Category: Daniel Serwer
Hangover coming
The folks celebrating the referendum “no” vote in Syntagma Square tonight in Athens are going to have a bad hangover. The Germans will likely stand firm, since doing otherwise would risk undermining the euro’s credibility. If Prime Minister Tsipras respects the referendum, Greek banks are unlikely to have sufficient euros to reopen as scheduled Tuesday.
Athens will need to issue a new currency, which will take time. Once issued, it will fall rapidly in value, making repayment of euro-denominated debt even more difficult. Several debt payments are due during July. The biggest slice is, ironically, owed to Germany (via Aljazeera): 
Sixty per cent is owed to EU member states and the European Central Bank (ECB). The amount is however relatively small from their perspective, so the default is unlikely to affect the euro much, unless nervousness spreads to Portugal, Italy and Spain. The ECB will want to focus its resources on preventing contagion. Negotiation of the “haircut” on the existing debt, which is what Greece hopes for, will take months if not years, making lenders leery of pouring good money after bad.
Out of the euro and issuing its own currency, Greece will theoretically be able to increase its exports and decrease its imports. But austerity will not end. Greece’s government will be insolvent and not creditworthy, making it impossible to stimulate the economy (or even pay government workers and pensions, except by printing money). Russia may ante up, but with far less than the situation requires. It will also insist on tough terms. Religious orthodoxy is no substitute for repayment guarantees.
Politics could intervene at any point, forcing Prime Minister Tsipras out and leading to formation of a new government committed to cleaning up the mess. But it will be years before confidence is restored. Greece has chosen a hard road that leads to an uncertain destination. Greece used to think it could get the Elgin marbles back from London. Now it will be lucky if it doesn’t have to mortgage the Parthenon.
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Independence and interdependence
It is Independence Day in the US, which marks 239 years since the representatives of the thirteen colonies declared in 1776:
That these United Colonies are, and of Right ought to be Free and Independent States; that they are Absolved from all Allegiance to the British Crown, and that all political connection between them and the State of Great Britain, is and ought to be totally dissolved; and that as Free and Independent States, they have full Power to levy War, conclude Peace, contract Alliances, establish Commerce, and to do all other Acts and Things which Independent States may of right do.
The war that had begun the year before at Lexington and Concord (Massachusetts) continued, ending only in 1781 at Yorktown (Virginia). The peace was signed only in 1783 in Paris.
The United States and the United Kingdom fought again in 1812-15, but the UK did not intervene in the American civil war. By then British sentiment was mainly anti-slavery but the UK still relied on cotton produced in the Confederacy and feared industrial competition from the American north. It was only in the 1890s, more than a hundred years after the revolution, that America’s familiar friendly ties with the UK began to be established.
I tell this story not only because it is July 4, but also because it provides perspective on some of today’s problems. Kosovo and South Sudan are the world’s newest “independent” states. It would be easy to bemoan their current situations. Kosovo is suffering from economic doldrums and serious corruption. South Sudan is suffering a ferocious civil war that overshadows the economic doldrums and corruption that would otherwise be much in evidence.
Neither country is yet 10 years old. Kosovo has made good progress in normalizing its relations with Serbia, which is potentially Kosovo’s biggest market and its most obvious security threat. Khartoum may be aggravating South Sudan’s problems, but they are mainly internal. If only because of the Nile, which flows through both, Sudan and South Sudan will need eventually to establish what the Europeans like to call “good neighborly relations.”
Other trouble spots in the Middle East are also relatively young independent states: Libya (1951), Egypt (nominally 1922, but British troops didn’t leave until 1956), Yemen (British soldiers left in 1967, but the current state dates from the unification of north and south in 1990), Syria (1945) and Iraq (1932). They are suffering mainly from internal conflict, all too often precipitated or aggravated by outside powers. It is tempting to think that 100 years is still a reasonable time frame for state consolidation. Some of these states may not make it to that milestone.
Ukraine is in a similar situation. It achieved independence only in 1991 after the collapse of the Soviet Union. It would have had internal problems in any event, but Russia has aggravated them by annexing Crimea and invading two of Ukraine’s eastern provinces.
