Attempts At Injecting New Vigor Into The Atlantic Community Linking America And Europe Will Fail – US Short Of Breath, EU In Serious Trouble – Societies In Decline Are Inward Looking – No Interest In Cooperation

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By Paolo von Schirach

January 31, 2012

WASHINGTON – Wolfgang Ischinger, former German Deputy Foreign Minister, Igor Ivanov, former Russian Foreign Minister, and San Nunn, former US Senator, and once Chairman of the powerful Senate Armed Services Committee, in their current role as co-chairmen of the Euro-Atlantic Security Initiative voice their concern about the future of the Euro-Atlantic community in an op-ed piece in The International Herald Tribune, (Euro-Atlantic Goals, January 31, 2012). The writers lament the lack of policy focus and poor coordination among the key players in this large area encompassing Europe, Russia and North America. At the end of the Cold War, It was hoped that this region could become the driving force for positive change based on new cooperation linking Europe and America, the old partners and a new democratic Russia. But this did not happen. Arguably, Europe and the US are drifting apart, while old enmities with Russia have resurfaced.

Revive the Atlantic Community?

The three former leaders advocate better military to military cooperation, a rethinking about the purpose of missile defense, and a joint, cooperative approch to the exploitation of the vast resources of the Arctic, among other issues. Their underataking is laudable. But the chances of success are dim, mostly because of the profound changes, all for the worse, affecting both Europe and America. Russia is a different story, but not a very good one either.

Impossible dream

Simply put, the old foundations are gone. The Atlantic bond and the NATO Alliance that shaped it were based on both a shared fear of a common foe, the old Soviet Union, and on an underlying optimism about the strength, vitality and moral superiority of Western nations. And look where we are now. Whatever the spats with Putin’s Russia, this is not the old Soviet Union, with armoured divisions stationed in East Germany, just a few miles miles from Hamburg, as former German Chancellor Helmut Schmidt used to remind us, back in the 1980s. Today’s Russia represents no immediate threat to Europe. So, the old glue based on a shared security concern is no longer there, (even though it has not been replaced by a genuine new friendship with a post-Soviet Russia).

Loss of optimism

But the real impediment to the reaffirmation of a spirited and dynamic Atlantic Community is the loss of optimism. Forgive the cliche‘, but the West is in decline and the remedies advocated by politicians will tend to create a more inward looking political climate. Wounded societies will use their diminished resources to try and fix their domestic issues. There is now little spare capacity and even less political will to seriously engage with the outside world on anything that would demand steady commitments. Anything requiring effort and any type of coordination that may entail domestic sacrifices is now politically unwelcome.

In the US, focus on divisive domestic issues of social justice

Look, America, although doing a bit better than Europe, is saddled with a gigantic national debt and year after year enormous budget deficits that are already causing cuts in security spending. But, aside from Pentagon cuts, (in fact the three statesmen are proposing better security coordination, not new and costly security undertakings), the focus of debate in America has shifted away from growth strategies and confidence in globalization, and is now on who should shoulder the bigger burden of the downturn.

President Obama is running for re-election this November on a platform based on how he will guarantee that the rich pay a bigger share of the cost of fixing public finances. This new focus on “fairness” tends to fuel existing and partly justified social and political animosities that will end dividing Americans. Indeed, whatever the objective merit and the justifications for redistributive policies, a nation divided, in which different groups fight to determine who should pay more, will have no energy for foreign matters not considered absolutely vital. So, while we debate about how much the rich should be taxed, there is little interest in new efforts aimed at revitalizing transatlantic bonds with Europe whose value is not immediately apparent. (The fact that the otherwise laughable presidential aspirations of Texas Congressman Ron Paul who proposes complete withdrawal from foreign committments have at least some traction this year, especially among young voters, is evidence of a profound shift in America.)

Europe: the crisis of the welfare state

Well, if this is the new mood in America, in Europe it is much, much worse. Southern Europe is essentially a disaster area, with no one really facing the fact tat the fiscal and debt crises have been caused by costly state run programs and over generous welfare systems that could not be funded by anemic growth in increasingly non competitive economies. And, although right now the focus is still on putting out the fires and eliminating contagion in the banking systems, very few are willing to propose a rejection of the old societal models as a new way forward.

On the contrary, the idea is about doing more of the same, only reapportioning the costs. In the unfolding campaign for the French presidency, Francois Hollande, the Socialist challenger to president Nicolas Sarkozy, would like to keep the old welfare state just as it was. He wants to go back to a lower age of 60 for full pension benefits. At the same time, just like president Obama, he put forward laughable plans to re-industrialize France by bringing back manufacturing that migrated long ago to low cost Asia. The idea is that it may be possible to reassert manufacturing, this time however with more aggressive protection against unfair competitors. And at the same a Socialist President would fight the domestic enemies: the fat cats, the bankers and financiers who have amassed vast fortunes, while the rest of the country suffers.

Populism and protectionism do not mix well with international solidarity

So, in France there is an unhealthy mix of populist class warfare and rising protectionist sentiment. Not a good base for grand new transatlantic initiatives. And do not expect bold new leadership from Germany either. The Germans, while better off economically, right now are mostly concerned with forcing rather recalcitrant Southern EU partners to adopt even more stringent austerity measures, so that there will be no more fiscal crises in the future.

