The Globalist http://www.theglobalist.com Daily online magazine on the global economy, politics and culture Tue, 31 Mar 2015 18:19:46 +0000 en-US hourly 1 Being Old in 2040 Will Be No Fun http://www.theglobalist.com/being-old-in-2040-will-be-no-fun/ http://www.theglobalist.com/being-old-in-2040-will-be-no-fun/#comments Tue, 31 Mar 2015 06:00:00 +0000 http://www.theglobalist.com/?p=41681 By Martin Hutchinson

Current trends in demographics and national budgets will leave the elderly of the future in dire straits.

Credit: John - www.flickr.comCurrent trends in demographics and national budgets will leave the elderly of the future in dire straits.

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By Martin Hutchinson

Current trends in demographics and national budgets will leave the elderly of the future in dire straits.

Credit: John - www.flickr.com

There are times when it’s good to be young – the 1960s, with its prosperity and hedonism, was one such period. Being old has fewer joys, but you can argue that the 1990s were a halcyon period for the old. Pension funds were swollen by stock appreciation and the senior citizen generation was relatively small.

However, with the current trends in demographics and national budgets, the younger generation of Baby Boomers and the older Gen-X’ers (only few of the older Baby Boomers will still be around) can rest assured of one thing: Being old in 2040 will be very unpleasant indeed. And this isn’t just a problem in the United States. It is more or less true for the world as a whole.

Good times, bad times

Different generations enjoy halcyon and hellish periods at different times. There have been bad times to be young. Turning 18 in 1861 in the United States or 1914 in Europe was no fun at all.

In contrast, the 1990s were the best period in the whole of human history for old people. The generation reaching old age in the 1990s was mostly born in the so-called inter-war period.

Having mostly suffered miserable childhoods in the Great Depression and World War II, they felt doubly blessed with secure pension and social security systems that were easily able to bear the burden of their retirement.

The prospects for those entering old age in the years ahead don’t look at all so benign. We can already see how the politics of it will play out.

In most countries, the period since the 2008 financial crash has seen very low interest rates with unprecedented budget deficits. Both are very dangerous indeed for the long-term prospects of the aging.

Low interest rates prevent them from earning a return on their money above the inflation rate except by investing in stocks, real estate and speculative bonds. In the short term, the stocks and real estate go up in price while interest rates remain low.

Thereby, aging savers are lulled into a false sense of security by the steady rise in value of their portfolios. With similar policies being followed worldwide, the false sense of security for the aging is a worldwide phenomenon.

Public sector problems

Meanwhile in the public sector, deficits have not been brought down and so the stock of public debt is rising steadily as a percentage of GDP. Low interest rates and the last years of favorable demographics before the baby boomers retire have lulled both politicians and the electorate into undue fiscal optimism. Deficits are remaining at a level far above what is actuarially sustainable in the long run.

It must be remembered that in most countries, the old vote and the young don’t. Hence, politicians will be tempted to apply short term band-aids to their budget problems and the actuarial deficits in their social security systems, punting the problems down the road for a decade or so.

In 2030, when the early baby boomers are mostly still with us, politicians will still be pushing problems off into the future as far as possible, in order to avoid the wrath of geriatric voters. Taxes will have risen, savings will have been decimated, but with the application of copious short-term remedies, the problem will still not be in its acute stage.

By 2040 however, with the first half of the baby boomer cohort departed, a nemesis will have arrived. In the United States, the social security trust fund will have run out, leading to sharp cuts in payouts to retirees.

What is worse, the voters of that day will have seen Medicare and other old-age costs apparently rising inexorably over several decades, both absorbing hefty tax increases and making U.S. debt soar to dangerous levels at which its repayment is doubtful.

Vengeance of the young

Round about 2040, a debt crisis will occur – at which point the obvious solution will be to cut back drastically the benefits available to old people. After all, it will be argued then, they are no longer producing incomes that can be taxed in order to repay debt, and they are the ones who collectively bear much of the guilt for the parlous U.S. fiscal position. The same applies to many other Western countries.

The Millennials and their successors will blame the old for their predicament and relative poverty, and they will have a substantial amount of reason on their side. Their revenge will be severe.

The old folk of 2040, those born between say 1955 and 1975, will face a really tough retirement period.

The details of the problem and its timing differ in most rich countries, but the problem itself doesn’t. In Japan, by 2040 the demographic problems of its aging society will be dissipating as longer working lives and robot geriatric care allow that admirable country to surmount its difficulties.

However, it is likely that Japan won’t get to 2040 without a debt crisis, so the true nadir of Japanese geriatric welfare may come about 2025.

France and Italy will be more or less bankrupt well before 2040 and their living standards will correspondingly have declined sharply, but the problem won’t be confined to old folk.

Germany, with its high productivity and well-ordered fiscal policy, may be able to avoid the problem, while Britain looks to be following a trajectory very much like that of the United States.

Finally, China will have a demographic problem similar to those in the West. Its old folk of 2040 are unlikely to share fully in that country’s increasing prosperity – but those born in 1955-65 will still have living standards much better than in their childhoods.

Editor’s Note:Adapted from an earlier version published on the True Blue Will Never Stain blog

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Germany Counters Deflation in the Eurozone http://www.theglobalist.com/germany-counters-deflation-eurozone/ http://www.theglobalist.com/germany-counters-deflation-eurozone/#comments Mon, 30 Mar 2015 06:00:14 +0000 http://www.theglobalist.com/?p=41758 By Martin Hüfner

By raising real wages, Germany has launched itself into a new period of growth.

Credit: blu-news.org - www.flickr.comBy raising real wages, Germany has launched itself into a new period of growth.

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By Martin Hüfner

By raising real wages, Germany has launched itself into a new period of growth.

Credit: blu-news.org - www.flickr.com

This year German metalworkers will see the largest real wage growth in a long time. The collective bargaining partners just agreed to raise wages by 3.4%. With some extra lump-sum benefits and close-to-zero inflation, this translates into a real wage increase of 3.5%.

While this does not apply to the economy as a whole, the metalworkers’ deal is clearly a bellwether for other industries. Even if those with lower productivity growth, such as the service sector or the public sector, will settle for a lower pay raise, it is safe to assume that collectively agreed wages will average somewhere between 3% and 3.5%. Compared to 2% last year, that is quite a hike.

It is also in stark contrast with the chorus of complaints about slow growth and deflation, which seems to be in vogue these days. Does this mean the latest wage agreements are too lavish? Or are the macroeconomic conditions simply better than widely perceived? I believe the latter is the case.

Unfounded fears

What these wage increases show is that the current fears of a self-accelerating deflation are unjustified. The pessimists of the European Central Bank are wrong. The fall in prices does not result in a corresponding reduction in wages. At least the bargaining parties, it seems, still have positive inflation expectations.

Wage increases are also a strong indication that inflation will soon pick up again – despite low oil prices and ultra-loose monetary policy. As labor costs are rising faster, prices must go up as well. High real wages also promote economic growth. Workers can consume more – and they do.

In January, German retail sales rose by more than 5%. Private consumption was already the main driving force of the economy last year. This is a whole new experience for Germany. Past booms were always driven by exports, and domestic consumption only came into play during the late phase of the upturn. Now this already happens in the early stages.

Consequently, the original forecasts of 1% GDP growth must be revised to 2%, perhaps even more. Of course, increasing labor costs put pressure on the firms. This used to be the key argument against excessive wage increases. But it does not carry much weight now.

Compared to competitors in the Eurozone markets, German exporters still draw from the substantial competitive edge they have gained over the past years. This is not offset by a one-time wage increase. Vis-à-vis the competition from third countries, the depreciation of the euro certainly helps. Overall, negative effects on exports are unlikely to kick in any time soon.

From a structural perspective, higher wages are also desirable. They help reduce the export bias of the German economy. If more goods and services are in demand domestically, less must be sold abroad – to buyers who might be considered at risk of defaulting on their payment obligations.

The partners in the euro area will benefit from Germany cutting down on exports, thereby reducing its current account surplus, which amounted to 7.4% of GDP in 2014 (substantially in excess of the 6% that the EU Commission considers tolerable).

Everyone is a winner

Finally, higher wages mean that the economic recovery benefits not only the better-off in society, but also the population at large. The wage share, defined as employees’ share of national income, which has declined in Germany since 2000, is now rising again.

This is a key aspect in the increasingly vigorous debate on social justice. Other countries envy Germany’s generous wage increases. In the United States, where growth and productivity rise much faster, private-sector wages and salaries are only increasing by a nominal 2.3% – less than 2% in real terms. Much of American consumer spending must be financed by consumer loans.

In Japan, the most recent wage increase of 0.4% amounts to a decrease in real terms. This is one of the reasons why the Japanese economy is so slow to take off.

Nonetheless, the merits of high wage increases are not a carte blanche for future wage negotiations. The world is currently in an exceptional situation, which justifies exceptional measures. Once things are back to normal again, we will have to look differently again at wages and inflation.

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The Yemen-Benghazi Connection: Politics Before People http://www.theglobalist.com/yemen-benghazi-connection/ http://www.theglobalist.com/yemen-benghazi-connection/#comments Sun, 29 Mar 2015 06:00:46 +0000 http://www.theglobalist.com/?p=41797 By David Apgar

When Republicans use American deaths in terrorist attacks as a political weapon.

Credit: Ganesh Kumar - www.flickr.comWhen Republicans use American deaths in terrorist attacks as a political weapon.

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By David Apgar

When Republicans use American deaths in terrorist attacks as a political weapon.

Credit: Ganesh Kumar - www.flickr.com

Repeated Congressional hearings about the lethal September 11, 2012 attack on the U.S. consular office in Benghazi, Libya now undermine U.S. national security.

Partly as a result of the hearings, the United States has withdrawn its last 100 military personnel from Yemen, a special-forces group that has been productive in disrupting terror plots if not in stabilizing the poorest country in the region.

The immediate reason for the withdrawal is understandable — an attack on the air base that housed the personnel in the midst of a three-way civil war between the Sunni extremist organization al-Qaeda in the Arab Peninsula (AQAP), Shia Houthi rebels from the north and the remnants of the government that the Houthis have most recently overthrown.

But that does not explain why the United States is abandoning the country.

The reasons behind U.S. withdrawal

What explains the withdrawal is the veiled threat that Congress will hobble the State and Defense Departments with investigations as arbitrary, burdensome and costly as the Benghazi hearings every time someone sets fire to a U.S. base or captured U.S. personnel appear in garish jump suits kneeling on video in front of knife-wielding psychopaths.

So long as there is any remote possibility of political advantage to them, Congress will conduct sham investigations.

It is true that part of the job of Congress is to exercise oversight. But few believe the purpose of the Benghazi hearings is oversight as opposed to an opportunity to steal airtime to make insinuations about the Secretary of State — in other words, the cynical use of political power to discredit Hilary Clinton as a presidential candidate.

Republican sponsors of the more than a dozen Benghazi hearings by five Congressional committees argue their investigation is no sham — even if the hearings have consistently refuted every accusation that the Obama Administration ignored warnings, failed to defend the post, or in any other way misbehaved before, during or after the attack.

Oversight does no harm, they argue, so it is okay if it reveals nothing and, besides, you never know what investigations will turn up.

The cost of politics

The costs, however, become clear when contrasted with past practice. Democrats did not use the October 1983 suicide bombing of the Multinational Force (MNF) barracks in Beirut, Lebanon that killed 241 Americans to discredit President Reagan in his reelection campaign. Republicans would have accused Democrats of disloyalty for doing so.

