EU: Grexit or Dexit ?

 July 19, 2015

Some seventeen centuries ago, emperor Diocletian realized that the Roman empire had grown too big and too diverse to be ruled from a single centre. Diocletian therefore decided to split it in two, the west ruled from Rome by a fellow army officer and the east controlled by himself. The east-west division became more or less permanent during the reign of Constantine. It was a wise administrative decision, which saved the integrity of the empire for another hundred years.

Fast forward to the present. The European Union, built on the ruins left behind by World War II, is experiencing a similar if not identical predicament. The citizens within its 28 member-countries, are growing more and more disenchanted with the Union’s leadership by the day. Truth be told, the EU has become much too big, too culturally diverse and politically unresponsive to continue to be viable in its present form.

One of the chief characteristics of the current political arrangements in the EU is Germany’s hegemonic status over its economic and political structures. As we can all recall, the Union was formed in the wake of WWII in order to prevent yet other military conflicts on the continent, involving again mainly Germany and its neighbours. To that end, an initial nucleus of six states (France, Italy, West Germany, Belgium, the Netherlands and Luxembourg) created an economic union which helped all of them rebuild their war-shattered economies and prosper. The victorious powers led by the United States forgave Germany most of its debts, opened up their markets to German-made goods and supplied the seed capital necessary (Marshall Plan).

For six decades the European Union grew, expanding southwards and eastwards, while the German economy became a powerhouse on the continent. In the wake of the fall of communism and the implosion of the USSR, West Germany had reunited with East Germany, and started to dominate not only the continent’s economy but also its political and – since the introduction of the euro- its monetary affairs.

The latter developments have unfortunately proved to be an unmitigated disaster for all its other EU partners. In truth, events over the last decade – the financial crisis, the sovereign debt crisis, austerity policies – have conclusively proved to many specialists that Germany, with a group of northern Protestant countries, has a vastly different set of economic responses and values, which are at odds with those prevalent in the southern part of the EU.

Thus, while Germans and their allies highly value a strong currency, low or zero inflation, low or zero budget deficits, a culture of thrift and the continuous reduction of public debt, countries like Italy, France and Spain – not to mention Greece, Portugal or Ireland – would prefer a significantly weaker euro, flexible budget deficit targets, higher inflation, the resorption of public debts through economic growth instead of austerity measures, and a massive reduction in the unemployment rates affecting them.

So far, Germany has succeeded in forcing all EU members to adopt its “six-pack” and “golden rule” and to maintain inflation close to zero. The outcome of these policies on the continent has translated into economic stagnation, social strife and a never-ending obsession with austerity and public debt reduction measures.

The current Greek crisis has merely highlighted the folly of such policies, as well as the unshaking determination of the German leadership to push the entire continent towards economic ruin. To avoid this, which could only lead to an USSR-type implosion of the Union, it would be more rational for Germany to leave it, reintroduce its beloved deutschemark and form an economic and political union of its own in the north of the continent. In other words, for the European Union to be saved from impending collapse, a “Dexit” option – and not “Grexit” – is what is currently needed. (Greece would not be able to threaten the survival of the EU the way Germany does.)

A Dexit should by no means be an acrimonious affair, or a disorderly one. Angela Merkel herself had alluded to the possibility of forming a Baltic Union as early as 2008. Starting with 2012, economists such as Alfred Steinherr, Anatole Kaletsky, Michael Mross, Aleš Michl, Kenneth Griffin, Anil Kashyap, Guillermo Nielsen, Ashoka Mody , Rolf Weder and Pedro Braz Teixeira have started recommending Dexit as the solution to the EU’s current economic and political predicament. The advantages of Dexit are clearly explained in a Time article from 2012:

 

“By contrast, if Germany were the one to leave, the euro would be the currency that falls in value, relative to Germany’s new national currency and also to the dollar. The weaker European countries would get to keep the euro but still get the devaluation they need, which would reduce their labor costs far less painfully than through wage cuts. In addition, the value of their outstanding debt would decline along with the value of the euro, and they would be more likely to be able to make payments on that debt and avoid defaulting.”