Independence is hard, but many countries figure out how to govern themselves if left to their own devices. It is the interdependence dimension that often causes problems. The Saudi/Iranian rivalry has aggravated internal conflicts in Yemen, Syria and Iraq. Egypt and Libya have generated most of their own problems, which Islamic State affiliates are exploiting.
I can only wish that the evolution in the Middle East will follow the course that US/UK relations took, with many ups and downs, during the 19th century. Iran and Saudi Arabia, which are doing so much to fuel conflict today, have good reason to come to terms. Both are spending too much to achieve too little in Syria, Iraq and Yemen. ISIS challenges them both. It is not hard to imagine a positive-sum outcome to their current negative-sum rivalries. Interdependence may be hard, but it is a lot better than war.
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Unfuck Greece
It is difficult to write anything about Greece in the current confused course of events, but I thought this Guardian video captured the situation well:
Unfucking Greece will not be easy. I take it this is the International Monetary Fund report the government is relying on to claim that austerity won’t work. But what the report says is that the debt is unsustainable because of Greek government policy failures.
Later today the Greek Council of State is supposed to rule on the validity of Sunday’s referendum. If it goes ahead, it will be a referendum on staying in the eurozone, though the question posed is not about that but rather about the austerity package the European Union has been pressing.
If I were betting, it would be on a Greek exit from the eurozone, which seems to be the only way to force its creditors into restructuring and reducing its debt. But anyone expecting the good life to return with the drachma is fooling themselves. Devaluation will impoverish Greeks even further.
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Grexit is no exit
Here is Greek Prime Minister Tsipras announcing Sunday his intention to default on the country’s International Monetary Fund obligations:
What? You didn’t hear the announcement? Welcome to the Greek hall of mirrors, where calling a referendum triggers default but is announced to the public as a necessary exercise in democracy, unjustifiably opposed by Eurocrats.
Timing isn’t everything in international affairs, but it does count. Had Tsipras wanted to go to a referendum, he needed to call it earlier than he did and schedule it in advance of the default deadline, which is today.
He is right, however, about fear. And Greeks have a lot to be afraid of. Their banks are closed and may never reopen in a euro-denominated economy. People are withdrawing as much as they can at ATMs. A “no” vote in the referendum will end Greece’s access to euros and force it to print drachmas again, which will plummet in value and impoverish the whole country. A “yes” vote may lead to fall of the government, an interim administration, and the austerity Tsipras was trying to avoid, with serious consequences for pensions and jobs.
I suppose Russia may come to the rescue with a big loan, but that is a fate I’m not sure I would wish on my worst enemy. Putin’s money comes freighted with conditions and cronyism. It also has to be paid back.
However this plays out, Greeks don’t get a way out of the predicament into which they have driven themselves. At best it will be years before a semblance of normality returns. Ordinary people who have worked hard and saved will pay the price. The politicians who created the problem and others who then failed to solve it will try to reap support from the resentment Greeks will justifiably feel. Greece may be leaving the euro (or not), but it has no way to leave its problems behind.
Grexit is no exit.
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Self-defeating
Shpend Limoni at Pristina daily Gazeta Express asked some questions this morning about the defeat in the Kosovo parliament of the much-discussed proposal for a special court to prosecute some war crimes cases. Here in English are his questions and my replies:
Q: Kosovo rejected the creation of Special Court on yesterday’s vote in Parliament. US Ambassador Samantha Power a couple of days ago said that this issue would be a test for Kosovo leader’s credibility. Is there any consequence that Kosovo will face in the future?
A: Yes. At the very least, Kosovo will be seen as unwilling to administer justice to those who sullied the reputation of the Kosovo Liberation Army by committing war crimes, crimes against humanity and murder. For a country seeking international recognition and acceptance, that is not good.
There is nothing patriotic about such crimes—a Kosovo patriot should want to see the perpetrators brought to justice.
I hasten to add that it is not easy to do that. It is still too difficult for the Kosovo judicial system, which in any event has no jurisdiction over crimes committed in Albania. There is no realistic possibility of a serious prosecution in Kosovo.
Q: Prime Minister Mustafa and his Deputy Hashim Thaçi said that issue of Special Court would be on Kosovo Assembly agenda soon rejecting the creation of Tribunal by UN. Is it to late for Mustafa and Thaçi?
