Tuesday, February 14, 2012

EU reinvents Russian troika in Greece

The troika is composed of the European Commission(EC), the European Central Bank(ECB) and the International Monetary Fund(IMF). The first two are representatives of a 27 member European unions. There are 26, 25 and 17 member unions that are prominent. Basically it's two bureaucratic manifestations of the full EU.

The composition of the Greek troika:
Toirka = EU+IMF (3=2+1)
EUECB + EC (2=1+1)
Europe = All

The IMF is and international, of course, but it's last 10 directors, have been Europeans, and four of them, including the current one - Christine Lagarde - were French. The IMF has committed over $500 committed for a great EU financial firewall including $109, which the U.S.committed  in 2009 to the IMF. No government has ever lost money investing in IMF (according to the IMF - so I'll have to check). The developing nations are also unhappy with having their money committed to stench the bleeding in Europe.

The word troika is Russian, and it refers to a sleigh harnessed to three horses.

The Greek troika views itself as three European entities  dragging a slacker, at least according to the German standards. 

The Greeks, at least, see this differently. The experience three riders (of the apocalypse ?) EC, ECB, and IMF.

I read this as three impatient riders running an inherently slow horse as hard as they can -- although, I don't know how to draw it. It wouldn't work with horses, much less with people.

What peace treaty?

The power in Egypt still lies with the military junta, which is composed from remnants of the Mubarak regime. This government has initiated a crisis with U.S. over some American workers and funding for NGOs.

Egyptian judges have referred 16 Americans and 27 others linked to NGOs for trial, accusing them of using foreign funds to encourage disruptive protests. Among the targeted NGOs whose assets and funds have been seized are the U.S. government-funded International Republican Institute and National Democratic Institute.

Meanwhile, the Muslim Brotherhood that has won 3/4 or the lower Parliament want to show its enmity to the U.S. as well. MB lawmaker Essam el-Erian told the pan-Arabic al-Hayat newspaper that any reduction in U.S. aid to Egypt  would violate the U.S.-brokered 1979 peace agreement with Israel. In other words, while the military junta has unlawfully detained Americans the Muslim Brotherhood has the audacity to blackmail the U.S.!

Since the ouster of Mubarak, Egypt has become the patron of Hamas (taking over from Shiite Iran) and has treated Israel as an enemy. The military junta, the Muslim Brotherhood, indeed the majority of Egyptians, want to 'reevaluate' the the peace treaty. For all practical purposes the treaty is already null and void. The irony is that there's little to gain, but a paper promise.

Last Sunday a great Mideast expert Barry Rubin, who is director of the Global Research in International Affairs Center in Israel, wrote in a column explaining the Egyptian brinkmanship:
“This is only the beginning of the anti-American populism/nationalism/Islamism we are going to be seeing in Egypt from now on.”  Rubin also predicted: "The Obama administration’s bluff is already being called. If trials go forward — and some compromise might be found to save face for both sides — will the Obama administration cut off aid or is it bluffing and will back down? I’ll bet on the latter, and that will send a real message to every radical in the region."

It took only a day for this prediction to come true. Obama's budget released the next day (Monday, February 13th) proposed continuation of $1.3 billion in aid to Egypt, despite outrageous behavior of its rulers.

I wrote about a week ago that Egypt is following in the footsteps of Iran. Needless to say, I agree with Barry Rubin's projection for the trajectory of Egypt, and his assessment of the dire consequences. I don't think the Obama administration even attempted to bluff denying U.S. aid to Egypt. There's a lot of grumbling in Congress, and the U.S. State Department made some threatening noises about the funding, but it never rose to a high level that would prove the Obama administration even attempted to bluff. That would reveal that not everything is going well with the Arab spring.

Yesterday I wrote about the costs of Obama's appeasement for the region:
What can the Obama administration do, facing a failure of its policy in Egypt? Simple - the White House refuses to acknowledge the reality.
The political costs of acknowledging the utter failure of his policies prevent Obama even from bluffing to influence Egypt's behavior. He will gladly pay Egypt to avoid acknowledging the reality that his foreign policy has produce another Iran, and that Egypt is already not honoring its peace agreement with Israel.

Monday, February 13, 2012

Force is coming to Greece

Recently I wrote in Germany to Greece: Our money or your life that continued financial propping up of Greece with German money is a bad proposition for both countries. While the leaders of both countries press on with the charade, the people are waking up to the game: Greeks, because their Liberty is at stake, while Germany realize they are fleeced financially.

