SIRIA y los intereses creados: Un poco de historia

Iran’s Syrian Power Grab and Saudi Arabia

RIYADH – Inviting Iran to the next round of talks on the Syria crisis in Vienna, Austria – an invitation that was reiterated last week – has far-reaching implications. In fact, Iran’s current government is attempting to overthrow a balance of power that has endured for some 1,400 years – and Saudi Arabia, as the cradle of the Muslim world, will not allow it.

The divide between Iran and Saudi Arabia, the Middle East’s most prominent Shia and Sunni powers, respectively, has deep roots. If we are to understand what is really happening in the Middle East today – not just in Syria – one must consider the origins of the Sunni-Shia schism, the Arab-Persian divide, and past struggles over the governance of Islam.

Islam was divided between Sunni and Shia after the prophet Muhammad died and a new successor had to be chosen. Most of his followers, who became known as Sunni Muslims, felt that the faithful should base their decision on ability, and supported the Muslim elders’ choice of Muhammad’s father-in-law, Abu Bakr. But a small dissident group, who would eventually become known as Shia Muslims, were adamant that the new caliph should be a blood relative of the prophet, and thus decided that Muhammad’s son-in-law and cousin Ali ibn Abi Talib (the fourth caliph, according to Sunnis) was his rightful successor. Today, 90% of all Muslims are Sunni, and 10% are Shia.
 

While this disagreement was playing out, so was the Muslim conquest of Persia, which began just a year after the prophet’s death in 632. The Persian Sassanid Empire, exhausted financially and militarily from decades of warfare with the Byzantine Empire, endured a decisive defeat in the Battle of Qadisiyyah in 636.

The next year, the Persian emperor, Yazdegerd III, fled to the border province of Khorasan and the Arabization of Persia began, with Persians taking Arab names and converting to Islam. By 651, almost all major urban centers in Persia were under Arab control, adding momentum to the process.

The mass conversion to Islam among Persians was the first step toward the establishment of the first caliphate, a political-religious state comprising all Muslim lands. At various times in history, caliphates have extended into Asia, Africa, and parts of Europe. The effort by various forces seeking to control or restore the caliphate is a recurrent theme throughout Islam’s history. The so-called Islamic State is only the latest example of this.

Until the year 1500, almost all Persians were Sunni Muslims. Then, Shah Ismail – the first Shah and the founder of the Safavid Dynasty – began a brutal policy of forcing Persian Muslims to become Shia, in order to distinguish his iteration of Persia’s empire from the more powerful Constantinople-based and fervently Sunni Ottoman caliphate.

This history clearly informs Iran’s actions today. As Shia Muslims, Iranians are a minority within the Muslim community, a reality that has caused them to feel persecuted. Rather than accept their minority status, various Iranian governments have attempted to establish their country’s hegemony in the Arab world.

Of course, Iran not only represents only a tiny minority of Muslims; Iranians are not Arabs. It is thus unfathomable that they would dictate to Arab countries in any capacity. But this has not stopped Iran’s government from attempting to commandeer the main levers of Islam, both politically and theologically. Using Arab countries’ Shia communities, it is trying to wield control over them, with the ultimate objective of taking over Islam’s two holiest sites, Mecca and Medina, over which the Saudi monarch exercises authority as the Custodian of the Two Holy Mosques.

As the Sunni world’s most influential country, Saudi Arabia knows that it must do what it takes to limit Iran. In 2011, a Saudi-led Gulf Cooperation Council coalition had to neutralize an Iran-sponsored Shia insurgency in Bahrain. This year in Yemen (a predominantly Sunni country), a Saudi-led coalition is fighting the Zaydi Shia Houthi rebelds, whom Iran armed in order to take over the country and gain a foothold on the Arabian Peninsula.

In Syria – a Sunni-majority country where, incidentally, a Sunni Muslim caliphate, the Umayyads, once prospered – Iran is spending billions of dollars to prop up President Bashar al-Assad’s regime, dominated by members of a minority Shia sect, the Alawites (historically known as Nusayris).

Actions by Assad’s supporters have so far caused more than 270,000 deaths, displaced over seven million people internally, forced nearly four million people to flee, and left close to 12 million in need of desperate assistance. They have enabled – indeed, fueled – the rise of the Islamic State, and with it a growing threat to the global order, as the successive terrorist attacks in Sharm el-Sheikh, Beirut, and Paris tragically have shown. Given this, Saudi Arabia’s leadership – regardless of what temporary results are achieved through the Vienna talks – will continue to work hard to ensure that Assad is removed from power and that the mayhem is finally brought to an end.

The terrorism, proxy wars, arms shipments, nuclear ambitions, and grandiose delusions emerging from Iran are part of an age-old struggle with which the Saudis have had enough. That is why King Salman is overseeing the greatest military acquisition and expansion program in Saudi Arabia’s history. And Saudi Arabia will not stop until Iran – and its Shia proxies – abandons its revolutionary fantasies and begins working to bring peace and stability to the Middle East and the wider Arab world. 
  

Nawaf Obaid is a visiting fellow at the Belfer Center for Science and International Affairs at Harvard University’s Kennedy School of Government.

El problema de Francia es el problema de toda EUROPA... (un homenaje a André Glucksmann)

Francia da la espalda a la realidad

The Economist se burlaba, a fines de marzo, de “la más frívola de las campañas electorales” y parodiaba en su portada el Desayuno en la hierba de Manet, al mostrar a Sarkozy y Hollande coqueteando en una pradera, vestidos de oscuro, con una bella joven desnuda. Tanto la izquierda como la derecha se indignaron con los anglosajones. Sarkozy criticó al Financial Times y el equipo de Hollande negó a los ultraliberales el derecho a insultar al pueblo francés. Pero, por desgracia para nuestros virtuosos candidatos, ese sentimiento de inutilidad está también extendido en la propia Francia: los votantes consideran que se trata de una campaña de lo más aburrida y la abstención puede alcanzar cifras sin precedentes. No hace ninguna falta ser fanáticamente liberal para constatar, como el arzobispo de París, André Vingt-trois, que “en el fondo, las cuestiones que abordan los candidatos son solo francofrancesas y clientelistas” (Le Monde, 8-9 de abril). Sí, se da la espalda a la realidad. Pero ¿a qué realidad? La campaña presidencial francesa se desarrolla a puerta cerrada. Y los candidatos, pequeños y grandes, con toda su rivalidad, se ponen de acuerdo para no traspasar los límites de esa puerta.

