Eurozone Redux

I’ve been absent for two good reasons.  The first is that political events are unfolding at too rapid a rate to make any sensible comment that would last more than a few hours.  Reading other blogs which vainly attempt to prognosticate, let alone to analyze, the collapse of the Euro, Syria’s seemingly unending nightmare, fear mongering, obstructionist Republicans in the US, the mess that is Egypt, Turkey’s coming of age, Russia’s desperate struggle to keep old ties afloat while deliberately alienating the West, etc. etc., I decided the task was not only fruitless, but rather stupid.  So I’ve watched al Jazeera and waited.  The second reason is that I’m busy.

Nevertheless, with yet another “final” Euro summit underway the time seems appropriate to re-address the unraveling of the Eurozone. 

At the crux, of course, is Greece.  The election of the centrist coalition solved nothing,  If the left had won, Germany’s bluff would have been called. But, unfortunately now that particular scenario has been delayed.  In the lottery for the dubious honour of becoming Greece’s Finance Minister so that the Germans could kick him and solutions down the road, Yannis Stournaras won.  He was there in 1994 to negotiate Greece’s entry into the Eurozone.  He may well be there on its exit.

Minister Stournaras only has a couple of moves before disintegration.  Will they happen and will Germany accede?  No.  But, anyway, official time for Europe has expired and we’re now in the first overtime.  Yannis Stournaris must resist the pressure to buy more time by extending the bailout, which will only produce more debt which will be paid to German banks in the end.  Don’t extend the bankruptcy. Call the German bluff.  Get a deal from Europe.

Keep in mind that all the bailout funds masterminded by the Germans are nothing more than payments to the banks, not to the Greek people.  Furthermore, much of the bailout goes to allow Greek banks pay German and other European banks for loans that should never have been made.  Greece’s sovereign debt problem is not being addressed and won’t be until Germany is forced into a position where it can no longer dictate its austerity program for others while maintaining its competitive advantages that were deliberately structured into the Eurozone system.  Money that re-capitalized Greek banks should not be part of the national debt – that releases a bunch of Euro’s, by the way.  Let the European Financial Stability Facility own the banks and do with them what they need to do. 

Everyone, including the Germans, are now talking about a growth strategy.  Well, let’s say growth returns in one or two years.  Until that time there should be no payments required on the loans.  After growth begins to appear, payments can be resumed with a ratio pegged to growth. 

To be clear, I don’t think any of this will happen as Germany, and Germans, seem to forget that their growth is dependent on buyers and as usual are forgetting that their economic strength lies only in exports. Losing buyers in Europe by sticking to an inane austerity policy is just plain stupid.  What they are doing is saving the banks and abandoning the people.

What Germans and the German government refuse to admit is that the Euro ship and its economies are sinking fast and, like the Titanic, it will take down the wealthy and the poor, those who are industrious and those who are not.  Their attitude and solutions are Hooveresque without the quaintness. He and his government, in response to a rapidly disintegrating economy in the US, moved rapidly to reduce government expenditure, and cut wages. He was an idiot then and Merkel and company are the idiots today.

Finally, and what makes the Eurozone almost problematic at this point, is that Chancellor Merkel wants to create a German Europe; every nation should  live, work and apply its governance according to German rulebooks.

Merkel and many (if not most) Germans have an annoying tendency to patronize the southern tier, telling them to “do their homework” for example, so that they can all become good little Germans.  This is nothing more than a tool to bring all of Europe under German leadership.  The word “rule” might be too harsh. Maybe.  However, this makes Germany a threat to the Eurozone and Europe – not Greece, Italy, Spain or Ireland.  So everyone else in Europe needs to decide if they want to live under German leadership or resist.

Merkel keeps saying that she and Germany will do whatever it takes to save the euro; except that every plan presented by others has been vetoed to satisfy German voters, German banks and the German press. Oh, and yes, national interests.

Once More Into the Breach....