All well and good. But the problem is that austerity without growth strategies will further weaken already weak Southern Europe. Even leaving aside the political fall out of a strong anti-German sentiment –something that does not augur well for intra-European cohesion– I would not count on Greece, Italy, Spain, (more than 20% unemployment), and Portugal to provide a vigorous contribution to any policy aimed at strengthening Euro-Atlantic relations. In the years ahead, they will do their best just to stay alive.

We thought we were better, thus bound to lead

After WWII victorious America and resurgent Europe forged a bond based in large part on the genuine belief that their countries shared the superior foundations of democracy and enterprise. And it was that very self-assurance, that sense of moral superiority that engendered optimism and a willingness to cooperate with other like minded Western nations.

But now that strong belief in Western superiority is gone and with that went the interest in cooperating in the name of the expansion of Western principles. Europe and (even if to a lesser extent) America are now inward looking, unsure and hesitant. Their politics are focused more on fighting over what is left at home rather than on dreaming about an expansive, bright future. The Atlantic Community, for many decades the driving vehicle of Western solidarity, is a major casualty of this new era of reduced expectations and no dreams.

Does America Have “Too Much” Natural Gas? Use Additional Supply To Power Thousands Of Heavy Trucks – Reduced Fuel Prices Would Benefit Entire Economy, Reduce Oil Imports

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By Paolo von Schirach

January 24, 2012

WASHINGTON – When it come to US energy prices, could there ever be such a thing as “too low”? Well, apparently yes. In the wake of the enthusiastic natural gas drilling that followed the hydraulic fracturing (“fracking”) revolution that allowed extraction from vast shale formations in the last few years, there is now a huge gas glut in America. This is a real problem for the large US energy companies, such as Chesapeake Energy, that have invested in gas development, to the extent that gas prices have fallen below extraction costs. And prices have fallen dramatically. In 2008 US natural gas was priced at $ 14 per million BTU. Now it is down to $ 2.5 per million BTU.

Gas prices way down

This is a staggering fall. Of course, from the stand point of all consumers, lower prices is great news. But from the stand point of the energy companies it is a real problem, because at least some of them lose money on their operations, even though not all of them, and not evenly. Indeed, production costs vary and they include the cost of the leases to the land owners. And these are hardly uniform, as they were entered into at different times, in different market conditions. Besides, in many instances, gas is extracted as a byproduct of highly profitable oil whose price is still at around $ 100 per barrel. Energy companies that get the gas along with oil can afford to essentially give the gas away for free, because they make enough money with crude.

The economic benefits of low gas prices

That said, assuming that just announced production cuts will stabilize prices at a higher level and thus producers’ profitability, historically low natural gas prices represent an incredible and long lasting economic benefit for anemic America. Gas is used for electrical power generation and for heating homes and buildings. Low prices mean lower electrical bills and lower heating costs. Besides, gas is used as feed stock by the plastics and chemical industries. Dramatically lower prices translate into lower operating costs and increased international competitiveness for US producers.

Use additional supply to power heavy trucks

But here is an idea for American industry and policy makers that would allow the absorption of all this additional supply, with huge benefits for all, producers and consumers: adopt the “Pickens Plan“. Use part of this super abundant and super cheap natural gas to power US truck fleets. Of course this is not so easy. We are talking about getting expensive new trucks, while creating from scratch a huge and costly new national infrastructure of refueling stations. More easily said than done.

Natural gas much cheaper than diesel

And yet the numbers look extremely attractive. Trucks run on diesel fuel made from oil. While US oil production is mercifully also going up, there is still a world price for oil. So domestic diesel prices will stay high. Therefore it makes sense to invest in new trucks running on natural gas, since there is almost a guarantee of lower fuel prices for decades to come, given all this gas supply estimated to last for at least 100 years. If this transformation from diesel to gas happened, the US gas industry would have a new and very large customer: truck owners. And a steady demand from US truck fleets operators should help create a more predictable market and thus help create a better balance between supply and demand and eventually more stable prices.

US Government should help the transition

The US Government should help by making it easier for truck owners to make the leap and buy expensive new trucks, via tax credits or other incentives. And the US Government could also take the lead by announcing a steady program to buy new natural gas powered trucks. All this would be extremely beneficial.

Think of it. The US natural gas industry would have large new, permanent customers. Lower fuel prices for US trucks would lower the cost of transported goods, and this would act as an anti inflationary balm for the entire economy. On top of that, the US would be able to import much less oil, as the demand for diesel fuel would be curtailed significantly. The end result would be a lower national oil bill and increased energy security, since a huge chunk of US demand for transportation fuel would be satisfied by domestic natural gas supply.

Truck fleets operators would be steady customers for US gas

Look, this huge transformation will take a while. And, in truth, even if such a major energy/industry/transportation policy shift were decided upon today, none of this would affect current gas prices due the supply glut.

But markets always love to know the road ahead. If you are a US natural gas producer, it would be comforting to know that your market is going to get bigger and that there will be more steady customers for your product.

A better sense of actual market size and upside potential would help plan more efficiently gas exploration and production. If we played this right, in the end America may not have “too much natural gas”. It will have enough to supply today’s and tomorrow’s new customers, with enormous economic benefits for the entire Nation.

