Vaclav Havel

Vaclav Havel, the Bayard of the Semantic War, died this week. We lost in him one of the towering figures of the 20th century. I first encountered his writing on French television, sitting in the living room of my dear departed friend, Jean Tanguy, in Locquirec, France. On that day, fittingly enough 14 July 1989, I had chosen to share the celebrations with Jean and his family, rather than to sit on the reviewing stand on the Champ Elysées (I was in France to participate in the Bicentennial conference, “L’Image de la Révolution Française”, organized by Michel Vovelle. The conference speakers sat on the reviewing stand with then President Mitterand.)
Jean and Marie-Claire had never seen a play by Havel, and French tv had chosen that night to air a Paris production of Havel’s one-act play, “The Petition.” We all found it a remarkable play, and performance. (Havel had been in the audience.) A few days later, I bought a French version of three of Havel’s plays, “The Petition” among them: I quickly translated it into English, to use in my European Civilization class. We still read it each year. The publication of a splendid collection of Havel’s essays, Open Letters. Selected Writings, 1965-1990, allowed me to assign that text, too. In May 2005, I had the delightful experience of sitting in Georgetown’s Gaston Hall, listening to Havel. In the Q&A that followed his dialogue with Madeleine Albright, all but one student in the queue came from my Euro Civ class: all of them had read Havel and asked wonderful questions. Teachers don’t get many moments that fulfilling.
Why have I insisted that so many Georgetown students read Havel? He spoke the truth, as he saw it. Long before the term “Semantic War” came into usage, Havel understood that the war of ideas, expressed through words, ultimately determines the fate of political systems. [For what it’s worth, I think someone in the Clinton Administration, perhaps Albright, essentially put together Havel’s emphasis on semantics and the American obsession with declaring “war” on everything in sight.] He believed, much as John Stuart Mill did, that the truth has the annoying characteristic of being true, and thus cannot easily and permanently be suppressed. Those who have used the term “Semantic War” have usually meant the conflict between different interpretations of a given event, or different sides in a given conflict (say, the US Government and one of its foreign enemies, state or non-state), but Havel understood it in its genuine essence: the war between truth and falsehood. These political Semantic Wars claim to revolve around that paradigm – each side claims a monopoly on truth, and denounces the other side as minions of Satan and all his lies [my Euro Civ students begin their fall semester with a classic example of this technique, the Chanson de Roland] – but each side mixes genuine truth with falsehood or prevarication. States do not much care about the truth as an abstract concept; they care about their own survival, that’s the ultimate “truth” for them.
Havel could be ruthless in rooting out the truth behind the semantic subterfuge of even his own side: Stanek, in “The Petition,” examines his weaknesses more thoroughly than virtually any character in the history of the theatre. He, not Vanek, takes apart each side of the issue. Havel wonderfully ends the play by the device of Stanek’s political connections getting poor Javurek, the “dissident” musician lover of Stanek’s daughter, out of prison. The petition seemingly has become pointless, at least insofar as Javurek’s fate is concerned. Havel thus forces viewers/readers to get beyond the specific case.
In his 1978 essay, “The Power of the Powerless,” Havel provided an essential theoretical underpinning to the movements all over East Central Europe. The intro to that essay in the Open Letters collection cites Solidarity activist Zbygniew Bujak on its importance to the Gdansk workers in 1979-80. Havel gives one of my favorite examples of how we must understand the Semantic War between truth and falsehood. That War is less a titanic clash of thundering ideological salvos, and more an endless series of seemingly innocuous skirmishes. Havel offers us a simple case (from the version in Open Letters, 132-33):
“The manager of a fruit-and-vegetable shop places in his window, among the onions and carrots, the slogan, “Workers of the world, unite!” Why does he do it? What is he trying to communicate to the world? Is he genuinely enthusiastic about the idea of unity among the workers of the world? Is his enthusiasm so great that he feels an irrepressible impulse to acquaint the public with his ideals? […]
I think it can safely be assumed that the overwhelming majority of shopkeepers never think about the slogans they put in their windows, nor do they use them to express their real opinions. That poster was delivered to our greengrocer from the enterprise headquarters along with the onions and the carrots. He put them all in the window simply because it has always been done that way for years, because everyone does it, and because that is the way it has to be. If he were to refuse, there could be trouble. […]
Obviously the greengrocer is indifferent to the semantic content of the slogan on exhibit; he does not put the slogan in his window from any personal desire to acquaint the public with the ideal it expresses. This, of course, does not mean that his action has no motive or significance at all, or that the slogan communicates nothing to anyone. The slogan is really a sign, and as such it contains a subliminal but very definite message. Verbally, it might be expressed this way: “I, the greengrocer XY, live here and I know what I must do. I behave in the manner expected of me. I can be depended upon and am beyond reproach. I am obedient and therefore I have the right to be left in peace.” […]
Let us take note: if the greengrocer had been instructed to display the slogan “I am afraid and therefore unquestionably obedient,” he would not be nearly as indifferent to its semantics, even though the statement would reflect the truth. The greengrocer would be embarrassed and ashamed to put such an unequivocal statement of his own degradation in the shop window, and quite naturally so, because he is a human being and thus has a sense of his own dignity. […] Thus the sign helps the greengrocer to conceal from himself the low foundations of his obedience, at the same time concealing the low foundations of power.”
Havel later asks the greengrocer to stop “living the lie.” Take down the sign. Refuse to participate in bogus elections. Say what you think. Havel is no fool: he knows (from personal experience) what refusal to “live the lie” will mean. [Think of that wonderful scene from The Lives of Others, when the Stasi officer asks the neighbor, whom he has never seen before, how her daughter’s studies at X University are going.]
It’s hard to think of Havel’s greengrocer without also thinking of Mohammed Bouazizi, isn’t it? He could no longer live the lie. Just as Havel puts it, Bouazizi was “a human being and thus ha(d) a sense of his own dignity.”
When you build your whole system upon lies, Havel reminds us, there will come a point when the person who says 2+2=4 is a threat to the system. We might think of Galileo’s brilliant retort to his opponents, who suggested that Aristotle had insisted the Sun revolved around the Earth, so it must be so. Galileo replied that Aristotle had made that deduction based on the evidence from the naked eye; honest empiricist that he was, Aristotle, had he had access to Galileo’s telescope, and seen what Galileo had seen, would have come to the same conclusion as Galileo. 2+2=4. Poor Galileo spent the last 20 years of his life under house arrest for stating the obvious. The system, in this case the Catholic Church’s hierarchy, could not accept, in a time of conflict about religious dogmas [the Church placed Galileo’s work on the Index at the same time that it condemned a work of Calvin], anyone who questioned any doctrine it had formally approved.
How often do political leaders today lie? How often does a state murder people, often deliberately and in cold blood, and then offer some pathetic and usually transparently false justification? In how many ways are we all the greengrocer? In the US, the Republicans have raised deliberate lying to an art form. Most of them have become such ingrained liars, so deeply committed to an ideology [Havel’s “Powerless” essay explains how that works] that they can no longer recognize the truth. One lie leads inexorably to the next, because the foundation on which they have built their ideology is demonstrably false. The Democrats, in part because they do not, in fact, have an ideological foundation, are very poor liars. They lie, of course, but they can’t stay on message as well as the Republicans: now and again, the truth pops out of their mouths. They can’t help it: 2+2=4. One minute they tell some ridiculous lie (say about the monstrous budget deficits that lie ahead, after about 2014), the next they point out a genuine truth (that taxes on the wealthiest Americans will have to up). They naturally shy away from the truth of that second statement: such a change in the tax system will help reduce the share of national wealth held by the 1% and bring us back to the more equitable wealth distribution of ca. 1980 or even 1994. The Occupy movements are telling that simple truth: no solution is possible until we reduce significantly the share of national wealth held by the 1%.
Maybe we should all post the slogan, “Power to the Powerless,” on our front doors, both literal and virtual.