 

Viewed in this light, the third Greek bailout about to be concluded is rather of secondary importance. What is now needed is to start planning for an amiable and orderly Dexit, one which would benefit all EU member states. Failing to agree with the partition of the current Union into two entities – namely, an European Union centered around France and Italy and a Baltic one centered around Germany – could only result in a violent, USSR-type disintegration, accompanied by social strife, the revival of nationalism and xenophobia on our continent. Fortunately, such a partition will not lead to military conflict between the two sides further down the track, as NATO will still be there to prevent any such developments.

The SCO's Landmark Ufa Summit

 July 11, 2015

On the 9th and 10th of July 2015, the Shanghai Cooperation Organization (SCO) has held a landmark summit in Ufa (Russia), its 15th to date. Ufa has simultaneously hosted the BRICS summit, which was meant to further strengthen economic ties between its five emerging economic powers.

Founded in 2001 by Russia, China and four Central Asian republics, the SCO had until recently as its main objective fighting “the three evils: separatism, extremism and terrorism”. At Ufa, the six founding members have for the first time agreed to allow for the expansion of the organization by offering full membership to both India and Pakistan. Thus the US geopolitical push to see India included into a balance-of-power mechanism in Asia aimed at containing China has been thwarted. Accordingly, the United States will remain with a handful of allies in Asia, from the Philippines and possibly Vietnam to its old-time ally Japan.

The expanded SCO covers a huge geographical area which includes Eurasia, China and the entire Indian subcontinent, with a combined population in excess of 3 billion. Four of its members (Russia, China, India and Pakistan) are nuclear powers and have large, well-equipped military forces. During the summit the leaders of member-countries, new and old, have expressed their willingness to also enhance economic cooperation in strategically important sectors such as transport and energy production/distribution.

The State Department officials have reacted to the new developments in Asia by declaring that the United States do not consider Russia or China as “existential threats” to the Americans.

 

Turkey: Time to Mend Diplomatic Fences

 December 24, 2014

Turkey has today announced its budget for 2015. Total spending is estimated at 225 billion dollars, whereas revenue is expected to be around 216 billion USD, leaving a deficit of only 9 billion USD. The biggest items on its expenditure list are health and education, with 38 billion dollars earmarked for each, which is a significant amount by any standards. Moreover, despite the turmoil in the Middle East and stagnation in Europe, Turkey’s economy is expected to grow by 3.5 percent next year. (source: Hurriyet)

 

The good news about Turkey’s good economic performance is overshadowed by a war of words between the Turkish government and some EU officials about what is essentially an internal political affair involving journalists from Zaman. Unfortunately, every now and again EU officials feel compelled to lecture condescendingly to their Turkish counterparts on various issues, forgetting the fact that the Ottoman Empire had successfully ruled a large territory that is today part of the Union (as well as the Maghreb and the Middle East) for a few hundred years and that its army could only be stopped in its tracks in 1683, while halfway to Dover.

 

On the diplomatic front, however, President Erdogan and his government have to finally come to terms with the brutal demise from power of the Muslim Brotherhood in Egypt. Truth be told, the Islamic brand of democracy promoted after the 2011 Arab revolutions by Turkey has not really caught on in North Africa or the Middle East. This is not to say that such a development will never happen in the future, but so far Arabs have shown they are less pragmatic and more radical in their approach to political Islam than the Turks, hence the fiasco.

 

Still, Egypt remains the largest Arab country and therefore Turkish authorities cannot continue to reject the normalization of diplomatic relations with Al-Sissi, distasteful as this might be in practice. The current state of diplomatic relations with Egypt could only insulate Turkey within the Arab world, an outcome that neither Mr Davutoglu, the prime minister, nor President Erdogan would benefit from.

 

Over the past few years, the promotion of Islamic values within Turkey has intensified to levels that remind us of the aggressive promotion of secularism by Kemalist authorities last century. Most politicians in Europe reject the Islamization of their own continent and do by now understand that Turks – likewise – are entitled to refuse European values and to affirm their own instead. Still, the forced Islamization of Turkish society could defeat the purpose, if the policies and the methods used to implement them prove too hasty or too harsh. In such an event, all the solid achievements of the AK Party over the past 12 years are at risk of being overshadowed by social, religious or ethnic tensions which have the potential to tear the Turkish social fabric apart.