On July 1 the new European Stability Mechanism Fund comes into effect.  It is a more robust attempt to resolve the financial crises that has the Euro on the ropes.  But it is also a key date because in June, Greeks will go to the polls again and if they vote the same way, or even strengthen the anti-austerity parties to the extent they can form a government, then after July either the German led team of austerity believers will blink or Greece will set in motion the withdrawal from the Eurozone.   Because, austerity plans are now a social and economic disaster for Greece, Spain and Portugal.  Actually, austerity is not a plan at all – it is a knee-jerk reaction by the rich and powerful to retain that power at the expense of the periphery in Europe which requires a growth plan – not more austerity and unemployment that it brings.

Germany seems to think that threats are the order of the day.  They seem to forget that the Greek voter makes the choices – not Berlin.  Enough economists have said that the German led austerity program is bogus that perhaps Merkel and her ever diminishing circle of allies should sit down and come up with a compromise because by staying in the Euro, Greece will never recover economically because it will be forced to use a foreign currency within a group of wildly differing economies.  The system does not work.

Jean-Claude Juncker, who presides over the Euro-zone's finance ministers, criticized those who seem to think that threats against Greece were appropriate.  He said that Greek voters must be respected.  Mr. Juncker however, is leaving and thus can easily speak his own mind.  The problem is that the other ministers – Finland comes to mind – are fully supportive of the current policy and their tone to Greece is not diplomatic.  This is a gross mistake because people in general don’t respond well to threats and being treated like children. These same ministers praise Ireland and Portugal for keeping to the austerity route. The problem is that Ireland had no sovereign debt crises – it, like Spain is all private debt.  Frankly, anyone who thinks that Ireland is improving or stable is running a high fever. Spain’s banks are in trouble because of a housing bubble that burst in spectacular fashion and an unemployment rate over 25%.  Austerity is not the solution for Spain.

Coming back to Greece though, is the question of who will replace Juncker?  At the head of the pack is none other than Wolfgang Schäuble, the German finance minister and someone heavily invested into austerity and maintaining German export superiority.  Freshly elected Hollande is unlikely to be enthusiastic about having a German in that spot as he campaigned promoting a growth, not contraction policy.  Putting Schäuble into the driver’s seat is likely to send Greece really over the edge.

In June, Europe will know which way Greece is going.  Withdrawal from the Euro will help Greece, hurt banks and embarrass the EU (read, Germany).  But frankly, it will give Greece the chance to become competitive again.  Hopefully, there is a semblance of a plan in place to deal with the exit.

What is Wrong with Germany

The Russian elections are over with no surprises.  Everything proceeded as planned.  Russia will now concentrate on further intimidation of its former colonies - a natural geopolitical reality which is in its interests.  Despite the fact that even if Russia permitted a free media and truly competitive elections which allows for opposition candidates that have not been hand-picked by the Kremlin, Putin would have won. But not by much.

But it is telling that the energy ties-that- bind running from Moscow to Berlin are firm and colours the question of Germany's dependability as a Western ally and member of NATO.  The majority of European countries were silent about the elections and the results.  Putin received few congratulatory phone calls from any European country, with France remaining significantly quiet.

But, Angela Merkel immediately called Putin to congratulate him and amazingly offered a "strategic partnership".  The Foreign Minister of Poland, Radoslaw Sikorski, provided the proper response by calling the elections undemocratic. Poland has seen the results of a strategic partnership between Moscow and Berlin before.

German ties with Russia are understandable given the prostrate energy position of Berlin.  At the same time, coupled with German positions on Libya, it's attitude toward Greece and the southern tier of EU member states and its positioning to control the EU at the expense of everyone else, Germany must be looked on differently and its foreign policy with suspicion.

There was a place called Europe...

The Eurozone problems are getting uglier by the day.  While German politicians have consistently missed – to use Sarkozy’s phrase – multiple opportunities to shut up, Greece is actively engaged in reminding everyone of German bullying tendencies by bringing up events that took place some 80 years ago.  The latest comment from German finance minister Wolfgang Schäuble might not have been taken quite so badly in Greece if it originated from a country with a less  unfortunate (for the rest of Europe) aggressive history.  Even Italy, which has implemented the same system Mr. Schäuble has suggested, would have been a better source. At least the Greeks could ignore an idea from Rome.
 

The suggestion to postpone elections and install a technocrat government is a distinction without a difference from the previous floating balloon out of Berlin that Greece give up its rights to manage its economy to someone in Brussels.  The fact that Brussels was complicit in allowing Greece to play fast and loose with  its economy so long as times were good doesn't bode well for the idea - but that's another story.  

