Bosnia's international overlord (OHR) Inzko has thrown down the gauntlet: he has stated that Dodik has violated Dayton and announced that he will go to the Security Council. It is the culmination of a long policy of confrontation from both sides, but mostly from Inzko.
In the Dayton Agreement Inzko's function is described as a mediator. But Inzko hasn't shown any of the neutrality that is expected from a mediator. Instead he has extensively tried to use his "Bonn powers". These powers were after Dayton given to the OHR to enable him to counter obstruction like the blocking of refugee returns. Inzko abused them by instead trying to use them to "improve" Dayton. What he failed to perceive was the element of authoritiveness. Using the Bonn powers to fight obstruction was in the spirit of Dayton and as such Bosnia's Serbs could accept it. However, using these same powers to "reform" the Dayton Agreement in a way that makes it more acceptable for the Bosniaks and less acceptable for the Serbs definitely is not acceptable for them. By acting so Inzko has undermined the credibility of his function.
Dodik has reacted to this with his own challenge: he wants a referendum on the extension of the appointment of some international judges. He claims that these judges are prejudiced but he doesn't seem very serious about that: I haven't heard a list of complaints or seen a website that attacks the functioning of those judges. They definitely would be there if Dodik wanted to convince the international community of his viewpoint. Instead it looks like Dodik just is trying to pick a fight on a point where he thinks he can get the support of his population.
This confrontationist attitude may cost Dodik dearly. By shaping the confrontation as a challenge to the OHR and the international community he is doing exactly what his enemies wish: challenging the world's big powers openly more or less forces them to react. It looks like Dodik has become overconfident after his previous confrontations with Inzko and now wants to definitively dispower Inzko.
In my opinion both sides are foolish. Their behavior may seriously harm Bosnia.
Wednesday, December 30, 2009
Puzzled about Cyprus
The international community keeps pushing for a reunification of Cyprus. I have never really understood their eagerness. Their last proposal - that was rejected by the Greeks in a referendum - astonished me for its lenience towards the Turks. In my opinion you don't have a country when foreign (Turkish) troops are stationed there forever. The guarantees for the Turks against Greeks buying land also astonished me: the Greek did not get any guarantees against the Turks taking over more and more due to higher population growth and immigration from Turkey. This would become a hot issue when Turkey would become an EU member and as a consequence Turks from Turkey would get the freedom to settle on Cyprus.
In my opinion there is only one solution: partition. This is what the Turks advocate. The Greeks object because they think the Turks have taken more than their share of the island (1/3 of the island for 1/5 of the population). So I expect that a solution can only be reached when the Turks give up some of this territory.
Internationals may protest to such a solution as rewarding or acceptance of ethnic cleansing. And some of both communities who want to return to their old homes will object too. But unlike Bosnia where everyone speaks the same language Cyprus has two very different languages and cultures. I am pessimistic on the possibility to rebuild the delicate trust that was broken several decades ago.
In my opinion there is only one solution: partition. This is what the Turks advocate. The Greeks object because they think the Turks have taken more than their share of the island (1/3 of the island for 1/5 of the population). So I expect that a solution can only be reached when the Turks give up some of this territory.
Internationals may protest to such a solution as rewarding or acceptance of ethnic cleansing. And some of both communities who want to return to their old homes will object too. But unlike Bosnia where everyone speaks the same language Cyprus has two very different languages and cultures. I am pessimistic on the possibility to rebuild the delicate trust that was broken several decades ago.
Thursday, December 24, 2009
Why we are heading for the next economic crisis
With a total lack of economic reforms it seems clear that we are going towards the next bubble. The next crisis may make us look back to the present as a picknick.
For reason of its central position in the economy banks have government protection. This is supposed to result in a steady supply of credit to the business sector and private people. This protection and the access to cheap money from the central bank also constitute a hidden subsidy from the government for the banking sector. For this reason this protection has traditionally been reserved for commercial banks while business banks lack this protection.
Many people think that the Glass-Steagall act that regulated this separation was primarily for the protection of the commercial banks of the greater risks of the business banks. I don't agree. Glass-Steagall was introduced at about the same time that the US government introduced guarantees for the commercial banks. Its goal was to make sure the business banks didn't enjoy the same protection. This not only safed the government money. It also prevented ensuing distortions. Risk is a less important factor as it can be huge at commercial banks too: in periods of falling house prices commercial banks tend to suffer heavily.
Of course a separation between business banks and commercial banks has a price. A company need to keep contacts with two banks to get full service and both banks need to do extensive investigations to determine that it is safe to put money into a company. For this reason there is always the pressure from commercial banks to get more leeway to provide business services to companies. From ths 1970s this pressure succeeded and finally in 1999 Glass-Steagall was repealed.
