British election that may exacerbate relations, yet again, between the only two great powers in Europe that could set things right after a lost century of misunderstanding.

The true tragedy is that Britain and Germany could have done the same thing 100 years ago, had each country understood the critical centrality of their relationship on the continent.

Alternative history

Reimagine the contours of European and world history (as well as the detours that could have been avoided) if there had been no falling out between Germany and the UK in the run-up to World War I.

First and foremost, Hitler’s rise, in all likelihood, would not have happened. The devastation of World War II would not have occurred. The same goes for the extermination of the Jews from much of Europe.

Yes, there would have probably been competition with the Soviet Union, but that would have resolved itself favorably through containment and self-attrition. And it might even have ended faster, without the false ideological and morale-boosting high that World War II brought to Russia, despite all the hardships.

And the cumbersome process of structuring a European Union would not have required the pains and tragedies of a birth, quite literally, out of the ashes of a destroyed continent. What unites the United Kingdom and Germany at the core is their mutual embrace of enlightened liberal commercial internationalism.

Today, both the German and the British governments are on a similar path. They are focused on fiscal consolidation and promoting longer-term productivity. They are both open to trade, deemphasize defense, while seeking to advance fairness, accountability and incentives throughout society.

A missed opportunity

If these two countries had been joined at the hip far earlier, and not Germany and France — which sees the world in a different way than London and Berlin — then European integration could have got its start decades before 1956.

And the path ahead today would seem more straight-forward. David Cameron’s surprisingly resounding reelection victory should provide a welcome opportunity to re-dynamize the EU, by developing a stronger German-British motor.

What would this motor yield? Less bureaucracy, more targeted funding, better budget controls, fewer pipedreams, more real integration (including on the defense industry), an enhanced sense of economic realism. All of these are important attributes for a stronger European Union.

What the world will be treated to instead, largely for reasons of Britain’s prolonged search for its national identity, is a very narrow-minded, Little Englander-type debate on whether the British Isles should say “sayonara” to Brussels and the EU.

This is the same head-in-the-sand debate that has clouded Britain’s role in Europe repeatedly over the past half-century. British Conservatives’ non-modernist and sovereigntist instincts being what they are, they’d rather delude themselves in embracing a hollow notion of “independence” than seize opportunities to get their country ahead through an ever closer partnering with Germany.

Kindred spirits

At the most basic level, a close relationship between Germany and the United Kingdom seems entirely natural. That holds true all the more so in view of many decades of stressing the Franco-German friendship. Enshrined as it is in a treaty dating back to 1963, that bilateral relationship has remained rather artificial to this very day, despite solid efforts on both sides.

France’s inability to restructure its economy and embrace global challenges has the German government worried. In an ideal world, Angela Merkel would like to work up a credible alternative, so that Europe’s progress does not get stuck in the morass of French domestic politics.

Broadly speaking, Cameron could offer that alternative. There is no doubt that on the German chancellor’s ideological roadmap, the reelected British prime minister on a personal level appears to be a far more reliable, likable partner than either Messrs. Sarkozy or Hollande, who both seem to be quite inscrutable to her.

Indeed, given Germany’s and the UK’s very different paths in the first half of the 20th century, it can seem rather bewildering that today Germans and Britons are more or less pulling on the same rope—and in the same direction. Isn’t that what Americans and Brits are supposed to do, while the Germans “hang out” with the French?

Historical precedent

Well, yes — but things used to be very different. Even though it now seems buried in the dark zones of memory, Germans and Britons were once a mutual admiration society. Just look back to modern Europe’s formative period, the last quarter of the 19th century and the first decade of the 20th century.

Back then, it notably was France and Germany that were the “arch enemies.” These days, the memory of better British-German ties is, quite cynically, only communicated as an affinity between Prussian kings and the House of Windsor, with its German roots.

Yes, there was the pesky matter of naval competition in the run-up to WWI. The Germans admired the British for Britannia’s ability to rule the seas, which greatly helped it generate economic wealth. Little wonder that the Germans wanted to build a navy, too.