“Sovereign debt”, update on Stan and Ollie

Update, Dec 10, 2011.

Ok, we have 26 of the 27 European Union countries signing off on precisely the sort of greater central economic control outlined below (on Nov 24).  They did not agree to a Euro bond, in part, I would suggest, because no such bond can exist until the controls are actually in place.  Have they actually solved the key problem?  No.  Have they saved the Euro?  No.

What is the key immediate problem?  Italian debt.  Several weeks ago (10 Nov), the NY Times ran a lovely series of charts on who holds which debt in Europe.  French banks held over $400 billion in Italian debt.  (German banks own a lot less Italian debt.  Italy’s state debt is the second highest in the Euro zone, after Germany, which has a much, much larger GNP.) Little wonder that Moody’s yesterday dropped their rating of three of the largest French banks.   Moody’s assessment of BNP’s standalone strength (BFSR) dropped to level “C”, meaning “may be in default”. (–PR_232989)

In plain English, that would seem to mean Moody’s believes BNP is in big trouble.  They  highlight its high exposure to Italian debt ($12.2 billion); BNP has already written down $2.6 billion in Greek debt (and holds $1.6 billion more, as well as $1.4 billion of Portuguese debt). It somehow managed to shed $10+ billion of its $23 billion of Italian debt in a very short period, to get down to current levels.  {The buyer?  The European Central Bank, which purchased $65 billion in sovereign bonds in the first 9 months of 2011, and, to judge from the BNP figures, much more in Oct and Nov. }

German banks don’t get a free lunch, because they own $200+ billion of French debt (and over $100 billion in Italian debt); European banks collectively own close to $1 trillion in French debt.  Not good for the European banking system, not good at all.

Here’s what the British newspaper The Telegraph had to say, in an article on the Eurozone banking system:

“If anyone thinks things are getting better then they simply don’t understand how severe the problems are. I think a major bank could fail within weeks,” said one London-based executive at a major global bank.

Many banks, including some French, Italian and Spanish lenders, have already run out of many of the acceptable forms of collateral such as US Treasuries and other liquid securities used to finance short-term loans and have been forced to resort to lending out their gold reserves to maintain access to dollar funding.

“The system is creaking. There is a large amount of stress,” said Anthony Peters, a strategist at Swissinvest, pointing to soaring interbank lending rates.

Ok, let’s swing over to the British Left, and the Guardian’s ( economics editor, L. Elliott:

“Europe is sleepwalking into a prolonged depression. The prospect of 2012 seeing the start of the break-up of the eurozone is a real one. Financial markets are already starting to pick apart what looks like the latest, if more sophisticated, attempt to kick the can down the road. Britain has isolated itself on the fringes of the European Union, perhaps the most significant development at a summit that assuredly did not draw a line under the crisis in the single currency. But at least the interests of the City of London were defended. For now.

In short, the summit that was supposed to save monetary union has been little short of disastrous. Going into the talks, the markets hoped for a happy ending to the sovereign debt saga: a deal to pave the way for the European Central Bank to ride to the rescue of Italy and Spain, under siege from the bond vigilantes. What they got instead was political schism, half-baked reforms and the complete absence of any fresh economic thinking.”

Now, over on the Right, at the Financial Times, the headline suggests the deal won’t last until Christmas, full article at:

Short excerpt:

“Jonathan Loynes of London’s Capital Economics, who accused Mr Draghi of “clumsy communication,” said: “The bottom line is that even our low expectations for last week’s supposedly critical advancements in the eurozone debt crisis appear to have been undershot.” He described further debt writedowns that would affect the private sector as “virtually inevitable”.

The muted market moves on Friday may be misleading. The euro rose against the dollar – but this may have been driven by banks repatriating assets.

European bank shares, while above their lows, trade at half their book value, implying grave fears that some of their assets will be written down.”

Little wonder that 26 of 27 agreed to a general solution.

Le Monde gives two different views, suggesting in one article that the worst is over and that the three “vices” of Maastricht were addressed:  1) letting Britain opt out of the euro – Le Monde argues that the 26 kicked the UK out of Europe;  2) lack of economic central governance (see below, original posting); and 3) lack of a stabilization mechanism.  Le Monde argues that Draghi, head of the ECB, has agreed to “unlimited” funding of banks, at 1% interest, for 3 years.

