Japan’s Slow Suicide

WASHINGTON – Japan is slowly sinking. This is due to the impact of many self-inflicted wounds, starting with the collapse of fertility rates. “Civilizations die from suicide, not by murder.”, wrote revered British historian Arnold Toynbee. Considering that not enough babies eventually means the death of a society, his words truly apply to Japan. Indeed, as baffling as this may sound, it is true that civilizations implode for non material causes. Their demise is not due to wars or natural catastrophes. It is about lack of confidence in the future that brings about loss of vigor and optimism.

From greatness to decline

And this is today’s Japan. And what is most remarkable is how fast Japan changed from its role of unchallenged Asian Superstar to yet another “has-been” case. Think about it. Throughout the 1980s Japan was the shining example that demonstrated to the entire world the triumph of “Asian Values”. At that time it was thought that Japan had the skills, the drive and the determination that would have allowed it to surpass America as the leading global economic power.

Not enough babies

But now Japan is one of the best examples of a civilization’s “slow motion suicide”. High debt, massive public spending and slow growth point to a bleak future. While there are many factors contributing to this picture, the most visible is the incredible collapse of fertility rates, (average of 1.39 children per woman) . Very few children and extended life expectancy for older Japanese mean a net population decline (minus 244,000 in 2013), and a society that will soon resemble a giant geriatric ward. And this is not a temporary phenomenon. This decline has ben going on since the 1970s.

Population decline

Indeed, a study by the Japanese Ministry of Health and Welfare indicates that, if the country keeps its present  demographic trends, by 2060 Japan’s total population will go from 127 million down to 87 million, of which 40% will be 65 or older. This is a real catastrophe.

Very few workers, many pensioners

Imagine the implications of this shrinkage. Japan will have a substantially reduced work force, and this is bad news for future economic expansion. At the same time, there will be a need to increase public spending for more and longer lasting old age pensions. Likewise, many more senior citizens mean higher health care and nursing home costs due to the needs of millions of old people who cannot rely on a social safety net provided by large extended families. The sad truth is that millions of elderly Japanese live alone.

Larger welfare programs, more debt

In all this, please remember that Japan already has –today– a monstrous public debt, now 240% of GDP.  A reduced working population will translate in reduced tax revenue, while the state will have to keep or even enlarge all its welfare programs in order to provide for tens of millions of older Japanese. This means even more spending and therefore more debt. And it also means that most of Japan’s financial resources will be devoted to support the elderly. Where will the money for R&D and therefore new economic growth come from?

The government led by Prime Minister Shinzo Abe is aware of all this and it is trying to think about ways to reverse this rapid population decline. But I suspect that there is no public policy “silver bullet”. Of course, a simple solution would be to encourage immigration, on a massive scale. But this is almost unthinkable in a society that does not welcome foreigners. And Japan would need millions of newcomers to stabilize its population.

The role of women

Many think that the key issue is about changing the role of women in Japan. Some believe that if more Japanese women worked, then they would have more babies. However, others argue exactly the opposite. If more young and productive Japanese women could work, then they would postpone marriage and motherhood.

Reinvent Japan?

Ideally Japan would need to reinvent itself. Right now it is a society suffocated by strict social norms, economic rigidities and high taxes. The country would need a real breath of fresh air. Lower taxes and substantial deregulation, plus incentives for genuine economic competition would create a new pro-growth environment for would-be entrepreneurs. If this were possible, who knows, may be more people would marry and have more children.

Shinzo Abe is trying to revive Japan’s dormant economy with  turbo-charged Keynesian policies. Higher spending, cheap money and an artificially depressed currency should boost consumption and exports. Sure enough exports are growing, and the stock market is booming. But the overall economy is doing at best so-so, while the national debt is growing, and the population continues to decline.

This is Japan’s slow suicide.