However, the venomous recent exchanges show that there is no “Europe” in Europe.  Citizens in Germany, France, Italy and the other 24 EU members simply do not think of themselves as European first.  Which is why Greece will eventually default and leave the Eurozone – paving the way for the slow motion economic and political unraveling of the EU unless a new approach is taken very, very soon.  In addition, the concept of installing unelected technocrats to run, at a minimum, the economic policies of a nation has been tried before and didn’t go too well by the time it ended in 1991. 

EU - The Great Unravelling

Not that it has escaped notice, but the EU and the Eurozone are unraveling at an alarming pace.  With the multiple “last opportunity” summits, electoral pronouncements by soon-to-be-unemployed Nicholas Sarkozy, and utter intransigence in Berlin, the EU is headed into another recession while simultaneously showing effectively to the world how incapable it is of taking any new direction in economic policy.  Most of the frozen dialogue is designed to save Germany – which would crash and burn should it adopt any sort of fiscal austerity it so easily demands of others in order to maintain its export driven economy which accounts for about 40% of its GDP.

Adding to the economic insanity promoted by Berlin, is an ECB which is focused like a laser on inflation.  News flash to Frankfurt – inflation is not even a looming threat on the horizon.  Unemployment (now having risen to 10.3% - 20% among youth) is and represents the TGV (in the US otherwise known as the 5 o’clock express) heading straight at everyone. Frankfurt, under the ever watchful eye of Berlin, is following policies established by Herbert Hoover and is the opposite of the actions taken by every other central bank in the world.  It’s not too fine a point, I guess, to note that France, tied as it is to whatever the current economic policy whim is at the ECB and the Euro, lost its credit rating of AAA while the UK – not in the best economic condition and not in the Eurozone – did not.  And no, S&P is not part of some Anglo-American conspiracy to attack the Euro as some German and EC representatives have claimed.

And just in case the technocrats in Brussels or the great deciders in Berlin and Paris think the EU or the Eurozone is a popular place to be these days, 70% of Czechs oppose joining the Euro; 49% in Lithuania (43% are pro-euro); and in Poland only 16%  support joining the Euro. Oh, and to cap the pyramid of euro-skeptics, almost 80% of Norwegians don’t want to join the EU.  Paris can stop worrying about 8% annual growth rate Turkey.

Now last week, with the unfortunate idea to abolish nations who don’t comply with their austerity requirements, Germany and the ECB may have alarmed Greece, Ireland, Portugal and Spain to the point of permanent alienation.  The fact that this idea arose in Germany was not ideal PR for some rather obvious 20^th century reasons.

Germany is not going to let the ECB do what it must and abandon its expansionary-austerity program – one of the more stupid ideas of the hard line technocrats in Brussels. But it has now been hoisted on its own petard.  Historically, Berlin actually did not want other nations to indulge in fiscal prudence because they have an interest in promoting consumption and demand for their exports. The currency union allowed other countries to get credit at much lower rates so they would have more to spend. Germany encouraged this spending to absorb exports and cannot now have it both ways. 

The fanciful idea that somehow Greece deceived everyone is absurd.  If any deception existed, Germany deliberately ignored reality for its own benefit.  Whether the Eurozone begins to break up is an open question.  Certainly, Greece would be better off outside the Eurozone.  Germany cannot overplay its hand and the pre-Cambrian thinking of the Brussels-Frankfurt-Berlin axis needs to be radically changed or it will be changed for them.

Germany = EU - EU = Germany

Lest anyone feel uncomfortable with the notion that Germany is the EU and the EU is Germany, they need simply to  look at their Hooveristic economic policy it is imposing on  the EU and their attitude toward Ukraine at the recently conclude EU-Ukraine summit.
 

In the first case, the German government is simply saying that others – and they are looking at Spain, Italy and Greece in particular – must be like them, or else; hence the proposal to force the 27 members of the EU to amend their national constitutions to require balanced budgets.  To propose this in a recessionary environment sounds rather foolish especially when Germany has not proposed any growth policies, just crippling austerity which, ultimately won’t work to solve the multiple problems.  Coupled with the trade imbalances that exist in the EU – which Germany seems disinclined to address – it is hard to imagine any solution that would satisfy Germany which did not require that its policy choices are mirrored in Brussels.  If that’s the case, then the Eurozone is going to disintegrate and maybe even the EU.

