The chicken game

A totally reckless driver against one without a driving wheel....

When a vote is free and democratic but not really fair...

"For it is a habit of mankind to entrust to careless hope what they long for, and to use sovereign reason to thrust aside what they do not fancy", Thucydides

The finger

True or not, the now famous Varoufakis finger to the Germans mirrors the sorry state of European relations. Today another European summit ended in total disarray. With the absence of any trust between the parties, we are clearly walking in the direction of a Greek exit from the Euro. In 2010, this would have had significant economic consequences for the bloc. If today these apparently look more manageable, the political consequences are in turn far greater and unpredictable now. Faites vos jeux....

Expressive Varoufakis

 

 

 

Água quente, água fria

Existem dois tipos de investidores estrangeiros que olham para o Brasil. Os de água quente, entram na alta. Chegaram em 2010/2011, e hoje estão saindo do Brasil às catadupas feridos pelo câmbio e pelos planos de negócio jamais realizados. Estes só regressarão quando o Brasil voltar a estar na moda. Existem depois os de água fria. Que sabem que grande parte do segredo de prosperar no Brasil é escolher o momento de entrada. Esses estão colocando muito dinheiro no país neste momento. E irão sair quando a piscina virar jacuzzi de novo.

Vai demorar para o fusca ficar bonito de novo

Darkest hour (II)

People only accept change when they are faced with necessity, and only recognize necessity when a crisis is upon them.", Jean Monnet

In the last post, the discussion centered on Russia’s threat to the European Union’s future. However, the significance of that threat is amplified by the Union’s weakness. What was meant to be the corollary of Europe’s integration has become its most divisive issue and has shattered the political scene in many of the Union’s members.  I am talking about the Euro.

The tension between politics and European integration is not new. In fact, it was embedded in the EU’s DNA right from the beginning. The founding fathers of the Union, Jean Monnet and Adenauer among others had seen what the advent of mass politics through the introduction of universal suffrage had done to Europe in the first half of the 20^th century. Like the founding fathers of the US two centuries earlier, their concern was how to control the savage passions of the masses and, in the European case, avoid further conflict in Europe. Their response was to make the European integration a totally technocratic process. The technocrats would create function and need and the politics would suffer pressure to adapt and accommodate. Because in the beginning, we were talking about issues that touched peripherally on voters and furthermore the economies were growing, that process went on seamlessly. The first real test came with the introduction of the single market 1992 and Thatcher was the first to understand that the political sphere kept being presented with ”faits accomplis”. She was the first to rebel but not the last. Following Delors exit, the Heads of State placed the lackluster Santer in its place and in 1995, the powers of the European executive branch were greatly diminished through the treaty of Nice. The great powers wanted to gain firm control of the European process. Or, shall we say of the European bicycle. Because that was the comparison that was made. If you stop pedaling, you fell. The single market to work demanded free movement of people. And, for all to work, it was necessary the single currency. You have just to keep pedaling.

In 1991, I got an interview with the then Portuguese central bank governor. At that time, the issue of central bank independence was a hot topic in Portuguese politics, so I remembered asking him if he felt he had sufficient independence to conduct the monetary policy. He smiled and pointed at the fax machine. His autonomy lasted 15 minutes before he received the fax from Frankfurt with the German interest rate decision. So, we get back to that eternal European question: Germany. Too big for Europe, too small for the world. Here the technocrats joined hands with the politicians in finding the single currency the cure all medicine. For the former, it was the corollary of all efforts in the direction of the European integration. For the latter, it was the quid pro quo to accept the German reunification. It was a momentous decision, particularly because it was done without any voter legitimacy. And worst of all, the selling pitch was done differently to different audiences. In Germany, as a risk free endeavor and a final price to erase the country’s sins and be considered as good Europeans. In the South, as the end of a journey. A rich money in a poor’s people pocket and a painless nirvana. Now, the designers of the single currency were totally conscious of the tension between the existence of the Euro and the absence of any European governance mechanism. But, perversely, that was what the acceleration of the European integration through the Euro was meant to achieve. To force the political scene to adapt (if this sounds Marxist it is because it is based in the same reasoning. You have to create political facts). With the Euro, the pressure for a political integration would amplify. It would also put the anti-integrationist camp led by the UK on the sidelines. So all the tensions we see today are in part fruit of design. To oblige the politicians to renounce their sovereignty in order to save the Euro. Finally accepting the need for a political union. Everything is perfect except that in a democracy sidelining the voters cannot be done forever. Because the whole plan might unravel if the politicians are replaced by others bent in changing the status quo. That is what we are facing now.

 

Is this the vision Europe wants?