 

 




Healthy Looking Ethiopians, Unhealthy Americans

ADDIS ABABA – Walking around this large city I notice relatively healthy looking people. In particular, comparing Addis to the USA where I am coming from, I see mostly lean people: women, men, young and old. No overweight children. And this is certainly not an emaciated lot. Being lean here is not about malnutrition. Here in Addis most people are doing alright. They may not be rich, but there are no visible signs of misery and  widespread poverty.

Good habits, good health?

Furthermore, I have yet to see anybody smoking a cigarette. So, there you have it. Healthy looking, lean people makes me think that the average Ethiopian eats in a reasonably balanced, healthy way. A population of non smokers is another plus. Obviously this is an impression, limited to what I see here. But this is a major city, the country’s capital.

Obesity in America

Now I compare this Ethiopian scene to what I see in America, every day. Obese people, young and old, everywhere. And the cause of this obesity is no mystery. It is now well documented that a very large number of Americans have unhealthy personal habits. They eat too much of the wrong stuff. Obesity is so widespread that it is now recognized as a national epidemic. And obesity is the root cause of cardiovascular diseases and type 2 diabetes, among others. These are chronic illnesses that usually require lifetime (expensive) treatments.

Americans still smoke

Beyond that, notwithstanding a decades long and fairly successful anti-smoking campaign, millions of Americans still smoke. And certainly this significant minority of smokers will contribute to the incidence of cardiovascular diseases, to the number of people affected by pulmonary issues, and lung cancer.

Staggering cost of chronic diseases

To put all this in a broader context, TIME magazine reported that 86% of the $3 trillion that the US spends on health care every year goes for the treatment of chronic diseases. Both figures are astonishing. We spend an enormous amount of money on health care, and this is shocking. Even worse, most of it goes to treat preventable chronic diseases.

And how do you prevent most –extremely expensive– chronic diseases? In large measure, by adopting a healthy life style. In a word, by doing what most Ethiopians I see walking around Addis Ababa seem to know how to do, at least intuitively. Eat healthy stuff, not too much of anything, and do not smoke.

Developed America?

We think of ourselves as a leading developed nation, constantly breaking new ground in medical science. And yet we waste almost 3 $ trillion each year by treating the self-inflicted wounds caused by bad habits we refuse to change.

And this is our modern culture? A culture that cannot even teach people what a healthy diet is?

Healthy habits help prevent diseases

And so the irony here is that while Ethiopia probably spends a small fraction of its national wealth on health care, (I am not saying that this a good thing across the board), at least the personal habits of its people create a powerful barrier against the spread of the (costly) chronic diseases that afflict millions of Americans.




Terrorism Is Rooted In Ideologies – It Is Not About Poverty

WASHINGTON – The White House convened a mega-summit on Countering Violent Extremism, with the participation of 65 countries. To accomplish what? Nothing. Absolutely nothing. This excessively large number, 65 governments, big and small, relevant and irrelevant, means that there is no serious purpose.

Serious purpose?

And by “serious purpose” I mean the intention to reach or deepen agreements on intelligence sharing, threat assessment, joint operations protocols, concerted actions, and more. These are the serious things you talk about with may be three or four motivated players at the table. Not at a convention with 65 government representatives.

Verbal contortions

This event is a modest public relations effort that will change almost nothing. Even worse, Obama’s carefully crafted speeches in which he talked about violent extremists but refused to say that this extremism is rooted in some interpretation of Islam shows a reluctance to admit that our enemy is an ideology, and not some generic expression of destructive violence that has no particular foundation or goal.

Look, I fully admit that saying clearly that “We are fighting people who believe in a radical interpretation of Islam” is not, by itself, a recipe for victory. But not saying it is an indication of confusion that breeds more confusion.

It is all about poverty

And this becomes really clear when Obama and Secretary of State John Kerry, in addressing the audience, espoused the shopworn and misleading “poverty-is-the-root-of-terrorism” theory.

“Yes, Ladies and Gentlemen, it is all about poverty and lack of hope. If these young men could get an education and then a job, then they would not be tempted to subscribe to extreme ideas whereby justice can take place only through the violent destruction of those who protect the old order.”