The second German imposed decision arose at the EU-Ukraine summit.  Blithely ignoring the Polish position that inducements work better than sticks, Germany engineered the summit so that the EU did not even initial the Association Agreement with Ukraine killing, for the time being, closer economic cooperation and letting Yanukovich off the hook.  The reason for this rejection of even a small step forward was the German view that the Tymoshenko trial and imprisonment should bring the entire integration process to a grinding halt.  Astoundingly, Germany ignored Tymoshenko’s call to sign the Agreement preferring to appear as a defender of human rights while obscuring the inconvenient fact that 1) it is joined at the hip with Russia for energy and investment; 2) it gets to work on pipeline projects originating with Russia; and 3) it gets preferential pricing by Gazprom.

The result is that the EU, run by Germany, has managed to push an important country like Ukraine closer to the demonstrably undemocratic Russia and has also failed to come to grips with the Eurozone/EU crises.  Not a bad month’s work.

Putin's Enlightenment Award Vaporizes

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The prize I referred to below that was bestowed on Vladimir Putin was withdrawn.  The Quadriga Prize, bestowed on the anniversary of German reunification on October 3, is a private award that recognizes "role models for enlightenment, dedication and the public good."

Awarding it to Putin was a travesty - now corrected.  Medvedev's mild rebuke for the revocation is telling.

Domestic Politics Does Affect Foreign Policy

Over at Dan Drezner’s site there was an interesting discussion concerning what, if any, impact domestic politics, in the context of a US government shutdown over the budget, has on foreign policy. It is not as narrow as the post suggests. The budget issue in the US is only one political piece of the puzzle – a big one, but in general it forms only one component over the struggle for political dominance in the US. The question posed is thus what effect do domestic political decisions have on foreign policy in any country. In the context of the budget issues in the US, the professor takes the position that it has no effect.


I can’t agree. In the US, this battle is only one skirmish in the larger war being waged by Republicans on behalf of their contributors and right wing core supporters. It has implications for the wider war and domestic politics almost always impacts foreign policy because it affects the players even if the policy does not extend beyond the borders.

Take a look at France. France has often intervened in its former African colonies – in Chad against Qadaffi’s invasion, in Gabon (twice) and the Central African Republic (an incredible 5 times, the last in 2006). They have been in Cote d”Ivoire since 2003 – so the current cooperation with the UN peacekeeping forces to remove Gbagbo from power after his defeat in the election is simply a continuation of their involvement. However, the aggressive stance recently taken by Nicolas Sarkozy in Africa in Libya and Cote d’Ivoire may also be seen as a result of his low standing in the polls. It can’t hurt since the rise of the French right poses a serious threat to his incumbency. Sarkozy, despite being correct about Libya, is clearly attempting to boost France’s (aka, his image) to increase his standings for the elections next year.

Chancellor Merkel’s policies toward Russia are clearly influenced by domestic affairs. Like keeping the lights on and supporting domestic manufacturing. The German economy is heavily dependent on Russia and Russian energy. A faltering economy costs her politically.

Does anyone need a reminder about China’s internal monetary policies and their international impact?

In the US, domestic politics has a clear impact on foreign policy – and sometimes results in positions that are against US interests. One need look no further than Israel where any sign of slipping support draws the instant wrath of the evangelicals. The power of evangelicals over Republicans is clearly effective and has helped isolate the US while, in the case of the Middle East, actually act against its interests Fortunately they do not have overwhelming power, but should they ever succeed in taking over the domestic political reins completely, then US foreign policy will become a threat to peace.

One need only look at the positions that someone like Senator James Inhofe (R-OK), arguably the dumbest person in the Senate courtesy of the people of Oklahoma. He was on the floor of the Senate backing Laurent Gbagbo, who refused to step down after losing an internationally certified election in November in Cote d’Ivoire. Inhofe condemned the intervention of French and UN forces to install the internationally recognized elected president Alassane Ouattara. Want to know why? Domestic politics.