A second article, “L’Eurozone n’agit pas, mais cause”, takes an entirely skeptical approach.  On the key issue of the 26:

“Les chefs d’Etat et de gouvernement de la Bulgarie, du Danemark, de la Hongrie, de la République tchèque, de la Lettonie, de la Lituanie, de la Pologne, de la Roumanie et de la Suède ont évoqué la possibilité de rejoindre ce processus après consultation de leur Parlement le cas échéant”.

In other words, they gave tentative assent, but have to get approval from their parliaments.  Nice way to pretend to go along. The article points out that this agreement is not a treaty, but a statement of principles, a declaration, not legally binding on anyone, not agreed to by any elected body, even the European Parliament.

So far, the geniuses (led by Chancellor Merkel) managing this crisis have allowed Greece to go bankrupt, have waited until Spain, Portugal, and Italy are lined up to do the same (Ireland, too), and are fiddling while the banking system burns to the ground.

China’s Dagong Credit Rating Agency yesterday lowered its rating of France’s “sovereign” debt (down from one of the three levels in the upper medium grade, to a level in lower medium grade), following up its reduction of Italy’s rating from A- to BBB (second category of lower medium grade, just a short hop from junk bond status).  Dagong believes France will have to intervene to save its big three banks, the ones Moody’s just downgraded: they refer to potential partial nationalization of those banks.

Western observers may belittle Dagong, which is an obvious effort to remove Western monopoly on credit ratings, but it’s worth remember that most of the Western countries, especially the USA, borrow lots of money from China.  If the Chinese government and other Chinese investors start to place high credence in Dagong’s ratings (which, it should be noted, rate the US as lower than many European countries), then Western borrowers may have to pay higher rates of interest to Chinese investors.

One poster on Le Monde compared the summit to putting up three bags of sand against a tsunami.  Nice.

And I love Sec’y Geithner, channeling Oliver Hardy, telling Sarkozy (in the role of poor Stanley),  “and this is another fine mess you’ve gotten us into.”

Original post of 24 Nov, unmodified:

European political leaders seem to be facing the obvious reality pointed out in the earlier post: “sovereign” debt of Euro zone countries is an oxymoron.  We hear now that they are finally discussing the only possible solution:  creating real European sovereign debt, by means of a common bond issue, guaranteed by all member states.  Alas, as my father used to say, all solutions create new problems:  this one makes no sense absent a more unified sovereignty within the Euro zone.  Creating a common Euro bond cannot take place in a situation in which key elements of sovereignty remain in national hands.

Tax collection offers a simple example.  If published estimates are correct, roughly 15-20% of Italy’s economy is in the black market: that would mean $300-400 billion escapes taxation.  Italy’s VAT is 20% (much less on necessities like most foods), so the Italian government loses $60-80 billion a year in VAT revenues alone.  Add to that the lost revenue from income taxes and you probably get something like $100 billion in annual losses due to the black market.  That $100 billion would close Italy’s budget gap to zero, with no need for tax hikes or service cuts.

Italian non-compliance has many causes, but we need not fall into the facile generalization that it’s all the fault of the Mafia and Camorra, or a simple reflection of Italian cultural norms.  Italian companies have powerful economic incentives for non-compliance:  corporate total tax rates (TTR) in Italy are 68.6%  as against 41.2% in the EU.  France, which also has compliance issues, ranks close by, at 67%, and Spain is also high, at 56%, whereas the TTR is far lower in the other large European economies:  Germany, 48%; the Netherlands, 40.5%; UK, 37%.   (TTR, from World Bank, IFC, Paying Taxes 2011.  The Global Picture, figure 2.17).  The key difference is  labor taxes, which are vastly higher in France and Italy:  they make up 3/4ths of the corporate tax burden in France, about 2/3rds in Italy, only half in Germany, about 40% in the Netherlands, a third in the UK, and only 1/5th in the US.  Italy has a ridiculously complicated corporate tax system, to judge from compliance hours:  285 hours per year, as against only 110 in the UK, 132 France, 134 in the Netherlands, and, surprisingly, 215 in Germany.  Unsurprisingly, most of this time goes toward figuring out and paying labor taxes (shares of social security, unemployment tax, etc.).

As someone who has worked a great deal on tax systems, I would suggest that the Italian system is deliberately complex to enable fraud;  many less-developed countries have a similar situation. Any time you have an obvious crook like Berlusconi (who has been prosecuted for tax evasion) running your country, you can be sure that the tax system will be set up in a way so complicated as to assure that business tycoons, like Berlusconi, can practice non-compliance with a high level of impunity.

Can there be Euro bonds when one of the main economies (Italy) has a tax system that, in performance, resembles the systems in the African Union far more than it does those in the European Union?

The only possible way to get to Euro zone bonds is for the countries in that zone, perhaps through the European Central Bank, to get centralized control of economic policy and fiscal administration (in terms of oversight) throughout the 17 states.  Angela Merkel made that clear when she vetoed the idea of a plebiscite in Greece.  This fiscal crisis, among its other elements, marks the end of representative democracy in the 17 member states, if those states go to a Euro zone bond and to the sort of economic controls that can make such a bond work.

The Euro zone countries would then look like the US in economic and borrowing policy.  The Euro zone would issue “sovereign debt” bonds, like US bonds; the member states would issue bonds similar to those of US states, like New York or Alabama.  Member states would generally have to pay higher rates of interest than the Euro zone as a whole.  Euro zone bonds would have to be limited to specific purposes and some sort of central governing authority (drawn not from elected bodies, but from technocrats) would have to regulate who got which share of the Euro bond issues.  Bonds issued by individual states would be like bonds issued by US states or even municipalities; they would likely be guaranteed by given tax revenues (a system widely practiced, btw, in 16th-century Europe). The rise of a genuine public debt (in the 18th and 19th centuries) lowered central government borrowing costs, which in that earlier system had been generally higher than those of regional or local governments.  Right down to 1788, the King of France regularly borrowed money through such intermediaries because they paid much lower risk premiums than the central government.