Unfortunately, Germany at the time was led by a vain, mostly pomp and status-seeking Emperor, Wilhelm II. Under those circumstances, the naval competition turned into a zero-sum game that was ardently pursued by both sides. Whatever Germany gained in power was seen as coming directly at the expense of Britain’s power.

The German leadership, small minds no doubt, did not understand that they had already “won.” German production and export statistics were improving dramatically, outperforming the UK’s. Simply put, the German royal-military complex simply focused on the wrong statistics.

Rewriting history

The really important battle wasn’t about the tonnage of war ships. Whatever the precise details at the time, a German-British arch rivalry is something that, in part, was hoisted upon a German leadership that had not yet understood how the global game was played.

It looked at competition in very narrow, cross-border terms and focused on military assets. Thus, the special relationship between the United States and the UK was born. Hard though it is to imagine from today’s vantage point, back then that was by no means the natural course of things to come.

To both British and German industrial interests, the Americans were the ragged upstarts—and very much the common irritants. They were viewed in London and Berlin as a somewhat unrefined, even brutish conglomerate of peoples drawn together without much forethought from all over the globe.

And they were, of course, quite eager to find their own place in the sun. That narrative, no doubt, is very different from the one the entire post-World War II generation grew up with.

Under the terms of the history that most people learned, there was a natural affinity between Americans and Brits, while it was the Germans who were the more or less seen as the common irritants.

The U.S.-UK relationship

That constitutes a surprising turn of events, especially considering that the origins of the United States of America was a painful process of dissolution from the British crown. Remember 1814, when British forces went marauding through the fledgling United States once more, and tried to stomp out the upstart? By 1914, all that was forgotten.

The United States and United Kingdom had made nice and soon after made common cause against Germany. The narrative developed for the occasion, that World War I was the “fault” of the Germans, has since been disproven, including by prominent American and British historians.

With the benefit of hindsight, it is much safer to say that there were small groups active, including in British leadership circles, that fancied an interest in war-mongering and guilt-tripping.

Wiser counsel than that provided by the likes of the hot-tempered Winston Churchill or Germany’s Wilhelm II would have been needed to cool everybody’s temperature. But it was not to be.

Soon enough, the enmity narrative cast its dark shadows over German-British relations, “Huns” and all. British newspapers are still not free of that mindset today. Despite all that, what are the prospects for much improved British-German relations?

Quiet acceptance

When one quizzes leading thinkers in London’s smartest clubs about this question, there is a shock-and-awe moment. With an invariably hushed voice, they will now say things like: “Well, actually, for the first time ever that I can recall, we have been admitting to ourselves that there are some things the Germans are doing remarkably well. There are certain things we could learn from them.”

One can only wish that such hesitant admissions would be given more breathing space. For no matter how one looks at Europe today, one thing is for sure. The fact that the UK and Germany have basically led parallel lives for the past century has not been helpful for anybody.

Worse, the deliberately managed effort to bring about separation between Germany and the United Kingdom triggered what, from today’s perspective, can only be called 100 years of profound imbalance in Europe. Yes, much of it was triggered and/or instigated by a Germany that had been thrown off course after World War I.

That Germany, though, was a very new, inexperienced nation. World War I came just over three decades after its founding. So it was a bit of an amateur.

A chance for redemption

Eventually though, after decades of rethinking their act and overhauling their values and procedures, the Germans — by around the 1970s — were back on the path of virtue. Coincidence or not, Britain now finds itself in a similar position to rethink its national act.

The old levers of power — “the City” (meaning finance and big banks) will lift us, and so will big oil — are no longer the certainty they used to be. To rally the troops, David Cameron offered his party followers some red meat – a vote of renegotiating EU membership.

That move may have had the desired effect of calming the Conservative tempers somewhat. But in the bigger scheme of things, other things matter far more. And none is bigger than a rapprochement of Germans and Britons, supposing (and hoping) that really comes about.

It would end a destructive cycle of European history: the unnecessary enmity and distrust between Germany and the United Kingdom. If that happened, the economic and political core of the European Union would be greatly strengthened.

Editor’s Note: This article is adapted from “Will David Cameron only deepen Europe’s tragedy?” published on Politico.