Can you say “C Street” the halfway house for fallen politico Christians, especially evangelical types who have been caught attending brothels, gaming houses etc? Right wing Christians support Gbagbo because he is Christian. Ouattara is Moslem. For evangelicals Muslim = bad, Christian = Good. That is, except if the Muslim is a dictator who supports and/or supplies oil to the US. The “C Street” gang and their nationwide followers support Gbagbo who has been on the US Christian right gravy train for a long time. Both he and his wife are evangelical Christians. They have attended the annual National Prayer Breakfast run by the Christian group called the Family. Pat Robertson’s Christian Broadcasting supports him. Domestic politics can drive foreign policy.

Dig deeper and you find that the Christian right supported Charles Taylor and Michelle Bachmann was against the ouster of Mubarak. Christian evangelicals applauded the death penalty for gays in Uganda. The Christian right has never met a brutal Christian they didn’t like.

So I disagree. Domestic politics can have, and has had, a serious and sometimes adverse effect on foreign policy in the US at least. The budget debates in the US are only a small part of the struggle for control which, depending on the winner, will ultimately impact foreign policy. So, for all you progressives out there in the US who sat on your collective assess and pouted like 6 year olds in the last election, this is what will come to pass if you do it again. Inhofe, Michelle “I promise only one term, maybe” Bachmann, Huckabee and all their compatriots will be in control of domestic and foreign policy. Domestically, science will disappear and affect US international competiveness as children are taught the planet is around 5,000 years old and dinosaurs lived with humans; social programs for the poor and elderly will vanish; foreign policy will revert to military intervention first, middle and last and the income gap will only become worse.

Multiculturalism Fail

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German Chancellor Angela Merkel declared on Oct. 16 at a meeting of her party, the Christian Democratic Union, that multiculturalism, “has failed totally.” This is merely stating the obvious as the failure to integrate non-Germans into society was quite clear a very long time ago. The same can be said of France and all the other members of the old EU to one degree or another.


Horst Seehofer, minister-president of Bavaria and the chairman of a sister party to the Christian Democrats, said at the same meeting that the two parties were “committed to a dominant German culture and opposed to a multicultural one.” The reference to a dominant German culture is striking, for obvious reasons. However, the phenomenon is not confined to Germany as right wing populists gain in the polls, much as in the US. In this context, it is clear that immigration issues are affecting all of Europe and the response is not pleasant.

Of course, much of the reaction to immigration is driven by the deteriorating economies of Europe (although Germany is doing rather well despite a shortage of highly trained specialists). But, the perceived problem in Germany is of its own making.

Germany’s labor shortage began, again for obvious reasons, following World War II. So it began to import some skilled, but largely unskilled, labor from other European countries. These workers were referred to as “guest workers” and they came from Italy, Spain, Greece and Turkey. They were considered temporary, as the name implies, not immigrants. Most returned as expected and in any event Germany had no plan for assimilation. Furthermore, Germans could now rely on the unskilled migrant workers to perform, well, unskilled and rudimentary jobs, thereby allowing Germans to move into far less menial positions.

Germany had a very liberal policy for the guest workers – including social benefits and the ability to bring in family members to join the already large number of migrants. Guess which migrants took advantage of this the most. Turks. And not Turks from the cosmopolitan west of Turkey or Istanbul, but from the very poor east. The Turkish community became permanent, raising families and, as the economy slumped, taking advantage of a very liberal German social safety net as they became un-employed.

Germany never wanted to assimilate any of the guest workers, but their own policies created a situation where they needed to do something. So they came up with the smoke and mirrors multi-culturalism solution. It seemed a great idea at the time, but contained a time bomb because the deal was that the guest workers (and at this point this really only included the Turkish population) could retain their cultural and social beliefs but had to pledge loyalty to Germany. This ended up creating a sub-class – a sort of separate but equal system – which did not share (and were not required to share) German values.

As I said earlier, this is not solely a German prediliction. Europeans in general have no idea how to assimilate different cultures. Germany, like France, hid its head in the sand and, until now, never defined what it meant to be German. There was never a core culture that the immigrants were required to accept in return for citizenship - a contract of shared values. Multi-culturalism is not dead because it never was alive in the first place. The German (and French) view was a pretence and merely created ghettos. Is it surprising that after being made second class persons that Turks in particular considered Turkey their home to which they owed loyalty?