America Needs More Innovation – Fort Collins In Colorado Shows How It Can Be Done

WASHINGTON – Whatever will be said and promised in this difficult and already acrimonious 2012 political campaign, America’s long-term future and prosperity rests on its ability to continue producing technological innovation.

America: still competitive?

But on this critical variable the signs are not as good as we would like. Aside from US undisputed leadership in IT –R&D and design only, mind you, as manufacturing is all contracted to China– there are few areas of obvious American world technological leadership.

When all is said and done, there is only one Silicon Valley. And yet, leaving aside this globally recognized icon, there are very hopeful signs elsewhere. They should be noted, and elected officials –Governors and Mayors– nationwide should do their best to put in place the right policies that would encourage more of these to come to life. Here is the basic guiding principle: any public policy measure that makes it easier to translate viable research into commercial applications would help.

Fort Collins, Colorado, is an innovation hub

Take for instance the city Fort Collins in Colorado. There you have a vibrant innovative environment created via a good partnership that includes a pro-active municipality, Colorado State University, and the Rocky Mountain Innosphere, a business incubator and science park facility. As a result of this collaboration, you have the sprouting of a variety of “innovative companies operating in bio-science, software, hardware and clean energy that contribute ideas, inventions and products that positively affect the local economy“, as a document produced by the City of Fort Collins says.

Research areas include clean energy, water and disease prevention. And there are results. The city has one of the highest ratios of patents per number of inhabitants in America (and indeed the world), a remarkable record.

State of the art facilities

Most recently the Colorado State University Engines & Energy Conversion Lab was listed as one of the 25 “most awesome college labs” in the nation by Popular Science magazine. Wired magazine called the Lab one of the “Emerging Epicenters” for innovation and high-tech job growth in green technology.

And this is not just about a good teaching environment. It is also about the ability to conduct state of the art research on new engines and new fuels that may have enormous industrial spin-offs. This facility has become a recognized component of the US automotive industry R&D base. Indeed, the Lab’s ability to rely on high-tech contributions coming from a variety of sectors, all present in the area due to clusters and the Innosphere, fostered  innovation in energy efficiency of existing engines as well as in thinking about new solutions, be it in hybrid vehicles or bio-fuels.

Major grant by Siemens

And all this progress has been noticed. Recently Siemens announced a major $ 44.5 million (in kind) software donation to support research performed by the University within the “EcoCar2″ Project, a program sponsored by Government and the car industry. This way students will learn how to use complex state of the art computerized systems that will help them advance their R&D activities. This is the largest donation of this kind ever received by Colorado State University.

A good eco-system encourages innovation

Indeed, the Fort Collins formula is validated by the commercial success of many of its innovations, including a major redesign of a motor used now by all large pipeline systems. And here we have the evidence that this eco-system created by a good University, the municipal authorities, and the Rocky Mountain Innosphere and other players, (including the Federal Centers for Disease Control, The National Renewable Energy Lab, the Colorado Clean Energy Cluster, and more), really works. Major corporations, including Detroit automakers, are paying attention. They like what they is produced in Fort Collins.

As others will look more closely at what Fort Collins has to offer, this process will attract more talent and more corporate interest.

And there is an additional advantage. Fort Collins is a small town with good living conditions. As locally produced marketing literature proudly proclaims, the city is listed as the 6th best place to live in America. It is featured by Forbes as the 5th best place for business and career, and as one of America’s 20 most economically vibrant college towns.

A success story

All this is good. The passion for research and economically viable innovation is luckily still alive in America. Fort Collins shows what can be done.

But, at the same time, one should be careful. A few success stories –for sure to be recognized and celebrated– do not indicate that this model can be replicated at will. Otherwise we would have hundreds of “Fort Collins-like” places in America. In a word: innovation hubs do not follow a Starbucks model, whereby you find a good formula, and then you scale it up.

In the end, whatever the efforts of well-meaning people, it is all about the creation of the right eco-system, the right blend between passionate academics with a feel for business applications, motivated students, proactive political leaders, appreciative local businesses, keen investors, and a good outreach effort that pitches the locality to relevant new players who can add something good.

How do you create the right environment?

And yet, having the right ingredients is only the beginning. With a bit of humor, a document from the City opens by asking: “What is Fort Collins special sauce“? Whatever they say it is, it is clearly a secret blend that worked well there.

Instead of trying to copy it, it would be good for other localities that already have some of the key ingredients, such as a good university with top-notch researchers, to see how they could create their own distinctive eco-system that will attract keen new players. The good news here is that obviously there is plenty of talent in America, home-grown, or imported.

The real trick is to figure out how you can nurture it. And this is more art than science.

Afghanistan Strategy Not Working – Counter Insurgency Effort Too Vast, Under Resourced – Refocus On Counter Terror, Reduce US Forces

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By Paolo von Schirach

January 22, 2012

WASHINGTON – What Imran Khan, former cricket star and now Pakistani would-be national politician and Jon Huntsman have in common is that they have not done well in their respective quests for political influence. Khan founded a new Pakistani party with no followers, Huntsman could not get any attention in the Republican primaries.