The danger is that such a pattern will repeat itself, that Germany will borrow at a lower rate of interest than the Euro zone bond.  If that turns out to be true, as one would suspect, then the Euro zone bond will essentially be nothing more than a way for the suspect economies (like Italy) to borrow ostensibly through a central agency, but, in reality, through the intermediary of a more solvent regional government (i.e., the German or Dutch one).  You would then have the dangerous situation that a large German bank (or another investor, like China) could play the spread between the two.  Markets may already be anticipating such an outcome: Germany could not sell its bonds yesterday, because the interest rate is so low.  What investor would want to buy a German bond  at 1.98% (yesterday’s rate), when s/he could buy a Euro bond, also guaranteed by Germany, at 3% or even 4%?  Those willing to buy at 1.98% are betting that the Euro bond will not become a reality.


US and Egypt, and why people get frustrated by mainstream media coverage

Today’s (26 Nov 2011) NY Times has a front-page article that illustrates perfectly why so many people get frustrated by mainstream media coverage of contemporary events.  Just as the media lemmings follow official pronouncements on “sovereign debt” off the cliff of economic (dis)analyis, so, too, the media swallow whole the interpretations that governments provide of their own pronouncements.  We read today that the US government wishes to portray itself as supporting the goals of the Tahrir Square demonstrators (the article uses the term “Arab street” and carefully avoids any suggestion of support specifically for the Tahrir crowds); they issued their statement at 3 am EST to make sure it came out in time for today’s demonstrations.  (“For US, Risks in Pressing Egypt to Let Civilians Govern,” 26 Nov.).

That Times reporters would pass off uncritically this interpretation is a travesty of serious analytical journalism.  Let’s look at two obvious reasons why.  First, in trying to analyze what is happening in Egypt, where do the journalists turn first for expert analysis: former (Clinton Administration) US Ambassador to Israel, Martin Indyk.  Ambassador Indyk certainly knows a great deal about the Middle East, above all about matters related to Israel, but turning first to him means one views events in Cairo through the prism of Tel Aviv.  Sure enough, later on, the article has three full paragraphs about Egypt’s relationship to Israel, and about the possible impact of the Obama Administration’s statement on the solidity of the Camp David Accords.

Such concerns certainly do matter and arguably merit their own article in the Times, but they should not take pride of place in an analysis of internal Egyptian events.  The Times itself, on its Op-Ed page, has regularly turned to specialists – political scientists who work on elections, for example – to analyze what is going on in Egypt.  Why do the Times’ own reporters seem so unfamiliar with the analysis of the political scientists who have published in the Times?  Let’s turn to the most obvious case, the 22 Nov. article by Andrew Reynolds, “Egypt’s Doomed Election.”

Reynolds directly advised several Egyptian groups on the creation of the electoral process, so he knows first hand what happened.  He describes the manner in which the military excluded many groups – liberals, Copts – from the discussions of electoral process.  He argues that the process created by the military (with civilian advice) is all-but certain to lock out several constituencies, the Tahrir Square groups among them.

If Reynolds’ analysis is correct, then how precisely is the Obama Administration’s focus “on a full transition to a new civilian government on the timeline that’s been announced” support for the “Arab street?” If, as Reynolds suggests, the electoral rules mean the chances of a “fair and inclusive” outcome are “slim,” and the “first post-revolutionary election” will be a “democratic failure,” how does the Obama Administration’s statement mean the US has come down “on the side of democracy,” as Ambassador Indyk puts it?

If Reynolds’ analysis is on target (other political scientists, and the sort of young, educated Egyptians demonstrating in Tahrir Square or Alexandria or Suez, agree with him), then the Muslim Brotherhood, Old Regime local notables, and middle-level members of Mubarak’s outlawed party will take virtually all the seats in the new Parliament.  They will create a 100-member constitutional committee that can act on the basis of a simple majority to move swiftly toward a new form of government that will guarantee the stability of most of the key elements of Mubarakism.

One can plausibly argue that the Obama Administration does want to curb the worst excesses of the Egyptian military, both for philosophical and practical reasons (enlightened self-interest, if you will), and does want some elements of civilian rule in Egypt.  They surely believe that some form of popular legitimation of the new government will make it more stable, quite apart from being philosophically more amenable than military rule.  Yet they also want the Egyptian military to remain strong, both because of the US’s close ties to, and considerable influence over, it.  They view the military as the main secular counterweight to the Muslim Brotherhood (MB), so a headlong rush to a democratic system that might bring the MB to power must be the American government’s worst case scenario for Egypt.

The US wants to appear that it supports “democracy” in Egypt, but what it really supports is an Egyptian solution that maintains the Camp David Accords, keeps key levers of power in the hands of the Egyptian military, and adds a veneer of popular legitimation to the government of Egypt.

The upcoming elections will have a counter-revolutionary outcome.  Look for massive demonstrations to take place during the constituent assembly’s deliberations, particularly as word leaks out about how they plan to make sure the old elites stay in power.  Egyptian rulers will then have to decide whether they want to stomp on the aspirations of an entire generation of their best and brightest people, holding back national development in every sphere, or whether they want to give those people a chance to help Egypt develop its full potential.


