zH5q2ri_IT0s_g14MwbGC-NEJRk

12.18.2010

Berlusconi and Italy: What the Media doesn't Tell You!

Silvio BerlusconiBerlusconi in a black shirt Image via Wikipedia

In Italy, December 14 was a crucial day for Berlusconi, the head of the Italian government and of the PDL  (Polo delle Libertà - a gathering of central rightist parties). He survived motions of no confidence in both houses of Parliament by the skin of his teeth: 314 vs. 311 in the lower house: that's just 3 votes - not enough to govern.

What does it mean? That Berlusconi, who started his meteoric career back in 1992 is on his way out? He's 74 years old, and for a lot of people, it's about time he went.

It's a little more complicated than that. As he is probably the politician most hated by the foreign media, I think it might be interesting to share with you what I know of the situation since I live in Italy and talk about it to all sorts of Italians.

The picture every English language paper gives of the Italian political situation is highly simplified and often biased, starting with the Economist. Which, to some extent, is a little bizarre considering that Berlusconi is a conservative businessman (he's a media mogul and a direct rival of Murdoch in Italy: it's an on-going fight between Berlusconi's Mediaset and Murdoch's Sky). He should fit into the Economist's main audience (all business) yet he doesn't. The mystery is explained once you know that the Economist's main source of information in Italy are local journalists working for the notorious leftist paper La Repubblica.

What happened after the vote? Papers and the TV made a lot of the violence that broke out in the streets of Rome with cars burning on Piazza del Popolo etc. People spoke of the worst riots in 30 years, recalling the "anni di piombo" (the lead years): the 1970s when the Italian Prime Minister Aldo Moro was kidnapped by the Red Brigades. Actually it wasn't like that at all. Ok, it was spectacular but of no real political importance. Order was restored in a few hours, about 100 people got hurt and about twenty got arrested, most of them young and out of town (including from Paris):  it seemed that it was just one more extreme "black bloc" manifestation. These guys are very violent but their violence never gets them anywhere. It didn't have anything to do with the kind of violence Genova experienced during the G8 meeting.

The power game is played elsewhere. Berlusconi, who's very canny, immediately set out to get more deputies on his side. Hunting for deputies and offering them juicy jobs in government and para-statal enterprises. Can he do that? Probably. There are deputies floating out there. Remember: since this summer Berlusconi got into a fight with his erstwhile ally, Fini, the lower house speaker (the Chamber of Deputies). The motions of no-confidence had been engineered by Fini who had gathered followers around him in a new group called the FLI (Future and Freedom in Italy - not yet a party).  But as Fini failed, a lot of his followers got disgruntled with him. In Italy, people don't like losers. Those are the deputies who could decide to join Berlusconi.

Moreover, for a short while, Berlusconi also hoped he could get other people roaming around the centre, notably Pier Ferdinando Casini, the UDC (Union of the Centre) leader. But that didn't work out: a so called "third pole" was promptly created the very next day under Casini's guidance, with support from Fini and leftist Rutelli. It is said that about 100 parliamentarians (from both the Senate and the lower House) have joined in.

So, in the end, Berlusconi might be able to draw to his side 6 to 10 deputies. That could help him control the lower house (he's not worried about the Senate: he's already got it under control). It's probably going to be enough to govern for a few more months - at least until March 2011. Why March? Because that's one of the things everybody knows in Italy but nobody writes about it in the foreign press: newly elected parlamantarians need to last half their 5-year mandate in order to cash in on their (very juicy) pension and benefits. So they have to stay put a full 2 years, six months and one day. That means no elections will take place in Italy before March...

And to think that Berlusconi had been set to govern the full five years of his mandate and had promised to bring "real changes" to Italy - not only clear up the recurrent garbage mess in Naples but bring in reform in all areas, from education to social security. He had a comfortable majority provided him by both Fini and Bossi, the head of the Lega Nord. How could Berlusconi blow it this way? Of course, Fini and Berlusconi bickered this summer, accusing each other of corruption and sexual depravities. Really. No chance that Berlusconi and Fini will ever be friends again. So Bossi remains Berlusconi's one and only ally. If Bossi withdraws his support, you can kiss Berlusconi good-bye.

Will Bossi support Berlusconi? Maybe but Bossi is a difficult man: he wants "Federalism". That means breaking up the central government and giving the power and the money to the regions. Some regions are already fairly autonomous like Sicily, Sardinia and Alto Adige, but what Bossi wants is the North of Italy (Lombardy, Veneto and Piedmont) to be fully separated from the rest of the country. His party, the Lega Nord is particularly incensed at all the aid funds going to the (poor) South.

Predictably most Italians don't want Federalism, Berlusconi included. Not only out of a concern for the South but of the management mess Federalism would plunge Italy. How would the central government manage the transition to a totally decentralized treasury system without a breakdown in the system? How would the funds coming from the European Union be managed? The nightmare scenario scares everybody...except Bossi, of course. So he'll push for a vote, but when federalism will come up in Parliament, it will likely be defeated. And that's when a disgruntled Bossi will send Berlusconi home.

When will that happen? It's anybody's guess, except it won't happen before March, for sure...With new elections, can Berlusconi win again? Yes, he can. Because he's managed to pass an electoral law that gives him an unfair advantage, a so-called "premium" (premio di maggioranza): if you get 35% of the votes, you automatically gain a majority position and become the head of the government. Berlusconi has lost a lot of support among Italians but he can probably still obtain with his PDL (Polo delle Libertà) somewhere around 25 to 27% of the votes - so all he needs is an ally out there, maybe even Bossi again (who might get as much as 15%). Just add it up and voilà: you still have Berlusconi on your hands.