©2015 The Globalist


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Spain and UK: Prickly Comparison for Cameron Mon, 11 May 2015 13:49:17 +0000 By Holger Schmieding

Both UK and Spain are formally monarchies, have long coast lines and face separatist challenges.

Credit: Gilad Rom - UK and Spain are formally monarchies, have long coast lines and face separatist challenges.

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By Holger Schmieding

Both UK and Spain are formally monarchies, have long coast lines and face separatist challenges.

Credit: Gilad Rom -

“The euro does not work, the UK is so much better off with its independent economic policies.” We have heard this refrain over and over again for the last five years. But to what extent do the facts back that up?

Spain and the UK share some remarkable similarities: Both countries are formally monarchies. Both countries have long coast lines (to add a special twist, these coast lines are beloved by many Britons in either case). And both countries face separatist challenges on their fringes.

Both countries were also among the fastest-growing “old” EU members in the run-up to the great financial crisis. Both countries’ economies were artificially boosted by a credit-fuelled boom in the housing market.

In both countries, the bubbles burst in 2007. Both then plunged into a deep adjustment recession thereafter. Both had to back up their banking systems with major amounts of taxpayer money. Both started to recover over the course of 2009.

The long-term view

In a 15-year perspective, the economic performance of the UK is actually quite similar to that of Spain.

That means that Britain’s ability to run an independent national monetary policy and to occasionally devalue its currency does not give the country a long-term advantage.

Using the exchange rate to boost manufacturing exports can have a modest impact short-term. But it does not create a genuine competitive advantage.

Temporary divergence

Spain and the UK parted company when the euro crisis escalated in 2011. In the UK, the Bank of England supported demand by massive bond purchases. In the Eurozone, the ECB held back.

As a result, Spain fell back into recession – but not because of an inherent flaw of the euro, that is, the notion that a “one size fits all” monetary policy did not suit Spain. Instead, the reason was that the ECB ran a restrictive monetary policy for the Eurozone as a whole. It was even too restrictive for Germany, which suffered virtual stagnation from mid 2011 to early 2013.

Spain’s catch-up

The ECB’s reluctance to act is now history. The still-young central bank has learned its lesson, albeit in stages. With Mario Draghi’s promise to “do what it takes” of July 2012, the ECB ended the systemic euro crisis, starting a Eurozone recovery.

With its January 2015 decision to buy €60 billion of bonds per month, the ECB is now adding momentum to the recovery in demand across the Eurozone.

Rebounding from its double-dip recession and reaping the rewards of its 2012 labor market reforms, Spain has actually enjoyed stronger quarterly growth than the UK in late 2014 and early 2015, even slightly surpassing the UK’s annual growth rate in the first quarter of 2015.

Fiscal challenges

Both countries still face serious fiscal challenges, posting excessive and virtually identical budget deficits in 2014 (5.7% of GDP in the UK, 5.8% in Spain).

But the Spanish deficit data for 2014 still reflect Spain’s slower rate of growth early that year. With Spain now growing faster than last year, while the UK economy has lost a little momentum, Spain may find it easier than the UK to reduce its fiscal shortfall in the future.

Receding risk of Brexit

With the Eurozone out of the doldrums and the Spanish recovery proving that countries can easily thrive within the euro, chances are that we will see fewer headlines linking “Europe” to “crisis” in the next few years despite the occasional headlines about the isolated case of Greece.

As Europe is working more normally again, I am confident that a potential UK referendum in 2017, probably coming after some modest EU reforms, will result in a clear vote for Europe.

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Global Texas: Homage to Austin Sat, 09 May 2015 20:05:34 +0000 By Richard Parker

Will Austin’s growth sustain or demolish its fabled culture?

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By Richard Parker

Will Austin’s growth sustain or demolish its fabled culture?

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Austin was once a laconic state capital, home to a part-time legislature, a quiet bureaucracy, a creative music scene and one very loud state university — The University of Texas at Austin.

No longer. Dust and noise fill the air. Soon, more than 2,000 new apartment units and eight new hotels will soar into the sky over what was once the modest skyline of what was, only recently, a mid-sized American city.

While saying that life in Austin was once a simple life may be an oversimplification, it is not a gross one. And the simple pleasures did abound. Such as swimming at Barton Springs in the cool, clear water that emerges from the Edwards Aquifer at the rate of over 30 million gallons a day.