Fight against Islamic insurgents not working

That said, both men have made sensible points about the never ending struggle against militants, (some of them Islamic, others with different shades of motivations), be it the Taliban in Afghanistan or other radicals in Pakistan’s Tribal Areas. Simply put, the current strategy based on counter force: i.e. trying to kill all of them, is not working. The militants/radicals cannot be subdued with a policy relying primarily on military power. Whatever the tactical successes, including the massive use of unmanned US drone attacks, the ranks of the insurgents are easily replenished, and there is no end in sight to this conflict.

Military means do not produce the victory we want

While intelligence analysts may have a much more comprehensive and nuanced picture, the reality that anyone can grasp is that, 10 years plus after the invasion, Afghanistan is still a mess, while Pakistan’s tribal areas are in perennial turmoil. As Khan put it in a January 22 interview with Fareed Zakaria on CNN, you go and kill militants. In the process you kill some innocent bystanders. This sparks more resentment which results in more people joining the militants’ ranks, in a never ending spiral.

In Afghanistan mission creep, without a rationale

Regarding Afghanistan, as Huntsman noted while he was still trying to persuade US voters, in 2001 the US started with a limited counter terror goal: go after al Qaeda and its Taliban supporters. But this quickly morphed into a nation building effort aimed at modernizing Afghanistan, (new constitution, new government, massive amounts of foreign aid, technical assistance), while fighting a reborn general insurgency with very tenuous connections with al Qaeda. So, now we are fighting insurgents, many of them in truth motivated by the fact that we are there, while the US strategic goal should be to disrupt and degrade terror networks.

Extending the mission has been both costly and useless, because Afghanistan is a true bottomless pit that will absorb huge resources without tangible results.

Sudden Swing For Gingrich In South Carolina Shows How Voters Without Deep Convictions Change Their Minds In Just Days – Opinion Changed On The Basis Of TV Debates Performances – It Is All About Clever Delivery And No Substance – Primaries As TV Wrestling?

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By Paolo von Schirach

January 21, 2012

WASHINGTON – What is surprising about the decisive victory by former House Speaker Newt Gingrich in the South Carolina Republican primary is the speed with which public sentiment about him among Republican voters changed so dramatically and so quickly. How can it be that all opinion polls projected a comfortable Mitt Romney victory and then, just days later, Gingrich wins by a huge margin, (40% for Gingrich, only 28% for Romney)? This sudden change of sentiment can be explained only if we agree that sentiment for either leading candidate was and is not deep. unfortunately, this kind of volatility suggests voters’ superficiality and moodiness, as opposed to deep conviction based on solid reasons.

Strongly held views are not changed in just a few days

Indeed, if people polled one wekk before the vote had made up their minds on the basis of solid arguments as to who they would support, it would have taken a major political earthquake to make them change their preference. In the absence of major new facts that radically transform the picture, you do not go from 20% to 40% support in a matter of days.

My conclusion, and this invites some depressing considerations about American voters, is that people do not have deep convictions; and so they are likely to be influenced by the latest sensational development that seem to carry a lot of meaning, while it does not.

All about clever performance in TV debates

In the case of the Gingrich-Romney South Carolina duel, the “facts” that apparently caused this major shift in public sentiment are two TV debates. Gingrich did well, at least by the standards of a TV popularity contest, and Romney did poorly. And so Gingrich shot up in the polls and Romney cratered.

Obama and food stamps

But what were the issues that caused this reversal? In one occasion, Gingrich had a good populist answer to a question by Juan Williams that wanted to paint him as a racist. Whereas, by repeating the claim that Obama put millions of Americans on food stamps Gingrich portrayed the president as a hapless leader incapable of helping those in difficulty with anything more than handouts. So, instead of defending himself from the charge of racism, (most people who are on food stamps are Black), Gingrich made Obama look bad. “Obama is for handouts. I’m for pay checks”, that kind of thing. Clever. But again no discussion here about his policies that would generate economic growth and thus new employment. This is just crafty rhetoric.

Personal marital issues

Gingrich also had a clever reply to an annoying question by John King of CNN about his long divorced second wife clearly aimed at challenging his moral character. Gingrich deftly sidestepped the question by calling it “close to despicable”, while showing disbelief (Oh, My Gosh!) that a public forum aimed at discussing lofty policy issues was manipulated by the “leftwing media” to smear a conservative candidate. This violent and angry counter attack brought down the house. Gingrich got a standing ovation. And yet, what has any of this got to do with his presidential platform? You guessed it: nothing whatsoever. But the crowd cheered, because they saw an angry fighting man, exactly the kind of gladiator you want to send in the arena to deal blows to a demonized Barack Obama. Yes, these are the standards for liking presidential candidates, these days.

Romney hesitant on his tax returns

Romney instead, when challenged about his personal finances and his role as a private equity executive at Bain did not have anything clever to say. In fact he appeared defensive and uncomfortable. Bear in mind that no journalist accused Romney of anything illegal, or even improper. And yet the fact that he wants to delay releasing his tax returns invites the assumption that may be he has something to hide.

Inability to strongly defend his business record

Even worse, his hesitation in defending his professional experience as a business executive looked odd, since Romney has been claiming all along that it is this very business experience that would make him a better chief executive than Barack Obama. But again, even here nothing new. No damning anti-Romney new facts brought in the open.

In the end, no startling revelations about either Romney or Gingrich in these TV debates. It was mostly an issue of presence and delivery. Gingrich was an angry, righteous fighter. Romney was not.