The irony is that this unfair electoral law (which also cuts out of Parliament any party with less than 5% of the votes) was passed with Fini's support. That was probably the single biggest mistake in his political career. Now, the "third pole" with Casini at its helm has to change that law asap if it wants to politically survive!

So the real question in Italian politics has nothing to do with motions of no confidence and everything to do with changing the electoral law. Italy has experimented with an electoral system that was supposed to give it a strong government and stability. But now it has become clear to everybody that the experiment has FAILED. It is high time the Italian political class realize this and move to do something about it...

Bottom line, Italy's problems - low productivity and competitiveness, lack of investment and high unemployment - continue unabated. It means that in the next elections politicians will have a hard time finding  support among their voters. People are fed up with ALL their politicians!   


Enhanced by Zemanta

12.15.2010

Sarah Palin as a New Ms.Thatcher? Come on!

055/365 | Mikhail Gorbachev Caricature | Proje...Mikhail Gorbachev caricatureImage by myoldpostcards via Flickr
The other day, I attended the launching in Italy of the Italian translation of The President, the Pope, and the Prime Minister, a brave attempt at historical analysis by John O'Sullivan, a British conservative journalist and political commentator at large. The title is a good one and the book tries to identify the role played by Margaret Thatcher, Ronald Reagan and Pope John Paul II in the fall of the Soviet Union (for those interested, I've reproduced below the marketing blurb for the book published by Regnery Publishing in 2006)

The event went smoothly until someone asked Mr. O'Sullivan what major current political personalities he saw that might play a similar role today in the "fight against Islamism and the growing secularization of our society". Aside from the fact that I would never have formulated the major issues of our time in those terms - a point Mr. O'Sullivan failed to note - the political figures he proposed were simply ludicrous.

One was Tony Abbot, an Australian politician, leader of the opposition party and climate change skeptic. As nobody follows Australian politics in Italy, that left the audience feeling cool and indifferent. But when he mentioned the other, Sarah Palin, there was a murmur of disbelief. When he underlined her moral role, a couple of people left (I was one of them).

Really, Sarah Palin as a new Ms. Thatcher? As a moral figure to fight Islam and resuscitate Christian faith?  I've never thought of Sarah Palin as a model mother - remember what happened to her 17 year-old daughter who got pregnant? -  or as someone who knew anything about societal issues and international politics. 

This incident made me reflect that perhaps Mr. O'Sullivan's approach to recent history is profoundly wrong. How can you attribute the fall of the Soviet Empire to the Pope, the British Prime Minister and the American President? Surely Russia's last Soviet leader, Mikhail Gorbachev, with his new policy of perestroika and related radical reforms launched in 1986, had a lot more to do with it! True, Gorbachev established exceptionally good relations with Reagan and Thatcher and was full of admiration for the Pope whom he viewed as a moral force. But what happened in Russia had to do with what he and his entourage did.

More than that, when the Soviet Union collapsed in 1991, it was the result of a long series of events, started in the 1970s under Leonid Brejnev, including economic stagnation and the unsustainable cost of military expenditures imposed by the Cold War. The implosion of the Soviet Union was an event coming from inside - that is the very meaning of implosion - and it had little to do with Mr. O'Sullivan's beloved threesome. There is no doubt that the Pope, Thatcher and Reagan were part of outside events that created a climate favourable to the Soviet Union collapse, but bottom line, an implosion is just that: an implosion and nothing else. That it happened without bloodshed is only natural. Indeed, Gorbachev is little liked in Russia where a lot of people see him as the primary cause of the demise of the Soviet Empire. Actually, the real story of the fall of the Soviet Union has yet to be written.

All this made me realize how difficult it is to write recent history. Mr. O'Sullivan who worked for Ms Thatcher and wrote her speeches is much too close to her to see her clearly. It is a fact that she started to dismantle the welfare state - a job Mr. Cameron is busy finishing off now. She launched deregulation and started privatizing national public services, and her friend Reagan had a similar role in launching an unbridled and extreme form of capitalism. Unfortunately, as we now know, it led, inter alia, to financial hubris on Wall Street that was the direct cause of the ongoing Great Recession.So Mrs Tatcher's heritage is not quite as positive as Mr. O'Sullivan would like to believe.  Beyond that, it raises the fundamental question Tolstoy asked in a fascinating epilogue  to his War and Peace: who or what really makes History, "great men" (he was thinking of Napoleon) or "the people" with perhaps a "great force" behind them (he was thinking of God)?

That of course is a question that would require more than a blog to explore. But it certainly makes books like O'Sullivan's seem like futile efforts that merely reflect the author's political views and have little to do with understanding "the course of History". 


Marketing Blurb from the Publisher of 
The President, the Pope, and the Prime Minister
by John O'Sullivan

Regnery Publishing, Inc.; ISBN: 1596980168
Hardcover - 448 pages (October 2006)


They Changed the Course of History

They were three “middle managers” no one imagined could reach the top.

Ronald Reagan was too old to be president—and too conservative anyway. Margaret Thatcher was not only too conservative—she was a woman, and not on anyone’s short list to lead Britain’s Conservative Party. And the idea of a Polish pope—that was truly absurd, especially when the cardinal in question was a strong anti-Communist and defender of orthodoxy when many in the Church and throughout the world believed the future belonged to détente with the Soviets and social liberalism in the West.

Not only did Ronald Reagan, Margaret Thatcher, and Karol Wojtyla (the future John Paul II) rise to the top, but all three of them also survived assassination attempts, collaborated in the miraculous peaceful liberation of Eastern Europe from Soviet Communism, and reinvigorated their respective countries and the West. They were beacons of optimism cutting through the malaise and despair that afflicted 1970s America, strike-ridden and economically moribund post-imperial Britain, and a Catholic Church rocked by social and sexual revolutions.