That loss of life (four Americans died in Benghazi) in a scenario even less foreseeable than the attacks on the Beirut MNF barracks has now become the principal subject of Congressional oversight of the Executive Branch changes the political game in the United States.

Neither the Obama Administration nor future U.S. governments can afford the distraction promised for adverse outcomes of useful risks — risks like contributing to the MNF in 1983 and maintaining a presence in Benghazi, the heart of a nascent Libyan polity, in 2012.

Republicans know this. But part of their larger political pitch is that government is ineffective. By making it too costly for U.S. governments to take calculated risks like leaving Special Forces in Yemen, Republicans are creating a self-fulfilling argument.

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When Do Planes Crash? http://www.theglobalist.com/when-do-planes-crash/ http://www.theglobalist.com/when-do-planes-crash/#comments Sat, 28 Mar 2015 06:00:27 +0000 http://www.theglobalist.com/?p=41802 By The Globalist and Richard Walker

During which phase of flight do most fatal commercial aviation accidents occur?

Credit: National Transportation Safety Board - www.flickr.comDuring which phase of flight do most fatal commercial aviation accidents occur?

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By The Globalist and Richard Walker

During which phase of flight do most fatal commercial aviation accidents occur?

Credit: National Transportation Safety Board - www.flickr.com

The crash of Germanwings Flight 9525 — along with recent accidents involving Malaysian and Indonesian jetliners — has focused the world’s attention on airline safety.

We wonder: During which phase of flight do most fatal commercial aviation accidents occur?

A. While taxiing on the runway
B. During takeoff and climb
C. While cruising
D. During descent and landing

A. “While taxiing on the runway” is not correct.

According to a 2014 study of commercial aviation accidents by aircraft manufacturer Boeing that covered most makers and countries, 10% of all fatal aviation accidents over the last decade occurred while the planes were on the ground. When these accidents happened, the planes were either taxiing, unloading or loading passengers and baggage, being towed or parked.

Because these accidents generally occur when the aircraft is parked or moving a very low speed, this is unsurprisingly the safest phase of aircraft operation for passengers inside the plane. In fact, only one passenger was killed during a taxiing accident over the past ten years.

However, before the standardization of ground safety measures, the danger was greater. In 1977, in Tenerife, Canary Islands, a Boeing 747 that was taxiing on the runway collided with another 747 during its takeoff. The fiery collision claimed nearly 600 lives and remains the deadliest accident in aviation history.

Most fatalities during this stage of flight operations involve crewmembers who are working on the tarmac around the aircraft.

For the ten-year period of 2004-13, Boeing documented altogether 72 fatal aviation accidents involving large commercial aircraft manufactured in all countries (except, due to a lack of operational data, those of the former Soviet Union).

B. “During takeoff and climb” is not correct.

Taking off and climbing to cruising altitude is the second-most dangerous period of operations for commercial aircraft, according to Boeing’s study.

Between 2004 and 2013, 16 of the 72 fatal aviation accidents occurred during this phase of the flights. They accounted for 22% of all fatal accidents (excluding those aircraft manufactured in Russia or the former Soviet Union).
Taking off and climbing involve three distinct phases, according to aviation experts.

The takeoff phase occurs when the plane is accelerating down the runway, while the initial climb is the steep ascent as the plane leaves the ground, followed by a gentler climb to cruising altitude.

Over the past ten years, six fatal accidents occurred during takeoff, four during the initial climb, and six during the climb-to-cruising altitude phase.

One such crash occurred in July 2000, when an Air France Concorde struck debris on the runway at Charles de Gaulle Airport in Paris, causing a catastrophic explosion shortly after takeoff.

C. “While cruising” is not correct.

Of the 72 fatal aviation accidents that occurred between 2004 and 2013, seven — or 10% — occurred while the plane was cruising at altitude. Along with when the plane is parked or taxiing on the runway, the cruising phase of the flight is the period when fatal aviation accidents are least likely to occur.

Considering that cruising is by far the lengthiest of the operational phases (accounting for 57% of the duration of a 90-minute flight and much higher for longer flights), it is arguably the least accident-prone phase of flying.

When accidents do occur during this phase, however, they are far more dangerous for passengers. The seven fatal accidents documented in Boeing’s study resulted in 774 fatalities — or 20% of the 3,884 fatalities in commercial aviation accidents from 2004 to 2013.

The disappearance of MH370 over the Indian Ocean in March 2014, the shooting down of MH17 over Ukraine in July 2014 and the Germanwings flight in March 2015 were three notable incidents that occurred while the aircraft were cruising.

However, neither of these fatal incidents would be included in Boeing’s study if they had fallen within the study period. Boeing’s data excludes fatalities resulting from crashes due to sabotage, hijacking, terrorism or military action.

If Germanwings Flight 9525 was deliberately crashed by its co-pilot, as authorities now believe, it will be the seventh suspected pilot suicide in the last 33 years of commercial aviation history, according to data provided by the Flight Safety Foundation.

D. “During descent and landing” is correct.

The point at which the aircraft begins to descend from its cruising altitude in preparation for landing marks the beginning of the phase in which most fatal aviation accidents occur. Between 2004 and 2013, 58% of the fatal accidents documented by Boeing occurred during descent, approach and landing.

As with accidents that occur when the plane is cruising, these accidents tend to be catastrophic. The 42 accidents — caused by mechanical failure or by pilot error — claimed 2,226 lives, accounting for 58% of all commercial airline fatalities.

Nevertheless, air travel maintains a significant safety advantage over other modes of transportation. Based on preliminary statistics from the National Transportation Safety Board, road travel accounted for 94% of the 34,678 transportation-related deaths in the United States in 2013.

By comparison, air travel accounted for 443 deaths, or barely 1% of the total. Only three of those were caused by the crash of a large commercial airliner (Asiana Airlines Flight 214, which landed short of the runway in San Francisco).

But while airplane crashes are increasingly rare events, airlines have resisted efforts such as requiring flight data to be livestreamed from the plane to data centers on the grounds that the amount of data would be overwhelming or prohibitively costly to transmit and store. In addition, pilots associations have raised privacy concerns about cockpit video recordings.

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Latin America’s Real Corruption Crisis http://www.theglobalist.com/latin-americas-corruption-crisis/ http://www.theglobalist.com/latin-americas-corruption-crisis/#comments Fri, 27 Mar 2015 06:00:40 +0000 http://www.theglobalist.com/?p=41558 By Frank Vogl

The outflows of illicit cash from Latin America are a staggering tax on its citizens.

Credit: Agência Brasil Fotografias - www.flickr.comThe outflows of illicit cash from Latin America are a staggering tax on its citizens.

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By Frank Vogl

The outflows of illicit cash from Latin America are a staggering tax on its citizens.

Credit: Agência Brasil Fotografias - www.flickr.com

The leaders of major Latin American countries – Argentina, Brazil. Chile and Mexico – are enmeshed in scandals.

Mexican president Enrique Pena Nieto could have been speaking for the whole continent, not just his own country, when he stated in a recent interview, “Today there is, without doubt, a sensation of incredulity and distrust…there has been a loss of confidence and this has sown suspicion and doubt.”

Corruption is nothing new to Latin America. To be sure, the plethora of current prominent scandals is setting some new records. But public distrust has increased to no small degree by the growing understanding that the seemingly endless corruption is directly causing enormous economic problems for almost all citizens.

According to estimates by the Institute of International Finance, real economic growth in the region was an estimated 0.4% for 2014. The IIF forecasts that it will be a scant 0.2% in 2015.

And, in the midst of this virtual economic stagnation, the region is being drained on a massive scale of “dirty” cash, flowing overseas to be laundered on behalf of Latin American tax evaders, criminal networks, and corrupt politicians and public officials.

Meanwhile, according to Global Financial Integrity, illicit financial flows out of Latin America are running at around an annual 3% of GDP.

This is probably a conservative estimate, because it is largely based on analysis of official trade and balance of payments statistics, which cannot capture illicit funds from all criminal organizations.

Taking its toll

Given those numbers, just imagine how different public attitudes might be if all that stolen cash, resulting from corruption and crime and fleeing the continent, were not the spoils of thievery — but were instead legitimately invested in new jobs and the domestic economies of Latin America.

The outflows of illicit cash from the region are a staggering tax on its citizens. They are now taking a continent from the road of stable and rising real economic growth to stagnation.

illicit outflows chart2

illicit outflows chart2 caption

There is nothing new about the scale of the illicit outflows, but for much of the last dozen years, they were seen against the background of strong Latin American growth. This was a period, for example, when the percentage of very poor people in Latin America fell from 42% to 25%.

But today, governments in many countries are under siege as a direct result of scandals, and their economic policies seem uncertain, while slowing world economic growth is adding to difficulties.

The economy of the largest country in the region, Brazil, is, as The Economist magazine reported in early March, “in its worst mess since the early 1990s.” Indeed, the current corruption scandal surrounding Petrobrasis the largest in the country’s history.

It is totally diverting the attention of the Brazilian government and parliament from addressing the formidable economic challenges that the country now confronts. Moreover, over $50 billion in Petrobras’s stock market value has been lost over the last six months because of the scandal, which in turn has had a major negative impact on the overall Brazilian stock exchange

Petrobras, the mostly state-owned largest corporation in Brazil, illustrates part of the broader problem in many Latin American countries of close corrupt relationships between major enterprises, corporate executives, and powerful politicians and the political parties. For many years, top executives of the company took large kickbacks from domestic and foreign companies in return for allocating major contracts.

Based on information from former Petrobras executives, public prosecutors are now firing on all cylinders as they file arrest warrants on a wholesale scale. In mid-March, the treasurer of the ruling Workers’ Party and 26 others were formally charged with corruption.

The leaders of both the upper and lower houses of parliament are being investigated. So far, President Dilma Rousseff, who a few years ago served as the board chairman of Petrobras, is not on the investigation list. However, hundreds of thousands of Brazilians took to the streets a few days ago to protest and call for her impeachment.

The kickbacks from domestic and foreign companies at Petrobrasand at its affiliates, went into the pockets of the Petrobras officials, as well as into the hands of prominent politicians and political party campaign funds. Many of the bribes were paid into secret Swiss bank accounts.

Corruption is everywhere

In Mexico, both president Nieto and Finance Minister Luis Videgaray are now under investigation for having bought grand homes for allegedly very low prices from business people who have won lucrative government contracts.

In Chile, President Michelle Bachelet is under fire, not only because her son has allegedly obtained major funding from firms allegedly involved in government deals, but also because one of the country’s largest ever political corruption scandals is unfolding, which involves major financial institutions and several key government ministries.

Not to be undone, Argentina’s president Christina Kirchner is besieged by scandals, ranging from allegations that she has vastly enriched herself while in office, to allegedly being involved in the murder of a prominent lawyer.

Another aspect of the problem involves organized crime. For example, my colleagues at Transparency International – Colombia note that at the core of the country’s corruption is state capture by illegal actors.

I was told that some of the biggest corruption involves secret payments by multinational oil and mining companies to local authorities and the guerrilla groups to ensure their basic security as well.

GFI develops its data from official statistics, mostly on the balance of payments, and it may understate the true volume of illicit financial flows by not entirely capturing the cash of organized crime.

What is very clear is that the huge amount of illicit flows from the region is massively undermining trade and commerce and making it extraordinarily difficult for honest business people to compete.

How the money flows

Raymond Baker, GFI’s founder and president, told me recently that, “Misinvoicing – the deliberate misrepresentation of the value of goods being shipped – is not a source of black money; it is the mechanism through which black money leaves a country.

Recent data show that on average (on a global basis), close to 80% of all cross-border illicit flows move through this method.”