For the Germans to claim failure now is a little like the shock – shock – that Greece lied about its finances in order to enter the Euro zone or that the unregulated, shadow banks in the US precipitated the latest economic crash.

But the current German view points to a broader issue. The fact that Germany is using the language of nationalism is, to put it mildly, a little alarming. Germany is looking beyond the old constraints that tied it to the Western defense and economic establishments, including the EU. Back to the future.

Germany already has the closest economic ties to Russia of any Western European state. Russia ties Germany to itself with energy and Germany provides investment to Russia. There is already the shadow of a political alliance. The Baltic States and Poland should view this developing relationship with alarm. So should the US.

The outcome the last time Germany talked up national interest was not at all agreeable.

Overcoverage of Issues and Events

I have to admit that I’ve been lax in posting. There are two reasons for this outside of the need to actually complete some work. The first is the extreme obviousness of many topics and issues about which I could write if they were not so obvious, and the second is the useless warnings that bubble up about the necessity to deal with these issues to avoid the giant rocks from space that are sure to obliterate the planet if we don’t solve the problem NOW - but, well - let’s just list a few…


Israeli intransigent refusals to deal with any issue to move the region closer to peace,

Iranian intransigent rejection to agree on any solution dealing with anything,

Somali pirates seizing yet another ship (and being paid-off),

German pronouncements on their superior work ethic versus everyone with a shade darker skin colour

Greek worker riots as a result of reduced payments for doing nothing anyway,

Spanish riots as a result of Greek riots and 40% unemployment among youth,

French riots as a result of being French,

G20 meetings,

G8 meetings,

G pick-a-number meetings,

The imminent implosion of the Euro and the end of civilization,

North Korean insanity

In that light, a hat tip to Drezner for posting this:

An ineffectual international organization yesterday issued a stark warning about a situation it has absolutely no power to change, the latest in a series of self-serving interventions by toothless intergovernmental bodies.

“We are seriously concerned about this most serious outbreak of seriousness,” said the head of the institution, either a former minister from a developing country or a mid-level European or American bureaucrat. “This is a wake-up call to the world. They must take on board the vital message that my organization exists.”

The director of the body, based in one of New York, Washington or an agreeable Western European city, was speaking at its annual conference, at which ministers from around the world gather to wring their hands impotently about the most fashionable issue of the day. The organization has sought to justify its almost completely fruitless existence by joining its many fellow talking-shops in highlighting whatever crisis has recently gained most coverage in the global media.

“Governments around the world must come together to combat whatever this year’s worrying situation has turned out to be,” the director said. “It is not yet time to panic, but if it goes on much further without my institution gaining some credit for sounding off on the issue, we will be justified in labeling it a crisis.”

The organization, whose existence the White House barely acknowledges and to which hardly any member government intends to give more money or extra powers, has long been fighting a war of attrition against its own irrelevance. By making a big deal out of the fact that the world’s most salient topical issue will be placed on its agenda and then issuing a largely derivative annual report on the subject, it hopes to convey the entirely erroneous impression that it has any influence whatsoever on the situation.

The intervention follows a resounding call to action in the communiqué of the Group of [number goes here] countries at their recent summit in a remote place no-one had previously heard of. The G[number goes here] meeting was preceded by the familiar interminable and inconclusive discussions about whether the G[number goes here] was sufficiently representative of the international community, or whether it should be expanded into a G[number plus 1, 2 or higher goes here] including China, India or any other scary emerging market country that attendees cared to name.

The story was given further padding by a study from an ambulance-chasing Washington think-tank, which warned that it would continue to convene media conference calls until its quixotic and politically suicidal plan to ameliorate whatever crisis was gathering had been given respectful though substantially undeserved attention.

I'll be back soon  with a post on one or more of the topics listed above. Or maybe something not sufficiently covered by the MSM.