A: My understanding is that the constitutional amendment required failed to get a two-thirds majority by just five votes. That could change tomorrow if the political will can be found.
Q: US ambassador in Prishtina Tracey Ann Jacobson on here first reaction said that US won’t put veto against initiatives to establish a Tribunal under UN mandate. Do you think such Tribunal will be imposed?
A: Foreign Minister Thaçi said it well in Parliament: “We have two options: to create this court ourselves, together with the EU and U.S., and to end this issue once and for all in three to five years; or we fail and it will go to the U.N. Security Council where the court will be created by the opponents of Kosovo independence and will last 15 to 20 years.”
The sad fact is that Kosovo in the future will find it difficult to get many kinds of help from the US and EU if this decision stands.
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What’s the alternative to a deal?
Not long ago, President Obama’s legacy was said to be up for grabs. He faced three big outcomes with more or less a June 30 deadline: the Supreme Court decision on Obamacare, Congressional approval of “fast track” (trade promotion authority, which allows only an up or down vote on trade agreements without any amendments), and the Iran nuclear deal.
He has now won the first two bets (in addition to housing discrimination and gay marriage). The third however is a biggy, even if the real deadline may be July 9.
So many people have written so many intelligent things about what a nuclear deal with Iran should contain that it is difficult to contribute. But my own personal criterion for whether the deal is acceptable or not is just this: is it better than no deal?
To assess that, we need to understand what no deal would mean. There is more than one possible scenario:
- Best case: the Joint Plan of Action is maintained, which would continue IAEA inspections and limits on Iran’s uranium enrichment and stockpiles as well as its plutonium production.
- Worst case: the Joint Plan of Action and multilateral sanctions go down the drain, along with IAEA inspections and pursuit of questions about the possible military dimensions (PMDs) of Iran’s past activities.
The worst case is really very bad. It would not be hard for an imperfect agreement to be better than that.
The decision then boils down to whether we can somehow keep the Joint Plan of Action, multilateral sanctions, and IAEA inspections as well as work on PMDs intact if the talks break down.
This issue is path dependent. Maintaining sanctions in particular depends on who causes the breakdown in negotiations. If the US is perceived to reject an agreement that the Russians, for example, think adequate, why would they agree to continue to do their part on sanctions? They might even be inclined to block IAEA inspections as well as its work on PMDs. Even Germany might abandon our cause, which would end European Union sanctions.
So to those who think the diplomacy useless, I say this: without it, you have no chance of avoiding the worst-case scenario, which is patently worse than even a bad deal with Iran. Ditching the talks leaves the US with no other option than war.
That of course is what some people want. Let us suppose that the United States can destroy all of Iran’s key nuclear infrastructure (centrifuges and centrifuge production facilities as well as plutonium production reactor), without suffering any significant military losses or precipitating Iranian retaliation against Israel or American interests in Iraq, Syria and Lebanon (or elsewhere). That’s a giant and highly unlikely assumption, but so be it.
No one I know thinks that would delay the Iranians from developing nuclear weapons for as many as ten years, which is the minimum the nuclear deal claims to do. The best advocates of war can do is to suggest Iranians might overthrow the regime in the wake of war or that we’ll repeat the exercise as needed. But there is no guarantee a successor regime would be any less committed to nuclear weapons than the current one, or that the Iranians will oblige us by rebuilding their nuclear program in ways we will find possible to destroy the next time around.
There are definitely deals that will not fly however. Last week Supreme Leader Khamenei chimed in suggesting that Iran wants sanctions lifted before implementation and verification of its obligations and no IAEA visits to Iranian military sites. Those are deal breakers for the Americans, who should expect an agreement with such provisions not to be disapproved in Congress, perhaps even with a veto-proof majority.
Ray Takeyh in this morning’s Washington Post opposes the deal on the basis that it will give Iran ample resources for its regional troublemaking. But he doesn’t consider the alternatives. Iran isn’t going to make less trouble in the region as a nuclear power, or as one that has suffered an American military attack.
Negotiating leverage comes from your best alternative to a negotiated solution. Those who don’t consider what that is are fated to make big mistakes.
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