GFI’s research suggests that the Latin American countries that suffer the greatest impact in this regard are Mexico and Brazil.

illicit outflows chart1

illicit outflows chart1 caption

Corrupt politicians, officials, their business partners and gangsters all seek to transfer their ill-gotten gains into solid investments in major foreign business centers, where the real ownership of the assets is totally secret.

Much of the illicit financial outflows from Latin America undoubtedly find their way into fine art, blue chip corporate stocks and ritzy apartments and mansions in Miami and in New York.

The corrupt employ armies of lawyers, consultants, accountants and bankers to create foreign holding companies registered in places like the British Virgin Islands where no questions are asked about the origin of the wealth.

These shell companies hide the true beneficial owners of the assets and are used as the investment vehicles to launder the illicit cash.

Pressure is mounting, but is it enough?

The only good news is that pressures are mounting on banks from public prosecutors and bank regulatory authorities to end the secrecy that enables the corrupt to park their cash far from the location of their crimes.

In January 2013, HSBC, one of the world’s largest banks, agreed to pay a $1.92 billion fine to U.S. authorities for allegedly laundering Mexican drug cartel money into the United States.

This case has served to encourage greater investigations of major global banks and the effort has now been given a boost by the very high profile disclosure of 100,000 secret accounts at HSBC’s private bank in Geneva, as reported by the International Consortium of Investigative Journalists.

Rarely before have so many political leaders in Latin America been as low in the popularity opinion polls as today. Corruption scandals are taking a far heavier toll than in the past it seems. The major cause for this is the painfully evident ties between corruption and stagnant economic growth.

But, important, the current mood has been sharpened by courageous journalists and judges: the former have exposed corruption cases with great zeal, while the latter are showing exceptional courage by confronting political establishments.

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China’s Financial Paradoxes http://www.theglobalist.com/chinas-financial-paradoxes/ http://www.theglobalist.com/chinas-financial-paradoxes/#comments Thu, 26 Mar 2015 06:00:19 +0000 http://www.theglobalist.com/?p=41762 By John West

China’s total debt is now greater than that of the United States, creating uncertainty about its future.

Credit: LIUSHENGFILM- Shutterstock.comChina’s total debt is now greater than that of the United States, creating uncertainty about its future.

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By John West

China’s total debt is now greater than that of the United States, creating uncertainty about its future.

Credit: LIUSHENGFILM- Shutterstock.com

China’s international financial showmanship at the Asian Infrastructure Investment Bank should not distract attention from its deep financial fragilities at home.

The UK recently defied its “special relationship” with the United States by applying to join the China-led Asian Infrastructure Investment Bank (AIIB). Other leading European countries France, Germany, Italy and Switzerland quickly followed suit. And there is now talk that Australia, Korea and even Japan might be the next AIIB suitors.

China’s leadership in the creation of the AIIB and also the New Development Bank (formerly the BRICs Development Bank) is a direct challenge to the U.S.-dominated post-war international financial system centered on the IMF and World Bank. It is thus seen by many as symbolic of the financial power of China — and the waning influence of the United States.

Pulling back the curtain

But China’s international financial showmanship should not distract our attention from China’s deep financial fragilities at home.

China’s total debt has risen from $7 trillion in 2007 to $28 trillion by mid-2014, according to a recent report by the McKinsey Global Institute. It accounts for more than one-third of the growth in debt globally. Representing 282% of GDP, China’s debt is now even larger than that of the United States (269%) or Germany (258%).

China’s rapid debt buildup is about double that of the United States before the global financial crisis or that of Korea before the Asian financial crisis. If the current pace of debt buildup continues, China’s debt would reach 400% of GDP by 2018.

This debt surge is the result of the government’s stimulus program in response to the 2008 “Lehman shock.” This stimulus took the form of an explosion in directed bank lending, mainly to state-owned enterprises (SOEs) and local governments. More recently, this was followed by a boom in shadow banking finance.

China’s debt is concentrated in the SOE sector. Indeed, at 125% of GDP, China now has one of the world’s highest levels of corporate debt. While China’s government debt is more modest at 55% of GDP, this could change quickly if the government were obliged to bailout SOEs or to recapitalize financial institutions.

China’s debt binge has created many vulnerabilities. Unregulated shadow banking accounts for nearly half of new lending since 2008. Some local government infrastructure projects are not capable of generating financial returns to enable debt repayment. And nearly half of China’s total debt is directly or indirectly related to the volatile real estate sector.

A crisis waiting to happen

Real estate prices in China skyrocketed over the past decade, increasing by some 500% from 2004 to 2013. Some analysts have described China as the biggest bubble the world has ever seen. A price correction has already begun. In fact, a slump in the housing market seems to be accelerating, as housing prices have fallen in each of the past six months.

“A plausible concern is that the combination of an overextended property sector and unsustainable finances of local governments could result in a wave of loan defaults in China, damaging the regular banking system and potentially creating a wave for investors and companies that have put money into shadow banking vehicles,” the McKinsey report argues.

“Don’t worry, China won’t crash,” was the message from Premier Li Keqiang at the end of the recent National People’s Congress. But even Premier Li acknowledged that the Chinese economy faces a long period of adjustment.

At this stage, the Chinese government has the financial wherewithal to deal with its debt challenges and stave off a full-blown financial crisis. Premier Li also indicated a willingness to continue propping up the economy if necessary.

But as the case of Japan two decades earlier highlights, public finance can get quickly out of shape if the government does not promptly address financial problems.

To prevent a recurrence, the government must implement structural reforms to empower provincial governments to raise sufficient tax revenues to finance their expenditures and to enable the financial system to allocate finance more efficiently. Too much of China’s financial resources are currently being wasted.

A complicated issue

Some observers have argued that China could use its immense foreign exchange reserves (about $4 trillion in value) to solve its sudden debt problem. But it’s not as simple as that.

Such an approach would require selling foreign currency-denominated investments and converting the proceeds into renminbi. This would push up the renminbi exchange rate, harming exports at a time of economic weakness.

China must now navigate a major turning point in its development trajectory. A period of slower growth is being heralded as the new normal. But what is most important is unlocking productivity as a fresh driver of growth and industrial upgrading now that the demographic dividend of cheap labor has come to an end.

This will require urgent implementation of the commitment of the 2013 Third Plenum to allow market forces to be the decisive factor in resource allocation.

In the past, China’s economic policy makers have proven themselves adept at navigating treacherous waters. But introducing more market forces into China’s still state-dominated economy with all the creative destruction that entails, while at the same time finding a path out of the clutches of financial instability, will require even more skillful policy making than in the past.

Neighborhood disputes

In contrast to its domestic policy prowess, China has not been adept at making friends with its neighbors like Japan, the Philippines or Vietnam, or its own antipodes such as Xinjiang, Tibet, Hong Kong or Taiwan.

The AIIB could serve a very useful role in financing some much-needed infrastructure in South East and South Asia, thereby improving China’s soft power. But it will also be used to enable President Xi Jinping and his government to project their imperial image to their neighbors.

How all this plays out will be fascinating to watch. It is not irrelevant that the people of little Sri Lanka have just voted out a government which had sold its soul to Beijing.

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How to Deal With the Populists: Home Truths for Europe’s Future http://www.theglobalist.com/how-to-deal-with-the-populists-home-truths-for-europes-future/ http://www.theglobalist.com/how-to-deal-with-the-populists-home-truths-for-europes-future/#comments Wed, 25 Mar 2015 06:00:25 +0000 http://www.theglobalist.com/?p=37092 By Gordon Bajnai

“Technocracy is policy without politics – and populism is politics without policy.”

Credit:  3Dstock - Shutterstock.com“Technocracy is policy without politics – and populism is politics without policy.”

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By Gordon Bajnai

“Technocracy is policy without politics – and populism is politics without policy.”

Credit:  3Dstock - Shutterstock.com

Geopolitics – and foreign policy in general – is always some kind of derivative of domestic politics. In a curious way, the current situation reminds me of my student days 28 years ago, when I started studying economics at what was then called the Karl Marx University of Economics in Budapest.

The way we were introduced to the subject was via the study of “political economy.”

When I finished my studies a few years later, in 1991 at the by then properly renamed Budapest University of Economics, we were still located in the same building and “political economy” was gone. We only learned about “economic policy.”

You can’t shake the political economy

I thought that for the rest of my life I could do without political economy. But following the global financial crisis that started in 2008, I now realize that my hopes were sorely disappointed.

Political economy is driving my life these days – as well as pretty much everyone else’s.

Those who are regular readers of history books should not be surprised about what is happening in Europe – and more broadly in the developed world. Economic policy is now largely driven by the political consequences of this crisis.

An often-quoted observation holds that “revolutions are not made by those who are poor, but by those who get disappointed.”

And after the crisis, tens or even hundreds of millions in the developed world have slipped back from having achieved middle-class status and are now poor again. And their disenfranchisement, their disappointment is driving the current political process.

The utility of populism

As in the 1930s, every political demand generates a supply. So this disenfranchisement is generating a large supply of “-isms” – different kinds of populisms. One is nationalism.

If a politician is running out of sources to give social welfare to his people, then s/he can still revert to the old warhorses of identity politics and nationalism. This is, to some degree, what is driving the current course of Russia.

There are also other kinds of populisms. You always need to find a scapegoat. You need to pick a “fight” in order to stay in power. That is what is driving populism – from Greece to Spain to the UK. The sentiment even afflicts the United States, via the Tea Party’s populism.

In East and Central Europe 25 years ago, we all had a strong belief in a direct route that would lead us from communism to western-style democracy and an embrace of the market economy. We had a very clear model to follow – the European Union.

My generation – I am now 46 years old – was raised in the hope that we would embark on a linear, one-directional path of catching up and getting there. But almost every country in the region experienced a zigzag path caused by disillusionment and followed by nationalism and identity problems.

One of the reasons is that the very model we aspired to is itself in trouble and trying to redefine itself. After all, who wants to join a crisis zone?!

How to avoid the trap of technocracy and the hell of populism? We are facing a growing gap between what should be done, logically and technocratically, and what can be done politically.

What can Europe do to become a role model again?

In the wake of the crisis, somebody wrote that technocracy is policy without politics – and populism is politics without policy. But what we need is good politics, which is at the middle of these two extremes.

What does this mean for the three major topics dominating European economic policy debates these days – structural reform, investment and austerity? First of all: I do believe that austerity has its role as a way of deleveraging states. But it’s not enough.

You also need structural reforms, which are long overdue in most EU countries.

But politically, these are the two most difficult things you can ask of your voters. Austerity sounds nice in a technocratic environment, but it essentially means asking for money back from the people.

And structural reform – probably the sexiest term in macroeconomics – for a politician means asking your voters to fundamentally change the way they live. This is even more difficult to ask for.

Investment: A free lunch?

But to get out of this crisis, the European Union still needs some degree of selective austerity, it needs much more structural reform, and what it badly needs is investment.

As Larry Summers put it recently in the Financial Times, investment is a kind of free lunch – for governments. If investment is not financed from public funds, it can be a generator of growth that is politically popular (unlike austerity and structural reform) and does not increase short-term indebtedness.

Investment into public goods, if done well, can also improve competitiveness. Despite this irrefutable fact, we see precious little of that. It is hardly happening in the United States and it is not happening in Europe.

Many politicians say, “There is no money, we need to provide that with more public funds from more public debt.” But that’s not true.

Based on a recent survey, published by the Long Term Investors Association, there is over $1 trillion invested into public infrastructure today by investment funds, insurance companies and pension funds. And their stated intention is to triple this amount in the next five years.

So there is a huge potential. Money is there – and it is looking for projects. But there are nowhere near enough viable projects and no proper administrative capacity to get them done.

