15 things the Greek austerity vote won’t accomplish

Posted By David Rothkopf Thursday, June 30, 2011 - 12:00 PM

The Greek parliament's austerity vote accomplished one thing. It advanced the possibility of a deal that will pump enough cash in the direction of Athens for the country to pay off its creditors. Here's what it will not do:

It won't guarantee that Greece sticks with the plan that's approved. Riots in the streets illustrate that the people of Greece are deeply unhappy with what they perceive as a foreign-imposed squeeze. They can force a political reversal that leads to a policy reversal.
It therefore won't ensure that Greece remains a part of the Eurozone…just as this is only the latest flare up in an on-going crisis, others in the future could produce the breech that that Europe's financial leaders have been trying to avoid.
It won't help Greece -- or the other countries of Europe's southern tier -- avoid a protracted recession. Which in turn will mean protracted tension between those countries and the rest of the EU.
It won't address the structural defects in the EU that are a far greater threat to the future of the Eurozone than the profligacy or over-borrowing of the Greeks. Until there is fiscal union to go with monetary union, the Euro is a currency backed only by huge reserves of denial and delusion.
It won't fix the serious problems that exist in other even more important Eurozone countries -- notably Spain. With a real estate market that looks scarily like that in the United States circa 2007 and its own serious fiscal issues, Spain is the problem this latest anticipated Greek bailout is intended to avoid. But as history has shown with Iceland, Ireland, Portugal, and Greece 1.0, in the Eurocrisis, the "Lehman Brothers moments" seem to come and go...and then come right back in some new form.
It won't address the fears of the Germans (not to mention the French, the Finns, the British and others) that they are now permanently on the hook for the missteps of politicians in far off lands with different cultures, different agendas and a seeming appetite for moral hazard. The folly of bureaucratically willing a "union" into existence is thereby again revealed. It took the United States 100 years and the bloodiest war in human history to come to grips with the idea that the separate states were in it together for better or for worse. Europe has had the wars, but it has yet to accept the concepts of a truly shared fate and common responsibilities.
It won't address the systemic flaws that allow major financial institutions to be the enablers of profligacy while they turn a blind eye to the true credit-worthiness of their clients, cash their commission checks, and then work to make money on the messes they have helped create.
It won't help Europe deal with the demographic crisis that may be even bigger than its financial crisis…a crisis caused by aging societies and shrinking labor pools that will be increasingly unable to support retired populations. One expert with whom I recently spoke said that for Europe to seek to make up the gap by embracing legal immigrants -- something many countries in the region are extremely reluctant to do -- they would have to increase the rates of immigration by over 30 times what they are today. Not going to happen.
It won't help Europe deal with what is going to happen on the immigration front ... the problem signaled by Denmark's decision to close its borders in contravention of the EU's open borders accord. Take tensions between the member states and add the demographic time bomb cited above and Europe faces a looming cultural crisis (which will be seen by many as a labor market crisis) and which could trigger more nationalism and the further rise of the right.
It won't help Europe deal with its increasing dependency on Germany, the clout that will give the Germans...and the leverage and role that gives the Chinese upon whom the Germans are depending to buy their products. Consequently, a slow down in China ... triggered perhaps by policies designed to contain commodity price inflation in that country...could have big consequences for Europe.
It won't help Europe deal with contagion it might face not only from the likes of China but from the other bastions of developed world economic strength -- the United States and Japan, both of whom are home to political leaders who seem bent on doing everything in their power to make dire situations worse.

It also won't reduce Europe's vulnerability to upheavals in the Middle East and North Africa, address the problems caused by growing dependence on Russian gas that is the direct implication of Germany's decision to shut down its nuclear power generating capacity, address the deep flaws in its common foreign policy mechanisms that have been revealed by the seemingly endless war of "days not weeks or months" in Libya, or somehow address Europe's inability to produce decent pop music.

In short, yesterday's Greek vote may have soothed markets temporarily ... but it is nothing more than the latest effort to treat the symptoms of Europe's ills while steadfastly ignoring the underlying disease.

-/AFP/Getty Images

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EXPLORE:ARAB WORLD, MIDDLE EAST, LEBANON, OBAMA ADMINISTRATION, U.S. FOREIGN POLICY

How would they feel about calling it the not-so-Islamic Republic of Iran?