 

Austerity and Inequality Undermine the EU

 December 17, 2014

The numerous geopolitical tensions in 2014 in Ukraine, Syria or Iraq could not obscure the fact that the most worrying problems in the world today are economic, and not geopolitical, in nature.

The total failure of austerity policies within the EU is by now the most pressing concern of governments from the North to the South of the continent. Hailed a few years back by European conservatives as a miracle cure to the sovereign debt crisis, austerity policies have not succeeded in reducing the public debt of Spain and Greece or their 25+ percent unemployment rates. Moreover, the much-touted “golden rule” enforced by Germany via Brussels has only made matters worse, bringing the EU-wide economy to a standstill. The spectres of stagnation and deflation are haunting the chancelleries of most EU countries, as is a Japanese-style extended period of economic malaise.

Another major concern for EU policymakers is the widening inequality in incomes, favouring the rich and severely punishing the European middle classes and the poor. According to the German Office of Statistics, even a seemingly successful country like Germany has 20.5 percent of its population in danger of falling into poverty, whilst the EU-wide average figure stands even higher at 24.5 percent. The bleak economic situation experienced by nearly all EU members has recently generated huge street protests and general strikes, from Belgium to Italy and from Greece to Spain. The reduction in the standards of living of the middle classes – whose existence is endangered by the past few years’ myopic austerity policies – combined with the spectre of rising poverty, have motivated students, union members and pensioners to come together in record numbers in an effort to block or even reverse such misguided policies.

In countries like Greece and Spain, radical political parties of the left such as Syriza and Podemos are in the process of undermining political support for traditional parties of the right or of the left, which stand discredited by years of enforcing economic policies that had not produced the expected results. In countries like France, the UK or Hungary, voters’ preferences are also deserting traditional parties in favour of nationalist political parties such as the Front National, UKIP or Fidesz. To add insult to injury, a deal between the EU’s social democrats and conservatives has resulted in the appointment as Commission President of Jean-Claude Juncker , ex-prime minister of Luxemburg, which is the EU’s capital of the tax-avoidance industry.

The failure of austerity policies and the growth of inequalities have not, however, made a lasting impression on German politicians or determined them to rethink their approach to solving economic stagnation and high unemployment in the EU. Quite on the contrary, the conservative leadership of Germany keeps insisting that the bitter medicine that failed to revive the EU’s economy has to be swallowed even more rigorously in the future. This is an approach that can only lead to more economic stagnation, more poverty and more social upheavals on the continent.

Where Both the US and the Hungarian Government's Are Wrong

 October 29, 2014

In the wake of Maidan, a new diplomatic scandal has erupted, this time in the heart of Europe, in Hungary. Like in Kiev, it again involves an old acquaintance of ours: Victoria Nuland, the diplomat responsible for European Affairs within the US State Department.

Hungary is currently in the process of converting Swiss franc- and euro-denominated home loans into forints in order to prevent a massive number of defaults on mortgages contracted by Hungarian citizens during the nineties. Unpleasant as that might be for foreign banks operating in Hungary, Fidesz cannot be faulted for taking the side of its citizens.

As the Orban government had proved less willing to endorse the Nuland-inspired hate campaign against Russia, six of its officials were recently put on an American visa blacklist.

Last Sunday, a probably ill-conceived tax on Internet usage contemplated by the Orban government has ignited a 100,000-strong street protest in Budapest and a few other Hungarian cities. The demonstration has provided yet another opportunity for a major US diplomatic gaffe, one that a seasoned professional would have easily avoided. The US chargé d’affaires in Budapest, Mr. A. Goodfriend, actively took part in the protest, thus endorsing an offensive action against the government of his host country, which is rather unprecedented in the history of diplomacy.

Whilst it is true that most neoconservatives and Victoria Nuland herself are of Jewish origin, it is wrong for the Orban government to even tacitly accept anti-Semitic parties like Jobbik’s racist hate speeches in the political arena or the Hungarian media. The race of the persons involved in anti-Hungarian attacks is irrelevant. The actions themselves is what matters.