We need all three at the same time: austerity, structural reform and investment, executed in a clever economic policy mix. And we need good politicians who can get the relevant political support for good governance of this kind.

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Germany’s Choice: Shaper or Bystander? http://www.theglobalist.com/germanys-choice-shaper-or-bystander/ http://www.theglobalist.com/germanys-choice-shaper-or-bystander/#comments Tue, 24 Mar 2015 06:00:48 +0000 http://www.theglobalist.com/?p=41729 By Daniel Stelter

10 points on what Germany needs to do to save the Eurozone -- and safeguard Germany’s own interests.

Credit: Stephanie Jones - www.flickr.com10 points on what Germany needs to do to save the Eurozone -- and safeguard Germany’s own interests.

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By Daniel Stelter

10 points on what Germany needs to do to save the Eurozone -- and safeguard Germany’s own interests.

Credit: Stephanie Jones - www.flickr.com

The political pressure on Germany is rising in Europe. The country faces a choice: Continue business as usual or change the strategy?

Only the latter option may give it real influence on shaping the future course of economic and political affairs in Europe. Playing defense is the comfortable choice, but it may be the wrong strategy.

What needs to be done? Below is a proposal for saving the Eurozone in a way that would safeguard Germany’s interests, too:

1. Admit the facts: Policymakers need to communicate the message very clearly that between 3.0 and 5.0 trillion Euros of government and private debt in Europe will not be served in an orderly way. This excess debt needs to be written off.

2. Pool the debt overhang: Excess debt should be pooled into a debt redemption fund, with all the Eurozone countries bearing joint liability for it.

3. Pay off the debt: Start an orderly process for paying off this debt over a period of at least 20 years. Such longer maturity periods will help to reduce the cost saving pressures that many Eurozone countries are facing.

4. Issue Eurobonds: The debt relief fund (see #2 above) will be refinanced by Eurobonds specifically issued for this purpose. These bonds, with joint liability of all Eurozone countries, will have long maturity periods and low coupon rates and should be amortized on an annual basis.

5. ECB intervention: The ECB could purchase some of these bonds, thus ensuring long-term financing for this legacy debt at low interest rates. The risks are properly balanced: The greater the portion of these bonds purchased by the ECB, the smaller will be the burden on the domestic budgets of the member countries.

6. Show solidarity: Countries like Greece, Ireland, Portugal and Spain are unlikely to be in a financial position to be able to deal with their debt overhang by themselves. Better-positioned countries, especially Germany, will need to make generous contributions to counter this.

Economically, this is equivalent to offering debt waivers – though in this case, extended over a longer and hence more manageable – maturity period. Hard though this may be to swallow politically, it is the mature choice to be made. Leadership means to look for what’s right for the continent over the long haul.

7. Cap the liability: A mandatory feature of socializing the unserviceable debt across the Eurozone in this manner is the establishment of a fiscal union, in which individual member states give up their budget sovereignty.

Alternatively, there needs to be a clear understanding that, as in the United States, there will be no joint liability for servicing the debt obligations of individual member states in the future. In the latter case, all member states would start with debt levels of 60% of their GDP.

Capital markets would then be free to determine the interest rates on the outstanding debt – based purely on the creditworthiness characteristics of the respective countries and without interference from the ECB.

8. Implement real reforms: Relieved of the pressure of severe austerity measures, Eurozone countries would find it easier to agree upon a common growth agenda: Free up and mobilize the labor market, adopt targeted immigration policies, make investments in education, innovation and infrastructure.

On the face of it, these points sound pretty similar to the requests by the critics of the current strategy. Both European “rockstar economists,” Varoufakis and Piketty have suggested similar things — but with two important differences:

9. Varoufakis and Piketty want to have mutualization and monetization without any economic reforms and agreements with the creditors. They just want to get the help without offering anything in return.

If Germany takes the lead, it will be in a much better position to ask for something in return. That will also generate political goodwill with the European public.

10. They not only want to clean up the existing mess, but rather want to get a blank check for future spending. If Germany took the lead on debt restructuring, it could insist on either full integration or a return to the no-bail-out principle similar to the United States, where no state has to guarantee the debts of another state.

No doubt, the financial costs of these moves to Germany could turn out to be significant. Depending on the total value of debt that is mutualized and the conditions under which the debt relief fund is refinanced, Germany’s liability could run up to about a trillion Euros.

Large as that sounds, it is almost exactly as much as the estimated adverse impact of the energy transformation (“Energiewende”) that Germany hastily embarked upon.

Unpopular decisions

I can already hear the critics shouting: Isn’t this unfair towards those who took care to keep savings? Why on earth should we be bailing out the creditors? Isn’t the ECB intervention tantamount to direct public sector financing, which in turn would have inflationary repercussions? How can we be sure that we won’t be in this same mess again in a few years? Why should Germany be doing this at all?

The answer to the first of these questions is easy: Yes, in fact it is really unfair! But the damage has already been done and all that we can decide upon now is how we want to bear it out. By unilaterally stopping the debtors from making repayments? By fueling inflation? Or rather by means of an orderly process? Given the potential collateral damage of the first two of these, I strongly favor the adoption of an orderly process.

Likewise, it is true that this would result in bailing out the creditors – in this particular case, banks and insurance companies. But here, too, what would be the alternative?

If we let banks bear the brunt of it, their losses would have to be salvaged by taxpayers’ money. Going for creditor participation – as in the case of Cyprus – would also have a severe adverse impact on the German depositors.

And if it is the insurance companies that lose out, their customers would end up bearing losses either directly, as in case of life insurance, or indirectly through higher premiums, as in the case of property insurance.

In short, there really are no scenarios where Germany exits from the present Eurozone mess in unblemished form. The only relevant question is what’s the least bad alternative?

What about the ECB?

Getting the ECB involved in order to resolve this issue will also be viewed with a lot of skepticism, and quite rightly so. Are we again being confronted with the inevitable prospect of hyperinflation, following direct injection of funds into the public sector, as seen in Weimar before?

Contrary to the ECB’s recent decision, which raises the funding cap for Greek banks by €500 million, the mechanism proposed above would be a one-off action only. Its financial scale will have been defined and well-confined in advance.

Getting rid of the debt overhang problems would boost the European recovery, thus making further intervention by the ECB redundant. Finally, it would be possible to assess the monetary impact of such a proposal with much greater accuracy than is the case in the current scenario, where there seems to be no foreseeable end to the ECB interventions.

Make no mistake about it: Implementing the above measures is still no guarantee that we will not face a financial crisis again.

But that only makes it all the more imperative that, when negotiating the terms of the debt relief fund, binding provisions are incorporated which foster comprehensive European integration and/or enforce a no-bail-out clause.

These terms would then be equally binding upon future governments, too. In the light of recent developments, there might understandably be reservations regarding the feasibility of such a proposal. However, as long as we are committed to the Euro, we have no better alternative.

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Keeping China In or Out? Beijing Vs. Washington on TPP http://www.theglobalist.com/keeping-china-in-or-out-beijing-vs-washington-on-tpp/ http://www.theglobalist.com/keeping-china-in-or-out-beijing-vs-washington-on-tpp/#comments Mon, 23 Mar 2015 06:00:06 +0000 http://www.theglobalist.com/?p=41725 By Shihoko Goto

Global economic diplomacy gets more complicated as China plays its cards.

Credit: Cory Doctorow - www.flickr.comGlobal economic diplomacy gets more complicated as China plays its cards.

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By Shihoko Goto

Global economic diplomacy gets more complicated as China plays its cards.

Credit: Cory Doctorow - www.flickr.com

Does China simply want to rewrite the rules of the global game and create frameworks that work to its advantage, or can it be brought back into the fold? These are questions anxiously asked not just in Asia’s capital, but also in Washington, D.C. itself where there is growing nervousness about China’s longer-term objectives.

As Beijing’s economic might and political power continue to grow and its influence across Asia and beyond spreads, it may seem that when it comes to new rules for a new regional order, China has the upper hand.

A grand proposal

The proposed establishment of the Asian Infrastructure Investment Bank by Beijing would seem to suggest so, as it seeks to challenge the business of existing international financial institutions head-on.

With a total of 33 countries — including India, the Philippines and Indonesia as well as non-regional nations such as Britain, France, Germany and Italy — the AIIB is pegged to become a serious rival institution to traditional providers of low-interest loans.

In fact, the Chinese-majority led organization would compete head-on with the U.S.-led World Bank and the Asian Development Bank, which has always been headed by a Japanese national. Both the United States and Japan remain strongly opposed to the AIIB and have dissuaded key partners such as Australia and South Korea from joining, at least for now.

Yet to argue that China is trying to ramp up alternative international economic frameworks where it can call the shots would not be seeing the bigger picture and what the future actually may hold.

After all, not too long ago, the world’s biggest trade deal was seen by Beijing as a means for the United States and its allies to contain the threat of Chinese expansion. Such worries about the Trans-Pacific Partnership deal, however, no longer hold true in China.

China wants a place at the table

While the 12 member countries of the TPP try to push through the trade pact that would represent about 40% of the global GDP, China now aspires to be inside that tent eventually, rather than remain outside of it.

That at least is the logical conclusion about Beijing’s longer-term aspirations, considering the number of Chinese analysts and officials committed to assessing details of the pact on a day-to-day basis.

It would be in the interest not only of China, but the global community at large, if China were to continue to aspire to joining the TPP and hence to meet the changing needs of an integrated global economy.

Yet, as the White House presses for a conclusion to the TPP negotiations, the focus is increasingly on the political angle of the pact.

The prevailing argument is that the TPP is the economic arm of the U.S. rebalancing act to Asia and that without the deal the United States would be elbowed out of Asia. That message resonates with lawmakers on Capitol Hill in particular.

Still, placing too much focus on the U.S.-led or China-led rules for the future could backfire in the longer term. After all, before proposing the AIIB, China had lobbied hard to press for reform both within the World Bank and the Asian Development as well as the IMF – changes that are largely blocked in the U.S. Congress.

China is not alone

Beijing has not been alone in pushing for change in the international financial institutions, which continue to be dominated by the United States, Japan and European nations.

Other countries, including Brazil and India, are among those pressing for greater representation. So while the AIIB can be regarded as a direct competitor to the established institutions, it can also be seen as a result of a failure for the existing institutions to meet new realities and needs among the rising powers.

Following that same logic, Beijing has put a back-up plan into the works. It has taken the lead in establishing alternative trade regimes to the TPP, including the Regional Comprehensive Economic Partnership agreement that includes key TPP member states — but not the United States.

In short, diplomacy in Asia – including in the domain of international financial institutions and trade regimes – is becoming much more multi-faceted. China is making its weight felt – and expects, yes, proper accommodation.

The White House’s best bet to remain a key player in establishing new rules in Asia may actually be to encourage Beijing to join TPP down the line, so that the momentum for any alternative Chinese visions lose steam. Failure to do so might backfire in the long run and put Washington out in the cold.

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Urbanization in Serbia http://www.theglobalist.com/urbanization-in-serbia/ http://www.theglobalist.com/urbanization-in-serbia/#comments Sun, 22 Mar 2015 08:00:19 +0000 http://www.theglobalist.com/?p=38343 By The Globalist

Despite widespread migration to urban areas in Serbia, some communities maintain traditions.

Goran Stamenkovic / The Other HundredDespite widespread migration to urban areas in Serbia, some communities maintain traditions.

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By The Globalist

Despite widespread migration to urban areas in Serbia, some communities maintain traditions.

