DEATHS OF REFUGEES CROSSING TO EUROPE FROM AFRICA

Below is a copy of a statement I cosigned, with other members of the European Council on Foreign Relations.

These are deaths of people reduced to desperation by conditions in their home countries. In many ways, they are like the people who left Ireland during the Famine here in the 1840’s, but with the added dimension of their being subjected to physical violence as well as starvation and disease.

They did not make the decision lightly to try to come to Europe, and  had  to undertake long and extremely dangerous overland journeys within Africa itself, before they ever get to the point of embarkation. 

They are people with a strong work ethic. As a prosperous continent, Europe has a moral and legal obligation to help these refugees. The burden should be shared across all EU states,

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“ Statement to Europe’s Heads of State and Government:

While migration is a complex problem that needs a comprehensive and long-term approach, the first priority for European leaders must be to stop the death toll that is a stain on the conscience of our continent. The events of recent weeks show that stopping search and rescue has not dissuaded migrants, but vastly increased the numbers of deaths. According to UNHCR, over 1,600 migrants have died in 2015 while trying to make the crossing. We call on the EU Heads of State and government to go beyond the ten point plan issued earlier this week in immediately restoring an expansive search and rescue operation in Mediterranean waters, with a level of funding and a mandate that match the humanitarian emergency that confronts us. 

The wave of migration from North African shores is fuelled by turmoil and conflict across the Middle East and the Sahel, and amplified by the breakdown of state authority in Libya. The EU is rightly committed to do what it can to help reverse these developments, but there will be no easy or short-term solution. 

In the meantime, the EU must accept that attempts at migration will continue on a large scale, and develop a range of measures that reflect our values and responsibilities, including: 

• Legal channels for asylum seekers through facilities in countries of origin or transit, to reduce the numbers carried by illegal traffickers; allowing individuals to apply for asylum from a country other than their own.

• Set up a system of relocation and redistribution within the EU, to reduce the weight of the burden falling on a handful of member states.

• Policies to secure the accommodation of refugees in non-European countries, as long as they cannot return to their countries of origin, through the construction of safe and decent facilities in third countries.

• Develop cooperation with third countries to destroy the boats used by traffickers.

• Launch a cooperative law enforcement effort to break trafficking networks, confiscate their assets and prosecute those involved.

Measures such as these are necessary to ensure that the EU’s approach to the complex challenge of migration is sustainable, equitable and humane. However the starting point of the European response to the recent surge in migrant deaths must be a recognition that we cannot allow such terrible events to persist among those trying to reach our shores. “

WHAT HAPPENS IF GREECE DEFAULTS? HOW DISHONEST “ANTI AUSTERITY“ RHETORIC MAY LEAD EUROPE TO AN AVOIDABLE DISASTER

If Greece defaults on its debts, and leaves the euro, the effects will be very hard to calculate. 
Nobody really knows what will happen. Nobody even wants to talk about it.

But a very serious precedent will have been established.

That precedent, that of a euro zone country defaulting on its debts and leaving the euro, will eventually place upward pressure on the interest rates charged to small euro zone countries with substantial debts. Financial markets are emotional and erratic and often fail to make distinctions that should be made.

The effect of a Greek default may not, of course, be felt immediately, thanks to quantitative easing, but the underlying precedent will tend to corrode of confidence in government bonds generally and confidence in the irreversibility of the euro, and confidence is the basis for all money. 

Maintaining confidence, and doing what is just and rational in an abstract sense, are not always the same thing.

Just as in the private sector, a risk of not being repaid in full usually leads to a higher interest rate...a risk premium.

For example, if , for legal political or cultural reasons, banks  have difficulty getting hold of properties, given as security for loans that are no longer  being serviced by  borrowers,  they will tend to charge a higher interest rate on such loans. The gap between the rate of interest banks charge, and the rate they pay for funds, will be wider than it would be if they knew they could easily realise their security, if a borrower defaults.

The rules for capital adequacy of banks, set by global banking regulators, have treated government bonds held by banks as risk free, and this has meant that banks buy a lot of government debt. If, thanks to a Greek default, government bonds are no longer risk free, this will call these rules into question. That , in turn, would make government  borrowing more difficult.

The present Greek crisis was not inevitable. It is the result of a decision by Greek voters.

A few months back, it looked as if the Greek economy was about to start growing again, admittedly from a low base. For example, as recently as August 2014, Deutsche Bank forecast that the Greek GDP would grow by 2.2% this year. This was to be almost twice the forecast growth for the euro zone as a whole, and second only to the forecast growth for Ireland of 2.3%, which has proved to be a big underestimate in the Irish case. 