Si alguno habla de lo que ocurre fuera de las fronteras es para mejor vender su desglobalización sin concepto. Hasta los europeistas convencidos, de cualquier ideología, tratan de aguar su fervor y su audacia. Los temas de la Europa colador, burocrática y entregada a una austeridad empobrecedora, tienen éxito: los consejeros de nuestros príncipes se consideran autorizados por un cuerpo electoral supuestamente esquivo y hostil. No cabe duda de que la precariedad del poder adquisitivo, el aumento del paro, las deslocalizaciones de las herramientas de producción y la inseguridad son asuntos que inquietan, pero ¿de dónde surge la descabellada idea de hablar de estos problemas tan importantes como si los países vecinos y los demás continentes, hoy tan próximos, no existieran (a excepción de una Alemania que unas veces es maravillosa y otras veces es el hombre del saco)? Francia, quinta economía mundial, segunda de Europa, parece tan dispuesta a inventar el “capitalismo en un solo país” como los estalinistas, en su tiempo, a fantasear con la idea de la fortaleza socialista asediada, con puertas y ventanas cerradas

No somos más que sesenta y tantos millones de habitantes, en medio de los que pronto serán siete mil millones de seres humanos en plena mutación, siete mil millones que interfieren, se quiera o no, por las buenas o por las malas, en nuestra existencia. Seguí las primarias socialistas con gran atención y un asombro creciente. En tres sesiones televisadas de hora y media, ninguno de los candidatos se atrevió a hacer la menor reflexión sobre lo que ha dado en llamarse la “política exterior”. Algo que habría sido lógico en la logorrea de los líderes de extrema izquierda y extrema derecha, apóstoles de un proteccionismo de hierro y promotores de una nación solitaria y congelada, resultaba sorprendente en quienes aspiran a ejercer la función suprema; ¿o es que no van a viajar más que para hacer ofrendas florales?

Con una complicidad extraña y clandestina, los grandes partidos se ponen de acuerdo en no decir lo que piensan sobre las primaveras árabes, sus otoños ni sus posibles veranos; se ponen de acuerdo en no hablar jamás de Putin, su mandato vitalicio ni su emparejamiento con el PC chino en unos niveles de corrupción inimaginables; no dicen ni una palabra sobre Irán, su tiranía teocrática ni su bomba... Los apasionantes peligros de la actualidad internacional no deben agitar las aguas. Hemos conocido a un Sarkozy más locuaz, más enérgico (en Georgia, en Libia). En su discurso de Grenoble, con sus críticas sobre la invasión de los gitanos y otros marginados sin tierra —una falta moral y un error estratégico—, se desliza en el jardín de Marine Le Pen. ¿Se ha olvidado de 2007 y su exigencia de una política mundial que asegurase el respeto a los derechos humanos? Hoy, Hollande lleva la voz cantante, y los 10 años que transcurrió en la secretaría del PS, resolviendo querellas internas, demuestran que el mundo exterior sigue siendo para él completamente exterior.

En un quid pro quo, la izquierda y la derecha se otorgan mutuamente una plena y total absolución. El hecho de que Nicolas Sarkozy venda buques de guerra y de desembarco (Mistral) al pacífico ejército ruso, ávido de reconquistar el perímetro del imperio, no parece preocupar a Hollande; por lo menos, no dice ni una palabra al respecto. Los camaradas Mubarak, Ben Alí y Gbagbo siguen siendo miembros de la Internacional Socialista hasta que caen derrocados, pero en la UMP no sueltan prenda, sino que fingen ignorarlo. Lo que pasa más allá de nuestro patio trasero no nos importa nada.

La función real —el supuesto dominio reservado— del presidente de la República Francesa consiste en la gestión de los intereses y los ideales de Francia en el mundo. Sarkozy la ha ejercido, a veces con fortuna, a veces sin ella, a veces, perdido. ¿No ha extraído ninguna enseñanza? ¿Niguna reflexión que transmitirnos? ¿Y qué piensa de ello Hollande, encerrado en su mutismo? Hoy, en Siria, El Asad aniquila una ciudad detrás de otra, China y Rusia bloquean cualquier decisión de la ONU y, mientras tanto, Teherán y Moscú proveen de armas al asesino. ¿No hay nada que decir de este eje dañino? ¡Basta ya! El elector francés no asume responsabilidades, está infantilizado. Dando vueltas sin parar, deslumbrado por Bolloré, Le Fouquet’s, hasta la nausea. Mientras tanto, la tierra sigue girando, con sus buenas y sus malas noticias.

Acurrucado en sus vergüenzas familiares, el país renuncia. Angela Merkel, por sí sola, no va a salvar Europa, tan propensa —digna heredera del canciller Schroeder, vendido a Gazprom— a dar prioridad a la alianza con Rusia, su petróleo y su gas, en perjuicio de los “pequeños europeos” del este, que el Kremlin pretende volver a colonizar. No será Obama, por sí solo, quien resuelva los conflictos y las guerras que se ciernen, con toda su prisa en retirarse porque cree que así minimiza los riesgos. Y, por desgracia, no es la Francia autista que nos ofrecen la que sabrá afrontar los peligros y las oportunidades de una sociedad mundial intrínsecamente globalizada.

Desde el hundimiento del comunismo en el mundo, como realidad y como aspiración, la nueva globalización lo inunda todo. Trastorna equilibrios geopolíticos, sociales y mentales que se remontan a milenios y se proyecta en la producción y los intercambios de miles de millones de individuos, chinos, indios, brasileños, etcétera. Un maremoto así no tiene nada de idílico. La explotación salvaje, el nihilismo y la destrucción están en pleno apogeo, pero, al mismo tiempo, poblaciones inmensas observan su situación con ojos desengañados. Se rebelan por su supervivencia, su dignidad, su futuro. Empiezan a hacer caer a déspotas que se creían garantes del orden mediante la fuerza de las armas, la mentira, la prevaricación y los prejuicios étnicos y religiosos. Hasta los faraones rojos de Pekín se preocupan, mientras que la cleptocracia de Putin hace aguas.