“Sovereign” debt

At long last, some public commentators have begun to focus on the core of the so-called “sovereign debt” crisis: it’s not sovereign debt. Our modern definition of sovereignty began with Jean Bodin (Les Six Livres de la République, 1576), who defined “souveraineté” as the right to make law binding on all in general and each in particular. Bodin mentioned some of the key elements of this right to make law: coining money was one of them. Any country that does not control its own currency has no sovereign debt; it’s as simple as that.
The countries in the Euro zone, with the possible exception of Germany, do not control their own currency. The recent negotiations make it clear that Germany has the deciding vote on questions related to the Euro, so one could argue that it has something close to sovereignty with respect to currency. Sovereign countries also control their fiscal policy. Once again, the Euro zone countries do not qualify, because they clearly do not control such policies.
The Business section of the NY Times has, at long last, begun to address this issue (other mainstream media have been little better). On Wednesday, 2 November, a story quoted V. Serafeimakis, identified as a senior official as one of Greece’s main oil and gas distribution companies (Avinoil), as saying “The real problem is that we are now operating under a foreign currency.” Quite so. On Friday, 4 November, in an excellent column, Floyd Norris posed the issue of why it was so anathema to European leaders that Greek voters actually have a say in the financial policies of Greece. As Norris rightly pointed out, European leaders essentially have said fiscal policy no longer belongs to the people of Europe: they must henceforth do what the Brussels bureaucrats, under orders from German bankers, tell them to do.
Norris and others (for example, al-Jazeera’s news anchors) have suddenly discovered that the combination of a common currency (i.e., a fundamental element of sovereignty in the hands of an external authority) and “sovereign state” political and economic policies is an oxymoron. The choice appears simple: create a common set of political and economic policies, set by a central authority, or return control of currencies to the states.
Banks have fallen victim to their own hype and disingenuousness: Greek debt is not sovereign debt. It’s not the equivalent of borrowing by the governments of the US or the UK; it’s the equivalent of borrowing by Rhode Island or Mississippi. The markets have gotten around to that point of view in a hurry, raising Greek short-term debt interest rates from under 2% to close to 30% over the last two years. As Americans look at this situation, we might consider that Greece looks a lot more like Germany than Mississippi looks like the Megalopolis states running from Boston down to northern Virginia. Greece’s per capita GDP, about $30k, is far closer to those of Germany or France ($40-42k) than the per capita SDP of Mississippi ($32k) is to that of NY, NJ, or Massachusetts ($56-58k), let alone Connecticut ($64k). West Virginia, with its per capita SDP of $35k is a different world from Virginia ($53k, a figure that does not take into account the massive gap between wealthy Virginia north of the Rappahannock and impoverished Virginia, west and south: the median household income in Lee County is $29k, in Loudoun County, it’s $114k). Europe’s “state” economic disequilibria are little different from those in the US, and within those “states” Europe has far less economic inequality among social groups than we have in the US (in terms of the Gini index of inequality). The Euro zone’s real outliers are the East Central states (Czech Rep., Slovakia), whose per capita GDPs are well under $20k. No wonder Slovakia balked at bailing out Greece (in American terms, it’s like asking Mississippi to bail out Georgia, both in terms of per capita GDP and in terms of overall GDP size).
The Federal solution (deeply rooted in European history, by the way) will create a central monetary and fiscal policy and dramatically reduce the authority of national governments (and, by extension, the effective power of those who elect them). Listening this morning to a German analyst discussing the Greek situation, one got a clear sense of how thoroughly Germany dominates the Euro zone. As he said, many other countries have an anti-Europe party; Germany does not. Why should it? Europe dances to Germany’s tune. Any country that does not understand that rule, has to leave, as Chancellor Merkel made crystal clear to PM Papandreou with her comments about the referendum.
What will happen if Greece does leave the Euro zone? We have plenty of historical evidence of countries leaving what were, in effect, imperial currency zones. We could look to the newly created states of 1919, like Poland or the Baltics or Czechoslovakia, which had to create new currencies and abandon old ones (often more than one – the Poland of 1920, for example, had been part of three different currency zones in 1914). The shift did lead to massive inflation, in part because the largest nearby economy (Germany) had government induced runaway inflation.
Assets valued in drachmas will lose much of their value, because the Greek government – following in the footsteps of countless predecessors, including those 1920s Germans – will inflate its way out of debt. More recently, we can follow the case of the split between the Czech Rep. and Slovakia in the 1990s. Once all the dust had settled, the Slovak koruna was worth about 20% less than the Czech one. That’s roughly the difference in the per capita GDPs: the three easily accessible estimates for that statistic – from the World Bank, the IMF, and the CIA – disagree sharply about Slovak per capita GDP – a high of $18.4k from the CIA, a low of $13.5k from the WB. The IMF figures suggest a difference of about 13%, the WB figures a difference of 30%. (The CIA figure for Slovakia seems grossly inflated.) By that standard, one would expect a devaluation of the drachma, vis-à-vis the Euro, by something like 33% [if we make the comparison to the Euro big boys, France and Germany; bringing in the other three states that matter – Italy, Spain, Netherlands – would lower the comparative per capita GDP and suggest an inflation more like 20%]. Greece’s catastrophic debt ratio to GDP, however, is far, far worse than anything seen in the Czech Rep. or Slovakia in the 1990s, so the initial period of adjustment will likely be even worse.

Hot and cold: Libya and the Arctic oil deal

In part I of this posting, I spoke to the courage of pro-democracy activists in Libya.  I asked at the start:  “How will historians in the year 2100 treat current events?  They will face the same conundrum all historians do: how does one reconcile individual actions, and actors, with systemic shifts?  The events in Libya right now offer a great example.”  Having dealt with the individual actions half of the equation, let’s turn to the systemic shifts.

Our historian of 2100 might consider the Libyan situation as the latest installment in the Great Natural Resources (GNR) War that has dominated world politics since the 1980s.  That war has involved brutal proxy fighting: the war in eastern Congo, funded by mining of rare metals, especially “coltan”, essential for electronic devices (like the one I’m typing on right now), has killed an estimated 5 million people, giving it the dubious distinction of the most lethal front of the GNR War.  Such wars can encompass other factors, like ethnic conflict:  the Congolese war cannot be separated from the Rwandan genocide.