In The President, the Pope, and the Prime Minister, veteran journalist and former Thatcher speechwriter John O’Sullivan reveals:
  • How Reagan, Thatcher, and John Paul developed as strong and individual leaders, perfectly suited to take power when liberalism failed How John Paul’s papal visit to Poland in June 1979 led to the birth of the Solidarity labor union
  • How the pope’s moral undermining of Communism worried the Soviet Politburo more than any military threat
  • Why Thatcher’s handling of the Falklands crisis was a turning point in the Cold War
  • How Reagan arranged for the pope to receive U.S. intelligence on developments in the Soviet bloc
  • Reagan’s reluctant support for the nuclear “balance of terror”—and how he gratefully adopted the Strategic Defense Initiative (SDI) as an effective alternative
  • The Soviets’ attempts to lure the pope into an anti-SDI campaign—and his refusal
  • How Reagan’s refusal to compromise with Gorbachev in Reykjavik precipitated the unraveling of Soviet power
  • How Reagan, Thatcher, and John Paul II restored optimism and hope to their people
Today, as we face a new and perhaps even deadlier enemy than Soviet Communism, we need to revisit the powerful lessons taught by these three great leaders who revived the faith, prosperity, and freedom of the West.
Enhanced by Zemanta

12.13.2010

Does the Euro Deserve to Die?

La Faucheuse VersaillaiseLa Faucheuse Image by David_Reverchon via Flickr
This is going to be a crucial week for the Euro and the media and  blogosphere are already heating up. Strong words are bandied about: that the creators of the Euro were dishonest, imprudent, dumb, naive, liars. The Euro is close to collapse announces Chapman in the Market Oracle. "The Euro doesn’t deserve to survive" writes with finality Tim Hedges on his blog.

Sure,  much of the arguments are convincing: the Euro shouldn't have been launched with just monetary policy (courtesy the European Central Bank) to defend it; it needed an equally harmonized fiscal policy or the equivalent of a federal treasury. I've said that before when explaining that the Euro hobbles along on one leg only.

But  I don't think the Euro was conceived in "dishonesty": that's a very strong word and not fair to the ideals of Europeans. It was imprudent, yes, but in line with the way the United Europe dream has been constructed so far: bit by bit, always taking a step forward, forcing the other leg to follow suit.

Now the other leg MUST follow if the Euro is to be saved. No matter how you call it, what is needed is an institutional equivalent of a centralized treasury. Euro-partners will simply have to relinquish some (at first) of their fiscal sovereignty, and then (later) all of it. That is the only way forward. Anything pulling away from fiscal harmonization is detrimental. And, inter alia, that is the case with the Irish corporate taxes at 12.5%. I, for one, am committed to the construction of a United Europe and I am incensed at the Irish for having succeeded in maintaining their low corporate taxes through the bailout negotiations! I've said it before: such low rates are a Trojan Horse into the Euro-zone, giving an unfair advantage to multinationals who choose to have their headquarters in Dublin. Of course, such low rates benefit Ireland and create jobs there, but at the expense of Ireland's Euro-partners and that's not acceptable. Yet, it has been accepted by all partners in the Irish bailout, both the IMF and all European countries involved, UK included.

Why? It only goes to show that our political class has no guts...I agree with those who say that our politicians are the puppets of big banks and institutional bonholders and merely act in their interest. If Greece and Ireland were saved, it's only because the major holders of Greek and Irish bonds were big banks in the Euro-zone, and the average European citizen be damned! Or rather, the poor guy (the Greek and the Irish, you and me) should pull in his belt in and get ready for a long, drawn-out period of austerity and economic recession.

Europeans need to give up their so-called "sovereignty" on fiscal matters and move towards a real union. There is in fact no other way out and the bond market is reminding the European political class that they are in this TOGETHER. Indeed, German bonds, long thought to be the safest, are coming into harder times: all of a sudden, interests threaten to rise and demand at the latest bund auction turned weak. Experts say the German bonds are merely following the example of US Treasury bonds that are hitting rough waters, but nothing is less certain. Germany is not the US: it has its deficit under control, unemployment is down and exports are up. In fact, everybody knows the Germans will pay for whatever is needed to save the Euro. I grant you, it will happen at the last moment when they are cornered and no other move will be allowed, but it will happen. That's what the market is already discounting. For once, it would seem that bondholders have a clearer vision of the future than the European political class!

But it wouldn't be the first time bondholders were right. It really is very simple: the Germans cannot afford to let the Euro collapse. It would be too expensive for them. Imagine what it would do to their economy if major European partners defaulted around them: not just Greece and Ireland or Portugal (they're peanuts) but Spain and Italy! How quickly do you think they could move back to the Deutsche Mark without incurring disruption and fantastic losses in their export markets? Forget it! In the meantime, they are enjoying the ride: the Euro's value, with all this on-going sovereign debt crisis and hullaballoo, has gone down, and that helps their exports!

How close we are to saving the Euro is anyone's guess. Not close judging from the recent negative reaction of both Germany and France to the Italian proposal of floating "euro-bonds" (btw, another back door to fiscal harmonization). They rejected it without even taking the time to consider the idea, going so far as to express strong displeasure at Jean Claude Juncker, President of the Eurogroup, for supporting it. But Germany and France have "pledged to better align" their tax and labour policies and according to German finance Minister Wolfgang Schaeuble  those who bet against the Euro's survival are "making a mistake", echoing similar statements from Mario Draghi, the Italian Central Banker.