Create growth and this will stop extremism

Therefore, according to Obama, here is the remedy. The societies that have seen the growth of extremism within themselves should engage in enlightened reforms. They should promote development, prosperity and jobs.

And this will be the end of extremism.

This is a bland, and almost meaningless explanation. Of course, as in every broad generalization, there are elements of truth. Poverty can create tensions; and tensions may find political vehicles, some of them based on violent ideologies. But to say that there is a direct cause and effect relationship between poverty and the terrorism phenomenon we are dealing with today is absurd.

Poor countries, Muslim and non-Muslim, with no terrorists

if this were the case, then Bangladesh, a Muslim and extremely poor country, should be a hot bed of terrorism. And we should see a lot more terrorists come from Indonesia, a large Muslim country in which millions are poor.

Finally, we should have plenty of terrorists among the 172 millions of Muslims in India. But we do not.

And how about the non-Muslim poor or very poor Hindus? Why aren’t they terrorists? If we say that terrorism is about poverty and not about religion or ideology, then in many if not most poor countries we should find plenty of terrorists. But we do not.

Terrorists are not poor

Furthermore, we know that many known Muslim terrorists were not at all poor. The Saudi 9/11 hijackers were not poor. Osama bin Laden, the first major prophet of the renaissance of the Islamic Caliphate, actually came from a rich, influential Saudi family.

The notion that the leaders or the rank and file of subversive movements or revolutions are motivated by poverty and injustice is just factually incorrect. T

he fact is that there are people who subscribe to certain millenarian ideas because they  appeal to them.

Jack up the USAID budget

However, if Obama really thinks that the root of terrorism is poverty, then here is an idea for his administration.

Supposedly the US Government fights poverty around the world through development assistance. This is carried out mostly via USAID, the US Agency for International Development.

If the President really thinks that poverty is our enemy, then multiply the USAID budget by 10. Right now, if we pool together all the foreign assistance accounts, we come to about $ 20 billion spent every year by the Federal Government. Some money; but not a lot.

In contrast, we spend about $ 525 billion for our national defense. But we are told by the President that this security threat originates from poverty, not from military forces arrayed against us.

So, if the problem is poverty, jack up the USAID Budget, and get the extra development assistance funds by cutting the Defense Budget.

Having identified the source of the disease, this should be the Obama cure: a lot more money for development. Therefore, as a result of this smart reallocation of resources, we shall have less poverty, fewer radicals, and far less terrorism.

The nature of the problem

The fact is that is that fighting a violent ideology is really difficult. And it becomes even more difficult when this ideology is embraced by small loosely connected groups, spread over many countries, that are focused on plotting violent actions.

Sadly, the Obama “poverty theory” is just a pre-cooked, meaningless platitude. However, even those who really want to find a way to stop young people becoming radicalized are wasting their time. There is no way to do this, especially in the short-term.

Over many years it may be possible to create more constructive intellectual models that hopefully will be embraced by many who are now convinced that there is no alternative to jihad. But this will take a long time.

We need intelligence

For the moment, this terrorism battle has to be fought mostly with good intelligence. That said, while there are many small groups operating in the shadows in several countries, the self-proclaimed Islamic State offers an important physical target. It is an entity of sorts. And this entity is also a propaganda tool. Its very existence has become a recruiting instrument. IS should be annihilated. The sooner, the better.

Convening summits in Washington in which participants are lectured by Obama about the need to end poverty and injustice, is silly. While there are other targets, the Islamic State is not Osama bin Laden in a secret hide out. It is a large, organized entity, operating in the open. It should be destroyed.

Of course, this would not be the end of terrorism. But such a defeat would diminish the appeal of the idea.




Obama’s De Facto Amnesty To Illegals Stopped By Texas Judge

WASHINGTON – Andrew Hanen, a Texas Federal Judge, issued a preliminary injunction against Obama’s presidential order that shields millions of illegal immigrants from federal prosecution. Many legal scholars believe that this decision will be upheld by a higher court. If this is so, the de facto Obama amnesty is dead.