Goran Stamenkovic / The Other Hundred

Goran Stamenkovic was born in 1963. Living in Serbia, by profession he is a veterinarian, while photography is his favorite hobby. He is a member of the Photo Association of Serbia and has participated in more than 100 exhibitions in the country and abroad.

•  •  •

Serbia is experiencing a huge migration of people from the countryside to cities.

With almost three-quarters of households employed in agriculture living below the poverty line, villages are dying and many younger rural residents, especially in the south, are migrating to Belgrade and other cities of the north in search of work and other opportunities.

But in places, some traditional customs and ways of life remain.

Text and photographs by Goran Stamenkovic


Slavko Jokic, 49, a vet in the village of Mokrin, poses as one of the local shepherds whose sheep he helps to keep in good health.


Zivko Golic chats with his granddaughter, also in Mokrin. As more and more families with young children abandon the countryside for city life, such a sight is increasingly rare in rural Serbia.


Mile Buncic is the only blacksmith in Basaid and its surrounding villages. He works to earn a little to support his retirement, but with few horses left in his district, he has little to do.


Radunka Stamenkovic, a housewife in Lipovica, starts her day with the washing up and preparing lunch. Her home has electricity, but it is only used for lighting and her radio. To heat water she still uses her woodburning stove the whole year round.




Goran Stamenkovic was born in 1963. Living in Serbia, by profession he is a veterinarian, while photography is his favorite hobby. He is a member of the Photo Association of Serbia and has participated in more than 100 exhibitions in the country and abroad.

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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The Western Balkans: Europe’s Forgotten Region http://www.theglobalist.com/the-western-balkans-europes-forgotten-region/ http://www.theglobalist.com/the-western-balkans-europes-forgotten-region/#comments Sun, 22 Mar 2015 08:00:18 +0000 http://www.theglobalist.com/?p=41583 By Denis MacShane

The Balkans are still posed to plague the 21st century.

Credit: djstanek - www.flickr.comThe Balkans are still posed to plague the 21st century.

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By Denis MacShane

The Balkans are still posed to plague the 21st century.

Credit: djstanek - www.flickr.com

This summer sees the 20th anniversary of the massacre of Srebrenica. Eight thousand Europeans were taken outside, their hands carefully tied behind their backs and Serbian soldiers shot them all in cold blood.

The mass graves had been dug, the exact amount of ammunition to carry out the executions given out, and food and drink brought for the soldiers carrying out this mass murder.

It was the worst single massacre by armed security forces of unarmed prisoners since the days of Katyn or the mass killings by Germans in World War II.

Twenty years after 1945, Germany was at peace with its neighbors, had normal diplomatic relations with the countries it once occupied or had annexed like Austria, and was at the heart of both NATO and the European Economic Community.

Thanks to bold political leadership, the dreadful crimes of 1940-1945 faded into history, even if vivid in memory. Compare the 20th anniversary of 1945 to the 20th anniversary of 1995 in the Western Balkans, the region from Croatia to Greece, where no final settlement is in sight.

Greece’s counter-productive diplomatic policy

Greece’s current Eurozone problems need no elaboration but Greece has not helped itself with its counter-productive diplomatic policy of refusing to give normal diplomatic status to its two northern neighbors, Macedonia and Kosovo.

Croatia remains plagued by accusations of corruption and clientelism. Sixty thousand Croatians took out mortgages in Swiss francs. They now face a crippling increase in repayments following the dramatic revaluation of the Swiss franc, when the Swiss National Bank decided to abolish the peg of €1:CHF1.20 at the end of January.

Bosnia remains without common state institutions, as its Serbian community in the Republika Srpska simply refuses to live jointly under a common nation-state rule with Bosniaks and Croatians.

Massive air and ground NATO intervention, following the decision of President Bill Clinton to reverse his 1992 election pledge not to get involved in the Balkans, stopped the Serbian assault on Sarajevo in 1995.

Four years later, in Kosovo, NATO planes and soldiers intervened when Serb militias ran amok in a rampage of murder and ethnic cleansing of Albanian Kosovans.

No violence, but no settlement either

But if full-on violence is a thing of the past, there is no settlement to produce open borders or regional economic integration, or to oblige nations to accept their war crimes, as Germany did after 1945.

Five European member states – Spain, Slovakia, Romania, Greece and Cyprus – refuse to recognize the independent status of Kosovo. Each may have its own reasons.

Spain has enclaves in Morocco, resents British presence in Gibraltar and frets over the idea of Catalan secession. Slovakia and Romania are angry at Hungarian insistence that Hungarian minorities owe a loyalty to Budapest, not to the nations of citizenship.

Greece and Cyprus have Orthodox Church loyalties to orthodox Serbia.

Russia and Serbia spend significant diplomatic resources trying to stop Kosovo from being recognized as a UN member state, despite 120 of the world governments now accepting Kosovo’s status as an independent nation.

Macedonia is plagued by bitter political division with credible reports of vote rigging to keep the current government in power. The idea of alternating governments or power sharing is unknown in the Western Balkans where winner-takes-all clientalist politics rules.

The only hope appears to be EU integration. Yet Serbia’s Prime Minister Alexsandar Vucic gave an aggressive interview to the Neue Zürcher Zeitung on March 10, 2015, in which he said, “We are not ready to recognize Kosovo as an independent state. I hope Brussels is not waiting for any concessions from Serbia.”

Precisely what the EU wants

Prime Mnister Vucic could not be more wrong. That is precisely the concession that the EU wants. An acceptance that Kosovo is no longer a province or region of Serbia, as the surreal Serbian constitution asserts, would prove that Serbia is serious about accepting the responsibilities of being a normal EU member state.

Vucic rejected the view that Kosovo was de facto an independent state. He showed a flash of anger that the Swiss journalists would even ask him.

Yet in the same interview, he offers no support to Serbian hardliners in Bosnia stating, “We respect the territorial integrity of Bosnia-Herzogovina with no if’s or but’s. Republika Srpska belongs to Bosnia.”

There is clearly a contradiction between Vucic telling Serbs in Bosnia that they owe allegiance to the post-Yugoslav state, but refusing to do the same to Serbs in Kosovo.

Under EU pressure, relations between Belgrade and Pristina have improved. Kosovans can now travel into and out of Serbia using Kosovo identity papers but not a Kosovan passport.

There is regular dialogue between Pristina and Belgrade. But as long as Kosovo is unable to join major international institutions like the UN because of Serb opposition, the country cannot seek investment and foreign trade as the post-1950 countries of Western Europe could.

Meanwhile, the Russians are hovering

Of course, the Serbian opposition is backed by the Kremlin, which has still not forgiven the 1999 NATO intervention that ended the power of the client Slobodan Milošević.

The Western Balkans continue to have too many fault lines – three religions with a dreadful history of war and treating other faiths as mortal enemies combine with no clear distinction between government and business, so that money-making is as important for politicians as good government.

The Greek crisis is the most visible problem plaguing Europe. Russia hovers, waiting to exploit opportunities by offering political and diplomatic support to Greeks, Serbs, and Montenegrins, as well as dangling energy and banking concessions to anyone who will switch from the EU to Putin.

Greece and Serbia could transform their negative image in the main EU capitals as well as in Brussels by promoting grown-up diplomacy and recognizing Kosovo.

There is no evidence this will happen. The 21st century will be as plagued by the Western Balkans as were the 19th and 20th centuries.

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Uncomfortable Parallels: Hitler and Putin http://www.theglobalist.com/uncomfortable-parallels-hitler-and-putin/ http://www.theglobalist.com/uncomfortable-parallels-hitler-and-putin/#comments Sat, 21 Mar 2015 06:00:06 +0000 http://www.theglobalist.com/?p=41673 By Klaus Friedrich

Artfully mixing the toxic spirit of national and personal humiliation.

Credit: World Economic Forum - www.flickr.comArtfully mixing the toxic spirit of national and personal humiliation.

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By Klaus Friedrich

Artfully mixing the toxic spirit of national and personal humiliation.

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Hopefully, history will not repeat itself. But in view of recent events in Ukraine, especially the annexation of Crimea, one is reminded of some ominous parallels nearly 80 years ago, when Adolf Hitler annexed Austria.

That annexation in 1938 bears close resemblance to Vladimir Putin’s annexation of Crimea in 2014:

    ■  In both cases, the alleged repression of a shared ethnic group was used to foment unrest and rally support for the takeover agenda.

    ■  In both cases, a carefully stage-managed popular referendum was held and, in both cases, its ultimate outcome was strongly in favor of annexation.

It almost seems that Putin took a page out of Hitler’s book when he described Crimea’s annexation as a “homecoming.” Hitler had welcomed Austria “home” in the same way (Heim ins Reich).

National and personal humiliation

These remarkable similarities invite a comparative look at the principals, Vladimir Putin in 2014 and Adolf Hitler in 1938.

Putin had served the Soviet Union as a KGB officer in East Germany around the time of the collapse of the Soviet Union. It must have been deeply humiliating to him to witness the dissolution of the Soviet republics and Soviet dominated countries and their quick alignment with the West.

Thirteen countries around Russia, from Bulgaria to Estonia, with a combined population of 120 million, not only joined the European Union, but also became members of NATO.

The sudden presence of these two Western organizations in what Russia, for some time, had regarded as its “sphere” must have appeared aggressive and deeply humiliating to Vladimir Putin.

The source of Adolf Hitler’s comparable humiliation was the Treaty of Versailles ending WWI. It left Germany with crippling reparation payments and restrictions on its sovereignty.

Just as Putin did eight decades later, Hitler managed to translate his personal sense of humiliation into national sentiment, gaining a large popular following. Both men derived a mandate to redress national humiliation from their high approval ratings.

Similar disdain for Western culture

In addition, the muted Western response appears to have affirmed each man’s sense of personal toughness and self-discipline. By extension, both men were also keen to show their disdain for the decadence in Western culture.

Nazi Germany persecuted “decadent” arts and artists, including American Jazz artists. Putin’s Russia focuses on homophobic laws and engaging in deliberately offensive political rhetoric styled as an explicit reaction to the West’s supposed lax standards of morality.

Despite important differences, stylistically both Hitler and Putin:

    ■  share a perceived need to redress national humiliation

    ■  project tough-guy self images

    ■  rely on strong popular support and the belief in Western decadence and softness.

The success with Austria and Crimea encouraged both Hitler and Putin to engage in further expansionist adventures.

At this point, however, it is important to abandon the search for any further comparisons – if only because this could be insulting to Mr. Putin, who still has many choices ahead of him.

It seems clear, however, that Putin is prepared to keep challenging the West as long as he can do so successfully. He observes declining European defense budgets and intensifying debates among Europeans over the justification of economic sanctions imposed on Russia. He knows he can sow doubts easily in some nations, for very little money.

America’s cold warring is over

Many Europeans seem to still cling to the Cold War notion that military matters are better left to the Americans.

The United States, while the senior member of NATO, evidently finds going to war over some small piece of Eastern Europe that does not pose a direct threat to U.S. national security very unpopular.

This is not surprising since Europe, in the meantime, has essentially caught up economically with the United States. European defense therefore is no longer a question of means, but a question of will.

It is, of course, conceivable that Russia’s new aggressiveness will have the unifying effect in Europe that has been missing lately.

Europe is far more directly affected by Russian expansionism than is the United States. Europe must therefore step up to the plate.

The proverbial line must be drawn, even though this is more easily said than done in a world of hybrid war and non-linear strategies.

At the same time, Mr. Putin must be persuaded and convinced that he can be secure and respected — within his own borders.