Posted By David Rothkopf Thursday, October 14, 2010 - 6:10 PM

Mahmoud Ahmadinejad triumphantly tours southern Lebanon and says to cheering crowds of thousands, "The occupying Zionists today have no choice but to accept reality and go back to their countries of origin." He predicts Israel will disappear. Not too far away, families enjoy the happy diversions of the latest tourist attraction, the Magic Kingdom of sectarian warfare called, "Tourist Landmark of the Resistance" in South Lebanon. There they play on captured Israeli weapons and buy souvenir caps and T-shirts.

Earlier this week, the New York Times ran a column by Roger Cohen, in which he asserted that however odious Ahmadinejad may seem, he's really nothing to worry about. Why? Because Cohen doesn't think he is, that's why. Surely, one must conclude, he would dismiss these Lebanon antics -- rabble-rousing at one of the world's most dangerous frontiers -- as more showboating from his favorite "all hat and no cattle" "paper tiger." Pshaw. Silly frivolous Hezbollah-sponsoring Mahmoud.

And then, in the midst of this, comes a rather different New York Times op-ed, this one from Israel's ambassador to the United States, Michael Oren, who offers a calm, well-reasoned, and compelling argument as to why the Palestinians should recognize Israel's identity as a Jewish state. But for all Oren's heartfelt and coolly-argued reason, even coupled with his exceptionally well-turned phrases, nothing he writes makes his case as persuasively as the combination of the provocations of the president of Israel's most dangerous enemy and the efforts by glib U.S. elites to shrug him off.

As unproductive as the Israeli stance on settlements has been the Palestinian stance on the nature of the Israeli state, and its ability to continue operations as conceived and sanctioned by the United Nations nearly six and a half decades into its modern existence is just as unconstructive and indefensible. The core concept of the existence of two states, central to any real and lasting solution of the Israeli-Palestinian dilemma, requires acceptance of the sovereignty and self-determination of those states. Neither side can expect a hand in the shaping of the societies within their neighbor's borders.

Indeed, the concept of accepting Israel involves accepting its Jewishness or, as Oren points out, it invites the demographic negation of virtually everything associated with Israel's own concept of itself thanks to Israel's commitment to democracy. To fail to acknowledge this would be the same as accepting the idea of a Palestinian state, but then imposing upon it borders that made its economic self-sufficiency impossible.

Peace requires moving past such destructive argumentative approaches. Clearly, we are not near to that point. Which is why Mr. Ahmadinejad is hardly "all hat and no cattle." His grandstanding and inflaming crowds on Israel's borders with the language of obliteration is not just rhetoric. It is part of a systematic and thus far effective effort to exacerbate dangers and, not secondarily, to prolong the misery of the Palestinian people whose right to a free, independent state created in their own image is, of course, every bit as great as that of the Israelis.

JOSEPH EID/AFP/Getty Images

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The 10 Black Swans of summer

Posted By David Rothkopf Friday, May 28, 2010 - 2:20 PM

In yesterday's post, I noted some of the most relevant developments in the political world that've occurred recently. But we're hardly out of the neck of the woods. The summer of 2010 promises to be an ... interesting time.

As promised, here's an idea of the potential Black Swans to come:

1. Wars of Summer, Part I: The Koreas

As we've seen just in the past couple of days, "engagement" doesn't seem to be doing the trick with North Korea. When you have two countries that have been pointing guns at each other for half a century and one of them is run by the kind of guy who makes Mahmoud Ahmadinejad look like Albert Schweitzer trouble is always just a Dear Leader moodswing away. When one of those countries starts firing torpedoes at the other, that raises the temperature a bit ... and when that same country has a diplomatic tantrum because its neighbor actually doesn't like having its ships sunk, you get a sense of how off-balance and dangerous the whole thing is. (You also get dictionary editors everywhere rushing to insert North Korea's reaction into the official definition of chutzpah right where "burying your husband in a rented suit" used to be.) While most people assume this is just one of those periodic Korean peninsula hiccups, you never know.

2. Wars of Summer, Part II: Somalia, Yemen, etc.

These places are just two examples of plenty where conditions are chronically horrible and getting worse. If you're going to worry about the Koreas where the stakes are high and both sides would pay an unimaginable price for a conflict, don't rule out conflicts in places where everyone has a gun and life is cheap.

3. Wars of Summer, Part III: Israel, Syria, Lebanon

Speaking of places not to rule out, over the years few places have proven themselves more reliable breeding grounds for warfare than the borders of the state of Israel. And tensions are rising along the most northern of these as we speak. The Israelis are worried about growing stockpiles of missiles being deployed in Lebanon, new missile capabilities in Syria and Iranian mischief in both places. Of all the possibilities for tensions turning to a shooting war this summer, this one may top the list. And, what a great distraction it would make from Iran's nuclear issues (or what great cover for an Israeli strike against the Iranians who are paying for the missiles and underwriting Hezbollah trouble-makers in Lebanon and elsewhere).