Acabemos con las lamentaciones. Después de haber inventado la guerra total y la revolución totalitaria, Europa, en la segunda mitad del siglo pasado, elaboró con sumo cuidado el antídoto, el espíritu de una disidencia contra las dictaduras que se extendió desde Praga (Carta 77) hasta Pekín (Carta 08). La Unión Europea encarna ante el mundo una zona privilegiada de democracia y prosperidad. Una prosperidad relativa y frágil, sin duda. Una democracia que aún hay que perfeccionar, extender y defender. No está mal como programa para el siglo actual, lejos del decadentismo absurdo y suicida de las izquierdas y las derechas francesas.

Abramos las ventanas, que un viento de libertad despierte las valentías y arrastre los tabúes, ¿es que acaso Francia debe darse por vencida y encerrarse en vida?

André Glucksmann es filósofo francés.

21 de Abril, 2012

¿Qué pasará si Estados Unidos sube los tipos de interés?

Confronting the Coming Liquidity Crisis

NOV 6, 2015
 

SAO PAULO – This month, G-20 leaders will meet in Antalya, Turkey, for their tenth summit since the 2007 global financial crisis. But, despite all of these meetings – high-profile events involving top decision-makers from the world’s most influential economies – no real progress has been made toward reforming the international financial architecture. Indeed, the group has not seriously engaged with the subject since the 2010 summit in Seoul. Put simply, the G-20 is failing in its primary and original purpose of enhancing global financial and monetary stability.

A big part of the problem is that the G-20 agenda has become increasingly congested over the years. At a time of looming financial upheaval, the G-20 must stop attempting to tackle a broad array of issues simultaneously – a goal that has proved impossible – and go back to basics.

The United States Federal Reserve is now preparing to raise interest rates, which it has kept near zero since the crisis. While monetary-policy tightening may be necessary, it risks triggering a serious liquidity crisis in developing countries, with a major impact on economic growth and development. That is why, at this month’s G-20 summit, participants must focus on providing a credible institutional backstop for the difficult times ahead.

Specifically, the G-20 should move to empower the International Monetary Fund, both by pushing it to do more with its existing powers and by championing institutional reform. Raghuram Rajan, the governor of India’s central bank, emphasized this at the recent annual meetings of the IMF and the World Bank in Lima, Peru, when he called for the Fund to build a sustainable global safety net to help countries in future liquidity crisis.

The necessary institutional arrangement already exists: the IMF’s Special Drawing Rights (SDR) department. Within this department, official entities can exchange SDRs – the IMF’s own international reserve asset – for other currencies. Moreover, the IMF can designate a country with a strong balance-of-payments position to provide the liquidity that another member needs. Through this so-called “designation mechanism” – which has never been used – the IMF can ensure certainty of access to global currencies in times of crisis.

Of course, if the IMF’s SDR department is to become a global liquidity hub capable of mitigating future crises, reform is vital. Ideally, major powers would support efforts to strengthen the IMF. But the US has so far been unwilling to do so, with domestic partisan politics spurring Congress to block the relevant reforms.

While the G-20 should not give up on IMF-strengthening reforms, it should hedge its bets. Specifically, it should work with a “coalition of the willing” – including the major emerging economies, concerned advanced countries, and other developing countries – to create an institutional mechanism with which to respond effectively to the next global liquidity crisis.

One obvious option would be to replicate the institutional design of the SDR department by incorporating it in an agreement among the coalition countries. The Bank for International Settlements, which was the counterparty in currency swaps under the Bretton Woods par value system in the 1960s, could be the manager of this system.

This approach undoubtedly has major shortcomings. Indeed, the key advantage of the IMF’s SDR department – that it is a quasi-universal and government-driven system whereby currencies are exchanged with reliable “collateral” (the SDR) – would be lost.

But the perfect should not be made the enemy of the good. As long as an ideal system is out of reach, an imperfect option will have to do. With the risk of a liquidity crisis intensifying, and the existing international financial architecture ill-equipped to respond to such a crisis, doing nothing is not an option.

In recent years, the international financial system has become increasingly fragmented, exemplified in the proliferation of bilateral and multilateral currency-swap arrangements. For example, the Chiang Mai Initiative Multilateralization involves the ASEAN countries, plus China, Japan, and South Korea. And the Contingent Reserve Arrangement (CRA) was created by the BRICS countries (Brazil, China, India, Russia, and South Africa).

Swap contracts involve pre-committed resources, which are not transferred to an international organization with a specific institutional mission. Instead, foreign-exchange reserves – that is, liquidity in currencies accepted for international payments – are held in national agencies until a swap’s activation.

This means that there is no guarantee that, in the event of a crisis, a central bank will actually provide the swap line it has pledged, at least not without attaching political strings. In the CRA, for example, members can opt out of providing support – and can request early repayment if a balance-of-payments need arises.

Clearly, the world’s ever-expanding network of currency-swap arrangements is far from a reliable mechanism for responding to crisis. This is particularly problematic for the emerging economies, which are especially vulnerable now.

Turkey, which currently holds the G-20 presidency, and China, which will take over next year, should have plenty of motivation to demand action to create safeguards against today’s liquidity risks. Beyond urging the US to approve IMF governance reforms, both countries should be hard at work building a coalition of the willing and designing an effective crisis-response mechanism.

So far, Turkey seems to be falling short, promoting an overcrowded and ineffective agenda. One hopes that its leaders come to their senses fast, so that the upcoming summit can produce the results that past summits have failed to provide – and that the world needs more than ever.

Camila Villard Duran, a professor of law at the University of São Paulo, is an Oxford-Princeton Global Leaders Fellow in the Global Economic Governance Program, University of Oxford.

De Eurófilos a Eurófobos

Europe Has Lost its Way 

 

NOV 4, 2015

WASHINGTON, DC – Europe’s response to the strategic challenges it is facing – Russian aggression in Ukraine, refugees fleeing violence in the Middle East, disorder in North Africa – leaves the impression that its leaders have no idea what to do. And indeed, they may not – a reality that needs to be acknowledged, not papered over. 