To understand, how perverse the politics of the Euro have become, you just have to look at the recent negotiations with Syriza’s Greece. Logically, any relaxation of the Greece’s conditions would favor the other southern countries that also underwent an adjustment program, namely Portugal and Spain so you would expect these countries to support it. A North against South battle. In fact, no. The biggest opposition to any relaxing of the Greece’s conditions come precisely from Portugal and Spain. Because any increased flexibility towards Greece would mean the discrediting of five long years of harsh medicine. If only they had stood up to the Germans as Syriza has done and the medicine would have been much more palatable. Of course, this is an illusion. Voters in France, Italy, Portugal, Spain and Greece are being sold the reverse hoax of the 90’s. In the 90’s, it was that once the Euro was introduced, prosperity was around the corner. And for 15 years, fuelled by debt at German risk levels this was true. Now is that the exit from the currency is a painless decision. Because, it is not that the defenders of the Euro have lost the battle of the present. The need for reforms in many of the countries named was evident. It is that they are losing the fight for the future. What the establishment parties are proposing to voters is just a very long slog of austerity. No wonder that parties like Podemos, FN and others are thriving in this environment.

To be fair the shattering of the European political center cannot be attributed solely to the Euro. Like the tea party in the US, it is anti-elite rebellion fuelled by the incapacity of western social democracy of keeping buying social peace, the social fragmentation brought by technology and globalization and the perceived corruption and disconnect of the political system. But like the gold standard in the 1920’s, what the Euro is doing in Continental Europe is aggravating all these trends by putting the political system in an economic policy straitjacket. We are paying in full the price of having embarked in a project that was poorly explained to voters in particularly in the only country that really surrendered sovereignty when the Euro was created. Germany. To save Europe, truth needs to be restored. No more hoaxes and illusions. And the battle of the future needs to be won because it cannot be abandoned to the distorted and dangerous vision of Marine Le Pen and others.    

Darkest hour (I)

"A political society does not live to conduct foreign policy; it would be more correct to say that it conducts foreign policy in order to live.", George F. Kennan

9th November 1989. Huge crowds finally put an end to the Berlin wall. A day to rejoice for all of us who love of freedom but also the founding stone of many of the current European travails. Like a pilgrim after successfully arriving to its destination, Europe just sat down not sure of what to do next. For the last 25 years it just sleepwalked through decisions and projects long designed before that momentous occasion, namely the Euro. Little care was given to legitimize far-reaching decisions of sovereignty pooling neither focus to think strategically on security, in particular on Europe’ southern and eastern borders merely assuming that the Kantian dream of eternal peace was at just within reach and that the rest of the world would just pause and look in awe to the never tried European utopia. It did not. And now we have a very complex set of challenges, each one daunting in its own right. Together they do represent the gravest threat to the European project: (i) a civilizational menace from the East led by Russia, (ii) the implosion of the Southern flank of the European Continent and the (iii) shattering of the political center that sustained the European integration in many member countries.

It has been a long road to get to this mess. During the 90’s, going to the voters to ratify the great leap forward of the European project (Maastricht treaty plus the Euro project) backfired every time until the politicians got tired of the whole process and just decided to push ahead regardless. The currency union was the price exacted from the Germans for the go ahead to the German reunification and no voters would stand in the away of the Lilliputian dream of binding Germany and limiting its power. Furthermore, the currency union was sold (without any vote) differently to different audiences. In the South, as painless voyage to a new stage in prosperity. A hard currency finally in people’s pockets. In the North as a risk free endeavor. Clearly, these two selling arguments were incompatible with one another.  To top it all, to make sure that the European Governments still had the illusion of not ceding the sovereignty that the important decision on the currency union implied, in 1995, the treaty of Nice was negotiated and signed and with that, a mortal blow was struck to the powers of the European Commission. No elected executive organ would emerge with legitimacy to speak on Europe’s behalf. Governments would do that but of course with their national interest in mind. So by 1995 we had a currency union not legitimized by voters and we had a killed any notion of a federal government to command it. The leap to the void was complete.

While the Europeans continued to absorb themselves in the management of this improbable arrangement, little thought was given to the challenges of the world post-Germany reunification besides the expansion in autopilot to the East of the European Union. The Balkan crisis should have been a wakeup call that no the rest of the world was just not going to stand still while Europeans discussed the details of what would then became the Maastricht treaty. On 29 June of 1991, the Minister of Foreign Affairs of Luxembourg (I know but no pun intended) Jacques Poos claimed emphatically on the Balkans crisis “this is the hour for Europe”. It took eight long years and the desperate relinquishing of the clock to the Americans for the crisis to abate. It was clear that the security of the continent could not be taken for granted. Nevertheless, the great European introspection marched on regardless.