Or watching the Longhorns play football on fall Saturdays. Music on South Congress and, if you are old enough, drinking on East 6th Street.

Also consider the relentless search for the best breakfast tacos, a subject of endless discussion, debate and friendly suggestion, much like the discussion surrounding the quality of the margaritas at say, Guero’s or, better, Fonda San Miguel.

Still the smallest of the big cities in Texas, Austin is the most interesting city. What other Texas city counts among its major events a parade in honor of a character in Winnie the Pooh? Not Dallas.

What also makes Austin interesting is its growth and whether that growth will sustain — or demolish — the city’s fabled culture of acceptance, creativity and playfulness.

Take that, San Francisco

While the world at large neither knows it nor can imagine it, Austin is now bigger than San Francisco. Austin’s total population in 2013 was 885,400 (2013), compared to San Francisco’s 837,442. Austin grew by 37% between 2000 and 2010, a rate four times faster than the average U.S. city.

What about qualitative indicators? On average, there are more high school graduates in Austin than the nationwide average — and there are a lot more college graduates here than in the rest of the country, nearly 50% more. Many clutch freshly minted diplomas.

One in 10 Austinites lived somewhere else only a year ago. Houston and Dallas receive more people but Austin receives, given its size, disproportionately more.

Austin’s highly-educated workforce — remember half the workforce has a college degree — is on course to create an economy growing at the clip of 3.6% per year, a rate seen only in the roaring emerging economies and increasingly in the frontier markets around the world — but nowhere among the world’s established economies.

Service jobs, ranging from lawyers to accountants to bartenders and everything-in-between, will make up 354,540 of the 558,100 jobs projected to be created in Austin in the coming decades.

A technology economy, based first on hardware and then on software, matured in the Silicon Hills of Austin and has dwarfed computer-maker Dell, which is based in suburban Round Rock.

Famously founded in a dorm room at the University of Texas, Dell went from public to private. In addition, Facebook, Google, Apple, IBM, Samsung and others are all in Austin now.

Austin is already a big American city. Whether it becomes a great one will rely, at least in part, on how it manages its most essential asset, its youth.

What is authentic Austin — and can it survive?

Among those who can afford to indulge in such debates after dinner or at a coffee house, there remains a tension about whether some authentic Austin will survive the onslaught of growth, change and, invariably, transformation.

What was authentic, of course, was up for grabs. Hardly anybody who lives in Austin is actually from here anymore. The closest you can get is someone who went to the University of Texas and stayed.

Real natives are around, but they are nearly as rare as the endangered salamanders. And everyone is particularly suspicious of the Californians. They “ruined” Arizona, after all.

“It’s clear that they’re [Californians] drawn to the same things everyone is drawn to in Austin, the quality of life aspect, the vibrant, funky, food truck culture and music scene. It’s almost tribal that you have these like-minded people here and there,” said Randall Lewis, a professor at the University of Texas at Austin.

“We’re kind of the new California, California in the 1960’s, a place where you could start over, where the weather was good, where social mores were inclusive. I feel like we’ve got that going on.”

A mecca for the young

And the young, well, they just keep on coming. Individuals, couples and young families alike. They had all heard good things about Austin — plenty of fun, plenty of jobs and plenty of comparatively cheap housing.

I met an ex-Marine who moved here sight unseen, a freshly minted graduate of the University of Washington, even a couple who had left Hawaii to come to Texas.

In 2009, Holly Regan announced to her friends in Seattle that she was leaving for Texas. They immediately jeered at the prospect of living, as she put it, “among a bunch of cowboys and Republicans.”

Nevertheless, at the age of 25, she took an extended road trip across the American West and down into the Texas Panhandle. She gazed at the empty landscape, appalled, and wondered quite what she had done. Arriving in August, she endured a withering string of 110-degree days. She said, “It was miserable.”

But quickly, the city grew on her. People were friendly. There was always a festival, a concert or a bar. There was the omnipresent crowd of other young people who were “liberal, open-minded and approachable,” she said. “It was Never Never Land.”

Editor’s Note: Excerpted from Lone Star Nation: How Texas Will Transform America by Richard Parker.