This situation is a stark example of what is wrong with the West - the issue that concerns me the most is the break-down of the trust between the leadership and the population - the unmaking of the social contract, based on honesty, and a representative government. The irony is that while the leaders have essentially reached an agreement, the public has soured on the whole enterprise.

The Germans are finally getting tired of their part in a Greek tragedy. While the German flags burn in Athens (along with flags bearing Swastikas) what is the upside for the Germans citizens from continued lending? There isn't one according to Der Spiegel, which has  recently published an article calling for the end to the farce. I added some translations to the graph provided by Der Spiegel showing the transfers of wealth (in euros). Germany comes out as the biggest sucker, I mean lender.

After decades of government overspending, compounded by costly political patronage, tax evasion and a strong union movement deeply linked with governing parties, Greece is in a sorry mess: The economy is set to contract for a fifth consecutive year, the government still spends almost ten percent more than it earns and unemployment is at a record high of nearly 21 percent — with the number of jobless exceeding one million in November.

The private lenders have (generously or desperately?) agreed to restructure Greek debt, which will be reduced by > 70% and rolled over into 30-year bonds with a low <4%  interest rate (called the coupon), still provoked Greek indignation: “The creditors are asking for 40 years of submission,” said Georgios Karatzaferis, who heads the right-wing Popular Orthodox Rally. “Greece will not give itself up,” he added.

Greeks have a lot of soul searching to do - for years their politicians cooked the books to provide social programs, which we given our like so many candies. I call this the trick-and-treat strategy, because the unpaid treats are essentially lies. The problem with socialism, as Margaret Thatcher pointed out is that "eventually you run out of other people's money". The Greeks spent their own money, the money of their children and have spent €110bn of the first bailout - mostly from German taxpayers. Now the state can't afford the goodies, and needs to withdraw them from an addicted population.

Lucas Papademos, the Greek economist who was appointed as a temporary Prime Minister in November of 2011, has worked hard to accommodate the demands of the so-called troika -- the European Commission, the ECB and the IMF. The demands included: cutting the minimum wage to less than 600 euros a month, cuts of 25 per cent in private sector wages and 35 per cent in supplementary pensions, abolition of at least one holiday allowance, closure of about 100 state-controlled organisations with thousands of job losses. According to the Financial Times, the list of demands also included cutting 150,000 public sector jobs within three years and cutting this year’s budget deficit by a further 1 per cent of economic output.

In addition, because Papademos’s term is set to end when general elections are held, most likely in April, EU and IMF officials seek guarantees from political leaders in Greece that they will stick to pledges made to receive the financing. If you have any ideas how this provision can be reconciled with meaningful elections in a sovereign country, please contact a Greek consulate immediately.

The Greek unity government knew about the resistance of the public to these terms, before it accepted them piece by piece during painstaking negotiations last week.

Among the warnings were those of representatives of Greek employers and the biggest private sector union on Feb. 3 called on Papademos to resist pressure to cut the minimum wage, holiday allowances other benefits. "The painful measures that create misery for the youth, the unemployed and pensioners do not leave us much room," secretary general of the ADEDY union, Ilias Iliopoulos, told Reuters.

More austerity risks triggering a “social explosion,” Hieronymos II, the head of Greece’s Orthodox Church, said in a statement on Feb. “We are being asked to take even larger doses of a medicine that has proven to be deadly and to undertake commitments that do not solve the problem, but only temporarily postpone the foretold death of our economy,” he said.

Meanwhile, more pressure was applied to the Greek leadership in Brussels - at a closed doors meeting on Thursday the euro zone finance ministers made it plain that they did not believe the figures provided by Greece. The bureaucrats in Brussels demanded that Athens must find an additional $428 million in savings — to make up for a shortfall created by the refusal of political leaders to slash supplemental pensions — before their next meeting, expected this Wednesday.

The birth-place of Western democracy is expressing itself by other means.
The Greek cabinet agreed to all Brussels' demands last Friday. Despite two days of striking by a Greece's two major labor unions on Friday and Saturday against these reforms, during which Athens was set ablaze, the parliament approved the austerity package on Sunday.

One headline summarized the reaction of the financial world particularly well: "Greece Burns as Markets Show Relief". This shows not the wisdom of the markets, but their wishful thinking that the deal will stick despite the desires of the people. The only way this could happen is if the dissenting citizens are beaten back into submission.