Obama wins

This would be a huge black eye for President Obama, who obviously thought that he could get away with this. Still, whatever the eventual final judgement of this issue, from a political stand point Obama wins.

Republicans are anti-immigrant

He wins because he will portray himself as the national leader who at least tried to help millions of people. He will look good among the Hispanics, while the Republicans who concocted the legal challenge will look bad. From this vantage point, it does not really matter what the Constitution says. The Republicans will look anti-immigrant zealots who will exploit every legal opening to make life miserable for millions of people who live in fear of deportation.

Give a political response to Obama’s action

Last year, after President Obama announced his decision not to pursue millions of illegal immigrants, allowing them to stay in America without facing any threat of deportation, I wrote that the Republicans needed to find a constructive political response to this. I expressed the hope that the Republicans would not do what they have done: initiate a legal challenge without putting forward any good proposal aimed at legalizing, on way or the other, millions of illegal immigrants.

I believed then and I believe now that to focus only on a legal challenge against this presidential unilateral action (that clearly stands on shaky constitutional ground) was a bad idea. Yes, this is a country of laws. Yes, most likely what Obama did was and is unconstitutional.

Prosecutorial discretion?

The principle of “prosecutorial discretion” invoked by Obama as a justification for his presidential order not to prosecute millions is accepted practice in America. But only in individual cases. Nobody ever believed that it could be applied in a sweeping fashion to literally millions of law breakers.

Therefore, it is true that giving Obama a pass on this over reach of presidential powers would have created a very bad precedent. Imagine another President who, tomorrow, at his or her discretion will decide not to enforce this or that law, and then also invoke “prosecutorial discretion” as a justification.

Legal challenge without political initiative

However, attacking the President for his over reach, without proposing anything at all to solve the immigration problem Obama said he wanted to address, makes the Republicans look bad politically.

Now it looks as if they are using the legal challenge against Obama’s action as a pretext. What they really want is to keep persecuting millions of people, many of whom have been here in America for years, or even decades.

Look, most immigrants and their friends are not constitutional or legal scholars. At the end of all this, they will only know that Obama was trying to help them, while the Republicans did not want them to be helped.

This is the way this matter is going to look politically. By invoking high principles of separation of powers that indeed do say that Presidents must apply the law of the land, the Republicans show that they are mean-spirited. They have no intention to help the immigrants. They want to the full enforcement of existing laws to beat up the Hispanics. Therefore, they are heartless, bad people.

Where is the Republican immigration reform law?

It is not intrinsically wrong to challenge the President’s abuse of executive power. But, in this context, it is alright only if at the same time the Republicans would put forward their own balanced and compassionate reform package to solve this gigantic problem of illegal immigration that demands a humane solution.

The fact of the matter is that America will never, ever deport 11 or 12 million people. This being the case, let’s be reasonable. Let’s find an orderly way to give these illegal immigrants a clear, practical path to legal status.

Obama’s executive action was poorly conceived, and most likely it will be voided. But its policy intent was good.

It is up to the GOP to put forward its own humane solution.

 




Media Hype About ISIL Not Helpful

WASHINGTON – The international media are not helping our understanding of the actual extent of the Islamic State threat. They are now serving the function of echo chamber, amplifying ISIL’s scary propaganda messages, (beheadings, a Jordanian pilot burnt alive), spread via the internet. And this is very unhelpful, as it contributes to create the rather silly notion of this unstoppable, mighty Army of truculent “True Believers” on the march to world conquest.

Intelligence failure

It is indeed sad that Western intelligence obviously under estimated ISIL and its potential, first in Syria and then in Iraq. This was a major blunder. But now Western media want to imply that barbarians who cut the throats of a few prisoners, and then expertly package the whole thing for internet distribution, almost by definition must be capable of “anything”.

Not the Wehrmacht

This is patently absurd. ISIL is fairly strong and resilient. Its military forces are indeed capable of holding on to large pieces of weak and divided countries, such as Syria and Iraq. They are now making inroads into Libya, taking advantage of the fact that this is yet another sorry-looking and essentially failed state. ISIL’s ability to exploit the opportunities created by weak countries torn by conflicts is indeed a problem.

