Day: August 9, 2011
Forget the downgrade
Forget the downgrade. It really is a non-event given the decline in U.S. government bond rates. If the world is still willing to buy USG paper, why should anyone worry about how S&P rates it? Though I hasten to add that I think S&P had a point: the Tea Party has demonstrated it will stop at nothing, including default, to try to ensure that President Obama is not reelected.
The downgrade did not cause the fall in stock markets. It is the shrinking prospects for growth that did that. The debt deal is clearly deflationary. It will reduce aggregate demand by reducing government expenditures. Reduced demand means less growth.
Among the more interesting but little noted things that happened yesterday was the European Central Bank purchase of Italian government bonds. This kind of central bank support for government finance is verboten in Europe. The Fed calls it quantitative easing, and it is precisely what the Germans think should not happen in monetary policy. They’ve got to be pretty desperate to go along with it.
Some of you will know that I spent 10 years in Italy, whose government paper is now declining sharply in value. That’s a problem because a lot of it is held by European (and American) banks. The big worry is that depositors will think the banks shaky and decide to withdraw their funds. A “run” on the banks–in Italy or elsewhere–could be catastrophic. As in: need a lot of government funds, potentially dwarfing the U.S. bank bailout.
So what does all this have to do with peace and war issues? Tight budgets and potentially large bailout costs make it hard for many governments to think about, much less execute, operations abroad. We are broke. The Europeans are broke. Some will welcome a major retrenchment; others will think it a really bad idea to pull troops from commitments in Afghanistan, Iraq and elsewhere. But the pressures for retrenchment are going to be enormous.
The right approach is to see this as an opportunity to define our priorities more clearly. Triage is necessary: which commitments really do serve our national security interests? which don’t? are there alternative (and cheaper) ways to meet our goals? are there others who should pitch in more?
The United States has traditionally depended on its military to execute much of its foreign policy. Military spending has doubled since 9/11, not counting the costs of the wars in Afghanistan and Iraq. Are we using an effective but expensive military instrument in the best ways we can? is it the appropriate instrument for the purposes for which it is being used? are there alternatives?
The questions are obvious. The answers are not. I’ll be trying to offer some answers over the next few months, as this is precisely what the book I am writing is about. So stay tuned: we are going to explore American foreign policy in a century that is still young but is already challenging us think hard about national priorities and the instruments of foreign policy.
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Is Macedonia better off with Ohrid?
I am hoping to be in Ohrid Saturday. Here is an interview I did with Slobodanka Jovanovska of Utrinski Vesnik, a Macedonian daily. They planned to publish it today:
1. You will take part in conference about the ten anniversary of Ohrid Agreement. What will be your message there?
A. The Ohrid Agreement saved and consolidated the Macedonian state. That in my way of thinking is an excellent achievement. I find it hard to imagine that there are many people in Macedonia—Macedonians, Albanians or others—who think they would be better off today without the Ohrid agreement.
2. Macedonia celebrates the Ohrid Agreement, EU countries and US call it major achievement. If it is so good, why no one of the neighboring countries is not using this experience and, even implement the opposite policy? Greece is not recognizing minorities, Bulgaria didn’t allow questions about ethnic origin in the last census, Albania the same…
A. Each country has its own circumstances and will implement policies it thinks appropriate. I think it is a mistake to deny people the opportunity to define their own ethnic origin in a census, but I have to admit that the issue is a sensitive one also in the United States. We have moved in the direction of allowing more choices, but that is because we have confidence that the vast majority of citizens of all ethnic groups consider themselves first and foremost Americans. Maybe unwillingness to allow more choices reflects fear that some citizens will choose other identities as primary. Greece in particular seems to suffer from this fear.
3. There is a resolution in the US Congress calling for decrease of US aid to Macedonia, for conditioning it with the name dispute and referring to the country as FYROM instead of Republic of Macedonia. In Macedonia it was understood as a sign that Barack Obama’s administration is changing sides and inclining more to the Greek positions about the name dispute?
A. It is important to remember that the United States has separation of powers: the Administration is distinct from the legislative branch, where there has long been sympathy with the Greek perspective on the name dispute. It is also true that both President Obama and Vice President Biden have previously indicated sympathy with the Greek perspective when they were in Congress. The Administration clearly wants to see a compromise, and in the last year or two has come to the conclusion that Skopje is more an obstacle to compromise than Athens.
That said, the United States still recognizes Macedonia as Macedonia. I trust Skopje’s diplomats are doing everything they can to keep it that way.
4. How you you see Macedonia-American relations now? Good, excellent, downgraded…
A. So far as I know, relations are good, but I have to admit that few in Washington see Macedonia’s problems as among America’s top priorities.
5. From this time distance, do you think that the veto for Macedonia’s membership in NATO, initiated by Greece and supported by other countries, provoked some steps forward in the country?
A. I really don’t know, but I’d like to see Macedonia in NATO, where it belongs. If it remains willing to enter as FYROM, I think Greece should allow it to happen.
6. How do you comment the controversial project Skopje 2014?
A. I don’t. But I would note that Washington DC was designed in the late 18th century as the “new Rome.” Dreams of grandeur are not limited to Skopje. I just hope you have the money to pay the bills for it.
7. The leader of the Albanian coalition party DUI, Ali Ahmeti, last week said that he will not be able to guarantee the peace in Macedonia if Kosovo is destabilized and divided? Do you agree that the crisis in Kosovo inevitably will provoke crisis in Macedonia and what should be the role of Albanian leaders here?
A. Proposals to divide Kosovo cause strains not only in Macedonia but also in Serbia and Bosnia as well. The proper role of Albanian leaders in Macedonia will be to try to ensure that pan-Albanian political forces do not take advantage of the situation, but that will not be easy. One thing is clear though: the Albanians in Macedonia have a far stronger role in Skopje, partly due to the Ohrid agreement, than they would have in any Greater Albania.
8. This fall the International Court of Justice in Hague will decide about the case of Macedonia against Greece, about the veto in NATO. What you think could be decision and whether it will change something?
A. I really don’t know what the legal decision will be, but I think it is wrong for Greece to veto Macedonian (in fact FYROM) membership in NATO.
9. For the first time in the last US report for human rights there was a part about political prisoners in Macedonia. Independent media almost disappeared in the country, and instead of creating transparent and free society, the Government is hunting people, “collaborators to the secret services.” Why there is such a silence about this political climate in Macedonia in US and also in EU?
A. There are a lot of other problems in the world that affect the EU and US directly: Libya, Syria, Afghanistan, Lebanon, Israel/Palestine, Yemen, Iran, North Korea, just to name a few. I think Brussels and Washington expect Macedonia to care for itself these days and not to rely too much on EU and US intervention.
10. Was the decision to give up the prosecution of war crimes in Macedonia during 2001 the right one? Is it possible to give amnesty for war crimes?
A. I am not a lawyer, but my understanding is that there is no amnesty for war crimes and crimes against humanity. But in many countries prosecutors have discretion. If Skopje has decided to exercise that discretion, I would want to think twice before suggesting it was a mistake.
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