Simply put, the European Union’s stagnant economy is conditioning its response to the external pressures it confronts; internal crisis has left EU leaders little room for maneuver. Fortunately, Europe has the means to address this crisis, if it can summon the wisdom and the political will.

The origins of the EU’s problems lie in its response to the 2008 global financial crisis: two years of large-scale fiscal stimulus. While this did little for growth, it resulted in crippling public debt. Seven years later, EU output per person is no higher than it was at the start of the crisis. Meanwhile, average public debt has soared to 87% of GDP, leaving little space for policy flexibility or innovation. 

In hindsight, it is all too obvious what should have been done. Greece, which carried out the biggest fiscal stimulus, is the country whose economy has suffered the most damage. Its depression continues, whereas countries like Latvia, Lithuania, and Estonia, which carried out early, radical fiscal adjustments and liberalized their economies, are enjoying strong growth. 

Furthermore, the slow pace of European decision-making has compounded Greece’s troubles. When it comes to economic policy, a fast, faulty decision is often better than inaction. Instead of resolving the Greek financial crisis quickly, EU leaders allowed it to crowd out discussion of other issues for five long years. Meanwhile, Greece limped along, never taking the decisive measures that might have restored confidence.

With its attention focused on macroeconomics, the EU neglected to take the measures that would have put economic growth back on track: freeing up markets, cutting spending (rather than raising taxes), and, above all, further developing its greatest asset, the single European market.

Little has changed since Italian economists Alberto Alesina and Francesco Giavazzi noted, nearly a decade ago, that, “Without serious, deep, and comprehensive reforms, Europe will inexorably decline, both economically and politically.” They warned that, “Absent profound change, in 20 or 30 years the share of Europe [in world output] will be significantly lower than it is today, and, perhaps more important, its political influence will be much trimmed.”

Indeed, a World Bank report on European growth in 2012 summed up the situation as follows: “Aging Europeans are being squeezed between innovative Americans and efficient Asians.”

The chief culprits for Europe’s underperformance are well known: high taxes, too many and bad regulations, the absence of key markets, and high public expenditures. And there is only one reason why European governments spend so much: excessive social protection. As the World Bank observed, “Western European governments spend about 10% of GDP more than the United States, Canada, and Japan. The difference in social protection spending is 9% of GDP.”

In order to fund this spending, revenues must be raised. And, because it is difficult to tax capital efficiently, Europe has imposed exorbitant levies on labor. Across the continent, but especially in southern Europe, taxes and strict labor-market regulations keep unemployment high, at 11% of the labor force, and dissuade Europeans from investing in their education. The natural consequences are too little employment, too little investment in sophisticated education, too little innovation, and minimal increases in productivity.

Most striking is European backwardness in high-tech development and innovation. By almost any measure, most of Europe looks pitiable. Of the 50 best universities in the world, according to the Shanghai list and the Times Higher Education Supplement list, some 30 are American, six or seven are British, and only a handful are to be found in continental Europe. A half-dozen northern European countries can compete with the US when it comes to research and development spending and patents granted, but the south and east of Europe lag far behind.

Meanwhile, the EU has yet to open its markets for business services and digital trade, on which the American economy thrives, even though services account for about 70% of GDP in most EU countries. In 2006, the European Commission issued a directive on the liberalization of trade in services, but major countries – particularly Germany – have refused to implement it. The absence of services and digital markets harms the development of a modern economy in Europe. It is not by chance that American giants like Apple, Amazon, and Google rule the world of high-tech.

There is nothing inevitable about Europe’s malaise, just as there is nothing quintessentially European about having excessive social transfers. Serious European governments – from Ireland to Poland – have successfully addressed the problem. The rest of the EU should not only follow suit; they should also cut income and payroll taxes and liberalize their labor markets.

Fundamental economic reforms are usually implemented only after a severe crisis, as was the case in Britain in the late 1970s, in Sweden and Finland in the early 1990s, and in Eastern Europe after the collapse of communism in 1989. The EU has wasted the opportunities afforded by the 2008 global financial crisis and the subsequent euro crisis. Rather than making the difficult changes that would enable strong recovery, Europe’s policymakers have weighed down the economy with more spending and debt.

The EU will continue to flounder until it recognizes its mistakes and begins to carry out the reforms its economy needs. Only by putting the continent firmly back on the path of growth will Europe’s leaders be able to address the external challenges they now confront.

Anders Åslund is a senior fellow at the Atlantic Council in Washington, DC, and the author, most recently, of Ukraine: What Went Wrong and How to Fix It.

EUROPA necesita un nuevo y diferente mensaje...

Europe’s Politics of Dystopia

 

OCT 29, 2015

TOKYO – The recent victory of the conservative Law and Justice (PiS) party in Poland confirms a recent trend in Europe: the rise of illiberal state capitalism, led by populist right-wing authoritarians. Call it Putinomics in Russia, Órbanomics in Hungary, Erdoğanomics in Turkey, or a decade of Berlusconomics from which Italy is still recovering. Soon we will no doubt be seeing Kaczyńskinomics in Poland.

All are variations on the same discordant theme: a nationalist leader comes to power when economic malaise gives way to chronic and secular stagnation. This elected authoritarian then starts to reduce political freedoms through tight-fisted control of the media, especially television. Then, he (so far, it has always been a man, though France’s Marine Le Pen would fit the pattern should she ever come to power) pursues an agenda opposing the European Union (when the country is a member) or other institutions of supra-national governance.

 

He will also oppose free trade, globalization, immigration, and foreign direct investment, while favoring domestic workers and firms, particularly state-owned enterprises and private business and financial groups with ties to those in power. In some cases, outright nativist, racist parties support such government or provide an even deeper authoritarian and anti-democratic streak.

 

To be sure, such forces are not yet in power in most of Europe. But they are becoming more popular nearly everywhere: Le Pen’s National Front in France, Matteo Salvini’s Lega Nord in Italy, and Nigel Farage’s United Kingdom Independence Party (UKIP) all view Russia’s illiberal state capitalism as a model and its president, Vladimir Putin, as a leader deserving of admiration and emulation. In Germany, the Netherlands, Finland, Denmark, Austria, and Sweden, too, the popularity of populist, anti-EU, anti-migrant right-wing parties is on the rise.