But this is not the German Wehrmacht smashing Poland, and then turning West to defeat a large French army in a matter of weeks. This is not the Japanese Imperial Army conquering Manchuria.

A relatively small military force

The Islamic State has financial resources and manpower. We know that. But it does not have an invincible force at its command. Most estimates talk about 30,000 to 40,000 troops. Well, Turkey, a country that could become engaged in the fight because of its proximity to Syria, has an army with 700,000 soldiers, (active and reserve forces combined). The fact that ISIL, this most improbable creature, is still operational tells us a lot about Western and Arab timidity and indecisiveness. It is not a function of the Islamic State’s  inherent strength.

Yes, we could and should do a lot more to “degrade” and eventually “defeat” ISIL. Doing just a little bit here and there with a few bombing raids is harmful to our credibility.

Not an existential threat

Nevertheless, let’s keep things in perspective. ISIL is indeed fueled by a dangerous, toxic millenarian ideology. But it is not an irresistible military tsunami.

I would love to see more cohesion and more determination in Western military responses, whatever the best tools may be, so that this menace will end soon. But this is not an existential threat.

Stop rebroadcasting propaganda

World media should stop rebroadcasting ISIL propaganda videos whose objective is to scare the general public, while creating interest among would-be jihadists.

They should instead help the public gain a realistic perspective on a threat that is serious, but not as deadly as ISIL’s leaders would like us to believe.




Russia Is Still Europe’s Main Energy Supplier

WASHINGTON – Despite the economic sanctions caused by its military intervention in Ukraine and the horrible impact of collapsed oil prices on a weak Russian economy, Putin’s Russia is still the largest energy supplier to Europe. This ability to affect the supply of a most basic commodity is Russia’s major political advantage vis-a-vis Europe. Think about it, even the Kiev government, openly at war with Russia-funded rebels in the East, has to negotiate deals about gas supplies from Russia, its enemy.

No alternatives

The problem is that at least in the short or medium term not much can be done to change this situation. And the Europeans are certainly not helping themselves very much.

Theoretically, some alternatives could be explored. There are glimmers of a possibility to create new natural gas supplies in some European countries that have deposits of shale gas. But a combination of bad policy choices and outright Russian meddling are preventing any further exploration of these opportunities.

The French government, in its wisdom, banned fracking, the technology necessary to exploit the shale gas deposits that France seems to have. Bulgaria, apparently because of political pressures from Moscow, also banned fracking. Therefore, no Bulgarian gas that may compete with Russian supplies.

The UK tries fracking

Only the United Kingdom seems to be willing to go ahead and exploit what may be considerable domestic shale gas deposits. But in Great Britain the problem is a vociferous environmental movement strongly opposed to carbon energy in general, and therefore also to shale gas exploration.

Some gas will come through Turkey

Well, there is a bright note in this rather disappointing scenario. As reported last year by the Turkish newspaper Hurriyet Daily News, (Turkey, Azerbaijan break ground for Trans-Anatolian Gas Pipeline), at least Turkey is doing something to create alternative gas supplies to Europe. The Ankara government, working with its counterparts in Azerbaijan and Georgia, launched the South Caucasus pipeline, the first component of a longer pipeline that will carry natural gas from Azerbaijan on the Caspian Sea all the way to the Mediterranean, via Turkey. The Turkish component of this large project is called TANAP, or Trans-Anatolian Gas Pipeline.

Diversified energy supplies

Along with the existing Baku-Tbilisi-Ceyhan (BTC) oil pipeline that carries Caspian oil to the Turkish southern port of Ceyhan via Georgia, this new project now underway will create some energy supplies diversification for Europe. It is something. But unfortunately not enough. Energy poor Europe still has to buy most of its oil and gas from Russia.

US gas to Europe?