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Quo Vadis, Putin? An Answer in Five Points http://www.theglobalist.com/quo-vadis-putin-five-points/ http://www.theglobalist.com/quo-vadis-putin-five-points/#comments Sat, 21 Mar 2015 06:00:05 +0000 http://www.theglobalist.com/?p=41710 By Andreas Umland

Reflections on Putin and Russian domestic politics.

Credit: Alexey Kljatov - www.flickr.comReflections on Putin and Russian domestic politics.

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By Andreas Umland

Reflections on Putin and Russian domestic politics.

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1. What did Putin’s sudden disappearance mean? What about the possibility of a coup d’etat?

Putin’s 10-day absence was ominous and atypical. It went along with news of seeming conflict or mis-coordination in the Kremlin; for instance, around the official narratives concerning the murder of Boris Nemtsov, and the prehistory of the annexation of Crimea (Putin and the Russian Ministry of Affairs provided different stories about Russia’s engagement in February-April, 2014).

In general, the Kremlin’s behavior is becoming more erratic by the month. That may not yet indicate a coup d’etat. Yet, it is a sign that various factions around Putin are not well-coordinated – or are even already in conflict with each other.

If nothing happens before 2018, that year will be crucial. Russia’s “selectorate” (i.e., the Moscow elite circles) will have to agree on putting Putin forward again, or somebody else, to become president (probably against the background of a withdrawal of the soccer world championship from Russia). Such an agreement among different groups in Moscow may be difficult to reach.

2. What is said in Germany now about Russia and Putin?

The Kremlin is now seen with increasing mistrust. The so-called “Russlandsversteher” (“Russia-understanders”) are in retreat. That is a deep change from the situation about two years ago when a cooperative approach to Russia was dominant.

Now the faction of pro-Putin commentators has shrunk to some obvious industry lobbyists and right- and left-wing radicals, as well as some retired politicians, especially from the Social Democratic Party. There are few active politicians with influence left who promote the earlier approach. Schroeder’s “New Ostpolitik” is over.

3. Putin gives evidence against himself in a potential international crime case in the film “Crimea: The Way Home.” Why did he do this? Is he not afraid of punishment?

My interpretation is that (a) Putin’s image in the West has suffered to a degree that to uphold the former implausible narrative of a local upheaval does not make sense any more, and (b) the Kremlin has decided to go on the offensive concerning its annexation narrative for domestic consumption.

By way of admitting that Russia stood behind the events in Crimea in the spring of 2014, the Kremlin is making the entire population of Russia a hostage of its foreign political adventurism. This strategy is designed to create a “fortress mentality” in Russia.

The trick seems to work. Sooner or later, Russia will also admit its military involvement in Eastern Ukraine, although the Kremlin will insist on merely having intervened into an already ongoing “civil war” in the Donbas.

4. Putin’s regime is pursuing a policy that seems to go against common sense. Is there any logic in it?

The logic of that behavior looks like imperialism, chauvinism, colonialism and revanchism – i.e. stories we know well from 19th- and 20th-century European history.

The deeper issue is: How can the current ruling circle in Moscow legitimate its power in times of economic recession and stagnating living-standards?

The new social contract that the Kremlin seems successfully to be proposing to Russians is: You will not live better, but you will again be a feared and important nation in world politics. This contract, however, only functions as long as the drop in living standards is not too steep.

Whereas before the “deal” was “No serious political participation, but bread,” the new “deal” is “No serious political participation, but bread and circuses.” Some “bread,” however, is still part of the deal. That is the pressure point which the West has to use.

5. Can new sanctions can help to stop Putin? If not, what can stop him?

The pressure potential of decisive Western sanctions is undervalued. Russia is (a) highly integrated into the world economy and (b) an industrially and infrastructurally underdeveloped petro-state. (I once told the Russian ambassador to Germany that his country is a “Potemkin village in an oil rush.” He was not amused.)

The Russian economy and budget are highly dependent on Western cooperation. The Russian population is less ready to suffer for some elusive foreign policy agenda than is usually assumed.

The currently high support of the Russian population for Putin is built on an understanding that the current living standards will remain largely in place. If that equation discontinues, the Russians’ support for Putin will decline.

Conclusion

It is a risky situation. I have explicitly warned about a possible World War III between the West and Russia, six years ago, in an article for The Globalist published in January 2009. However, the West should not be timid, even in view of that prospect.

To prevent further escalation, the EU needs to become more decisive and true to its own values regarding Russia. That will impress the Kremlin more than yet another round of toothless negotiations.

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Spain: Greek-Style Populist Upset Unlikely http://www.theglobalist.com/spain-greek-style-populist-upset-unlikely/ http://www.theglobalist.com/spain-greek-style-populist-upset-unlikely/#comments Fri, 20 Mar 2015 13:32:08 +0000 http://www.theglobalist.com/?p=41693 By Christian Schulz

Despite rise in polls, Podemos remains far behind pro-European parties in Spain.

Credit: thierry ehrmann - www.flickr.comDespite rise in polls, Podemos remains far behind pro-European parties in Spain.

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By Christian Schulz

Despite rise in polls, Podemos remains far behind pro-European parties in Spain.

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Could Spain follow the bad Greek example? The radical left Podemos party has risen to prominence in the polls with demands quite similar to those of Alexis Tsipras’s Syriza, including debt haircuts, nationalization of banks and strategic industries, unconditional minimum income and more power to the unions.

With Spain currently independent of Eurozone financial assistance, Podemos could theoretically implement its policies if it can convince investors to continue funding Spain’s budget deficit, expected to be 4.5% of GDP in 2015. A very big If.

podemos poll chart

It is very unlikely that Podemos’s Pablo Iglesias will be able to run a populist government like Tsipras in Greece for a number of reasons:

1. Podemos’ rise in the polls has stalled since December, as rising media attention has uncovered financial irregularities and Venezuelan links.

2. The pro-European mainstream was splintered but ultimately strengthened by the overdue emergence of a liberal protest party with sensible economic policies, Ciudadanos.

In the last five polls, center-right PP was running just below 25%, center-left PSOE around 20% and Ciudadanos at 12%, with the last two polls showing them at 18%.

3. Even if Podemos does come first, it would be nowhere near an absolute majority as there is no winner’s bonus as in Greece. It would need a coalition partner for which only pro-European parties are available.

4. The Spanish parliamentary seat distribution system favors regionally focused parties, which helps PP more than Podemos.

5. Spain’s economic recovery is more advanced than Greece’s. By the time of the election, unemployment will have dropped from a peak of 26.3% to just above 22%.

Syriza is a liability for populists across Europe. The economic disaster Tsipras & Co. have caused in Greece within a record short period of time should be a warning.

Whether Syriza now makes a complete and embarrassing U-turn to keep Greece in the Eurozone or takes the country with it into the abyss of Grexit, most voters in Spain and elsewhere will not want to emulate that example and endanger the unfolding upswing.

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The Mounting Global Challenges of Rampant Corruption http://www.theglobalist.com/the-mounting-global-challenges-of-rampant-corruption/ http://www.theglobalist.com/the-mounting-global-challenges-of-rampant-corruption/#comments Thu, 19 Mar 2015 06:00:11 +0000 http://www.theglobalist.com/?p=41626 By Frank Vogl

Only a united front against corruption can bring about its end.

Credit: watchsmart - www.flickr.comOnly a united front against corruption can bring about its end.

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By Frank Vogl

Only a united front against corruption can bring about its end.

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Multiple major corruption crises are splashing across the front pages of newspapers across the globe. Taken together, these crises are contributing to global insecurity and to financial and economic instability, while they are challenging freedom and democracy in many countries.

The individual cases of grand corruption involving political leaders are reported case by case. The dangerous mega-impact, however, is only really evident by looking at the crises in combination.

On security, the extraordinary levels of corruption that pervade every aspect of government and business life in Afghanistan, Pakistan, Iraq and Nigeria today, have critically undermined the influence of the governments in these countries and their ability to secure peace and fight terrorism. These crises are damaging global security.

Linking corruption to insecurity

The core relationships between corruption and insecurity are increasingly being reported and analyzed by government officials, such as the U.S. Inspector General for Afghanistan; by non-governmental organizations, such as Global Witness and Transparency International, and by scholars, notably a new book by Sarah Chayes of the Carnegie Endowment entitled “Thieves of State.”

Then, while corruption is not the major cause, it is contributing substantially to the slow-down in growth in a number of economies, for example, Brazil, Russia, Turkey, Ukraine, Greece and South Africa. The bottom line is that the problems in these countries are combining to weaken global growth.

Let me explain with a few examples. The security and economic challenges in and around Ukraine are complicated by the continuing massive corruption across the country. The country is bankrupt, largely due to theft by the previous regime.

Now, the Ukraine government is striving to negotiate major loans from the International Monetary Fund and Western countries, but the creditors are worried that their cash will just be stolen. No wonder, when Ukraine today, for example, is described in a recent article in The Guardian as, “Welcome to Ukraine, the most corrupt nation in Europe.”

The continuing Greek economic and financial crisis, posing threats to Eurozone cohesion, is due to a considerable extent to the combination of years of tax evasion and avoidance by Greeks, plus major corruption conspiracies involving the political establishment and business elites. The radical left-wing Syriza party won the last election largely by highlighting anti-corruption pledges.

Corruption is universal

Brazil faces a recession, yet the focus and effectiveness of the government is diverted by the largest corruption scandal in the country’s history. The largest Brazilian corporation, Petrobras, has been found to have given tens of billions of dollars of contracts in return for bribes that went to company executives and leading politicians.

On March 15, hundreds of thousands of Brazilians took to the streets to call for the impeachment of President Dilma Rousseff over the Petrobras corruption scandal.

And in China, officials in government, business and the military are widely seen as being scared to take decisions in case these may be seen as corrupt. Hundreds of thousands of people have been investigated over the last 18 months for corruption, as President Xi Jinping wages an unprecedented campaign.

The impact may be affecting efficiency and contributing to a significant slowdown in growth. The leadership of the nation has warned that in the campaign “no official is untouchable.”

Russia is the perfect illustration of how rampant corruption is damaging the economy, adding to international insecurity and smashing hopes for building democracy. The scale of Kremlin corruption is vast, according to an exceptionally detailed study by Professor Karen Dawisha at the University of Miami in Ohio.

In “Putin’s Kleptocracy – Who Owns Russia?,” Dawisha explains how over many years a well-planned network, with Putin at the helm, has plundered the national treasury and major Russian enterprises.

Russia’s corruption problem

Now, for many reasons, including corruption, Russia is facing recession. As the pressure mounts on Putin, so his administration has been ruthless in repressing opponents and pro-democracy and anti-corruption activists. The media have been increasingly censored and opposition politicians have been forced to flee the country or murdered, as was the fate of Boris Nemtsov.

It may not be the case that corruption across the world is worse today than ever, or that its consequences are more damaging. Rather, never before has there been so much mainstream media and social media focus on corruption.

The Internet has facilitated the spread of increasing information and made maintaining government secrecy all the harder. An increasing number of investigative reporters have taken full advantage, encouraged by mounting general public awareness of the potential of mass protests.

The plethora of news about corruption scandals is strengthening public support for anti-corruption, pro-democracy non-governmental organizations in many countries. Slowly this has influenced perspectives among world leaders.

The US, UK and other governments are starting to recognize that it is going to take multilateral action to curb widespread corruption.

This was well illustrated with the encouraging decision by the Group of 20 at its last summit in November in Brisbane, Australia, to agree on a “Group of 20 Anti-Corruption Action Plan 2015-16.”

The plan covers many areas, including economic development and money laundering. The challenge now is to ensure that it is enforced.