I am a big proponent of capitalism, as a source of independence and individual dignity. Unfortunately, the 'Third way' between capitalism and socialism tried in Europe, was essentially a gradual encroachment of the later, and a betrayal of the former. It's beyond sad to read how the perverted capitalist markets cheer, as the birth-place of democracy burns. Clearly, the markets would applaud the inevitable application of Force against the will of the people.

Papademos provided the justification for Force: "Vandalism, violence and destruction have no place in a democratic country and won't be tolerated". What democracy? Brussels demands that Greeks somehow promise to etch the deal in stone, so that the austerity program cannot be undone by elections in April. What other means to affect their government remains? The Greeks have lived above their means, but now they have lost not only their money, but their liberty, which is the upside of responsibility. Perhaps this calls for paraphrasing Ben Franklin's famous dictum to read "Those who give up an essential Responsibility for a little Security, deserve neither Liberty nor Security".

Successful continuation of the vast transfers of wealth would be a Pyrrhic victory for both Greece and Germany. As painful as bankruptcy would be for Greece, and much as it would spread 'contagion' through EU -- such an outcome would lead to a restoration of proper national responsibilities. Most importantly, it is the only way to preserve the democratic social contract in Greece, and prevent the spread of a far more dangerous authoritarian contagion in Europe.

Costs of appeasement in Egypt

History repeats itself. First, as a tragedy, then as a farce. Both can be entertaining, and engaging. What do you do, when the pattern is so clear that neither tragedy nor the farce holds any allure? I wish I knew, because it would give me some enjoyment in writing about many of the current events. A lot of current events are like a train-wreck in slow motion - they make me want to avert my eyes.

Almost two months ago Charles Krauthammer wrote a piece entitled "The wages of appeasement" about the failure Obama's policies in Russia and Iran. These policies of appeasement went under the euphemisms of the 'reset' and 'negotiations without preconditions', respectively.

While enemies of U.S. foreign policy were appeased, our allies, like Israel or nominal allies in the war on terrorism, like Pakistan and Egypt, were treated like vassals. The situation with Israel, deserves it's own description, and I'd like to focus on Egypt.

One of the sad analogies between the past and the present in the rise of Islamism in Egypt that follows the pattern in Iran. Unfortunately, President Obama's response is very similar to that of President Carter - appeasement. In the Middle East people 'bet on the strongest horse', as Osama bin Laden described it. In that region appeasement is simply an admission of physical weakness, not ethical or psychological strength.

The situation with American citizens who worked for NGOs in Egypt provides clear evidence that Egypt is choosing Islamism over development. Some U.S. citizens from leaving the country, and charging them with running un-sanctioned NGO with a penalty up to five years in prison.

After a number of U.S. senators have expressed concern about these events and announced that $1.3 billion dollars in annual aid to Egypt may be in jeopardy, the outraged Egyptian delegation has cancelled the meeting with U.S. Senators Carl Levin and John McCain, the Democratic chairman and ranking Republican on the Senate Armed Services Committee, among others in Congress this week. This is an egregious diplomatic slap in the face that shows Egyptians have no interest in attempting to normalize relations.

What can the Obama administration do, facing a failure of its policy in Egypt? Simple - the White House refuses to acknowledge the reality. In the proposed budget for next year, the $1.3 billion of aid to Egypt is preserved as a separate budget line (which makes it technically simple to eliminate). In addition Obama calls for more than $800 million in economic aid to help Middle Eastern countries swept by "Arab Spring" revolutions.

The billion with change in aid to Egypt helped to maintain peace between Egypt and Israel, and provided U.S. some leverage with Mubarak. Now, this money can only buy us Egyptian scorn. This situation is similar to the Iran-Contra affair. In early March of 1987 President Reagan had admitted on national TV that "what began as a strategic opening to Iran deteriorated, in its implementation, into trading arms for hostages".

While rewarding Egypt's behavior with the continuation of U.S. aid does not rise to the same scandalous level as Iran-Contra, the futility of appeasement is certain. Regardless of the administration in charge, the political wages of that kind of strategy is such a historical truism that it seems tedious even to write about it. It doesn't matter which U.S. party is to blame. The real issue is the cost for the region and the world. Iran, the first modern Islamist state, is providing an example of good example of the extended consequences of President Carter's myopia. Similarly, Obama's appeasement of the 'Arab Street' in Egypt has resulted in replacement of authoritarian Mubarak regime with Islamists. Egypt is the most populous Arab country, which is becoming the second Islamist state.

So, whether U.S. wastes money on Egypt, while the latter chooses to imprison the American NGO workers is relatively insignificant - the latter is merely a symptom of the disease, which Obama has promoted and is now pretending does not exist.