4. The Other "Big Spill"

While Washington works itself up into a lather over the spill in the Gulf, it effectively ignores a much bigger catastrophe. A recent NPR report indicated that the amount of man made pollutants that have flowed into the Gulf during the current crisis flow into the air every 2 minutes or so. That's 30 crises like this an hour. 360 a day. Over 1,000 a month. That means this summer there will be 3000 crises like this offshore drilling calamity ... and throughout this period the likelihood that the U.S. government or the world move any closer to addressing this much larger, much less photogenic disaster is pretty close to zero.

5. The Financial Crisis They Call "The Big One"

Remember the financial crisis that took down Bear Sterns? Now we look at that as only prelude. Remember the one that took down Lehman, Merrill and AIG? Perhaps we'll look at that as just the appetizer. Because with the world economy now trembling at the thought of further deterioration in the Eurozone, it wouldn't take much to send us into territory that was unimaginable even two years ago. Likely? No. But possible? Well, let's see, Japan has a debt to GDP ratio that is worse than most of Europe's. What if the markets sour on lending them any more money? What if that takes down some of their banks and they start calling in IOUs and cut lending in places like China? Tim Geithner said this week that overall China's economy is not a bubble. Maybe so. But that doesn't mean it doesn't have some pretty big bubbles in it (see: real estate).

6. The Dem Rebound

The big political story in the United States is supposed to be the losses Dems will suffer in mid-term elections in November. Big time members of the punditocracy are calling for a big swing to the right, a likely Republican take-over in the House and even the possibility of one in the Senate. But by the end of the summer, once campaigns have started in earnest, the loony, fringy, dysfunctionality of the "just say no" party will be revealed and the big surprise U.S. political story of the year will start to take shape. The Dems may have modest losses in November, but it won't be anything like the washout the chattering classes expect.

7. Argentina's Surprise Victory

Despite Lionel Messi's dominance on the soccer field, Argentina won't win the World Cup this year. That'll be Spain. But maybe as the summer ticks on a few more people will start to realize that having done everything wrong and utterly alienated the financial system by telling the big banks to take a hike a few years ago, Argentina is actually having something like a recovery worthy of a tango. Oh, all is not rosy to be sure, but take a look at its per capita GDP in purchasing power parity terms. It just passed Chile to be number one in Latin America (according to Latin Business Chronicle). Between this and the U.S. dollar strengthening despite the fact that the U.S. has also done practically everything wrong (and China's flourishing for years despite its penchant for, how shall we put it, well, communism) who knows... this could be the summer that moral hazard makes its long awaited big comeback.

8. Someone Writes the Truth About Financial Reform

This is the least likely black swan on this list. But it is possible that once financial reform passes later this summer and is signed into law that someone will note that "the most sweeping financial reforms since the Great Depression" actually don't amount to much when it comes to fixing the problems we face. Mortgage defaults, unregulated global derivatives markets, unintended consequences of interconnectivity of markets, lack of global regulatory mechanisms, failure to address the trading culture's perversion of finance, etc... this is like the health care bill and Beatlemania: not the real thing, just an incredible simulation.

9. The White House Gets Humble

Ok, maybe I'm wrong. Maybe this is the most improbable of the Black Swans. But the folks in the White House are good people at heart and smart ones. Sooner or later they will realize that their mixed, incomplete record in office trumps the historic nature of their victory and that a little humility is in order ... if not because they feel that way then because by alienating even their most enthusiastic supporters they are doing themselves great political damage. As for the American people, they would do better with more realistic expectations. We all want Washington, Lincoln or Roosevelt whenever we elect a president. But the vast majority of the time we get Chester A. Arthur. Bush was Chester A. Arthur. Clinton was Chester A. Arthur. And in all likelihood Obama will end up being Chester A. Arthur.

10. Iran Cooperates

Ok, never mind. This one is most likely. But the dangerous twist here is that cooperation from Iran is actually just them buying time to move toward their goal of possessing nuclear weapons technology. The only thing that will stop them from such a stalling course is if they are much further ahead of schedule than we think and that the big black swan of this summer will be the announcement that the world's largest state sponsor of terror will actually have gone nuclear.

ATTA KENARE/AFP/Getty Images

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