Gingrich resounding victory all about TV performance

And so, in the final analysis, the 20% shift from Romney to Gingrich is not about thei substance of their plans for America; but entirely about their respective TV debates performances. And this is sad and worrisome. What this means is that in today’s America obtaining votes is all about appearance and cleverness, qualities one seeks in entertainers, and unfortunately very little about ideas and plans. Gingrich looked feisty and strong. Romney appeared hesitant and confused. But neither candidate came up with new policy positions in those two debates. Neither candidate revealed in either occasion that they had changed their mind on some fundamental issue. None of that happened. If you look at the candidates programs before and after the TV contests, they are just the same.

Republicans all alike, so the fight is about personality?

So, winning here is all about rather superficial perceptions on the part of the TV viewers about who “looks” strong or clever. One might argue that this is rather harmless. Indeed, if we look at the various Republican candidates closely, the policy differences between them are not that significant. (The exception here is Texas Congressman Ron Paul. But he is in his own world. And he came in fourth and last).

Degrading personal attacks are not harmless

So, it is no wonder that, without substantive issues on which to fight, this process turns into a personality and likeability contest. And this may very well be harmless. Except that it is not. On top of the role played by media in the debates, the intense desire to win now allows every possible low blow, every possible personal attack about the character and morality of the opponent. And so this becomes a very personal, very public and frankly very degrading shouting match with a divided public cheering one or the other.

Political process turned into low level entertainment

In the end a fickle public, as South Carolina showed, can change its allegiances in a matter of days. But, in all this, a political contest supposedly about serious plans and policies is beginning to resemble a made for TV fake wrestling match: low level entertainment; but harmless because everybody knows that it is all for show.

Except that this primary season was not supposed to be silly TV entertainment interspersed with personal animosities. This was supposed to be an integral part of a process leading to the selection of a presidential candidate. And look what we’ve got instead. Not a high note in the life of this democracy.

Rick Perry Says That Turkey Is Run By “Islamic Terrorists” – He Also Added That Its Standing In NATO Should Be Reviewed – How Irresponsibly Ignorant Can a Presidential Candidate Be? Apparently There Is No Limit

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By Paolo von Schirach

January 17, 2012

WASHINGTON – The only mildly reassuring thing about Texas Governor Rick Perry running for the Republican Party nomination is that his chances are slim. How this misinformed man managed to become the Governor of a large state is a mystery. His latest really, really stupid statement is about Turkey’s Justice and Development Party that according to Perry established a Turkish Government that may perceived as run by “Islamic terrorists”. Was this some kind of slip, an unfortunate misstatement? Did Perry mean to say something else?

Turkey run by Islamic terrorists?

Well, no. Wolf Blitzer of CNN in a January 17 interview gave Perry ample chance to correct this outlandish claim. But no, Governor Perry repeated it. And he supported it on the basis of the fact that there are many “honor killings” in Turkey: homicides that are treated with leniency because the killer supposedly acted to defend the family’s honor. Perry finds this abominable. And, quite frankly, so do I.

But what do “honor killings” have to do with “Islamic terrorism”? Perry went on talking about Turkey’s support for the Palestinians in the Gaza Strip who are governed by Hamas. And we know that Hamas engages in terrorism. But does all this amount to a Government in Ankara being run by “Islamic terrorists”? Is Turkey al Qaeda on steroids? Is this another version of the most militant Taliban?

Not a NATO member in good standing

In the CNN interview Perry also opined that the US should review Turkey’s NATO membership and cut down the billions of foreign aid dollars that Turkey gets from USAID. And so, in just a couple of minutes Perry managed to call Turkey a terrorist country, while he recommended the review of its status as a NATO country, at the same time manufacturing the fact that Turkey gets billions of US foreign aid dollars –a complete fabrication, as Turkey is barely mentioned as a US foreign aid recipient, with just a few million dollars, while Egypt, Israel, Afghanistan and Pakistan get billions.

Ron Paul says silly things, Perry makes stuff up

Look, one thing is to have outlandish foreign policy positions, as Congressman Ron Paul does. Paul would like to do away with most US foreign engagements, having adopted a very restrictive view of the US national interest. Paul, a fellow Texan, also says silly things, (something in the water down there?), but usually he does not manufacture his own facts.

Governor Perry does. Look, there is plenty to criticize about any Government run by people who openly profess to be inspired by their religion, be it Islam or Christianity. I am very much in favor of secular governments. But to say that, since Ankara is governed by an Islamic Party, Turkey is now run by terrorists is really too much. And again, even assuming that the religiously inspired leaders do treat ”honor killings” with leniency, (something they should be openly criticized for), this does not make them terrorists.

Governor Perry is ignorant

Governor Perry is a clumsy fool, terribly ignorant about truly basic facts. He extrapolates and makes connections that are totally meaningless. In doing so, he managed to carelessly offend a key NATO ally, prompting a resented Ministry of Foreign Affairs of Turkey to issue a sharp statement, followed by another statement by the US Department of State that unequivocally reaffirmed Turkey’s critical role as a key US ally. Nice work, Governor.