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Vladimir Putin: The Antithesis of a Success Story http://www.theglobalist.com/vladimir-putin-the-antithesis-of-a-success-story/ http://www.theglobalist.com/vladimir-putin-the-antithesis-of-a-success-story/#comments Wed, 18 Mar 2015 06:00:04 +0000 http://www.theglobalist.com/?p=41634 By Alexei Bayer

The annexation of Crimea may remain Putin’s only success in his Cold War against the United States.

Obama and Putin arm-wrestling over Ukraine. Original art by Anatol Zukerman.The annexation of Crimea may remain Putin’s only success in his Cold War against the United States.

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By Alexei Bayer

The annexation of Crimea may remain Putin’s only success in his Cold War against the United States.

Obama and Putin arm-wrestling over Ukraine. Original art by Anatol Zukerman.

For more than a year, a typical evening news program on Russian television would open with a standard statement: “Tonight, we begin our broadcast with events in Ukraine.”

Then, the entire half-hour format would be devoted to the iniquities of the “Kyiv junta” and successes of the heroic Donetsk and Luhansk fighters, with little or no mention of what was happening elsewhere in the world or, for that matter, in Russia – as though Russians’ own country had fallen from the face of the earth.

In addition, several very popular talk shows hosted by famous TV personalities have been wholly dedicated to the task of maligning Ukraine, its people and its government.

The national fixation would seem strange, considering repeated official claims that the Russian Federation has no troops in eastern Ukraine.

A proxy war

But the truth is that the Russian government doesn’t believe it is fighting Ukraine. It is fighting in Ukraine and its real adversary is the West and more to the point, the Great Satan itself, Washington.

Vladimir Putin confirmed this yet again in the odious TV documentary “Crimea: the Path to the Motherland,” which aired across Russia last weekend, by calling the United States “the true puppeteers” of the Ukrainian revolution.

Anniversary celebrations of the annexation of Crimea in Russia have a distinctly hollow ring. An initial success in Russia’s war against the United States was achieved because, as Putin also admits in the film, he had insidiously planned the annexation of Crimea for a long time and because the Ukrainian army was completely unprepared to defend the peninsula.

After that, the war has not been going especially well.

On the contrary, all of Putin’s plans have failed. After the flight of buffoonish Viktor Yanukovych, Ukrainians have been able to elect a legitimate government and to build a stronger, battle-hardened military.

Ukraine’s economy is struggling, but it has not collapsed and bankruptcy is now unlikely, given the $17.5 billion aid package approved by the International Monetary Fund earlier this month. Slowly but surely, the Ukrainian economic system is undergoing the necessary reforms that have been delayed by a quarter of a century.

Meanwhile, Putin’s Novorossiya project, had envisioned annexing eastern and southern portions of Ukraine to connect by land to Crimea and to link with the breakaway Transnistria region of Moldova. The project has failed miserably, shrinking to the size of two small, lawless and starving “People’s Republics.”

Compounding failures

Outside of Ukraine, a wider war against the West has been going even worse.

The European Union shrugged off Gazprom’s bluff, demonstrating that Russia needs European customers for its natural gas much more desperately than Europeans need the gas to keep warm in winter. And all the while Europe continues to diversify its sources of supplies of natural gas — away from Russia.

When Putin signed a deal with the Chinese last year, offering them Siberian gas at fire sale prices, Russia’s European customers yawned.

Russia’s bellicose stance has done nothing to shore up international oil prices, either. Even though Russia produces around 10% of world crude oil, its price has been falling steadily since mid-2014 and is now plumbing fresh multi-year lows, with the Brent benchmark trading below $54 per barrel.

Last year, when the United States and its allies imposed sanctions on Russia, Putin banned food imports from those countries in return. But if he had hoped to damage their economies, it was a resounding flop.

Even the EU, Russia’s major trading partner, shrugged off those sanctions rather easily, finding new markets for its food products. Russia’s own economy, meanwhile, has been reeling. Food prices in particular have rocketed, and quality and selection have deteriorated sharply.

Anger met with indifference

Russia’s obsession with its war against Washington is in sharp contrast to Washington’s complete indifference to Russia. Back in 2004, I wrote an op-ed for the Wall Street Journal which I titled “Russia off the Radar Screen,” discussing how inconsequential Russia had become in world affairs.

But at least back then it was not “rising from its knees” and flexing its muscles. Now, the situation is different. Moscow has redrawn international borders and has started a war in Europe. Moreover, it has revived the Cold War and is spending its remaining rubles on building up its military.

Nevertheless, the American media continue to ignore Russia and its leader. Take recent events, for instance, when Putin had disappeared for more than a week, cancelling important international and domestic meetings. The Russian and Ukrainian portions of the Internet exploded with intense speculation.

Fantastical versions ranged from a stroke to a palace coup and from a secret visit to his girlfriend’s maternity ward in Switzerland to a descent to the underground nuclear bunker. In the United States, there has been some lazy speculation in the media on the subject of “Where is Mr. Putin?” but it was certainly not front-page news.

National Public Radio, the U.S. equivalent of the BBC and the best source for international news, never even mentioned Putin’s disappearance in its hourly news summary.

Hollow threats

Now in the same Crimea documentary, Putin declared that if his annexation of Crimea had not gone smoothly, he was prepared to activate Russia’s nuclear forces. In retrospect, it was, potentially, the scariest nuclear crisis since the Cuban missile standoff more than half a century ago.

It certainly signals the return to Cold War rhetoric. Then, reappearing in public the next day, Putin also put 40,000 Russian troops and the Northern Fleet on full alert.

Not only did Wall Street stage a rally on the same day, but the DAX index of German stocks set a new record, rising above 12,000 for the first time ever – even though Germany, of course, is in the immediate proximity of the scary Russian Bear.

Putin’s attempts to do enough damage to the West to get noticed are reminiscent of Ella the Cannibal, a character in the Soviet satirical classic The Twelve Chairs (written, incidentally, by two Odessa natives, Ilya Ilf and Evgeny Petrov).

Having seen the picture of Miss Vanderbilt, the daughter of the American railroad magnate, on the cover of a French fashion magazine, Ella pulls all the stops to compete. She goes on a buying spree, severely straining her family budget.

Ella’s efforts are fairly innocuous. Not so Putin’s. He’s clearly determined to raise the ante until the world sits up and pays attention.

Watching Washington ignore his antics may be amusing, but it is also a little surreal and quite scary. It seems that the Russian president is not going to rest until Barack Obama calls him to the negotiating table.

Judging by how little attention has been paid to his efforts to date, it seems it will take no less than some form of nuclear blackmail.

It may be a far-fetched notion, but it could certainly happen. As Russian opposition leader Boris Nemtsov said in an interview not long before he was murdered on Feb. 27, “You should be aware that Putin is completely insane.”

Editor’s Note: This article was originally published on the Kyiv Post.

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Obama Abandons Allies on China’s Marshall Plan http://www.theglobalist.com/obama-abandons-allies-on-chinas-marshall-plan/ http://www.theglobalist.com/obama-abandons-allies-on-chinas-marshall-plan/#comments Wed, 18 Mar 2015 06:00:04 +0000 http://www.theglobalist.com/?p=41609 By Kevin P. Gallagher

The United States is looking increasingly left behind as it defies its closest allies in Asia.

Credit: kafka4prez - www.flickr.comThe United States is looking increasingly left behind as it defies its closest allies in Asia.

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By Kevin P. Gallagher

The United States is looking increasingly left behind as it defies its closest allies in Asia.

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The Obama administration is looking increasingly left behind as it defies its closest allies and the President’s own party on foreign economic policy in Asia.

This week, the administration rebuked the United Kingdom for agreeing to participate in negotiations for the multi-billion dollar Asian Infrastructure Investment Bank (AIIB) – even though the new institution would fill a major gap in Asian infrastructure needs.

At the same time, President Obama abandoned his own party in an attempt to ram through authority to finalize the Trans-Pacific Partnership agreement—a trade deal with Pacific Rim nations that would bring little economic benefit and high economic cost to Asia and the United States alike.

Unable to follow through

In the wake of the global financial crisis of 2008-9, China offered its newly acquired financial prowess to help boost Western-led financial institutions such as the International Monetary Fund and the World Bank.

While the Obama administration backed reforms at these institutions that would have given China more clout, it has done little to counter an intransigent Congress that, under Republican leadership, has failed to pass those critical reforms.

Already stuffed with low-yielding U.S. treasuries in need of a higher return, China has decided to go its own way. That is why China is establishing the AIIB with $50 billion in capital and a Silk Road Fund with $40 billion. Both are aimed at investing in 21st Century infrastructure projects in Asia and beyond.

In 2014, China also established the New Development Bank, along with Brazil, Russia, India and South Africa. This institution has an initial capital of $100 billion.

These moves, intended to diversify the global funding landscape, come on top of financing that China’s own development banks already provide across the world. The China Development Bank holds $100 billion in capital and has over $1 trillion in assets.

Consequences of a more engaged China

China’s more intense global engagement – generally something not just welcomed but demanded by the U.S. government and politicians in Congress alike – does have some surprising consequences in the real world.

The China Development Bank and the Export Import Bank of China now provide more loans to Latin American governments than the World Bank and the Inter-American Development Bank — and more loans to Asia than the World Bank and the Asian Development Bank.

In this light, China-backed finance has the potential to be nothing short of a 21st century Marshall Plan and couldn’t come at a better time.

Western-backed financial institutions have not been able to increase their capital in proportion to the growing needs in the world. According to some estimates, development banks fall short of providing lending for poverty alleviation by $175 billion per year.

The World Economic Forum projects that by 2020 about $5.7 trillion will need to be invested each year into green infrastructure in developing countries. Not only will this require shifting the current $5 trillion into a greener direction, but there will also be need to increase $700 billion more each year to make the shift happen.

Washington can hardly complain about its sideline status. It was invited to take part in the AIIB. Not joining it is a choice made by the U.S. government. But the United States has not only refused to play, it has lobbied Australia, South Korea and Indonesia, as well as Europe — not to join in.

This week, the United Kingdom – and France, Germany and Italy – decided that it would be foolish not to be part of these efforts. Australia is now considering joining in as well.

Laughable excuses?

Obama’s official complaint is that the AIIB will not replicate the transparency and anti-corruption norms found in Western banks, as well as safeguards for social and environmental protection.

This claim doesn’t even pass the laugh test. Negotiations for the AIIB are not even underway yet — and the U.S. move means it is foregoing an active role in the negotiations where these issues will be on the table.

The United States has long demanded that other major countries share in the burden of global initiatives and institution-building.

Now that the Chinese government has stepped up to the plate, President Obama is passing up an opportunity for the United States to take part in a legacy-making Marshall Plan for the 21st Century.

On top of that, he is alienating Asians, Western allies and his own party. The U.S. government should be embracing the AIIB and abandoning the TPP, not the other way around (abandoning the AIIB and ramming through the TPP). Hopefully our global allies and the President’s own party will help him see the light.

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Victors’ Bonus: What Israel Could Learn From Athens http://www.theglobalist.com/victors-bonus-what-israel-could-learn-from-athens/ http://www.theglobalist.com/victors-bonus-what-israel-could-learn-from-athens/#comments Tue, 17 Mar 2015 06:00:30 +0000 http://www.theglobalist.com/?p=41590 By Bill Humphrey

Israel has not tried to deal with leadership instability. Awarding the election winner additional seats would help.

Credit: Jon - www.flickr.comIsrael has not tried to deal with leadership instability. Awarding the election winner additional seats would help.

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By Bill Humphrey

Israel has not tried to deal with leadership instability. Awarding the election winner additional seats would help.