Merkel, Barroso, Euro – Oh My

Image by European Parliament via Flickr

Now it’s personal. Last week, as reported in the Guardian, German suggestions to reform the Euro-zone and re-open the Lisbon Treaty elicited a sharply worded response from José Manuel Barroso, the current head of the EC. Calling the German Chancellor “naïve” for suggesting that the Lisbon Treaty be re-opened was not designed to raise the level of the debate or improve her mood. The German response - that Barroso’s remarks were “absurd” - put the discussion in the basement.
Outside of Germany, I don’t think that many in the Euro-zone or the EU in general would support the German proposals for several reasons. First, re-opening the Treaty, which barely won approval in the first place, for the sole purpose of inserting provisions to penalize member states for not following monetary policy, is far more absurd than Barroso’s opposition to the proposal. As Barroso’s pointedly reminded Merkel, the Euro was the brainchild of France and Germany. Both, incidentally, also breached the monetary policies that were established. For Germany now to push forward some sort of punishment mechanism strikes me as a species of economic and political hegemony that is particularly distasteful to most of the other member states. Furthermore, expelling a member for non-compliance would likely result in a permanent, volutary withdrawal for the targeted country. A similar result would likely occur if voting rights were withdrawn. The European idea would be dead.
Second, and related to the first, is that Merkel is making a blatant attempt to control and mold the EU in Germany's image. In other words, nationalism is driving the German proposals. Again. Merkel is treading on dangerous ground and she has only herself to blame. It is abundantly clear that her anti-Greek rhetoric not only inflamed German public opinion but also significantly delayed EU action to develop a rescue plan for Greece. German political actions were directed at assigning blame first rather than fixing the problem and designed to increase German control of the EU. This is what the original economic union was designed to avoid - the nationalism that brought Europe to its knees. Eastern and Southern Europe will not swallow that particular pill. The UK would have the perfectly justified reason for never considering closer ties with an EU run from Berlin.

Merkel has now lost her ruling coalition in parliament. She has managed to inflame German public opinion not only against Greece, but Greeks, implying an inferiority of all southern tier member states. They have done it to the Turks. Now the Greeks, and by implication, Spain and Portugal. That is a dangerous road for Germans to follow under any circumstance and German perseverance in that regard will drive the southern tier and the Eastern European members to look elsewhere for political and economic support out of their self-inflicted economic trap.

Germany's Prejudice

Following up on the last post, it has now become extremely clear that while Merkel is in power in Germany there will be no movement on EU accession by Turkey.

The Chancellor has again reiterated her opposition to Turkish membership based on the prejudices of a broad group supporters who are unwilling to accept any non-Christian country into the club. Similar sentiments are prevalent in France and most strongly in Austria, although to be frank, the latter country doesn't really count for much.

What the Chancellor is attempting to ignore - so far successfully - are the provisions of the EU acquis regarding Turkish membership. This document - all 110,000 pages - does not contain the words "privileged partnership". Anywhere. In the words of an iconic New York Yankee baseball player - "You can look it up".

The misguided, prejudiced position of a country that has assumed control of the EU, if not its leadership, cannot be characterized any longer under the rubric of foreign policy choices. There are over 3 million Turks living in Germany. Germany originally "invited" many of their parents and grandparents to immigrate to perform the jobs Germans considered too menial for themselves. Over 4,000 German companies operate in Turkey and bilateral trade exceeds 20 million euro. There cannot be any other reason other than good, old fashioned bigotry to suddenly attempt to breach the terms of the acquis.

Merkel needs to rethink German opposition to Turkish membership. Her ally in this quest, President Sarkozy, is likely to be hammered in the next French election if the latest regional election results are any indication. Spain, England and Eastern Europe members do not oppose Turkish membership and are also likely to become increasingly wary of German control of the EU. The Tories in England may yet snatch defeat from the jaws of victory, but if they win another crack will appear in the EU further endangering the viability of the euro. Merkel and her ever shrinking circle of friends may then find that Germany is again viewed with deep suspicion.

Germany needs to decide whether changing the rules toward the end of the game is good for overall perceptions of its potential honesty in other matters. Mitteleuropa is still a not so distant memory.

Merkel Goes to Turkey

Andrea Merkel is off to Turkey and will, again, break the word of the EU regarding eventual membership for Turkey by offering, also yet again, a privileged partnership.

Turkey will not accept this latest offer; but, the issue is not really up to Germany. Is it any longer in Turkey's political and economic interest to join an organization which is increasingly run by Germany both politically and economically? I don't believe it is.