People running for president should know be knowledgeable about the world

And, worse yet, apparently Perry does not even have anybody around advising him to rephrase silly utterances that only show how ignorant and misinformed he is. Sure enough, Turkey does not loom large as an issue in the forthcoming South Carolina Republican primary. But Perry is running for president of the United States. Certain standards should apply. Or may they do not.

Lacking any standards, and the US presidential contest having turned into amateur hour, the only reassuring thing in all this is that Governor Perry, for other reasons, is at the bottom of the polls. Let’s hope he stays there.

Greek Bonds At 34%, While Default Is Considered Now An Option – EU Failed To Fix A Relatively Small Problem, While Moving Slowly Towards A Fiscal Compact – Are The Europeans Serious?

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By Paolo von Schirach

January 15, 2012

WASHINGTON – A sad but powerful illustration of EU indecisiveness about dealing squarely with the whole sovereign debt mess is that more than two years after the explosion of the Greek crisis, most incredibly, the issue is still wide open. In fact it has gotten much worse. As The Financial Times put it on January 14/15, 2012: ” Talks over Greece’s debt restructuring broke down yesterday, making it increasingly likely that Athens will become the first government of a developed country in more than 60 years to suffer a full scale default on its debt.

Many attempts, no final fix

Bill Gross, who runs Pacific Investment Management, (Pimco), the world’s biggest bond fund, agrees: Greece is heading for default, he says. Now, this is some nice record to be proud of. The first bankruptcy of a “first world” nation in modern history. And Greece, let’s remember, is a country supposedly connected with the European Union, the largest trading block in the world, capable, if it wanted to, to deploy significant fire power to protect one of its own.

No point going through the whole story. But let’s just remember that there was one bail out that did not do the trick, followed by another, bigger one that was supposed to stabilize this unfortunate country. Both the EU and the International Monetary Fund led the effort aimed at rescuing Athens. In the meantime, Greece selected Lucas Papademos, a reputable technocrat, as its new, (and hopefully more credible), Prime Minister.

Small country, easy solution?

At the time, most commentators thought that Greece would be fixed, because it is a relatively small country with a small economy. Indeed Greece in 2010 had a GDP of only $ 318 billion, while the entire 27 member strong EU had $ 14.8 trillion and Germany, its most important economy, had a GDP of 2.9 trillion. Surely mighty Europe could take care of its little brother gone astray. Well, it turned out that it could not. Greek 10 year bonds now have an appalling 34% yield, about 32% above German bonds. This alone should tell you something about how successful the rescue operation has been.

Big EU fiscal coordination master plan ?

Sure enough, the EU is supposedly working now on a new comprehensive compact on fiscal coordination, although we already get rumors of built in loopholes aimed at keeping the spending wiggle room that the new agreement is supposed to eliminate.

These tentative steps towards objectives that may very well be politically unachievable, combined with serial failures to fix the Greek problem, convey one basic impression: lack of seriousness.

S&P Downgraded France, Half The Eurozone, Citing Inadequate EU Policies – In Italy Lack Of A Long Term Growth Strategy, While Corruption And Bad Governance Linger

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By Paolo von Schirach

January 13, 2012

WASHINGTON – Only yesterday the international business media sounded very optimistic about the Eurozone. They reported that Mario Draghi, president of the European Central Bank now thinks that the situation has been stabilized. Auctions for short and medium term Italian and Spanish bonds had gone well. Yields are down. So, is Europe finally out of the woods? Well, not so fast. Today, Standard & Poor’s downgraded half the Eurozone, including (supposedly) recovering Spain and Italy. And France lost its coveted AAA rating.

S&P pesssimistic outlook

Beyond the action that was expected and therefore largely priced in by the markets, it is important to read the motivation provided by this key credit rating agency, because it presents a totally unflattering and pessimistic picture of Europe’s ability to eventually get out of this mess. In other words, this S&P credit downgrading most likely is not going to be the last, unless policy makers change course. And S&P does not believe that they will. Here is an excerpt from a much longer S&P statement:

“….Today’s rating actions are primarily driven by our assessment that the policy initiatives that have been taken by European policymakers in recent weeks may be insufficient to fully address ongoing systemic stresses in the eurozone. In our view, these stresses include: (1) tightening credit conditions, (2) an increase in risk premiums for a widening group of eurozone issuers, (3) a simultaneous attempt to delever by governments and households, (4) weakening economic growth prospects, and (5) an open and prolonged dispute among European policymakers over the proper approach to address challenges.

The outcomes from the EU summit on December 9, 2011, and subsequent statements from policymakers, lead us to believe that the agreement reached has not produced a breakthrough of sufficient size and scope to fully address the eurozone’s financial problems. In our opinion, the political agreement does not supply sufficient additional resources or operational flexibility to bolster European rescue operations, or extend enough support for those eurozone sovereigns subjected to heightened market pressures.

We also believe that the agreement is predicated on only a partial recognition of the source of the crisis: that the current financial turmoil stems primarily from fiscal profligacy at the periphery of the eurozone. In our view, however, the financial problems facing the eurozone are as much a consequence of rising external imbalances and divergences in competitiveness between the eurozone’s core and the so-called “periphery”. As such, we believe that a reform process based on a pillar of fiscal austerity alone risks becoming self-defeating, as domestic demand falls in line with consumers’ rising concerns about job security and disposable incomes, eroding national tax revenues…..”