A lot of good words that no one believes in. What the bond market wants is facts...And so do we, the bedraggled Euro-zone citizens!

Post-scriptum: I don't have a crystal ball and the horror scenario of a Euro collapse is always possible. "In the ensuing chaos and recrimination," writes the Economist, "the survival of the EU and its single market would be in jeopardy. But by believing that a break-up cannot happen, the euro zone’s authorities will always tend to stop short of the radical measures needed to hold the project together. Given the likely and devastating chaos, it would be a mistake for a country to choose to leave. But mistakes occur in times of stress. That is why some are beginning to contemplate the unthinkable."

Let's hope it doesn't happen. Because if the Euro collapses, you can kiss good-bye to the dream of a United Europe - and along with its disappearance, Europe will have to bow out of the world scene. And the whole world will be the poorer for it. Not just because it means less aid to developing countries (remember, the Euro-zone countries are the biggest global provider of aid), but because it would mean humanitarian values and human rights would lose their greatest champions. Surely, on this score, China is not poised to replace Europe and America of late has shown a dismal record, with its healthcare reform law battered by the Republicans and already showing signs of imploding...

Being poor is no fun anywhere but it is less bad in Europe - for the time being and as long as the EU and the Euro last.
Enhanced by Zemanta

12.11.2010

Eternal Russia: Moving Back to the One-Party System

Vladimir Putin in KGB uniformVladimir Putin in KGB uniform Image via Wikipedia
Recent elections in Siberia gave us a depressing glimpse into what is really happening in Russia. I watched the video on the 10 Decembre New York Times and saw the eyes of the candidate of the opposition party, A Just Russia, fill with tears as she watched the fake returns handing the election over to Mr. Putin's party United Russia. Because there's little doubt the elections were rigged through and through. In Haiti and the Ivory Coast, people take to the street when they suspect foul play, but not in Russia. No, the whole country cowers in front of Mr. Putin and his accolytes. Nobody dares to walk the streets in protest. Not a car nor a garbage can is ever set on fire in a Russian town!

Back to square one.

Twenty years ago, it looked for a short while like Russia was at last going to turn democratic. Fat chance! That democratic season was a short one and Mr. Eltsin drank himself into impotance. Not so Mr. Putin: here is somebody who never drinks, who's always in total control. And that should come as no surprise:  we all know that Mr. Putin is an ex-KGB agent and that he's brought along all his buddies into the government. And we all know that Mr. Medvedev is not even Mr. Putin's alter ego. He is a puppet President, keeping the seat warm for Mr. Putin's return.

Corruption that has been rampant for a long time is now on the rise. The FSB, successor to the KGB, is terrifying everybody, yet it is unable to ensure safety for the average Russian citizen: remember the massacre at the Beslan school in 2004 when over 334 civilians were killed, of which more than half were children? Where was the FSB then? How come they didn't see it coming? If you think I'm exaggerating, take a look at the excellent analysis of a couple of Russian journalists, Andrei Soldatov and Irina Borogan, who happened to be Anna Politkovskaya's friend: their book, published in English, is called "The New Nobility: the Restoration of Russia's Security State and the Enduring Legacy of the KGB". I have attached below an illuminating review of the book by Oliver Bullough who was until recently a Reuters Moscow correspondent. 

Mr. Putin is poised to reap yet more glory and power now that Russia will host the 2018 World Cup. And to think this is the man who has the gall to accuse the West for "unfairly" jailing the Wikileaks patron for alledged sexual misconduct.  "Why did they jail Mr. Assange? Is that democracy?" said Mr. Putin at a news conference on 9 Decembre. "You know what our villagers say: while someone's cow is mooing, yours better be silent." Apparently that is the equivalent Russian expression for the pot calling the kettle black.

Now who's the pot and who's the kettle? Mmmmm....


Enhanced by Zemanta

12.10.2010

Nobel Peace Prize vs. Confucius Peace Prize: What a Lark!

Nobel Peace Prize Concert 2008, The ScriptImage via WikipediaNobel Peace Prize Concert 2008
Who would have ever believed that the Nobel Peace Prize - one of the West's most respected institutions, the very embodiment of its humanitarian values - would find itself in competition with a cheap Chinese copy?

I suppose we shouldn't be so surprised: the Chinese are famously good at copying everything, from plastic cutlery to e-readers. So why not an international peace prize?

We all know how the Chinese government went beserk when the Nobel Peace Prize was awarded to dissident Liu Xiaobo serving an eleven-year prison sentence for having drafted Charter 08 - a courageous paper calling for more freedom and democracy and signed by 300 Chinese intellectuals and scientists -. They prevented him or anyone else, whether family or friend, from receiving the prize in Norway. The last time something like this happened - that the prize could not be collected -  was in 1936, over 70 years ago. And they launched a world-wide campaign to discourage countries from sending a representative to the ceremony, a campaign which met with a surprising success. The Nobel committee has informed that 44 embassies in Oslo, the Norwegian capital, would come but fully 19 had declined.

The list of countries who declined the Nobel invitation is an eye-opener. American diplomats take note of the list and send cables to Foggy Bottom (i.e. the State Department)!  In addition to China, you have the usual culprits like Vietnam and Cuba, but also countries like Afghanistan, Colombia, Egypt, Iran, Iraq, Kazakhstan, Morocco, Pakistan, the Philippines, Russia, Saudi Arabia, Serbia, Sudan, Tunisia, Ukraine and Venezuela. Obviously, petrol producers (Saudi Arabia, Venezuela) don't want to irritate a big client like China. Others are developing countries (Colombia or the Philippines) with something to sell to China or a hope for Chinese investments. And then there are the countries rejecting the West for ideological/religious motives (Iran), plus those who hate to be cast in the role of  "US allies" (Afghanistan and Pakistan)... Still, if you had asked me, I would never have believed that Russia, Morocco or Tunisia would decline to go!