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May 8, 1945: Beyond the Unconditional Surrender of German Forces Fri, 08 May 2015 11:45:08 +0000 By Denis MacShane

The ominous date also marks the beginning of violence and occupation in Algeria, Greece and Eastern Europe.

Credit:  Ministry of Information Photo Division Photographer- WikiMedia CommonsThe ominous date also marks the beginning of violence and occupation in Algeria, Greece and Eastern Europe.

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By Denis MacShane

The ominous date also marks the beginning of violence and occupation in Algeria, Greece and Eastern Europe.

Credit:  Ministry of Information Photo Division Photographer- WikiMedia Commons

It’s the 70th anniversary of the unconditional surrender of German forces. This event is rightfully celebrated all over Europe as the day of liberation from Nazism – hence the big parades in Moscow and often national holidays in other European countries.

But May 8, 1945 was also the day when the French army opened fire in Sétif in Algeria on demonstrators calling for national independence. Thousands were mown down in the slaughter that followed. It was the opening of the near 20-year war that followed.

And it was the day when the modern Islamic conflict with Europe might be said to have begun, as Muslim bodies fell to European bullets.

For eastern Europe, the great victory of the Red Army was the beginning of a new occupation and colonialization, as the defeat of one disastrous 20th century ideology based on suppression of freedom and European values was followed by the triumph of another one – Stalinist communism, which imposed itself by force and suppression of freedom and European values.

Civil war in Greece incited by Stalinists

The violence was worst in Greece, where ultra-Stalinists launched an armed insurrection, forcibly moving up to 500,000 people, especially children, to communist Albania, Yugoslavia and Bulgaria in order to be turned into model socialists.

The violence in Greece began a pointless and unwinnable civil war, encouraged by Moscow, which cost 80,000 Greek lives – more than those lost in the Italian and German invasions and subsequent occupation.

It took another 30 years and the Portuguese revolution before western European imperialism finally surrendered power. It had done so much damage in its former colonies by the way Britain, France and Portugal tried to cling onto power, or at least control, in its areas of influence (Iraq, Iran, Libya and Yemen for Britain; and Vietnam, Algeria and Syria for France).

The end of the post-1945 era in Europe came with the first elections in Poland in 1989, followed by the fall of the Berlin Wall.

So while fascism was destroyed, divide-and-rule imperialism by the Western powers rose up again after the 8th of May, as did Stalinist colonialism.

Ghosts of pre-1939 taking roots in the EU

Seventy years after May 8, 1945, the oasis of relative calm called the European Union faces fractures, as pre-1939 nationalism, populism and xenophobia sink roots.

Eurosceptic think tanks like Open Europe call for the EU to become de-politicized and to turn instead into only a market place. But the messy politics of power-sharing, or sovereignty-sharing, is a pre-condition for open borders for trade and for the movement of capital, ideas and people.

The lands between the Channel and the Pripet marshes, where Germans fought Russians and then an Anglosphere army, are now free of armed violence.

But all around on the North African coasts and the regions bordering the eastern Mediterranean and stretching to the Gulf, the flames of Islamist and Persian-Arab conflicts rose up.

Europe’s disastrous network in Iraq and Syria

Europe left behind a disastrous network of either feudal states in the Gulf or deformed military-authoritarian ideologies in power in Iraq and Syria.

Now the southeastern regions of Europe, like Ukraine, Moldova and Georgia, face a new aggression that would have been instantly recognized by Catherine the Great, whose key objective in the 18th century was the annexation of Crimea.

The 70th anniversary of May 8, 1945 is not a moment to hail victory but should be a time to ask why it all went so badly wrong for so many years and what mistakes are being made today that will ignite new conflicts.

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Is Yemen a Proxy War? Fri, 08 May 2015 06:00:13 +0000 By Gareth Porter

The misinformed media incorrectly place the blame on Iran for Yemeni uprising.

Credit: Mercenary2k - WikiMedia CommonsThe misinformed media incorrectly place the blame on Iran for Yemeni uprising.

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By Gareth Porter

The misinformed media incorrectly place the blame on Iran for Yemeni uprising.