Greece had put in place a lot of structural reforms, under the previous Greek government, more than almost any EU country by some measures. The labour market reforms improved the competitiveness of the Greek economy, but the full benefit of these reforms was not achieved because of cartels protecting some professions and services. The reform programme of the previous government was not a “failure”, but it was delivering results too slowly for an impatient electorate in Greece.

40% of loans in the Greek banking system were non performing, but the banks were not dealing with this. Greece was suffering a brain drain.

That prospect of 2.2% growth in the Greek economy was blown away by the uncertainty caused by the Syriza election victory, and the nationalistic rhetoric and grandstanding that surrounded it. This led to a flight of confidence, and money, from the Greek banking  system and an unwillingness of foreigners to invest in Greece as long as the political uncertainty persisted. It did nothing to slow the brain drain.

The new government threatened to undo the labour market reforms and to make it more difficult for Greek banks to deal with non performing loans.

The  structural reforms, put in place by the previous Greek government, had begun to work, when they were derailed by politics. 

Syriza won office on a false platform which asserted that the previous structural reform programme had been a “failure”. It had not been a failure, it had  brought Greece to the pont where its forecast growth rates for this year were second best in the euro zone. It had simply taken longer to work than it would if international conditions were more favourable, and if it had been extended as vigorously to  the professions, and to tax evasion, as  it had been to employees.

Syriza  convinced Greek voters the “austerity” was a “failure”, without saying what those terms meant in practice, but implying instead that others should pay Greece’s debts for it, as part of some sort of moral obligation the rest of the world had to Greece. This was naive. Greeks forgot that other EU nations have electorates too!

If one is spending more than one is earning, “austerity” is inevitable, sooner or later, unless you can achieve a rate of economic growth that is faster than the growth in your state’s obligations. That was always going to be difficult for an ageing society like Greece, with an under funded  pension system, and a  disproportionate amount of early retirement.

The tragedy is that modern election campaigns have become shouting matches, that do not lend themselves to the sort of informed discussion that would have  led voters to see, in time, the fallacy of policies that imply that one can persistently consume more than one is earning, without eventually facing  “austerity”.

There is some ground for hope. A deal can be reached.  Because of the nature of  its support base, Syriza may have more freedom to tackle tax evasion and  cartels in the professions, than the previous government. This could get Greece back on a growth path, so long as  Syriza does not attempt  to reverse  the reforms  the previous government HAD put in place.

THE IRAN NUCLEAR DEAL........AND OTHER MATTERS

The fact that a framework agreement has been reached with Iran on its nuclear programme is really good news, at a time when there is little good news around.

Back in 1963, many people believed that, within 10 years, there would be up to 25 states with nuclear warheads.

The fact that this has not happened is quite an achievement.

Iran denies that its programme is designed for military purposes, but this is hard to believe.

Iran is surrounded by nuclear armed powers, Pakistan, India, Israel, and Russia, and has had a bad relationship with another nuclear power, the US.

The framework agreement may lead to a  final comprehensive agreement.

A robust “anywhere, anytime, no notice” inspection regime will be the key to the credibility of any final agreement. 

In the United States, critics of the framework agreement have yet to come up with a convincing alternative to it.

Some seem still to favour targeted military action against Iran, notwithstanding the poor outcome of the intervention in Iraq.

SYRIA

Meanwhile the tragedy of Syria continues.

220,000 people have died and 8 million people are forced from their homes.

Ancient religious communities, that had survived since the time of Christ, are being destroyed. 

Nobody seems to have any idea how to stop the slaughter

If the international community can reach a deal on the Iranian question, they should turn their attention to Syria.

The initial goal  in Syria should be a truce with forces in place, rather than regime change.  A frozen conflict is better than a hot one.

THE BRITISH ELECTION

It is depressing to watch parties in the British election promising to increase spending on health, while simultaneously saying they will not increase most taxes. 

Britain still has a structural budget deficit of 2.3% of GDP, one of the highest in Europe. In other words the British Government is committed, on present policies, to spending more than it receives. That gap will eventually have to be closed.

Even more worrying, the wider British  economy is not in balance. 

The current account deficit is 5.5% of GDP. In other words, Britons are spending 5.5% more abroad than they were earning abroad.

The current account deficit was the indicator that should have warned policy makers that Ireland was heading for trouble, in the 2004 to 2007 period, but it was ignored. It looks as if it is being ignored in Britain today.

WILL QUANTITATIVE EASING LEAD TO TROUBLE?

Negative interest rates, brought about by quantitative easing, make it very hard for private pension funds to make an adequate return, unless they shift to riskier investments.

But riskier investments are, well , how should I put it, riskier! And pension funds should be risk averse.

Likewise, banks have to maintain their capital rations by buying bonds at the artificially low interest rates now obtaining.

If banks buy a lot of bonds at very low interest rates, and then interest rates rise, these low interest rate bonds will be devalued. That will hit the balance sheets of those banks very hard. Could it make some of them insolvent?