The Chinese moves against the Nobel Prize didn't stop there - didn't even end with obscuring the news about the prize in China or calling Liu a criminal. The Chinese government got unexpected help from its own people. Indeed, it is impressive how quickly and efficiently an alternative to the Nobel Prize was cobbled together, starting just a few weeks ago, from a suggestion first voiced on November 17 in the Global Times, a patriotic populist newspaper, by Liu Zhiqin, the Beijing representative of a Swiss Bank. Hey, who would ever have imagined the conservative Swiss were so good at choosing bold and politically outspoken staff? This guy called for a Confucius Peace Prize "to show the world our comprehension of peace and perception on human rights."

The idea went viral. Tan Changliu, the head of an otherwise ill-defined group of patriotic Chinese that claims not to be part of the government but supports its policy of blocking the Nobel, became the president of the self-styled Confucius Prize Committee. To make it respectable, professors from several Beijing universities were drafted in. They came up with a list of "candidates" that defies the imagination: from Nelson Mandela, the former South African President to Mahmoud Abbas, the palestinian Authority President, it includes two Americans, Bill Gates and Jimmy Carter. This was intended to show, as M. Tan put it, that the "Chinese people love Americans, and we hope Americans love us back. Sino-US peace means world peace."

To upstage the Nobel Prize ceremony scheduled for 10 December, theirs took place the day before. But, in the words of the New York Times, it was a "bare-bones affair". No concert, no speeches, no celebrities, just the flat announcement of the winner to a bunch of journalists. They had picked Lien Chan, a Taiwanese politician friendly to the Chinese Communist Party, former vice president of Taiwan and honorary chairman of its opposition Nationalist Party. This was a clever choice: in Mr. Lien, they had found a man in sympathy with Chinese hegemonic views on Taiwan. In 2005, he had been the first Nationalist leader to travel to mainland China since 1949 in a "relations-warming" trip.Trouble was: the winner had not been informed and he was nowhere to be seen. In the absence of Mr. Lien, they resorted to the usual trick or replacing the winner by someone to pick up the prize, which includes, it is said, a $15,000 cash award.

Peanuts compared to the Nobel's $1.5 million - actually it is precisely one percent! But please note how well the idea is copied down to its last details. Even in some aspects that one may suppose the Confucius Committee would have preferred to avoid: like not having the winner show up, and having to scramble for someone at the last minute to accept the prize - someone who's apparently no relative.

Actually, the New York Times showed photos of a frowning little girl waving the prize's certificate, the corners of her mouth tugged down, clearly unhappy to be cast in this role. What is odd, is that France 24, the French international news TV channel showed two Chinese gentlemen in dark suits shaking hands at the Confucius Prize ceremony, giving the impression that the winner was there...Oh, how misleading TV news can be!

Then, to confuse matters further, there are those like Russia who would like to see Assange, the father of Wikileaks, to be awarded the Nobel Peace Prize...

In the end, however, all this noise around the Nobel Peace prize is not bad. These farcical attacks only go to reinforce the moral stature of the Nobel Prize. What do you think?




Enhanced by Zemanta

12.06.2010

Is China's Shocking Behaviour as a Totalitarian State Condoned by the European Union?

European Investment Bank, Bâtiment Est. Luxemb...European Invetment Bank   Image via Wikipedia
We tend to forget that China today is the largest communist power on this planet. That means it is still, to a large extent, both a centrally planned economy and a totalitarian state.

This week end, some very interesting news about China got buried under the boring deluge of Wikileaks so-called revelations  (most of them old hat and hardly worth a comment). They reveal how little China has changed...

Let me tell you about China's shocking behaviour and how the European Union is indirectly condoning it. "Indirectly" only in the sense that Brussels may not have thought the consequences through.

The New York Times reported that one of the European Union's major and most highly respected institutions, the European Investment Bank, will provide China with a  €500 million ($669 million) loan to finance some 15 projects intended to mitigate climate change, from onshore wind power to biomass and solar power. Perhaps not much by international financial standards, but quite a lot if you consider that the Bank has already lent China €500 million for climate change in 2007 and a total of €1.76 billion for various other development projects, including €500 million for building Terminal 3 at the Beijing International Airport. One must wonder what the European Bank's real goals are.

China, as everybody knows, is awash with dollars and Euros as a result of flooding the world with cheap goods, and all this thanks to, inter alia, the ruthless manipulation of its currency, keeping it artificially low. And also thanks to a policy of export subsidies, but I'll get to that in a minute. Surely, China has enough funds of its own to deal with climate change issues or to build its international airport!

Okay, China is the world's biggest emitter of greenhouse gases, and the European-funded projects will help reduce China's carbon emissions by three million tons annually. Insofar as it does that, it can't be all bad. And sure enough, the loan agreement was signed in Cancun, Mexico, in the course of the latest round of the United Nations sponsored conferences on climate change in which 194 countries participate. Progress in these talks has been hindered by China (now joined by India) taking on the lead role in demanding that rich countries give technological and financial assistance to developing countries to combat climate change. Fair enough. Developing nations need the help and huge amounts of money are bandied about as if they were peanuts. Like US$ 100 billion a year by 2020 (that's what the previous conference in Copenhage called for) to help the poorest nations to adapt to climate change....but China?

On top of that, as if it wasn't already enough, another couple of incredible news surfaced this week-end.