Great Powers and the GNR War

Oil – Iraq

My now-deceased (and much beloved) cousin, Tom, who worked for many years in the oil business, claimed that many top oil executives viewed the 2003 Iraq invasion as a logical outgrowth of fears about Saudi Arabia’s stability (in light of 9/11, carried out essentially by Saudi nationals).  Only Saudi Arabia and Iraq, he argued, had oil reserves large enough to stabilize world markets:  the West relied on Saudi Arabia to do so, but instability there meant the West had to gain certain access to the Iraqi fields, to be assured of future supplies.  Exxon-Mobil, of course, moved its Middle East headquarters out of Saudi Arabia

The deals between Western oil companies and the regional government in the Kurdish north, in particular, lend themselves to that interpretation.  Interestingly enough,

In a recent [Feb 2011, with Agence France Presse] interview, Iraqi prime minister, Nuri al-Maliki, has said that the production-sharing agreements (PSA) signed by the autonomous Iraqi Kurdistan region will be “respected” by the central government in a move confirming that a broad deal over the region’s oil autonomy has been struck, which officially will remove the legal uncertainties and open the growing Kurdish oil play up for investment by larger oil companies.

Read the full story at:, in its recent story on the 10 largest oil fields of the future, lists as numbers 2, 3, and 4 fields in southern Iraq, in the Shi’a dominated region (and, as #5, another one directly across the border in Iran, in the area abutting that part of Iraq).  No great surprise that the first major conflict of the GNR War, the Iran-Iraq War of the 1980s, took place literally on top of these four fields.


Aside from Saudi Arabia (#1 and 7), the other members of the Forbes top 10 coming oil fields included Venezuela, Brazil, and Kazakhstan [and you are wondering why Russia, Brazil, and Venezuela are leading the charge against “civilian casualties” in Libya?].  Given that Alaska’s North Slope rounds out the top 10, we can probably expect to hear Sarah Palin soon denouncing the intervention in Libya. :)

For example, China seems upset about civilian casualties.  Hmm, any guesses as to who built the 1050km-long pipelines for gas and oil that run to the port at Mellitah (right next to Az-Zawiyeh)?   Do the initials CNPC ring a bell?  China National Petroleum Corp.  Go to their website for Libya and read all about it.


Compounding the internal Libyan contradictions – and we can see the tensions created everywhere by the coalition of young idealists seeking democratic reform and opportunistic politicians and military men hoping to use these movements to take power themselves (Yemen being the poster child of such a process) – we have the undoubted Western economic motives.  Europe’s reliance on Libyan oil and gas is obvious enough, but the rise of Mamhoud Jibril, former head of Libya’s main economic think tank, to official leadership of the insurgents (al-Jazeera story, 23 March), brings in the US, too.

WikiLeaks posted (in January 2011) the US Ambassador to Libya’s cable about his January 2010 meeting with Jibril, in advance of a February 2010 trade mission.

“Summary: Mahmoud Jibril, head of Libya”s premier think-tank — the National Economic Development Board — told the Ambassador on January 21 that US business enjoys “a competitive edge” in the field of technology in Libya, and argued that now is the time for US business to capitalize on opportunities for trade and investment in Libya. He welcomed a February 20-23 Department of Commerce-led Trade Mission and offered to speak with GOL officials who could help facilitate the visit. Exploring areas for future bilateral cooperation, Jibril recommended that both countries work together to implement joint projects aimed at “building trust,” which would help to erase the historically negative perceptions that each has of the other. He described an idea for a high-level dialogue between US and Libyan policymakers and scholars, to combat such misperceptions, and discussed building connections between US and Libyan academic institutions.”

The cable later states that Jibril has close ties with Saif al-Islam, Muammar Qaddafi’s son, who has been quite prominent on our tv screens in the last few weeks. The ambassador wrote:

“His [Jibril] confidence in his own ability to approach Saif al-Islam with a new idea, as well as to raise the Trade Mission with GOL ministers, indicates that he is well-connected within the regime. As the head of a think-tank that reports directly to the Prime Minister-equivalent (who called him during the meeting), without the burden of an official policymaking role, he may have a unique ability to influence decision-makers without challenging their authority.”

Now, it seems, Mr. Jibril is challenging their authority, with American and European military support.  Choosing someone who had direct and close ties with Saif al-Islam may increase the chances of effective negotiation between the two main parties.  Anointing an insurgent leader someone who has an avowed interest in tying Libya more closely to international capitalism certainly adds grist to the mill of those seeing the intervention in such terms.  Judging from press reports, damage to Libyan oil and gas installations has been very limited, which suggests that all sides, while happy to slay their fellow Libyans (and the mercenaries, like the Serbians who actually fire Qaddafi’s cannons), are not yet ready to kill the goose that lays the golden eggs.

We might contrast the Western eagerness to save Benghazi, and, not coincidentally, to allow the insurgents to try to regain control of the coastal region down to Ras Lanuf.  As for Misrata, so long ignored, it was the “shorebase for our exploration drilling operations” of ExxonMobil in Libya. The company set up a rig starting in 2009 but that rig, the Noble Homer Ferrington, has been idle since April 2010, due to a dispute between ExxonMobil and BP, seemingly resolved in favor of the latter, given that it has announced drilling in those waters in 2011.  Ras Lanuf  has refineries that turn out over 200,000 bbl a day.  On the western border with Tunisia, Az-Zawiyeh, right next to the Melittah terminus of the gas pipeline to Sicily, has been the scene of particularly brutal fighting; press reports suggest Qaddafi used 50 tanks to retake the city (March 10th).  Little wonder why.

Euro News recently interviewed a retired French admiral about the military situation.  He argued that it has two possible outcomes: those around Qaddafi force him to leave [clearly the outcome favored by Western governments, and one constantly and openly stated by, among others, Secretary Clinton]; or the country gets split into two parts.  He focused on Tripoli and Cyrenaica (around Benghazi) as the division, but Ras Lanuf is part of Sirte district, thus of Tripolitania, not Cyrenaica; Misrata is clearly in Tripolitania.  Even worse, the Waha oil fields (see below) lie on both sides of the fault line.

If there is to be a division of Libya East-West, then Qaddafi will have to keep Az-Zawiyeh and the insurgents the fields that drain toward Cyrenaica: the main fight will be about the Waha oil fields, that drain towards Ras Lanuf, and the nearby offshore potential fields.  Don’t look for any serious efforts to stop the fighting until the insurgents get control of the central region.