In the future, America may be able to export some of its abundant natural gas to Western Europe. But this will take a long time. And it will not be in quantities large enough to replace Russian gas supplies. In any event, at the moment there are not enough Liquefied Natural Gas (LNG) terminals in the US and in Europe that could handle large volumes. Building these terminals is quite expensive and it takes years to complete them.

Russia wins

At the end of the day, as odd as this may seem, this beat up Russia, run by oligarchs and kleptocrats, with the ruble falling, and billions of dollars leaving the country, still wins.

 

 

 

 




Finally Kiev Admits Defeat

WASHINGTON – The net outcome of the Minsk (Belarus) negotiations about the future of Eastern Ukraine is that Ukrainian President Petro Poroshenko (with much delay that unnecessarily added to Ukraine’s misery) finally acquiesced to give up the Eastern Provinces. Assuming no major trouble in implementing the cease-fire or other problems, when the dust will finally settle, for all practical purposes, the East is gone. 

Secession

Of course, the agreement says no such thing. But it does say that the Kiev government agrees to grant large autonomies to the rebel-controlled territories, including the ability to conduct business with Russia through their own channels. There are also face-saving provisions including the indication that Ukraine will once again control its external border. (I am not so sure how).

Leaving all the details aside, the substance of this deal is that Petro Poroshenko has agreed to grant de facto independence to the East. This is what “autonomy” means in this context. This is a defeat for Kiev.

No options

However, as I wrote in previous pieces on this matter, there is no reasonable alternative outcome for this crisis. The rebels have an “issue”. They are ethnic Russians. They do not like the Kiev government. They get help, money, arms and more from the Russians who are close by, on the other side of the border.

Ukraine gets almost nothing from Europe or America, unless you want to mention meals ready to eat, blankets, and socks (yes, socks, this is not a joke) from the US Government.

The truly sad thing in all this is that this inevitable end could have been arrived at months ago. In fact, the proverbial “writing” was on “the wall” from the very beginning of this crisis in the East of Ukraine that followed the Russian annexation of Crimea.

The East is gone

Going forward, even if this agreement fails, (if there are major problems in implementing the cease-fire and what not), the scenario is still the same.

Ukraine is outgunned and outspent. The Russians in the East want to secede. And Putin intends to assist them. There is nothing that Poroshenko can do –all by himself– to reverse this.

Focus on the economy

Let me repeat what I sad before. This “amputation” is painful. But it is in the end unavoidable. And Kiev needs to move on. If this civil war has been costly and messy, fixing the national economy of an impoverished country will be much harder.

Therefore, better start now!




Kissinger: We Are Managing Proliferation, Not Preventing It

WASHINGTON – Sometimes good thinkers manage to correctly summarize a complex issue highlighting its most critical feature.

Kissinger on Iran’s nuclear ambitions

Here is how former Secretary of State Henry Kissinger recently characterized the ongoing nuclear talks between Iran and other Powers (known as the “P5 + 1”, that is the 5 permanent members of the U.N. Security Council, plus Germany) led by the US. In his prepared statement delivered during his testimony on January 29  before the Senate Armed Services Committee,  chaired by Senator John McCain, Kissinger stated the following:

“Nuclear talks with Iran began as an international effort, buttressed by six U.N. resolutions, to deny Iran the capability to develop a military nuclear option. They are now an essentially bilateral negotiation over the scope of that capability through an agreement that sets a hypothetical limit of one year on an assumed breakout. The impact of this approach will be to move from preventing proliferation to managing it”. (Italics in the original written testimony).

We are in a new era

The shift described by Kissinger may appear a nuance to the lay person. But it is in fact most dramatic.

Think about it. We started with the goal of preventing Iran from acquiring any nuclear weapons capability. But now the negotiations are about how close Iran will get to the nuclear weapons manufacturing threshold. And we know full well that, once we legalize via an international agreement Iran’s status as a nuclear threshold state, it will be relatively easy for Iran to break out, and become a full-blown nuclear state, when it chooses to do so.

Kissinger knows this. And so does everybody else, from Tehran to Jerusalem, to Cairo.