One has to do with the subsidies China extends to its manufacturers, in total disregard to World Trade Organization rules, thus further distorting international trade. China has adopted a policy of promoting solar and wind power to reduce reliance on imported natural gas and oil. Fine and good. The problem is that once it has developed its own clean power technologies, it will be able to sell them at cut rates thanks to the subsidies and thus make a huge profit, taking advantage of the growing worldwide demand for green technologies. The Chinese Finance Ministry announced last week that it would fund up to half the price of equipment for solar power projects in 13 industrial zones and that other costs would be covered by a subsidy of 4 to 6 yuan (60 to 90US cents) per watt of generating capacity.

The other  news that came up in the International Herald Tribune (Dec 4)  has to do with stopping two Chinese celebrities at Beijing International Airport:  contemporary artist Ai Weiwei, an outspoken critic of the Chinese Communist party, and Mao Yushi, an 80-year-old economist. They reportedly meant to fly to other cities in Asia this week, but the authorities were afraid they might instead join the Nobel Peace Prize ceremony to be held in Norway this coming Friday. You will recall the Prize was awarded to dissident Liu Xiaobo still in prison and that his wife is also prevented from leaving China to collect the prize. Ai Weiwei and Mao Yshi were told they could not travel abroad because "they might endanger state security". It would be laughable if it weren't so sad...

Why ever do the Chinese need European taxpayers' money? It is no longer a poor developing country! How can European citizens accept that European institutions misbehave in this way, supporting a country that has nothing but the deepest disregard and disdain for human rights? And flouts fair trade practices and has done so for decades? Every once in while there's a cry about Chinese subsidizing their exports and flooding our markets (see article below) but then the cry quickly dies down. Why?

What is the European Parliament doing? Why isn't anybody saying anything anywhere, particularly in Cancun?  If there is protest over this somewhere, please let me know!
Enhanced by Zemanta

12.01.2010

Who's Going to Save the Euro?

Model of the ECB's new headquarters.Model of the ECB new headquaretersImage via Wikipedia
Is the Euro dying? After the Irish debacle, ideas are floating around on how to save the Euro.The media is full of suggestions:

1. Transforming Europe's financial rescue fund, the 750 billion-euro ($975 billion) European Financial Stability Facility, into a European equivalent of the International Monetary Fund. This was first proposed by Mr. de Grauwe, a professor at the Catholic University of Leuven, in a paper comparing the current Euro crisis to the collapse in the early 1990s of the precursor to the euro, the European Exchange Rate Mechanism. At the time, it was investors betting on devaluations, today it's bondholders taking aim at the weakest economies, Greece first, now Ireland and Spain next.  But the European treaty revisions required to bring to life a European IMF would be hard to carry through in the current political climate, as most European governments fear having to go the referendum route and face European voter discontent. A related proposal is to expand the rescue fund by at least another €100 billion to meet other challenges. The fiscal emergency in Spain is on everybody's mind. As Spain is the Euro's fourth largest economy, its problems are twice the size of Ireland and Greece combined. A hair-raising prospect! But one hundred billion more would simply not be enough.

2. Asking bondholders to take a "haircut". That means forcing them to accept a share of the losses so that they are not all weighing down on taxpayers, who are, let's not forget it, the ones financing bailouts - so far some €200 billion to save Greece and Ireland. Daniel Gros, the head of the Center for European Policy Studies in Brussels, recalled how investors of Dubai World accepted to share the pain in return for a rescue by Abu Dhabi. Will European bondholders do the same? That's what Germany would like to see happen and Ms. Merkel talked about including "liability clauses" in new bonds to force bondholders to accept cuts as soon as next year. That proposal instantly sent the Euro down to a ten-week low, killing that idea.

3. Another idea is the Brady plan for indebted European economies. It was recently put forward by a former Treasury secretary, Nicholas F. Brady, who led an effort in 1989 to help Mexico and other Latin American economies restructure debt. The plan, criticized at the time — it required bondholders to take a loss of 30 percent in exchange for new, longer dated debt with lower rates backed by the United States -,  is now seen as the first step in Latin America’s recovery. The New York Times touts it but the trouble is that it's really nothing more than a subtle variation on the above "haircut" proposal. And remember, the US backed the Brady plan. Who is going to back a European version of it? Germany? You bet! One constant of German policy is that they don't want to pay for their Euro-partners' faults. Ask Merkel and she'll tell you: forget Europe!

4. Yet another idea is to float bonds issued jointly by Euro-zone countries. It seems that the European Central Bank would like that, but European governments are reluctant - particularly the Germans who fear that interest rates on such bonds would automatically rise to accomodate the weaker Euro countries - and of course, they're right: it's only logical. Thus Trichet is leary of pushing it too soon. So far, the only thing Euro-zone governments can agree on is to "follow the IMF model", whatever that might mean. And it might mean providing flexible credit lines to countries in trouble (like the IMF recently did for Poland) but so far it hasn't happened.

5. Flooding the economy with cash from the European Central Bank. That's the "quantitative easing" route followed by the American Federal Reserve. That lovely, somewhat obscure term just refers to  printing money: that's the one fundamental sovereign right of a country and a major tool to support (or depress) the value of its currency. The European Bank so far has done a "fair amount" of bond buying but unless it is given free access to the printing press, that is not going to be a route it can follow far, the way the Fed has. And indeed, up to now, its bond-buying has had modest results:  it hasn't prevented the growing difference in yields between German bonds and the others, the so-called countries in the "Euro periphery"  - Greece, Ireland, Portugal, Spain and more recently Italy and Belgium - Who would ever have believed that Belgium one day would become part of the periphery?