Credit: Mercenary2k - WikiMedia Commons

When Saudi Arabia began its intensive bombing campaign in Yemen on March 25, the Wall Street Journal headlined the following day, “The Yemen Conflict Devolves into Proxy War.”

The next day Reuters asked on its blog, “Who’s fighting whom in Yemen’s proxy war?”

But in fact the Saudi bombing campaign in Yemen, which has killed mostly civilians and used cluster bombs that have been outlawed by much of the world, is no proxy war.

Not quite a proxy war

Prominent 20th century political scientist Karl Deutsch defined “proxy war” as “an international conflict between two foreign powers, fought out on the soil of a third country, disguised as a conflict over an internal issue of the country and using some of that country’s manpower, resources and territory as a means of achieving preponderantly foreign goals and foreign strategies.”

Certainly the Saudi bombing campaign was a straightforward external military aggression. The fact that the media began labeling Yemen a proxy war in response to the Saudi bombing strongly suggests that they had chosen that term to soften the harsh reality of Saudi aggression.

The Wall Street Journal and Reuters also assumed they have could label Yemen a “proxy war” because they presumed Iran had already turned Yemen into such a war by its support for the Houthis.

But far from proving the Iranian proxy argument, however, the Houthi takeover of Sanaa last year has actually provided definitive evidence to the contrary. U.S. intelligence sources recently told the Huffington Post that before the Houthis entered the capital, the Iranians had advised against such a move, but that the Houthis ignored that advice.

Gabriele vom Bruck, a leading academic specialist on Yemen at the School of Oriental and African Studies in London, says that senior Yemeni officials with links to intelligence had told her the same thing weeks before the story was leaked.

The Houthis rejected the Iranian caution, vom Bruck believes, because former Yemeni President Ali Abdullah Saleh and his son Ahmed Ali Saleh (the former commander of the Republican Guard) had indicated to them that troops that were still loyal to the pre-2012 leadership and would not resist the Houthi units advancing on the capital, unless the Houthis attacked them.

So the Houthis clearly don’t intend to serve an Iranian strategy for Yemen. They have their own goal and strategy, formed in a decade of armed struggle against the central government. And since the Houthis’ armed struggle is for their own objectives, it is not a proxy war from either the Saudi or Iranian side.

Unsubstantiated claims

The proxy war narrative about Iran and the Houthis is also false in crediting claims by the former governments of Saleh and his successor Abd Rabbuh Mansur Hadi that Iran has been sending arms covertly to the Houthis for many years. Those claims lack credibility for the simple reason that the Houthis are fighting in a country that is awash in weapons, ranging from light weapons to medium-heavy weapons.

The Houthis have been carrying out essentially guerrilla warfare for more than a decade, during which they fought a series of wars waged by Yemeni government troops to suppress them. In the process, they have acquired more weapons with every round of fighting.

A 2010 Rand Corporation study done for the Defense Intelligence Agency found that, even at the beginning of the Houthis’ wars in 2004, the number of weapons in the governorates dominated by Houthis was twice as great as the number of adult males.

And the weapons then included Kalashnikov rifles, rocket propelled grenades and surface to air missiles – all of which the government of Yemen has claimed were shipped to the Houthis from Iran recently.

The Iranians have also been accused of having Hezbollah specialists train the Houthis. But an article in the conservative Iranian newspaper Kayhan pointed out in 2009 that the claim “revealed the stupidity” of the officials making the accusation, because the Houthis “have a much longer history of guerrilla warfare than Lebanon’s Hezbollah….”

Leave Iran out of it

Yemen may indeed be “devolving” into a proxy war, because of the Saudis assisting the Salafist enemies of the Houthis. And one can certainly point to wars in the Middle East that perfectly fit the definition of “proxy wars.”

Syria and Libya both provide textbook cases of outside powers (Saudi Arabia, Qatar, UAE, Turkey) recruiting armed groups to overthrow a government or to dominate the government in the future. The result has been the growth of terrorism and chaos in those countries.

But it has been the Saudis and the other Gulf regimes that have created those proxy wars. The news media should be pressured to focus public attention on that significant and disturbing reality instead of trying to spin a tale of an Iranian-initiated proxy war.

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