The sole European policy response, the expansion to the East, faced its own conceptual problems. Having the Berlin wall for so long had answered by default the long-standing question of where in the East Europe ended. With the wall gone, the easy reply to that query had also disappeared. So where did Europe end? In Riga? In Lvov? In Kiev? In Moscow or in the Urals? Nobody really knows. Contrary to the United States, Europe does not delimit itself from shining sea to shining sea. There is sea all right in the West but then just a fuzzy civilizational border in the East that has advanced and receded during the course of history. Could we then have a rationale to say no to the aspirations of countries like Ukraine or Georgia to be in the long-term part of the European Union? Of course not. We said yes to the Baltic countries so why no to Ukraine? But there is a problem in this rationale. And that problem is security. There cannot be a mismatch between NATO expansion and the European Union expansion. And that is what we are finding out at our own cost with the current Ukrainian crisis.

Before I enter this part of the argument let me be a hundred percent clear. There are no excuses for Russian behavior. There is no complot of the whole world bent on Russia’s humiliation. Putin has led the country to a neo-fascist corner supported by a receptive population whose sense of victimization has been masterfully exploited by a corrupt and dangerous regime. As yesterday’s murder of Boris Nemtsov shows, whoever possesses a civilized conscience in that country is killed, coerced and forced to flee.

That said, there were several errors done in this process by the Europeans themselves. The first is a serious misreading of the Russian regime. In the eyes of Moscow the threat is not so much of the expansion of NATO or the European Union per se and the fear that following that missiles will rain over Moscow. Therefore, no amount of assurances, words, and councils will ever satisfy Russia in this regard. It is the possibility that under these umbrellas, liberal and modern countries might emerge. Moreover, because Georgia and Ukraine are sufficiently similar to Russia, they might make the Russian people think, “if that worked over there why don’t we have it here”. It is a regime change threat that endangers all the ruling kleptocratic elite. Now this cannot be a reason not to give Ukraine, for example, a deeper connection with the European Union via the trade agreement that initiated the Euromaidan revolt, which deposed Yanukovych last February. Like in 2008, when Russia invaded Georgia as a preemptive move against any further western bias from that country, unfortunately a Russian reaction was distinct possibility. What was absent once again was a strategy to dissuade Russia from destabilizing the country.

 

             Munich revisited?         

 

In 2003, at the height of the US diplomatic confrontation with certain European countries over Iraq, Robert Kagan, an American scholar, published a book called “Of Paradise and Power, America and Europe in the New World Order”. The basic argument was that European countries were very reluctant to resort to armed force. They were from Venus while the Hobbesian Americans were from Mars. The argument is not entirely fair, as the recent interventions in Mali and Libya show, but the truth is that Europe as a whole has forgotten about the value of deterrence in the great power game. The intervention capacity of most European countries is pitiful. With the exception of France, no country spends more than 2% of its GDP in defense (a long-standing NATO target). Furthermore, the US commitment to European security is weaker today than in the past.  During the cold war, the stationing of 300.000 US soldiers in Europe had the objective of generating enough American victims and hostages in case of Soviet invasion so that a nuclear retaliation could be credible escalation. No such deployment protects the Baltic countries today for example. Will the US and Europe risk war with Russia over these countries? I have my doubts and I believe Putin does too making it more probable that this scenario is played out. Lack of deterrence makes the world more dangerous not less as very few European leaders seem to understand. Lack of punishment makes the world more dangerous not less. The road to Munich and the summit itself made World War II more likely. Not less. In that, sense the recent Minsk agreement was a huge and very dangerous victory for Putin. It made the Crimea annexation a fait accompli. Therefore, crime pays. It made a mockery of Ukrainian sovereignty of the rest of its territory. Moreover, its subsequent disrespect by the Russian backed rebels did not even elicit a full fledge economic support to Ukraine nor further sanctions against Russia. So no punishment.

Because Putin sees the liberal democracy model supported by the twin pillars of the European Union and NATO as its most dangerous threat, its long-term goal is to undermine both of them. A successful destabilization of the Baltic countries will ensure that Article V (mutual defense clause) of the NATO charter is debased and thus the entire building of the alliance.  Its support for the ascending far left and far right parties (assisted by the Euro’s suicidal politics – more on that later) all over Europe will make the European Union even more unmanageable and put the transatlantic alliance in peril as well as the European Union itself. How a Europe with Podemos, UKIP, Front Nationale and Syriza in power will behave in terms of continental security is anybody’s guess. Not even in the Soviet wildest dreams at the time of the Pershing II crisis with all the Soviet support to the peacenik movements all over Europe did such a political scenario seemed possible.

So yes, the Ukrainian crisis and Russia’s policy do represent a geopolitical threat with potentially enormous consequences for the future of Europe. All the gains of post-World War II in Europe cannot be taken for granted. They will have to be defended. It is a not matter of arms or war. It is a matter of ideas and values. Ukraine right to freely choose its future has to be upheld. This means at this stage not so much arming the Ukrainians with guns (that moment for armed deterrence has long passed unfortunately) but making sure that their economic plight is secured. This is the only long-term game Russia cannot win. Armed deterrence, however, can still save the Baltic countries. It is where Putin will strike next.

Forbes most powerful 2014....#1 Putin speaks