Most of these parties tend to be socially conservative. But their economic policies – anti-market and fearful that liberal capitalism and globalization will erode national identity and sovereignty – have many elements in common with populist parties of the left, such as Syriza in Greece (before its capitulation to its creditors), Podemos in Spain, and Italy’s Five Star Movement. Indeed, just as many supporters of radical leftist parties in the 1930s made a U-turn and ended up supporting authoritarian parties of the right, the economic ideologies of today’s populist parties seem to converge in many ways.

In the 1930s, economic stagnation and depression led to the rise of Hitler in Germany, Mussolini in Italy, and Franco in Spain (among other authoritarians). Today’s brand of illiberal leaders may not yet be as politically virulent as their 1930s predecessors. But their economic corporatism and autocratic style are similar.

The reemergence of nationalist, nativist populism is not surprising: economic stagnation, high unemployment, rising inequality and poverty, lack of opportunity, and fears about migrants and minorities “stealing” jobs and incomes have given such forces a big boost. The backlash against globalization – and the freer movement of goods, services, capital, labor, and technology that comes with it – that has now emerged in many countries is also a boon to illiberal demagogues.

If economic malaise becomes chronic, and employment and wages do not rise soon, populist parties may come closer to power in more European countries. Worse, the eurozone may again be at risk, with a Greek exit eventually causing a domino effect that eventually leads to the eurozone’s breakup. Or a British exit from the EU may trigger European dis-integration, with the additional risks posed by the fact that some countries (the UK, Spain, and Belgium) are at risk of breaking up themselves.

In the 1930’s, the Great Depression brought to power authoritarian regimes in Europe and even Asia, eventually leading to World War II. Today’s resurgence of illiberal state capitalist regimes and leaders is nowhere close to inciting a war, because center-right and center-left governments still committed to liberal democracy, enlightened economic policies, and solid welfare systems still rule most of Europe. But the toxic brew of populism now gaining strength may yet open a Pandora’s box, unleashing unpredictable consequences.

This rising tide of illiberalism makes avoiding a break-up of the eurozone or the EU ever more vital. But, to ensure this, macro and structural economic policies that boost aggregate demand, job creation and growth, reduce income and wealth inequality, provide economic opportunity to the young, and integrate rather than reject refugees and economic migrants will be needed. Only bold policies can halt Europe’s slide toward secular stagnation and nationalist populism. Timidity of the type witnessed in the past five years will only increase the risks.

Failure to act decisively now will lead to the eventual failure of the peaceful, integrated, globalized, supra-national state that is the EU, and the rise of dystopian nationalist regimes. The contours of such places have been reflected in literary work such as George Orwell’s 1984, Aldous Huxley’s Brave New World, and Michel Houellebecq’s latest novel Submission. Let us hope that they remain confined to the printed page.

Nouriel Roubini, a professor at NYU’s Stern School of Business and Chairman of Roubini Global Economics, was Senior Economist for International Affairs in the White House's Council of Economic Advisers during the Clinton Administration.

Alemania: menos jerarquía y mas descentralización

Germany is Not Volkswagen

 

OCT 7, 2015

 

MUNICH – The Volkswagen scandal has raised questions about the German model of production. If the success of the company’s diesel-powered vehicles was due in part to fraudulent efforts to conceal the amount of harmful pollutants they emitted, will similar revelations at other companies call into questions the country’s transformation from “the sick man of Europe” to an export-driven economic powerhouse?

Fortunately, the answer is almost certainly no. Germany’s competitive advantage has less to do with chicanery than with how its firms are structured and the culture in which they operate. Germany’s leading car company is an exception to the manufacturing rules that have driven the country’s success, not an example of them.

Indeed, Germany’s success is frequently cited as a model that other countries should emulate, and rightly so. Since the beginning of the century, the country has grown to become one of the world’s leading exporters, outstripping all other major European countries. From 2000 to 2013, Germany’s exports grew by 154%, compared to 127% for Spain, 98% for the United Kingdom, 79% for France, and 72% for Italy.

The leading explanation for Germany’s impressive recent export performance is wage restraint. But, as a comparison with Spain reveals, faster wage growth elsewhere cannot be the entire story. To be sure, from 2000 to 2008, German wages increased by 19%, compared to 48% in Spain. But after the 2009 financial crisis, the roles were reversed. From 2009 to 2013, German nominal wages increased by more than 14%, compared to 4% in Spain. And yet, despite the more rapid rise in German wages, the country’s exports rebounded faster than Spain’s – or those of any other European Union country.

The most important factor behind Germany’s success is that the structure of its firms improves the quality of their products. German exporters are organized in a way that is less hierarchical and more decentralized than other European firms. This gives them several advantages. Decentralization enables employees at lower levels of the corporate hierarchy to devise and implement new ideas. As these employees are often closer to customers than those higher up, their collective knowledge about what the market is demanding is an important source of value.

Tapping this knowledge allows Germany to compete on quality, not price. Indeed, if wage restraint were the main factor in Germany’s success, it would be hard pressed to outperform French, Italian, British, and Spanish exporters, who compete mainly on price by offshoring production to low-wage countries. Instead, the German focus on quality allows its firms to charge higher prices and gain new customers. When exporters are asked to rank their products relative to a market average, 40% of German exporters classify their goods as top quality, while only 10% of French exporters do so.

Decentralized management has helped German exporters triple their share of the global market for top-quality goods compared to those firms that did not reorganize. Indeed, when I studied the top 1% of German exporters – the country’s export superstars – I found that they more than doubled their share of the world export market when they opted to decentralize their organizations.

This focus on quality could explain why German exports rebounded quickly after 2009, despite the rise in nominal wages. Quality makes exporters less vulnerable to changes in price – including those driven by rising wages. By contrast, those countries in which firms compete on price may have felt more pressure to move production abroad as domestic wages rose. Germany’s relative insensitivity to rising costs could also explain why its government is comfortable with a strong euro, whereas France and Italy have been calling on the European Central Bank to weaken the currency.

Volkswagen, it turns out, took a different approach from that of most other German firms. Rather than decentralizing power, CEO Martin Winterkorn sat at the head of a centralized, command-and-control organization in which he acted as a patriarch. His desire to take the company to the very top of the global car industry, surpassing Toyota, put enormous strain on his managers to deliver growth. The result – a decision to cheat on emissions tests – says less about Germany’s culture of manufacturing than about rot at the car company, beginning at the very top.