The largest known oil field, however, lies in the east (the Sirte field).  It was producing about 220k barrels a day, under direct control of Libya’s National Oil Corp., but Libya recently (2008) negotiated a deal with a company called TNK-BP to improve the facilities, with a view to doubling production.  Who is TNK-BP?  Read on.

As they say, you can’t know the players without a scorecard, so let’s check them out, starting with the home team.

Libya, Russia, BP

Russia, the world’s second largest oil producer, has been laughing all the way to the bank: oil prices have risen 24% in 2011, mainly due to the Libyan crisis, so Russia has reaped a financial windfall from the events of the past few weeks.  I’m sure they will be happy to have Libyan oil offline for a few more weeks, so long as they get to keep access to some of the main fields in the long run.

In 2010, a Russian company, Tatnaft,  discovered new oil reserves in Libya’s western Ghadamis field.  Rinat Galeyev, Tatnaft’s longtime director, has ties to Lukoil, which has also helped Libya develop fields in that area.  The American company, ConocoPhillips, is the largest stockholder in Lukoil (20%).  Conoco also has a 16% stake in Libya’s centrally located Waha field (see below).

The Russians, hedging their bets in case Qaddafi stays in power, will want to make sure that he still has control of the oil fields and pipelines that focus on the Az-Zawiyeh-Melittah area.   On BBC’s Hard Talk, Mikhail Margelov argued that the time for political talks is fast approaching, and that they should take place early in this coming week.  Putin, of course, has called the Western intervention a modern Crusade.  Qaddafi has already played this card (March 14th), saying that he will expel Western oil companies and allow Russia, China, and India to exploit Libya’s oil.  [The head of the Libyan National Oil Corporation contradicted him the next day, saying all agreements with Western companies would be kept.]

Ok, so what’s up with Russia and Libya?  Wrong question:  what’s up with Russia, Libya, and BP?  That’s what we need to know.

Eight years ago BP struck a deal with Russian investors (collectively known as AAR) to create a joint venture:  TNK-BP, with each side owning 50% of the company.  It’s been a highly successful venture: in 2010, TNK-BP produced 25% of BP’s total profits.

In 2008, the CEO of this company was one Robert Dudley.  In a typical Russian-style power play, the Russian government accused him of violating Russian laws (BP, violating laws, I’m shocked, shocked) and forced him out, changing the basic agreement by allowing TNK-BP to compete worldwide with BP, and installing a Russian CEO.  This conflict had been going on for some time:  on 3 June 2007 the British newspaper, The Independent, in its business section, ran a story under the headline: Gazprom v BP: Russian roulette – and next stop, Libya. How Putin’s Russia is putting the squeeze on Britain’s energy giant.  Just by coincidence (?), at precisely that moment BP, under the leadership of Tony Hayward (whom we all remember fondly for his deft handling of the Deepwater Horizon spill), got a contract for off shore drilling in Libya.  The US Senate closely questioned Hayward about the connection between that contract and the release of the Lockerbie bomber, al-Megrahi, and WikiLeaks documents (among other sources) make it obvious the deals were connected.  So, we have BP getting off shore drilling deals and TNK-BP negotiating to develop the large Sirte field (Libya’s largest known reserve) in 2008.

Fast forward to March 2011.  What’s been in the news this month?  Why, the West has intervened militarily in Libya and quickly driven Qaddafi from the east.  On March 23rd, long after the initial imposition of sanctions, the US Government finally announced it was adding National Oil Corp (Libya) to the list:  among the subsidiaries included are, ta-da, Sirte Oil, Waha Oil, and Ras Lanuf Oil (see below on Waha and Ras Lanuf).  Now, AMAZINGLY enough, Vladimir Putin announced, on March 4th, that he supported changing Rosneft’s partner in Arctic drilling for oil from BP to … TNK-BP.  If you’ve been reading other news, you know that a Russian court just (March 23rd) upheld an injunction against a share swap between BP and Rosneft (it would get 5% of BP; BP would get 9.5% of Rosneft), the key part of the joint Arctic venture.  And who protested, on the grounds that it violated a shareholders’ agreement?  Why none other than TNK-BP.  Let it be noted that Gazprom (whose former CEO was Russian President Medvedev) and Rosneft are in the midst of a ten-year joint exploring venture.

The Big Picture [those of you old enough to remember 1950s television will recall that the US Defense Department used to sponsor a show of that name during Saturday morning cartoons.]

Ok, taking the above into account, how about a brutal Realpolitik analysis of what’s going on.  Let’s go back to our French admiral and ask, is Libya just the latest chapter in the GNR War?

If so, the home team, China and Russia, defending the human rights of the “civilian casualties” in Tripoli, are trying to make sure that Qaddafi does not lose power in a way that jeopardizes their investments in the western oil fields and pipelines.  Putin also want to ensure that TNK-BP, and not BP, gets full authority in the Sirte field.  Are we looking at a compromise in which BP gives up to TNK-BP the Arctic rights, and, in return, BP gets the Sirte field?  Or just the off shore drilling rights in Libya?  By all reports, the Arctic field is larger, but Libya likely has a lot of undiscovered oil.

The visiting team, the US and EU, are standing up for the human rights of the insurgents in Cyrenaica, hoping to get control of the eastern oil fields, like Sirte.  {Poor Uncle Silvio: the gas pipeline to Sicily runs from the western fields.} The large Waha field – jointly developed by Libya and a trio of American companies (ConocoPhillips, Marathon, each with 16%, and Hess, 8%) – drains toward Ras Lanuf.  Conoco’s website has an excellent map of the fields.

Two relevant facts about Conoco:  1) their Board of Directors includes former Bush II Undersecretary of State, Richard Armitrage, a national security expert, and former Reagan White House Chief of Staff Kenneth Duberstein;  2) as noted above, Conoco owns 20% of Lukoil.  Why relevant?  The presence of Armitrage reminds us that oil business issues are intimately related to national security, for all these countries.    Oil and high politics, including war, cannot be separated.  The astoundingly intricate network of ties among all these companies show that one has to hedge one’s bets: viewing these conflicts as A against B is very difficult when A owns part of B and vice versa.