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On Tuesday, more than a dozen Israeli political parties are expected to win seats in the country’s snap parliamentary elections that Prime Minister Benjamin Netanyahu called after his coalition broke up last year.

These parties will vie for a total of 120 proportionally elected seats in the Knesset. Israel’s threshold to win seats has this year been raised to 3.25% of the vote (translating to 3-4 seats).

As a result of this fractious system, no single Israeli party or joint list has ever won a majority (61 seats) in an election.

No clear winners in Israeli elections

In the past five elections, the party or list that ended up forming the coalition won an average of just 30.2 seats out of 120 – i.e., only a quarter of the seats – with 11-14 other lists also winning seats.

To form a government thus requires coalition building among quite a few parties, usually with very different (if not diametrically opposed) policy views. No wonder that, under those circumstances, coalitions do not last very long.

The public has previously shown a desire for a stronger executive mandate. Israel briefly adopted direct elections for Prime Minister in the 1990s. To exclude unserious candidates, only major parties could nominate someone. In each of the three times Prime Ministers were directly elected, only two candidates competed.

This modification unfortunately did not fix the problem because the Prime Minister could win an outright majority of the vote but still lack a majority of legislators to support his cabinet or agenda.

Since then, other than tinkering with the electoral threshold very slightly, Israel has not tried to deal with the leadership and policy instability problem inherent in its system.

Where Athens does provide inspiration

One possible place to seek electoral reform inspiration for Israel might be Greece – the birthplace of democracy and a country with a similar population size – despite its own serious current political challenges.

Similarly to Israel, 250 members of Greece’s parliament are elected through a system that ensures fair geographic representation along with the proportional will of the national electorate, using a 3% threshold.

However, there is one big innovation to clarify the executive mandate. As of the 2008 revisions to Greek election laws, the top-finishing party is given a victory bonus of 50 extra seats – bringing the total to 300 seats in parliament – to help the winner get closer to a governing majority.

This represents a bonus equal to 20% of the proportionally elected seats. (An earlier law gave the winner 40 seats.)

It’s not a perfect setup, of course. A party earning relatively low percentage of the vote share can gain an extra 20% of the seats even if it falls well short of capturing the confidence of a majority of voters and even if another party were to capture just 1% less of the electorate than the winner.

However, it substantially boosts the chances of quickly forming a government and allowing that government to push through its major agenda items, rather than floundering along with the status quo due to internal gridlock.

Meanwhile, it still allows for diverse, multi-party elections — but constructively counteracts the growth of fringe, single-issue, or personality-centric parties that take up seats or weaken serious parties without actually contributing to the government or the opposition in any substantive way.

Israel’s political system, even more so than Greece, would benefit from being cleared of such parties. Politicians would have more incentive to remain inside a major party, rather than splintering, as often happens.

Applying Athens in Jerusalem

If a comparable bonus were applied in Israel, it could mean 120 seats would be elected proportionally with 24 additional seats awarded to the winning list. (The Knesset would expand to 144 members in this scenario, and 73 seats would be a majority.)

Based on the average data from the past 5 legislative elections to the Knesset, the winning party would hold about 54 seats, instead of 30, if a 24-seat bonus were awarded.

This would still leave the leading party in search of at least about 19 more seats for a majority, ensuring that multiple views and parties would continue to be represented in any Israeli coalition – just as they are in Greece, even with the victory bonus system.

If the system were actually implemented, it is also likely that some of the smaller parties would fade or merge permanently into major parties to help the chances of capturing a bonus.

That in turn would make two-party coalitions feasible. Without a victory bonus, an ideologically coherent coalition might require the support of 5 lists representing ten parties to reach a bare majority.

Israel’s current political system favors the constant production of stalemates that are unsustainable, for both economic and foreign policy. Adding the Greek victory bonus system might be the consolidating jolt the system needs.

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Who Bosses Whom? Israel Vs. the United States http://www.theglobalist.com/who-bosses-whom-israel-vs-the-united-states/ http://www.theglobalist.com/who-bosses-whom-israel-vs-the-united-states/#comments Mon, 16 Mar 2015 06:00:25 +0000 http://www.theglobalist.com/?p=41571 By David Apgar

The problem today is that the United States has too much influence on Israel, not the other way around.

Credit: Number 10 - www.flickr.comThe problem today is that the United States has too much influence on Israel, not the other way around.

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By David Apgar

The problem today is that the United States has too much influence on Israel, not the other way around.

Credit: Number 10 - www.flickr.com

In next Tuesday’s election, is Binyamin Netanyahu, the Israeli Prime Minister, hoping to gain the upper hand by showing voters that he can influence U.S. policy – or by taking a hard new line on never giving up the West Bank? The answer to this question says a lot about which way influence really runs between Israel and the United States.

Netanyahu’s spit-at-the-White-House-from-Capitol-Hill speech has led some commentators to criticize him for running on a boast that he can bend at least Republican policymakers in the United States to his will. After all, they point out, he won at least a dozen standing ovations in Netanyahu’s address to Congress.

But Israeli voters have other, very practical, concerns on their mind – such as the affordability of housing and ever-rising income inequality. They are too smart and too cynical to believe the tired old trope that anyone in Israel exercises some kind of special influence over U.S. policy.

Intriguingly, Netanyahu knows that as well as anyone. And that suggests that what he’s really selling in this election is the other big piece of news his latest campaign has generated – his apparent repudiation of a two-state solution for Palestine and a promise to hold on to the West Bank.

Digging a little beneath the surface of both the speech to Congress and his Likud Party’s recent announcement that Netanyahu no longer supports a two-state solution shows powerful U.S. influences on Israel at work, which may not be in Israel’s long-term security interest.

Who benefits from Netanyahu’s speech?

Regarding Netanyahu’s speech, the real question is who benefits. Netanyahu’s principal financial backer, Las Vegas casino magnate Sheldon Adelson, has a very U.S.-centric goal – he wants to roll back the Obama presidency.

In case you missed it, back in 2009, despite the distractions of two wars and a financial collapse due to the financial crisis, the new U.S. president found time in May of that year to announce a crackdown on the use of overseas tax havens to evade U.S. corporate taxes.

That was one of the far too few measures taken by the Obama Administration to rein in illicit activities of Big Business.

Two very familiar billionaire names – both supposedly “concerned” about the broader politics of the country – were among the hardest hit. There were the two Koch brothers. They woke up to find their investment in Alberta tar sands suddenly subject to the kind of taxes only the little people are supposed to pay.

The other big name was Sheldon Adelson. Adelson suddenly had a problem repatriating the ample earnings of his Macau casinos.

The money behind the power

The Koch brothers declared war on the new president’s domestic agenda, while Adelson, who spent $100 million on Republican candidates in both 2012 and 2014, took on the other half of the sky: He declared war on Obama’s foreign policy.

Adelson has done a lot for Netanyahu, like subsidizing Israel HaYom, a newspaper devoted to boosting Likud’s hard-line policy and prime minister, whose free distribution has made it Israeli’s leader.

The beginning of the 2016 U.S. presidential cycle – the election of a new President is Adelson’s next opportunity to roll back enforcement of U.S. taxes on overseas earnings – was the perfect time for the magnate to call in a favor.

But surely, some might argue, Netanyahu’s speech reflected Israel’s security concerns about Iran. But did it? Just ask yourself this question: What alternative did Netanyahu propose?

No deal leaves Iran free to build nuclear weapons right away. In short, Netanyahu was helping Adelson by denouncing U.S. policy on Iran in Congress – not the other way around.

The one-state solution – but will it be a democratic state? Let’s turn to the news that Netanyahu no longer backs a two-state solution for side-by-side Jewish and Palestinian nations. It’s telling proof that Adelson’s sway over Netanyahu and all of the Likud Party is tremendous.

A two-state solution is the consensus route to a safe future for Israel shared by most U.S. Jews, all U.S. administrations and Israel’s security establishment. At least for a while, it appeared as if Netanyahu was on board with that. But Adelson never agreed and publicly denounced Netanyahu for his 2009 Bar-Ilan speech supporting it.

In early March, just as the polls in Israel tightened despite the Prime Minister’s excursion to Washington to address Congress, the Likud Party repudiated Netanyahu’s Bar-Ilan speech. Its press release noted all of a sudden that “Netanyahu’s entire political biography is a fight against the creation of a Palestinian state.”

Dissent from within

This Adelson-inspired shift certainly puts in perspective the dismissal of Finance Minister Lapid in December 2014. He had tried to block a $76 million payment to two expanding settlements. Lapid has since declared that settlement funding is corrupt, citing payments to the Settlement Division of the Zionist Federation and the Samaria Council.

Lapid has suggested that Israel diverts $250 million of public money per year to West Bank settlements, which has amounted to about $25,000 per new settler, or $100,000 on average per new settler family, between 2008 and 2013.

The number is plausible because it’s less than the amounts withheld from U.S. foreign assistance to Israel in 2003 and 2005 under a law prohibiting support for settlements in the occupied territories. Reuters reports $305 million for 2012.

But at least these are payments under the nominal control of Israelis. Stranger are the examples of private U.S. foundations like those of the Falic family (Duty Free Americas) and parts of the Schottenstein family (American Eagle Outfitters) that donate generously to both Netanyahu and settlement funds.

Is there a solution in sight?

Everyone agrees that settlements are making an independent Palestinian state in the West Bank unviable. But no one can explain how, as a single state, Israel can absorb over 2.5 million West Bank Palestinians, retain its Jewish character — and remain democratic.

Adelson holds no illusions. “So Israel won’t be a democratic state,” Thomas Friedman reports Adelson as saying. “So what?”

Given all those Adelson-inspired machinations, it is high time for Americans to stop being paranoid about Israel’s influence on the United States. Rather, we should ask whether we are becoming a bad influence on Israel.

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Untouched Cambodia http://www.theglobalist.com/untouched-cambodia/ http://www.theglobalist.com/untouched-cambodia/#comments Sun, 15 Mar 2015 06:01:51 +0000 http://www.theglobalist.com/?p=38323 By The Globalist

Despite rapid growth in tourism and commercial industry, there are still parts of Cambodia untouched by this development.

Miti Ruangkritya / The Other HundredDespite rapid growth in tourism and commercial industry, there are still parts of Cambodia untouched by this development.

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By The Globalist

Despite rapid growth in tourism and commercial industry, there are still parts of Cambodia untouched by this development.

Miti Ruangkritya / The Other Hundred

Miti Ruangkritya, born in Thailand in 1981, was named among the Selected Winners and Honourable Mentions in the UK’s Magenta Flash Forward – Emerging Photographers awards in 2011 & 2012, and won the Silver Medal at the Prix de la Photographie in 2012.

•  •  •

Siem Reap is one of Cambodia’s fastest-growing cities, filled with bustling hotels, shops and markets. But along its outer edge, away from the tourist attractions and hectic commercial districts, lie natural, dry, unkempt grasslands, still untouched by development.

Scrubland and lakes lie along the sides of Plov Lek 60 Road. At its end, the road abruptly turns into a field. Early each day, local people gather on the road to exercise. As dusk falls, traders set up stalls and impromptu restaurants along its pavement. Local people come out to picnic, date or just enjoy the scenery.

Text and photographs by Miti Ruangkritya


A young couple enjoy a picnic besides Plov Lek 60 Road on the outskirts of Siem Reap.


Every evening, pop-up restaurants appear along the side of the road.






Miti Ruangkritya, born in Thailand in 1981, was named among the Selected Winners and Honourable Mentions in the UK’s Magenta Flash Forward – Emerging Photographers awards in 2011 & 2012, and won the Silver Medal at the Prix de la Photographie in 2012.

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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