What is certain is that the European rescue fund would need  "twice the firepower," as de Grauwe said, pointing out that Ireland’s average interest rate on the bailout of 5.8 percent is “punitive.” That's not too surprising.  Ireland was viewed by Germany as a "sinner" and had to be made to pay for its sins. Fine and good. Ireland's political class had certainly acted in a stupid, irresponsible way when it guaranteed bank deposits 100 percent - something no one else has ever done anywhere in Europe or America. A crazy move that has had awful consequences when the real estate bubble burst American-style and banks began to fail because of their reckless investments.

The trouble is that such an interest rate on the Irish bailout, as Bloomberg points out, "jolts confidence by showing that European governments aren’t sure they’ll get their money back". Of course, they're not sure! If austerity programmes and measures to control budget deficits will cause further recession - and everyone is almost certain they will - there doesn't seem to be much of a way out, does it?

Any ideas? I believe we need to go back to the fundamentals and consider how the Euro was built. Remember it has only ONE leg to hobble on (provided by the Central Bank) and it's missing its SECOND LEG (a treasury - like the dollar has). In other words, it is missing a harmonized fiscal system.

The case of Ireland is illuminating: Ireland got us into all this trouble - and as one of my followers wrote in a recent comment, the Celtic Tiger turned into a miserable cat - because of several stupid decisions by its political class. Not only did the government guarantee bank deposits without any coordination with the rest of its Euro partners, but it had applied for a long time a whole series of taxes at much lower rates than the rest of Europe. Most notably the famous 12.5% rate on corporations that has turned Ireland into a tax haven and a Trojan Horse into Europe: major American corporations are headquarted in Dublin (eg. Google) and others are thinking of coming provided Ireland keeps its corporation tax untouched (eg. Microsoft). So in its proposed austerity package, Ireland has raised taxes but, bowing to the demands of multinationals, it has been careful not to touch that particular tax.  Euro partners in the bailout haven't even reacted. Or if they have, it didn't show up in the press. Amazing! Yet, the austerity package proposed might have been more contained if that particular tax rate had been tweaked upwards, by say one percent. Surely that would not have discouraged Microsoft from moving to Dublin!

I am totally convinced that without fiscal harmonization the Euro will not survive. And Europe will have missed out the opportunity of a lifetime to bring about the ideal of a United Europe. I know that's a tough road to go, particularly in the current climate with a meek political class afraid of taking any risks, but there really isn't any other...

What do you think? What are your bets that the Euro will survive? Who's going to save the Euro? Is there somebody out there with the guts to do it?


Enhanced by Zemanta

11.29.2010

The True Nature of the Wikileaks Scandal: Gossip Galore!

Logo used by WikileaksLogo used by Wikileaks Image via Wikipedia
Wikileaks is having a field day with American foreign policy! And the media along with Wikileaks.  People who love gossip have never had it so good.

Here in Italy every newspaper put the news of the latest humongous "leak" on their first page. And humongous it is: the daily communications of American diplomatic posts, over 250,000 secret messages sent by American diplomats to the State Department

For two days before the release of the leaks, Hillary Clinton  did some damage control on a grand scale, contacting every country concerned, from India to Italy. I wonder whether she contacted Lybia too...Because the leaks on Ghedafi were pretty strong stuff, calling him a hypochondriac and worse.

The White House upon the release of the leaks immediately stated:“We condemn in the strongest terms the unauthorized disclosure of classified documents and sensitive national security information.”

Of course, one would expect the White House to do so. All this is hugely embarrassing for American diplomacy, but in truth, the leaks have NOT revealed much of anything that is new or earth-shaking (see the Daily Beast analyses attached below). Just a few amusing things, like Berlusconi's romance with Putin and perhaps a few surprising things, like the US resisting its Arab partners wishes to attack Iran.

Once the dust has settled, expect little change in international politics.

There are however two problems for American foreign policy: one, is a probable breakdown in trust. In future, foreigners - at least until they start forgetting the wikileaks scandal - are likely to avoid confiding anything to American diplomats from fear that one day all will be revealed. Many have always maintained that Americans can't keep a secret and now they surely feel vindicated. But a word of warning is in order: leaks from other countries are also possible. Who knows whether Wikileaks won't come out with Chinese, German or Russian diplomatic dispatches one of these days?

The other problem is harder to disregard. While whatever American diplomats wrote is not equivalent to American foreign policy, the trouble is that it presumably helped to shape it. And a lot of those cables betray an extraordinary low level of analysis, an ingenuity in believing anything one is told, a lack of control over data, a disregard for trying to ensure that the information is correct.

If American foreign policy is based on this kind of dispatches, God help us all!

Enhanced by Zemanta

11.26.2010

Austerity = Less Income = Lower Tax Revenues = Fewer Social Benefits = More Poverty

ATHENS - FEBRUARY 10: A public servant wears a...Protest in Greece Image by Getty Images@daylife
Austerity programmes have become all the rage - in Ireland, Greece, Portugal, Spain, the UK, and next in the US -  yet...they can only lead to more poverty.

The equation is ironclad:
austerity = less income = lower tax revenues = fewer social benefits = more poverty.

Why? Because austerity programmes mean cutting back on government expenses, including  slashing employment in the public sector. That means fewer people with jobs, less income, less consumption throughout the economy. Remember that the income multiplier works both ways: with a stimulus policy, it expands the additional funds. With an austerity programme, it expands the cutback. And that means less revenues from taxes. And if taxes are also raised to reign in government budget deficits, the effect is even worse.

With less revenues, fewer social benefits can be paid for, and the most vulnerable areas are health, education and research. Health, education and research! Yes, it means jeopardizing the future! So far, military expenditures, while also cut back, have managed to defend themselves better, but that's thanks to the military-industrial lobbies that, as everyone knows, are politically powerful in every developed country.