S&P identified systemic flaws, more downgrades to come?

So, according to S&P, despite the great optimism after the latest EU summit, policy measures taken so far are insufficient. Worse yet, there is a failure to recognize that the crisis is largely due to lack of competitiveness resulting in economic weakness. There is lack of understanding that austerity alone, without credible growth policies, makes matters worse because it sucks even more resources from anemic economies.

Beyond the polite formal language, S&P downgraded many Eurozone countries because the EU policies aimed at solving this more than two year long crisis do not add up. Which is to say that the plethora of EU summits and solemn declarations and unity pledges are inadequate and not credible. Amazingly enough, after all this time, the EU has yet to attack the problem in a convincing way. (Translated in simple language: they do not not how, or they are too afraid to take bold steps). Hence this raft of downgrades.

Italy’s outlook is not good

But let’s look at some specifics. Let’s look at Italy as a good illustration of a half baked plan. In the Fall, when the situation was dire, the ethically challenged perennial Prime Minister Silvio Berlusconi was forced out of office, for the good of Italy. In his place comes a dignified non politician: Mario Monti, President of the prestigious Bocconi University in Milan, former EU Commissioner and internationally respected economist. This change at the top alone was supposed to inspire markets as they would finally see a serious person in charge. To his credit, Monti and his technocratic government of non political experts, went to work on some more austerity measures aimed at showing lenders that Italy is serious about cutting spending.

A growth strategy?

But after Monti did that, all observers started asking about his plan to kick start growth in a stagnating Italian economy. Well, there is no real plan. Sure enough, there are some initiatives at liberalizing access to professions and economic activities. But even timid talk about introducing real labor mobility was met with ferocious labor unions’s reactions. No, sir. Our coveted right to life time employment is not for discussion. And liberalization efforts are met with equal resistance from all those who stand to lose equally coveted rent positions based on restricted access.

Corruption lingers

Worse yet, the old and time tested Italian bad habits are still there. As soon as Monti came into office, a major political scandal linking parties, partially state owned corporations Finmeccanica and public contracts exploded. Most recently, Carlo Malinconico, his very own undersecretary to the Prime Minister, (the equivalent of a Cabinet Secretary) , had to resign because of a cloud of suspicion regarding shady past dealing with questionable economic entities. And the Italian Chamber of Deputies just refused to lift the immunity protecting one of its members, Nicola Cosentino, from prosecution for alleged connections with the Casalese clan, part of Camorra, Naples’ most powerful criminal organization.

With all this, no wonder that Italy has very poor ratings on corruption from Transparency International, while it scores badly within the World Bank’s ”Doing Business” tabulations that rank all countries on the easiness to conduct routine economic operations and on the efficiency of public services that should support business activities.

The spread between German and Italian bonds

And, Mario Monti wonders why Italy is forced to pay more than 6.5% interest on its 10 year bonds, while Germany pays less than 2%? The answer is simple. Because Italy has bad governance and low ethical standards. The country is systemically weak and there is no sign that this will improve. Simply put, in the short term the government can raise taxes an d reduce the deficit, as it did. But if this is all the ammunition they’ve got, the battle is lost.

Just a few notches ahead of a Banana Republic

With all due respect for Monti’s personal integrity and skills, he is governing a country just a few notches ahead of a Banana Republic. In order to have meaningful growth, (and that means at least double the miserable 1% that Italy had in the last few years), in this super competitive, globalized world you need good governance, excellent public services, modern policies, first class entrepreneurs and flexible, adaptable labor markets. I see none of that in Italy and, Monti’s reform efforts notwithstanding, a slim chance of making any of this happen. Hence the S&P downgrades and the almost 5% spread between Italian and German 10 year bonds.

Romney As “Vulture Capitalist”? – Nasty, Negative Ads In The Republican Campaign – Manipulation, Distortion And Character Assassination Are Now The Norm

[the-subtitle ]

By Paolo von Schirach

January 12, 2012

WASHINGTON – Alright, in case you missed it, would-be US president Mitt Romney is an unprincipled, calculating slime ball who will change opinion on key issues every hour, if that suits his political calculations. He has no soul and he does not believe in anything. Except that he does. In fact, he pretends to be a conservative; but he is a moderate, in truth a dangerous liberal. He says he is pro-life; but he consorts with the abortion crowd. He wants to nationalize health care and he did raise taxes as Massachusetts Governor. (In noting this, what is incredible is that in the 2008 campaign the very same Romney was recognized by all –left, right, media– to be the conservative in the race, challenging John McCain from the right. But no, now we are told by the other GOP contestants that he is an abominable liberal, disguised as a conservative).

Romney as vulture capitalist

But we are not done, yet. What gets the cake is that this turncoat, this wishy washy closet liberal, at night sheds his human mask and turns himself into a vulture capitalist, cruelly preying on poor unsuspecting victims. Yes, when Romney was in business at Bain, this all his investment company did. They bought corporations, stripped all the assets and then let them die, causing misery to so many families. This is how this horrible creature, (wait a minute, wasn’t he supposed to be a liberal?), made all his dirty money, Ladies and Gentlemen.