The current German government is largely in the driver's seat in the EU. It has said that it has no interest in bailing out Greece from its self-inflicted financial woes and has also stated, through its Finance Minister Wolfgang Schauble that if Greece, or any other eurozone member, could not right their finances, they should be ejected from the eurozone. Although there is no mechanism to toss the financially challenged out of the zone, the attitude - so long suppressed - is telling. Does Turkey really want to be a part of an organization run by Germany? Does it want to be tied into a group where the high labour cost and low efficiency economies are dictated to by one power?

I believe what will happen is that the process will be so attenuated that the idea of Turkish membership eventually vaporizes. This is an opportunity for Turkey. It will allow Turkey to firmly establish an independent foreign policy and further strengthen its new found self-esteem. It is also a huge opportunity for the United States, if it acts carefully, to forge a very strong relationship with an economically strong, cosmopolitan and educated democratic Muslim country to balance a German dominated EU tied to Russia by energy and to counter Iranian foreign policy designs in the region.

Of course, changes in governments in France (likely) and Germany (possible, but not soon) could lead to a different dynamic. The continued denial of membership to Turkey will, in the end, be Europe's loss. It may also be Turkey's gain.

Chancellor Merkel's Moment

OK. I withdraw 40% - well maybe 45% - of my criticism of German foreign policy following the Chancellor's speech in front of a joint session of Congress. Although Chancellor from the larger political party, I do wonder what effect her coalition partner's foreign policy views had on the rather forceful remarks regarding Iran. Nevertheless, the follow-up actions vis a vis Russia are what will count.

Why Biden was Right about Russia

Image via Wikipedia

It's Eid week-end in Tanzania and I'm essentially very lazy. So, instead of writing something on my own regarding Russia's psyche, go here.

I think the analysis is essentially correct, but doesn't go far enough. The Russian people have always been afraid - of chaos, invasion, perceived insults - while simultaneously feeling un-respected. This is a bad combination for any country, but more so for one that became accustomed to throwing its weight around. It breeds less than free societies - and we can see that reversion to a czarist style government beginning with Putin. The Russians like it and we should not pretend otherwise.

Having said that, Russia has very good reason to be afraid. A paranoid world-view does not make it untrue. Russia has been invaded by the Mongols (successfully), France, Germany (twice), Sweden - the list goes on. The ordinary people want to feel safe - whether the reality is different or not.

So, although it is useful to deal cautiously with Russia, it is important to see their view of the world - particularly in their immediate vicinity.

Germany

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President Medvedev and Chancellor Merkel signed a credit agreement yesterday worth 500 million euros to finance joint projects, primarily in mechanical engineering, RIA Novosti reported. The credit agreement was signed between Vnesheconombank and KfW Ipex-Bank. Medvedev and Merkel also signed a memorandum of understanding to modernize Pulkovo airport in St. Petersburg. Medvedev also urged Germany to support the purchase of Opel by an international consortium of the Austrian-Canadian auto supply company Magna and Russia’s largest bank, Sberbank.

Germany under Merkel is a threat to European energy independence through its increasingly close ties to Russia. It is a threat to European independence from Russia in general. Time for the US to ramp up support for France, Poland and Turkey.

Russia, Gas and Europe

Germany and Russia have been meeting through their respective FM's supplementing previous meetings between Chancellor Merkel, Prime Minister Putin and President Medvedev, regarding Nord Stream - Russia's well-planned pipeline designed to avoid all transit countries and tie the EU, and particularly Germany, to Russia through energy dependence.

According to Kommersant (Russian only) the military in Germany doesn't like the idea much since the pipeline runs too close to a naval excersize area. This should be interesting as Chancellor Merkel maneuvers for the next election and her FM, a supporter of Nord Stream but not of the same party and a likely opponent to the Chancellor, may not be quite so supportive during his Moscow meetings.

This has provoked Gazprom into threatening to sell gas elsewhere - such as the US. Maybe, just maybe, the Germans will look twice at their eastern policy during the next election. If Gazprom feels strong enough to threaten the largest European economy, perhaps Chancellor Merkel and her supporters should think harder about the cost of closer ties with a resurgent Russia.