According to the World Value Survey, Germany is a high-trust society, in which citizens have confidence in one another’s behavior and act accordingly. Indeed, the lesson of the Volkswagen scandal is that this culture may be necessary for its export model to work. French and Italian exporters that introduced decentralized management did not increase their share of the global market for top-quality goods. The likely reason is that providing division managers with greater autonomy not only frees them up to respond to market demands; it also allows them to put their own career interests above the wellbeing of the firm.

If Germany is to maintain its economic dominance, it will have to do something far harder than keeping wages in check or restructuring hierarchies. It will have to ensure that the culture of integrity underlying its success remains unchanged by the pressures of global competition. 

Dalia Marin is Chair of International Economics at the University of Munich and a senior research fellow at Breugel, the Brussels-based economic think tank.

La Crisis de Representatividad de los Ciudadanos: ¿En nombre de quién negocian nuestros Gobiernos?

The Trans-Pacific Free-Trade Charade

OCT 2, 2015

NEW YORK – As negotiators and ministers from the United States and 11 other Pacific Rim countries meet in Atlanta in an effort to finalize the details of the sweeping new Trans-Pacific Partnership (TPP), some sober analysis is warranted. The biggest regional trade and investment agreement in history is not what it seems.

You will hear much about the importance of the TPP for “free trade.” The reality is that this is an agreement to manage its members’ trade and investment relations – and to do so on behalf of each country’s most powerful business lobbies. Make no mistake: It is evident from the main outstanding issues, over which negotiators are still haggling, that the TPP is not about “free” trade.

New Zealand has threatened to walk away from the agreement over the way Canada and the US manage trade in dairy products. Australia is not happy with how the US and Mexico manage trade in sugar. And the US is not happy with how Japan manages trade in rice. These industries are backed by significant voting blocs in their respective countries. And they represent just the tip of the iceberg in terms of how the TPP would advance an agenda that actually runs counter to free trade.

For starters, consider what the agreement would do to expand intellectual property rights for big pharmaceutical companies, as we learned from leaked versions of the negotiating text. Economic research clearly shows the argument that such intellectual property rights promote research to be weak at best. In fact, there is evidence to the contrary: When the Supreme Court invalidated Myriad’s patent on the BRCA gene, it led to a burst of innovation that resulted in better tests at lower costs. Indeed, provisions in the TPP would restrain open competition and raise prices for consumers in the US and around the world – anathema to free trade.

The TPP would manage trade in pharmaceuticals through a variety of seemingly arcane rule changes on issues such as “patent linkage,” “data exclusivity,” and “biologics.” The upshot is that pharmaceutical companies would effectively be allowed to extend – sometimes almost indefinitely – their monopolies on patented medicines, keep cheaper generics off the market, and block “biosimilar” competitors from introducing new medicines for years. That is how the TPP will manage trade for the pharmaceutical industry if the US gets its way.

Similarly, consider how the US hopes to use the TPP to manage trade for the tobacco industry. For decades, US-based tobacco companies have used foreign investor adjudication mechanisms created by agreements like the TPP to fight regulations intended to curb the public-health scourge of smoking. Under these investor-state dispute settlement (ISDS) systems, foreign investors gain new rights to sue national governments in binding private arbitration for regulations they see as diminishing the expected profitability of their investments.

International corporate interests tout ISDS as necessary to protect property rights where the rule of law and credible courts are lacking. But that argument is nonsense. The US is seeking the same mechanism in a similar mega-deal with the European Union, the Transatlantic Trade and Investment Partnership, even though there is little question about the quality of Europe’s legal and judicial systems.

To be sure, investors – wherever they call home – deserve protection from expropriation or discriminatory regulations. But ISDS goes much further: The obligation to compensate investors for losses of expected profits can and has been applied even where rules are nondiscriminatory and profits are made from causing public harm.

The corporation formerly known as Philip Morris is currently prosecuting such cases against Australia and Uruguay (not a TPP partner) for requiring cigarettes to carry warning labels. Canada, under threat of a similar suit, backed down from introducing a similarly effective warning label a few years back.

Given the veil of secrecy surrounding the TPP negotiations, it is not clear whether tobacco will be excluded from some aspects of ISDS. Either way, the broader issue remains: Such provisions make it hard for governments to conduct their basic functions – protecting their citizens’ health and safety, ensuring economic stability, and safeguarding the environment.

Imagine what would have happened if these provisions had been in place when the lethal effects of asbestos were discovered. Rather than shutting down manufacturers and forcing them to compensate those who had been harmed, under ISDS, governments would have had to pay the manufacturers not to kill their citizens. Taxpayers would have been hit twice – first to pay for the health damage caused by asbestos, and then to compensate manufacturers for their lost profits when the government stepped in to regulate a dangerous product.

It should surprise no one that America’s international agreements produce managed rather than free trade. That is what happens when the policymaking process is closed to non-business stakeholders – not to mention the people’s elected representatives in Congress.

Joseph E. Stiglitz, a Nobel laureate in economics and University Professor at Columbia University, was Chairman of President Bill Clinton’s Council of Economic Advisers and served as Senior Vice President and Chief Economist of the World Bank.

 

Adam S. Hersh is Senior Economist at the Roosevelt Institute and Visiting Scholar at Columbia University’s Initiative for Policy Dialogue.

La solución: recursos diplomáticos y financieros, crecimiento y empleo

The Middle East Meltdown and Global Risk

OCT 1, 2015

NEW YORK – Among today’s geopolitical risks, none is greater than the long arc of instability stretching from the Maghreb to the Afghanistan-Pakistan border. With the Arab Spring an increasingly distant memory, the instability along this arc is deepening. Indeed, of the three initial Arab Spring countries, Libya has become a failed state, Egypt has returned to authoritarian rule, and Tunisia is being economically and politically destabilized by terrorist attacks.

The violence and instability of North Africa is now spreading into Sub-Saharan Africa, with the Sahel – one of the world’s poorest and most environmentally damaged regions – now gripped by jihadism, which is also seeping into the Horn of Africa to its east. And, as in Libya, civil wars are raging in Iraq, Syria, Yemen, and Somalia, all of which increasingly look like failed states.