The question is, once you've depressed the level of national consumption and created more poverty, is that the kind of environment in which business can thrive?  Sure, sovereign debt bondholders are happy that politicians are at last "acting responsible" and tackling the problem of deficits. But since when are bondholders good businessmen and entrepreneurs?

Now, if austerity programmes were meant to re-direct the role of government away from useless expenditures and damaging clientelism, then it would be okay. It would help build a beneficial climate for business. Some have suggested "investing responsibly in social and ecological assets" as "the key design criterion. Creating robust vehicles to direct public and private savings toward long-term investment in low carbon technologies and infrastructures, in resource productivity, in social goods and public spaces, in land and water and ecosystem services -- here is the cornerstone for economic renewal." (see article below: "Frugal living is road to new prosperity").

If that's what austerity policies were all about, I would subscribe to them whole-heartedly. Unfortunately, that's not the case...Except for France, but we'll see how ably they will devise an austerity programme that does no damage to social benefits. I doubt that they'll manage it.

In the meantime, expect more and more people going on strike, descending in the streets and protesting the manifest unfairness of auterity policies...
Enhanced by Zemanta

11.24.2010

Is India in Financial Trouble? When Dreams turn into Nightmares...

SKS Microfinance ClientImage by kalyan3 via FlickrSKS Microfinance client

Sorry, this post is late: I'm just back from Vienna (what a wonderful town and the Viennese are sooo hospitable! Do make sure you put Vienna on the map on your next tour of Europe!)

Watching the Irish debacle this week and the threat to the Euro, which in turn could jeaopardize recovery in Europe, and perhaps in the rest of the developed world, I was reminded once again how much we depend on the emerging markets.

Now that their GDPs have grown to about half of world GDP, trade with them has become the key to recovery. China and India have become preferred trade partners.

But how solid are they? 

We all know that China suffers from debilitating social tensions that could potentially become devastating. What about India? It  has been one of the great success stories of the Great Recession. It has grown at a fast pace and produced hordes of millionaires while the Western World was teetering on the brink of disaster. But there is a chink in the armour, a small one that could grow into a big chasm...This week, when Andimuthu Raja, the Indian government minister for telecommunications had to step down in the midts of a corruption scandal, possibly the biggest in India's history, we were all reminded how corruption in India's governing elite is a constant threat to the country's stability. As reported by the New York Times (see article below), "he is accused of using his post to sell off valuable mobile telephone spectrum licenses in 2008 at rock-bottom prices. His decisions may have cost the Indian treasury as much as $40 billion, according to a government investigative report released last week."  Yip, $40 billion!

But is corruption limited to the political classes? Hardly. Lending to the poor - otherwise known as microfinance - is another area where serious problems have recently surfaced. Here, it's not exactly corruption, but a determined pursuit of one's own personal profit and a general disregard for the common good. The problem came to the attention of the media  when the poor began to default en masse, particularly in the State of Andhra Pradesh. Suicides, especially among  poor indebted women, suddenly rose. So State authorities have moved in, capping interest rates and clamping down on lending practices. This has had the immediate effect of slashing revenues of SKS Microfinance, the largest microlender in India, backed by big investors like George Soros and Vinod Khosla, and the first to be quoted on the Mumbai market. Its shares have fallen and will probably keep falling as long as people worry about knock-on effects on other borrowers.

Why would that be important in India's financial world, famously known for the stability and conservatism of its banking system?   Because microfinance  which started small some twenty years ago in Bangladesh has turned into a tsunami in India over the last five years. The trouble is that this vertiginous growth has much in common with  the sub-prime mortgage phenomenon in the US. The pattern is strikingly the same: loans are showered on small borrowers without any checks on whether they can pay back their debt. Multiple loans are allowed, and a borrower starting with 8 or 9,000 rupees soon finds herself (because it's usually a woman) owing multiples of that sum, simply because she has borrowed to pay off the first loan and then borrowed and borrowed again.

In short, microlenders are out to build their own institution - they would all like to end on the stock market like SKS and be able to rake in lots of additional funds - and so they just  pile up loans and couldn't care less whether borrowers have any sort of viable business plan.

Business plan? Not quite the right word. Here is how it all started. Microlending was the brain child of Mohammad Yunus who worked with rural women's groups back in the 1990s. He worked with poor women who needed seed money to get started in small, artisanal enterprises, and while they had no collateral to put up, they had formed groups that could back them up and pay in case of default. Group pressure was exercised, which ensured that microlending was extraordinarily successful in keeping defaut down and allowing small businesses to be born in the poorest sections of the rural world - in this case, Bangladesh. Yunus earned a Nobel Prize for this. It was a beautiful dream and for a while it really seemed to work. And it was eagerly copied around the developing world, not only in Asia but elsewhere. I saw it in Nicaragua. It really was a great idea, it stimulated women to work, it opened doors on a bright new world.

But the idea was founded on the group. Without a solid group of women backing it - women who know each other and trust each other - and with a clear, realistic development plan, it has no chance of working. Ever. Indeed, in India, microlending has fast turned into a sophisticated form of shark lending. In other words, good old-fashioned usury. Except the ones doing it are urban-based savvy, modern companies that drop in on the villages once a week to collect money.

One may assume that the Indian financial community will know how to defend itself: there is talk of setting up an emergency fund. But microfinance will never be the same again: it had started as such a beautiful dream and has ended a nightmare - like so many human endeavours.

I worry that this seemingly small financial hiccup is taking place in a political environment threatened by corruption. India is obviously going through growing pains and I can only hope that she will come out of them, stronger and a healthier trading partner for all of us...



Enhanced by Zemanta
UA-23606286-1