The goal of creating an international regime (centered on the Non Proliferation Treaty, or NPT, of 1968) that would prevent states from acquiring nuclear weapons was noble, but inherently difficult.

Making nuclear weapons is complicated; but not impossible. Remember that this is old technology. It was developed more than half a century ago. Many people understand it and master it these days.

President Obama is doing his best to delay Iran’s military nuclear program. But the agreement that most likely will emerge from these negotiations, as Kissinger stated, is about managing proliferation, and not about preventing it. Non proliferation as we understood it is essentially dead.

This is a very bad development. Most likely, it will create a new trend. Expect more states to follow Iran’s example.




Optimistic Mood In Athens?

WASHINGTON – News reports from Athens indicate that the Greeks are feeling much better these days. Since the recent elections that brought the far left, anti-austerity Syriza party into power the mood has improved. People look more confident. The coalition government enjoys sky-high popularity, 70% in some polls.

All is well in Athens

It would appear that to most Greeks the “We shall not pay you” approach embraced by Prime Minister Alexis Tsipras regarding Greece’s catastrophic debt looks proper, realistic and reasonable.

And there is more. The new Greek government now stated that it intends to collect war reparations from Germany on account of its brutal military occupation of Greece during WWII. (Never mind that the whole issue of war reparations from Germany had been settled a long time ago).

We are rich!

So, here we go. All of a sudden, a miracle! Greece is doing well. It will not pay its debts to Europe, at least not all of them, and not according to a schedule agreed upon by the previous Greek government (that obviously was not looking after the best interest of the suffering people). And now it stands to get a fat financial settlement check from the Germans. What do you know. How fast things can change. From debtor to creditor, overnight!

Fantasies

Look, to some extent I understand that the Greeks may want to cling to childish fantasies. But I hope they wake up soon. Improvident Greece will not get out of trouble only because it elected a populist Prime Minister who promised during the campaign that he knows how to fix this gigantic debt issue.

Just like before?

Hoping to get some relief here and there from the much maligned creditors troika (EU, ECB, and IMF) is one thing. But the Greeks now seem to really believe that austerity has been abolished by their vote. They seem to believe that by electing a new government their debt somehow vanished. Therefore, the civil servants who lost their jobs because of budget cuts will get them back soon. People will retire early, with full benefits, just like they used to. All entitlements will be restored, and all will be well.

As I said, we can all be excused for engaging at times in wishful thinking. For sure, all of us would like to imagine that unpleasant troubles we are facing will miraculously vanish. But this Greek collective denial seems to have pathological proportions.

Greece is bankrupt

On its own, Greece is totally  bankrupt. Its debt is now 175% of GDP. Unemployment is at 25%. Youth unemployment is at 50%. The economy is weak. The country’s very economic and financial survival today, and for many years to come, will be tied to the good will of its European creditors. (The total EU credit is $ 210 billion of the $ 340 billion Greece owes now). The notion that after having taken all the money from Brussels (EU) and Frankfurt (ECB) the Greeks now have the option of not paying back, without any consequences, is ludicrous.

But this seems to be thinking in Athens. After all, the new Prime Minister was elected on the basis of his campaign promises to fix all this. Therefore, the Greeks expect him to negotiate a good (and certainly painless) solution with the European creditors.

I suspect that this euphoria will not last long. The EU partners may be willing to extend terms and relax some conditions. May be. But they are not going to forgive this massive debt. And I believe that even the option of forgiving some of it is out of the question.

The impact of a Greek default

That said, the prospect of a Greek default, very real now, is not at all pleasant. The portion of the Greek debt engineered via the Eurozone bailout mechanism is $ 210 billion. Germany is on the hook for 27% of that. And that is $ 57 billion. France’s share is $ 42 billion. And Italy would have to absorb a loss of $ 37 billion.

If Greece goes bankrupt, staying within the Eurozone or after a messy exit, these EU countries have lost their money. Germany may be able to absorb the blow. But shaky France? And almost equally indebted Italy? I am not so sure.