The region’s turmoil (which the United States and its allies, in their pursuit of regime change in Iraq, Libya, Syria, Egypt and elsewhere, helped to fuel) is also undermining previously secure states. The influx of refugees from Syria and Iraq is destabilizing Jordan, Lebanon, and now even Turkey, which is becoming increasingly authoritarian under President Recep Tayyip Erdoğan. Meanwhile, with the conflict between Israel and the Palestinians unresolved, Hamas in Gaza and Hezbollah in Lebanon represent a chronic threat of violent clashes with Israel.

In this fluid regional environment, a great proxy struggle for regional dominance between Sunni Saudi Arabia and Shia Iran is playing out violently in Iraq, Syria, Yemen, Bahrain, and Lebanon. And while the recent nuclear deal with Iran may reduce the proliferation risk, the lifting of economic sanctions on Iran will provide its leaders with more financial resources to support their Shia proxies. Further east, Afghanistan (where the resurgent Taliban could return to power) and Pakistan (where domestic Islamists pose a continued security threat) risk becoming semi-failed states.

And yet, remarkably, even as most of the region began to burn, oil prices collapsed. In the past, geopolitical instability in the region triggered three global recessions. The 1973 Yom Kippur War between Israel and the Arab states caused an oil embargo that tripled prices and led to the stagflation (high unemployment plus inflation) of 1974-1975. The Iranian revolution of 1979 led to another embargo and price shock that triggered the global stagflation of 1980-1982. And the Iraq invasion of Kuwait in 1990 led to another spike in oil prices that triggered the US and global recession of 1990-1991.

This time around, instability in the Middle East is far more severe and widespread. But there appears to be no “fear premium” on oil prices; on the contrary, oil prices have declined sharply since 2014. Why?

Perhaps the most important reason is that, unlike in the past, the turmoil in the Middle East has not caused a supply shock. Even in the parts of Iraq now controlled by the Islamic State, oil production continues, with output smuggled and sold in foreign markets. And the prospect that sanctions on Iran’s oil exports will be phased out implies significant inflows of foreign direct investment aimed at increasing production and export capacity.

Indeed, there is a global glut of oil. In North America, the shale-energy revolution in the US, Canada’s oil sands, and the prospect of more onshore and offshore oil production in Mexico (now that its energy sector is open to private and foreign investment) have made the continent less dependent on Middle East supplies. Moreover, South America holds vast hydrocarbon reserves, from Colombia all the way to Argentina, as does East Africa, from Kenya all the way to Mozambique.

With the US on the way to achieving energy independence, there is a risk that America and its Western allies will consider the Middle East less strategically important. That belief is wishful thinking: a burning Middle East can destabilize the world in many ways.

First, some of these conflicts may yet lead to an actual supply disruption, as in 1973, 1979, and 1990. 

Second, civil wars that turn millions of people into refugees will destabilize Europe economically and socially, which is bound to hit the global economy hard. And the economies and societies of frontline states like Lebanon, Jordan, and Turkey, already under severe stress from absorbing millions of such refugees, face even greater risks.

Third, prolonged misery and hopelessness for millions of Arab young people will create a new generation of desperate jihadists who blame the West for their despair. Some will undoubtedly find their way to Europe and the US and stage terrorist attacks.

So, if the West ignores the Middle East or addresses the region’s problems only through military means (the US has spent $2 trillion in its Afghan and Iraqi wars, only to create more instability), rather than relying on diplomacy and financial resources to support growth and job creation, the region’s instability will only worsen. Such a choice would haunt the US and Europe – and thus the global economy – for decades to come.

Nouriel Roubini, a professor at NYU’s Stern School of Business and Chairman of Roubini Global Economics, was Senior Economist for International Affairs in the White House's Council of Economic Advisers during the Clinton Administration.

Tipos al alza, Bolsas a la baja

The Chinese Economy and Fed Policy

 

SEP 29, 2015

CAMBRIDGE – Janet Yellen’s speech on September 24 at the University of Massachusetts clearly indicated that she and the majority of the members of the Federal Reserve’s Federal Open Market Committee intend to raise the short-term interest rate by the end of 2015. It was particularly important that she explicitly included her own view, unlike when she spoke on behalf of the entire FOMC after its September meeting. Nonetheless, given the Fed’s recent history of revising its policy position, markets remain skeptical about the likelihood of a rate increase this year.

The Fed had been saying for several months that it would raise the federal funds rate when the labor market approached full employment and when FOMC members could anticipate that annual inflation would reach 2%. But, although both conditions were met earlier in September, the FOMC decided to leave the rate unchanged, explaining that it was concerned about global economic conditions and about events in China in particular.

I was unconvinced. I have believed for some months that the Fed should start tightening monetary policy to reduce the risks of financial instability caused by the behavior of investors and lenders in response to the prolonged period of exceptionally low interest rates since the 2008 financial crisis. Events in China are no reason for further delay.

Consider, first, domestic economic conditions, starting with the employment picture. By the time the FOMC met on September 16, the unemployment rate had fallen to 5.1%, the level that the Fed had earlier identified as full employment. Although there are still people who cannot find full-time jobs, driving the unemployment rate below 5.1% would, according to the Fed, eventually lead to unwanted increases in inflation.

The current inflation picture is more confusing. The annual headline rate over the past 12 months was only 0.2%, far short of the Fed’s 2% target. This reflected the dramatic fall in energy prices during the previous year, with the energy component of the consumer price index down 13%. The rate of so-called core inflation (which excludes energy purchases) was 1.8%. Even that understates the impact of energy on measured inflation, because lower gasoline prices reduce shipping costs, lowering a wide range of prices.

The point is simple: When energy prices stop falling, the overall price index will rise close to 2%. 

And the FOMC members’ own median forecast puts inflation at 1.8% in 2017 and 2% in 2018.

So if the Fed, for whatever reason, wanted to leave the interest rate unchanged, it needed an explanation that went beyond economic conditions in the United States. It turned to China, which had been much in the news in recent weeks. China was reducing its global imports, potentially reducing demand for exports from the US. The Chinese stock market had fallen sharply, declining some 40% from its recent high. And China had abruptly devalued the renminbi, potentially contributing to lower import prices – and therefore lower inflation – for the US.