WHY IS THERE NOT MORE INVESTMENT WHEN MONEY IS SO CHEAP?

The big problem in the economy is not the cost of money, but the lack of investment in  productivity growth by firms across the economy. 

At present low interest rates, one would expect a lot of borrowing to invest, but it is not happening. Why? Are firms waiting for consumers to start spending, or is it the other way around?

Or are we running out of growth potential in mature economies? 

These are the sort of issues that should be the subject of debate in election campaigns, rather than competing promises  to spend more, and tax less, all at the same time!

HOW WILL THE 21ST CENTURY TURN OUT?

In 2009, I read “The next 100 years – a forecast for the 21st century” by George Friedman

George Friedman is the founder of Stratfor, a Texas-based strategic intelligence consultancy advising many major US corporations. Although described as a conservative Republican, his views would mirror those of many foreign policy realists in both parties. 

He assumes that military and economic power will determine the future. As he puts it, “anger does not make history, power does”. 

Looking back at the book six years later, it appears to have been prescient in many respects. 

He argued in 2009  that the United States would remain the dominant global power for the rest of the 21st century, because of its huge natural resources of coal and oil, its geographic immunity from attack in its fortress of North America, and its control of the world’s seas and of space.

Just as England’s strategic goal, as an island nation and a naval power, was to prevent Europe’s unification under one power coalition, America will pursue a similar policy on the Eurasian land mass. It will not want any one coalition – be it of Russia, China, Turkey or Japan – to dominate that land mass.

He was critical of the way American politicians sometimes approached foreign policy. Because America is so powerful, it has a much bigger margin for error than others, and it sometimes overuses that luxury. He said America is “adolescent in its simplification of issues, and in its use of power”. In general, I do not think President Obama can be accused of this, but some of his Republican critics can.

Other less powerful countries have less  margin to make mistakes. 

Most significantly in light of current events, he argued back in 2009 that Russia, following the eastward expansion of NATO to within 100 miles of St. Petersburg, was “in an untenable political position” and “unless it exerts itself to create a sphere of influence, it could itself fragment”. This is a credible explanation, offered beforehand, of Putin’s present actions in Georgia and Ukraine.

Both China and Japan he saw as vulnerable, because they are export economies, and they rely on the all powerful US Navy to keep sea lanes open for their exports of goods and their imports of raw material. Since 2009, China has spent heavily on its navy so this prediction may be overturned.

Friedman said that the European Union was a schizophrenic entity, in that its “primary purpose is the creation of an integrated economy, while leaving sovereignty in the hands of individual nations”. The current economic crisis is putting this proposition to the test, and one hopes Friedman will be proven wrong. But he has a point. EU’s states often set ambitious common objectives for themselves, but fail to match them with the necessary central authority.

He argued that there is a divergence of interest between Germany and others who will want easy relations with Russia, and more easterly EU members, who will fear again being sucked into Russia’s sphere of influence. Chancellor Merkel does seem to confronting this dilemma, if reluctantly.

Surprisingly, Friedman did not see China becoming as a great power. This was  because of what he saw as its inefficient allocation of capital, its corruption, its profitless exports and its unhealthy reliance on US consumers to buy its goods. Its one child policy will also mean that it soon will be an ageing society. It appears that the current Chinese leadership in confronting these challenges, but reorienting its entire economy will be a very difficult process. 

Surprisingly, Friedman saw Japan emerging as the major Asian power, notwithstanding its lack of resources and its very elderly population.  I believe this is incredible.  An elderly country cannot be a powerful country.

He ignored India altogether. I believe this analysis of the long-term balance of power in Asia was quite unconvincing.

He saw Turkey emerging as the major power across all the former Ottoman lands from North Africa to Central Asia. Here his predictions are more robust in light of subsequent events.  He argued in 2009 that Islamic fundamentalism will run out of steam because its real target, the liberation of women, is irreversible. Since he wrote his book, Islamic fundamentalism has actually increased in strength, but he is probably right in the long term.

Friedman speculated about the likely conflicts of the twenty-first century – including its wars. He believed the wars will be conducted by unmanned aircraft using high precision weaponry and guided from space. They will be backed up by small numbers of highly equipped infantry. The aim will be to destroy the electricity generation capacity and close sea lanes of the enemy. There will be modest casualties. Wars, he believed, would be limited, and would end with negotiated treaties. Pursuit of unconditional surrender would be off the agenda, because nuclear weapons would make it too dangerous. All this is true of wars between the big nuclear powers, but are hardly true of what we have been seeing in Ukraine, Syria, Iraq and parts of Africa.

Although some of Friedman’s speculations had a touch of science fiction about them, its basic assumptions about the realities of military power, and it’s reach, are credible and sobering, especially for those who might think that neutrality would protect a country from military conflicts.