Granted, some officials of Jewish origin are the children of World War II victims and as such are themselves personally affected by an irrational hate of Europe and especially of Russia. The fault of being put in charge of the affairs of the same continent where their ancestors have suffered continuous discrimination and unspeakable victimization, however, is not theirs but that of US Presidents and Secretaries of State who appointed them in the first place.

As a specialist in international relations myself, and as an European historian I would like to strongly condemn the policy of appointing diplomatic personnel and key decision makers who actively do more harm than good to the normal US-EU trans-Atlantic relationship.

What do Iraq and Ukraine Have in Common ?

 

September 22, 2014

Two states from two very different regions of the world, steeped in different cultures and religions, are these days in the throes of civil war and face disintegration.

I am referring, of course, to Iraq in the Middle East and Ukraine in Eastern Europe.

If anyone had the curiosity to ask why two such different states find themselves in a similar predicament, the answer would not be difficult to find: because of the unwise promotion of democracy by American neoconservatives in these countries. The process is usually accompanied by a hidden geopolitical or geoeconomic agenda. One of the problems is that neocons like Paul Wolfowitz and Victoria Nuland are not political scientists. Had that been the case, they would have known from the outset that, as Francis Fukuyama explains,

“Long before you have a liberal democracy, you have to have a functioning state (something that never disappeared in Germany or Japan after they were defeated in World War II). This is something that cannot be taken for granted in countries like Iraq.” Or Ukraine …

Neoconservatives were oblivious to the fact that this essential prerequisite was not in place when they started their ill-advised drive to promote democracy in Iraq in 2003 and in Ukraine in 2013. After all, getting to the Iraqi oil or tweaking the Russians’ nose in Ukraine were very important goals of the US’s involvement in the two countries.

Victoria Nuland, wife of The New American Century Project co-founder Robert Kagan , takes a dim view not only of Ukrainians, but of the whole EU, as we all know by now. In actual fact, she helped duplicate on our continent the same mega-error committed by neocons in Iraq, and the results now speak for themselves. This calls into question the latter’s ability to learn from past experiences and “experiments” (a basic quality of truly intelligent people).

Although thoroughly discredited following the disaster in Iraq, leading neoconservatives are curiously still able to steer American foreign policy in order to advance their group’s aims, plunging entire regions of the world into war as they go along.

Their political partners in Kiev have just inaugurated the construction of “the Great Wall of Ukraine” on the Russian border, which is intended to break the unity of the Eurasian continent at a reported cost of some 3 billion dollars. This mad project, unheard of in Europe since the times of the Roman Empire, makes a mockery of neoconservatives’ emphatic claims that the United States are not about imperialism and that NATO is a purely defensive military organization.

The fact remains that as long as the Obama or any other subsequent US administration gives members of this group access to key posts in government, the peace and security of whole geographical regions will again be put at serious risk.

Who's to Blame for the Crisis in Ukraine ?

 September 14, 2014

After almost a year of sustained anti-Russian propaganda in the Western press, Foreign Policy – published by the American Council on Foreign Relations (CFR) – has decided to print an article by John J. Mearsheimer which reads like a veritable Western mea culpa for the crisis in Ukraine.

From the very start, the article denounces the anti-Russian narrative as flawed and makes it clear that the West has knowingly crossed a Russian “red line” in Ukraine. As the author puts it, the main culprit in the events that started to unfold in Ukraine in December 2013 is the West’s triple package of policies consisting of NATO enlargement, EU expansion and the promotion of democracy in Ukraine to the tune of some 5 billion dollars.

Anyone reading the article will agree that the current Ukrainian premier, Arseny Yahtsenyuk, behaves like nothing more than Victoria Nuland’s poodle in Kiev and that his anti-Russian jibes should therefore be discarded accordingly.

Blaming the Russians for the West’s wrongdoings is a time-honored tradition in Washington. Unfortunately, American decision-makers are not known for recognizing the error of their ways or for making amends. What boggles the mind in the Ukrainian crisis is the fact that the problems and the legitimate security interests of a huge country like Russia are being “handled” within the State Department by a low-ranking official like Nuland.

It remains to be seen whether Western officialdom is still capable of taking into account the assessments of its own specialized think tanks, such as the American CFR or the European Council on Foreign Relations, and of getting Europe out of the geostrategic mess it is currently in.