But when it comes to the impact of China’s troubles on the US economy, there is less than meets the eye. China’s import demand is slowing in line with its economic structure’s shift away from industry and toward services and household consumption. This means that China needs less of the iron ore and other raw materials that it imports from Australia and South America and less of the specialized manufacturing equipment that it imports from Germany and Japan. The US accounts for only 8% of China’s imports, and its exports to China represent less than 1% of its GDP. So China’s cut in imports could not shave more than a few tenths of a percentage point from US GDP, and even that would be spread over several years.

As for the stock market – widely viewed as a kind of casino for a small fraction of Chinese households – only about 6% of China’s population own shares. The Shanghai stock market index soared from 2,200 a year ago to a peak of 5,100 in mid-summer and then dropped sharply, to about 3,000 now. So, despite the sharp drop that made headlines recently, Chinese shares are up more than 30% from a year ago. More important, wealth and consumption in China are closely related to real-estate values, not equity values.

Finally, the renminbi’s recent decline against the dollar was only 2.5%, from CN¥6.2 to CN¥6.35 – far below the double-digit declines of the Japanese yen, the euro, and the British pound. So, on an overall trade-weighted basis, the renminbi is substantially higher relative to the currencies with which it competes.

Even more relevant, the decline of the renminbi and other currencies in the past year has had very little impact on US import prices, because Chinese and other exporters price their goods in dollars and do not adjust them when the exchange rate changes. While official US data show overall import prices down 11% in the 12 months through August, this is almost entirely due to lower energy costs. When energy products are excluded, import prices are down only 3%.

So the Fed is right to say that inflation is low because of the sharp drop in energy prices; but it need not worry about the effect of major trading partners’ lower currency values. And, again, when the price of energy stops declining, the inflation rate will rise close to the core rate of 1.8%.

So, unless there are surprising changes in the US economy, we can expect the Fed to start raising interest rates later this year, as Janet Yellen has proposed, and to continue raising them in 2016 and beyond. I only hope that it raises them enough over the next 18 months to avoid the financial instability and longer-term inflation that could result from the long era of excessively easy monetary policy.

Martin Feldstein, Professor of Economics at Harvard University and President Emeritus of the National Bureau of Economic Research, chaired President Ronald Reagan’s Council of Economic Advisers from 1982 to 1984.

Alemania tiene ahora un problema, dos problemas, tres problemas... y los que vendrán

The Limits of the German Promised Land

 

 

SEP 29, 2015

MUNICH – Migrants seeking to escape poverty and war are flowing into Europe by the hundreds of thousands. They are still mostly being welcomed, but the capacity of the reception centers is fast reaching its limits. To staunch the flow of migrants over the Balkan route, Hungary has imposed controls on its borders – and was promptly followed by Germany, Austria, Slovakia, Croatia, Slovenia, the Czech Republic, the Netherlands, and Poland.

Germany is the migrants’ most favored destination. So far this year, half of all asylum applications in the European Union have been filed there, although the country accounts for only 16% of the EU’s population. By September, Germany had probably received some 400,000 applications or more, with the dramatic increase in migration flows since summer and before the reinstatement of border controls expected to push the number of asylum-seekers to 800,000 this year.

Moreover, regular immigration to Germany could again reach the 400,000 mark, as in 2014. The total would represent net immigration of 1.5% of the resident population – an extremely high proportion by historical and international standards.

The reason for the migrants’ strong preference for Germany is that the country, together with Sweden, has Europe’s most liberal asylum system and allocates particularly high levels of funding to accommodate the newcomers. Between €1,000 ($1,120) and €1,200 per person per month is being transferred to the municipalities to cover the costs of accommodating them. The value of the benefits that the immigrants receive in Germany is a multiple of the wages they can earn in their home countries (if they manage to find a job there at all).

The Dublin Regulation, according to which the first EU country that a migrant reaches is obliged to register and process the migrant’s application, has long been disregarded. Greece and Italy are simply waving the refugees on. Germany accepted, with much fanfare, a large number of unregistered refugees from Hungary and offered them a warm welcome. This decision arguably tempted so many more refugees from the Arab countries that soon thereafter Germany was forced to impose border controls.

What the German government had not reckoned with is that every refugee who manages to make it to Germany immediately texts the good news back to the home country, fueling a fresh wave of migrants. The UN refugee camps in the countries surrounding Syria are thus being gradually relocated to Germany.

Only a fraction of asylum-seekers’ applications are ultimately approved, because most applicants are not politically persecuted but simply economic migrants (?). In the first half of 2015, for instance, only about one-quarter of applicants came from Syria and Iraq, a significant proportion of whom had already found shelter in the UN camps in or around those countries. But the proportion of Syrian refugees subsequently ballooned quickly, in part because the news spread that Germany approves most Syrian applications.

If an application is successful, a refugee has the right to bring along his or her family members as well. Frequently, Arab families send their minors to Germany (? EU?) in the not-unjustified hope that they will obtain the right for other family members to follow later. Germany will have to deal with the consequences of this refugee wave for years to come.

In order to distribute the burden more equitably, Germany tried to have a European quota system instituted to allocate applicants among the EU’s member countries. But Germany’s EU partners (?) rejected this as “moral imperialism.”

Germany thus failed to have a system adopted that would have provided it with some relief. Instead, a quickly convened summit has now agreed on a limited quota system that will cover barely 120,000 people, aimed at providing relief to Hungary, Italy, and Greece; it will bring a further 31,000 refugees to Germany. 

In order to avert chaos, Germany has no choice but to impose restrictions. Among the most urgently needed steps is to develop the capacity to distinguish quickly – and ideally at the border – between refugees (who face political persecution) and economic migrants. Germany’s Federal Office for Migration and Refugees could set up border outposts to clear baseless asylum claims and send the rejected applicants, in accordance with the Dublin Regulation, back to the first safe country they reached. 

This would allow Germany to concentrate on the task at hand: providing those granted refugee status the schooling and language lessons they will need to allow them to find employment as quickly as possible.

Hans-Werner Sinn, Professor of Economics and Public Finance at the University of Munich, is President of the Ifo Institute for Economic Research and serves on the German economy ministry’s Advisory Council.