 

 

 

 




Time For Kiev To Give Up Eastern Ukraine

WASHINGTON – In a more civilized world the rights of the very large ethnic Russian minority in Eastern Ukraine would have been properly safeguarded by Ukrainian laws prohibiting any form of discrimination on the basis of language or ethnicity.

Crazy world

But this is a crazy world. Russian President Vladimir Putin falsely claims that his Russian brothers and sisters in Ukraine are oppressed by a hostile Kiev government now dominated by neo-Nazis and Russia haters. Because of this unfolding tragedy, he explains, the people in the East resist the Kiev government. And it is understandable, he adds, that ordinary Russians, including Russian soldiers currently on vacation, (he really said this), rushed in to help their embattled cousins. Well, this is laughable, of course. But this is the official Russian narrative. “Embattled ethnic Russians in Eastern Ukraine, fighting for their own survival”.

Of course, we know that, even if it were true that ethnic Russians living in Ukraine are not treated fairly, there are many other ways to address and resolve this issue without starting and fueling a bloody insurrection.

Pretext

However, none of this matters. Using the Kiev unrest that led to the dramatic change of government in Ukraine as a pretext, now Putin is bent on extending Moscow’s reach to large ethnic Russian minorities in Ukraine that were cut off from the Motherland after the implosion of the Soviet Union. His public justification, as indicated above, is that these ethnic Russians are oppressed by the anti-Russian government ruling Ukraine.

America will not get involved

In principle, the whole thing is totally preposterous. In practice, however, unless Washington wants to get into a direct confrontation with Moscow that may escalate to uncontrollable levels, there is almost nothing that can be done to reverse what Putin has already accomplished: a de facto secession of Eastern Ukraine from the rest of the country.

As I said, short of America threatening Russia directly, there is nothing that can be done. And it is clear that President Obama has no intention to be the self-appointed defender of international law by intervening to protect Ukrainian territorial integrity against Moscow’s indirect aggression.

Arming Ukraine

The idea that America should give heavy weapons to the Ukrainians, so that they could fight back, would make sense only if Washington were prepared to escalate, up to the point of forcing Moscow to commit massive Russian forces to the conflict in order to avoid a humiliating setback.

And then, what to do we do when Moscow escalates? We back off? Or do we escalate even more? Unless we are committed to win, whatever the risk of provoking a general conflagration, giving “some arms” to Ukraine would simply prolong the conflict without changing the final outcome.

Bankrupt Ukraine cannot win

These are the facts. Ukraine is essentially bankrupt. Its military forces are weak and incapable of regaining control over the territories seized by the Moscow-backed rebels. Washington will not help. The Europeans, with Germany in the lead, have no intention to help Kiev with military assistance. They want to help with negotiations and diplomacy, so that this unpleasant conflict will go away.

No help on the way

This being the case  –that is no military help coming– and given Russian military superiority, the only sensible solution is for Ukrainian President Petro Poroshenko to admit defeat and give up the Eastern Provinces.

This is sad. It really means that international rules mean nothing here. Facing aggression while the rest of the world looks the other way, a weak state has to raise the white flag simply because it has no other option. The so-called “International Community” is not engaged. Nobody is really interested in any effort aimed at reaffirming the value of supposedly sacrosanct principles whereby national borders, cannot be modified through the use of force.

“Fight till the end?”

As I said, there is no other solution, except for what I would call “slow suicide” on the part of the Ukrainians. The Kiev government, poor and under resourced, may decide that it will keep on fighting this Moscow-inspired insurrection “until the end”. The Ukrainians cannot possibly win, but they will bleed to death trying.

This may look noble. But it is foolish.

Give up the East, begin rebuilding the economy

The only sensible solution here is to give up these territories inhabited mostly by ethnic Russians. This is the only way to stop the hemorrhaging of precious resources that should be devoted to the reconstruction of the Ukrainian economy.

The sooner Petro Poroshenko and his government recognize this simple, if unpleasant, reality, the better. Ukraine has already wasted huge resources on an unwinnable conflict.