And the funny thing is that these tirades are not coming from anti-capitalist leftists. No, this is all from hard core GOP conservatives who piously argue that there is good, ethical capitalism that takes care of people and then there is the robber baron kind embraced by evil doer Romney. And this ridiculous and malicious junk passes for “political debate” in America, these days. I mentioned Romney as target here. But he has done exactly the same to former House Speaker Newt Gingrich in Iowa.

Going “negative” is alright

That said, what is even worse is that there now a general, if passive, acceptance that this scurrilous style of political campaigns is simply ”the way politics works in America”. Yes, of course, candidates “go negative” against one another, and this is what they produce. Nothing wrong with that. This is how the game is played.

Really? I think that it is awful. It is degrading for all who participate and for the American voters who should be supposedly enlightened by this manner of presenting positions and conducting a campaign. Imagine some innocent soul coming from a country that just got democracy and who thinks that America is the model to follow because it is still carrying on the tradition set by Jefferson and Franklin. He comes here to watch our electoral process, and he sees..this.

Of course you will never get real civility in politics. But, without infringing any first amendment protected rights of free expression, somebody should ask for higher standards. At this stage anything goes –literally. And all this is protected speech, therefore untouchable.

The media as enablers

Fine. No censorship in America. But it is sad is to see the media essentially fanning the flames. From their perspective, this stuff is outrageous, therefore juicy, and so let’s talk about it; let’s raise the volume and broadcast it as much as we can. Headline: “Gingrich accuses Romney at Bain of grossly unethical asset stripping practices”. Really? Is that a fact? Let’s have our panel discuss it.

Very few commentators will come forward and say publicly that this conduct is shameful and that a political contest such as the Republican primaries must be held with higher standards. No, on the contrary, commentators argue and debate as to how smart and how clever it is to ”go negative” and on what, based on the what the polls indicate to be the prevailing public sentiment. So, instead of advocating higher standards, the opinion leaders, the very people whose job is supposedly to shed light and create context for their TV audiences, are just enablers.

The American public accepts this

And the public? Well, the public accepts this. And this is also very sad. So, to put all this together, we have a national political campaign that is more and more about character assassination and ad hominen attacks based on distortions so huge that amount to total fabrications, and nobody protests. In all this, the bigger wallets tend to carry the day, because they have the power to buy more air time and thus endlessly blast opponents with whatever slime they have got.

What kind of democracy?

Somehow I think that, as a Nation, we could do better. Democracy is more than just securing the right of free speech. How the right to speak freely is used says a lot about what kind of democracy we like to have.

While We Have Political Gridlock In Washington, American Metro Areas Are Laboratories Of Smart Innovation – Metros Create Centers of Excellence, Build Global Ties, Explains Bruce Katz Of Brookings

[the-subtitle ]

By Paolo von Schirach

January 11, 2011

WASHINGTON – The bad news for America is that Washington is both dysfunctional and paralysed these days. Intense political animosities combined with divided government guarantee stalemate. The people’s business will not be done in the Nation’s capital. We shall have to wait until the November elections to see if, depending on who is president and who controls both branches of the legislative power, there will be a chance to have a modicum of political cohesion that will allow any policy agenda to advance. Conversely, if we get divided government once again, then we can expect more of the same.

American Metro Areas as centers of excellence

But the good news is that, this sorry national government mess notwithstanding, there is still interesting policy innovation in America. But it is taking place mostly outside of Washington’s reach, and it is happening in spite of federal government’s inaction. Bruce Katz, Vice President of the Brookings Institution in Washington DC and founding director of the Brookings Metropolitan Policy Program tells this interesting story in a thought provoking, insightful op-ed piece in The Financial Times, (God bless the United City States of America!, January 11, 2012).


The basic fact is that American Metro Areas have turned into laboratories of innovation, attracting new players, such as branches of technology universities and anchor investors, while establishment Metro-to-Metro relationships with counterparts around the world through which, leveraging their strengths, American Metros can offer a range of distinctive products and services refined in their respective regions through deliberate investment programs.

Cities as catalyst of growth

The most notable shift these days is that the new American Metro Area economic model is to attract strategic investors and innovators –be it advanced manufacturing in Cleveland or clean technologies in Seattle– as opposed to a model of cities as mostly entertainment and consumption outlets. This way a metro area, be it New York, Minneapolis or Los Angeles, is not just a place to have fun and consume wealth, but it becomes a venue for productive investments that in turn attract enterprise and clever people who want to be part of a buoyant growth environment.

As Katz puts it, Metro Areas build on their existing strengths to attract new investments. It is a locally driven bottom up approach. And smart immigrants play a critical role. While they build their enterprises in American Metros, they help them develop strategic ties with their places of origin in other countries. And so a web of economic, trade and cultural connections is created and nurtured.

Global Metro-to-Metro exchanges

All this leads to a growing international Metro-to-Metro trade, outside the normal channels created and managed by central governments. In fact, large cities establish their representative offices in other cities around the world that function as informal embassies and as trade missions. As Katz writes, this global network may soon look like a modern day “Hansa League”, the association among German Baltic coastal cities that fueled very profitable trade relations that benefited all members.

Metros leading an American renaissance?

This way innovative American Metros can be a significant part of a world network of Metro Areas involved in a variety of mutually advantageous exchanges. Despite the recession and the destruction of wealth that followed it, US revitalized cities can lead an American renaissance.