The situation on the ground right now (3/26) is that the Americans and Europeans have the eastern fields, the Russians and Chinese have the western field, and the real fight is just about who is going to get Waha and the terminals near and around Ras Lanuf, the so-called Sirte basin.

The Russians and Chinese are hoping to use world opinion to stop the intervention before the insurgents get to Ras Lanuf; the coalition wants the insurgents to get control of Ras Lanuf before a real cease fire goes into effect.  The Realpolitik “negotiated” settlement might leave Sirte, Qaddafi’s hometown, in his hands – and the rhetoric can focus on Sirte, to allow him to save face – but allows Jibril et alia keep Ras Lanuf, which is what matters to the West.  Conoco, with its 20% stake in Lukoil, looks like the smartest player: even if Qaddafi keeps Waha, Conoco’s 16% share there can simply be transferred to Lukoil, if Qaddafi puts into effect his nationalization of the Conoco-Marathon-Hess share of Waha.  [For the record, Marathon Oil sold its Russian oil holdings in 2006 to Lukoil, but they were relatively small, as the price was only $787 million.]  Interestingly enough, one stock touting website, as of March 24th, was promoting the shares of Lukoil, Conoco, and Marathon as three of the top five oil company stock values. One of the other top five was BP.

Ok, back to BP.  Remember, they seem to have supplanted ExxonMobil as the company in charge of offshore exploration.  Between April and June 2010, ExxonMobil had to shut down its drilling operations (April) and then lost the rights to BP (June).  BP was to have started up the drilling early this year.

As for BP and Russia, it’s perhaps worth noting that Hayward and Dudley have basically just changed chairs.  Dudley, former CEO of TNK-BP, is now CEO of BP, and Hayward, former CEO of BP, is now a member of the Board of Directors of TNK-BP.

As for the Russians themselves, are the public differences over Libya voiced by Putin and Medvedev really about a split over the Arctic contract between TNK-BP (Putin), which has a contract to develop that eastern Sirte field, and Rosneft-Gazprom (Medvedev), which wants to squeeze TNK-BP out of the Arctic?

Sticking with our American TV theme, Let’s Make A Deal.  I’ll bet Monte Hall would propose something like this.

The West guarantees TNK-BP’s stake in Sirte; ExxonMobil gets to share off shore drilling rights with BP;  the three American companies keep their stake in Waha; Rosneft gets to deal directly with BP in the Arctic.  China keeps its pipeline.

Or will greedy Mr. Putin want both the Arctic and Libya?

Our 2100 historian will naturally know what happened; as for us, we’ll just have to stay tuned.

Liberty: Fenians and Libyans

John O'Neill

How will historians in the year 2100 treat current events?  They will face the same conundrum all historians do: how does one reconcile individual actions, and actors, with systemic shifts?  The events in Libya right now offer a great example.  Masses of Libyans have risked their lives to demand democratic, responsive government.  Their courage, like that of their brothers and sisters in East Central Europe two decades ago or across the Arab world today, can only be admired.  Many of them have paid with their lives, or lost loved ones.  I am deeply saddened when I see postings that suggest such people are frauds.

Why do people rise up against tyranny?  Why do they risk their lives, taking up arms against forces far more powerful than themselves?  Those who impugn the motives of the people of Libya (or Egypt or Bahrain or …) cannot understand, perhaps, the power of the drive for justice, for respect.

I quote here from a speech by “General” John O’Neill, one of the leaders of the Irish Republican Brotherhood (aka, Fenians) in the USA after the Civil War.  O’Neill had been a captain in the Union Army; badly wounded (he seems to have lost the use of one arm) in 1863, he left the cavalry and became a captain, commanding a company in the 17th US Colored Infantry.  After the Civil war, O’Neill led the faction of the Fenians who wanted to invade Britain’s nearby colony, Canada.  He did so in 1866, winning a minor skirmish against Canadian irregulars (the so-called Battle of Ridgeway) before turning himself and his men over to the American army [promised supplies and reinforcements had not shown up].  O’Neill led two other abortive Fenian raids into Canada; in his 1870 abortive raid, in Vermont, he got arrested and stood trial.  On 30 July 1870, he made the following speech [the judge sentenced him to two years in jail; Pres. Grant pardoned him].

“As one of a persecuted race [the Irish – for those of you not familiar with 19th-century usage of the term “race”, the Irish were a race, the English were a race, etc.] – as one who had suffered at the hands of tyranny and oppression in my native land, I came to this country full of hopeful confidence that I should enjoy that liberty which was denied me at home.  I came to America like thousands of my countrymen, because I had been oppressed at home. … I could not, while fighting in the armies of the United States, when face to face with those who would haul down and trample beneath their feet the flag of freedom, and baring my bosom to their bullets – I could not forget that I was born in another land – a land oppressed and tyrannized over.  I cannot now forget it; I never shall forget it.  No matter what may be my fate here – I am still an Irishman, with all the instincts of an Irishman. … I may have been imprudent in my endeavors to ameliorate the condition of my native land.  There is a diversity of opinion on that subject, as there always must be upon such subjects.  Had George Washington failed in his endeavors, he would have been a rebel, and treated like a rebel by this tyrannical government that I would like to strike a blow against.”

We look back in wonderment at the folly of O’Neill’s invasion, or of the incessant risings in Ireland throughout the 19th century.  Yet do we not hear the echo of his sentiments in the cries of those in Benghazi, or, before them, in Tunis or Cairo, or today in Manama?  How much did John O’Neill in 1866 differ from Mohammed Nabbous (the Libyan blogger shot by a sniper in Benghazi just hours before the French airstrike) in 2011?  Every time I see that word “rebels” attached to the insurgents in Libya, I think of John O’Neill’s comments about George Washington.

How does a French historian come to know this story of US and Irish history?  John O’Neill had no children; his brother, Charles, was my great-great-grandfather.