This resulted in an extended financial sector that was de facto subsidized by the government. Of course this subsidy was hidden in guarantees and Central Bank loans but that didn't make it less real. Being subsidized this channel started to attract more and more money - at the expense of other channels. It was one of the factors that contributed to an increasingly endebted business sector.
In reaction to the credit crisis the banking sector was expanding and companies like Goldman Sachs got a status as bank. This certainly helped stabilize the crisis. But for the long term it was exactly the wrong development. Instead of expanding the guaranteed sector it should have been shrinked by forbidding banks to engage in activities outside their core or at least by making such activities unattractive by demanding large reserves. In addition banks should also be equired to have large reserves against any loans they make towards other financial institutions.
Such restrictions would actually help the recovery. Now much of the easy money disappears in all kind of speculation and such restrictions would make that less attractive.
The consequence of the present policies is that the easy money is stimulating bubbles while it contributes not much to permanent recovery. Sooner or later the new bubbles will burst. That time easy money will no longer be an option - many governments are too endebted - and we may face a real crisis.
For reason of its central position in the economy banks have government protection. This is supposed to result in a steady supply of credit to the business sector and private people. This protection and the access to cheap money from the central bank also constitute a hidden subsidy from the government for the banking sector. For this reason this protection has traditionally been reserved for commercial banks while business banks lack this protection.
Many people think that the Glass-Steagall act that regulated this separation was primarily for the protection of the commercial banks of the greater risks of the business banks. I don't agree. Glass-Steagall was introduced at about the same time that the US government introduced guarantees for the commercial banks. Its goal was to make sure the business banks didn't enjoy the same protection. This not only safed the government money. It also prevented ensuing distortions. Risk is a less important factor as it can be huge at commercial banks too: in periods of falling house prices commercial banks tend to suffer heavily.
Of course a separation between business banks and commercial banks has a price. A company need to keep contacts with two banks to get full service and both banks need to do extensive investigations to determine that it is safe to put money into a company. For this reason there is always the pressure from commercial banks to get more leeway to provide business services to companies. From ths 1970s this pressure succeeded and finally in 1999 Glass-Steagall was repealed.
This resulted in an extended financial sector that was de facto subsidized by the government. Of course this subsidy was hidden in guarantees and Central Bank loans but that didn't make it less real. Being subsidized this channel started to attract more and more money - at the expense of other channels. It was one of the factors that contributed to an increasingly endebted business sector.
In reaction to the credit crisis the banking sector was expanding and companies like Goldman Sachs got a status as bank. This certainly helped stabilize the crisis. But for the long term it was exactly the wrong development. Instead of expanding the guaranteed sector it should have been shrinked by forbidding banks to engage in activities outside their core or at least by making such activities unattractive by demanding large reserves. In addition banks should also be equired to have large reserves against any loans they make towards other financial institutions.
Such restrictions would actually help the recovery. Now much of the easy money disappears in all kind of speculation and such restrictions would make that less attractive.
The consequence of the present policies is that the easy money is stimulating bubbles while it contributes not much to permanent recovery. Sooner or later the new bubbles will burst. That time easy money will no longer be an option - many governments are too endebted - and we may face a real crisis.
Monday, December 21, 2009
The EU is making the same mistake twice
As they say, those who cannot learn from history are doomed to repeat it. Once the EU drove Yugoslavia into a civil war with a divisive policy that sets up one ethnic group against the other.
In 1991 EU nations secretly supported separationist preparations in Croatia and Slovenia. Then they prematurely recognized them under the excuse that Yugoslavia had dissolved: a distortion of the situation and dangerous exploit in international law that could be used against any multi-ethnic country. But perhaps the most dangerous was that the EU adopted the self-delusion that everyone would follow them. In fact nothing changed on the ground in Yugoslavia except that one side had gotten an ally and the other an adversary.
Rich provinces all over the world try to secede in the knowledge that they will be even richer when they no longer have to subsidize the rest of the country. In the case of Croatia and Slovenia there was the additional appeal of a speedy EU membership. Given these circumstances the secession of Slovenia and Croatia was probably unavoidable unless the EU adopted an explicit policy that took attraction of a speedy EU membership away. Instead the EU fell for Croat and Slovene propaganda that tried to paint their secession in moral colors. Milosevic was painted as an extreme nationalist. He wasn't. He was just asking what most politicians representing an underrepresented large ethnic group that felt discriminated against would have asked. His political methods weren't always nice, but he was faced with political adversaries in other republics who had extended their power far beyond what had been intended in the Yugoslav constitution. His involvement in mass urder in Bosnia was still in the future: for the moment his policies in Kosovo were very similar to Croatia's policies towards its Serb minority.
A sound policy would have taken a distance and let both sides struggle it out in the political arena. It would have stressed that without an agreement the republics were still part of Yugoslavia, but it the same time it would have discouraged violence or rigorous steps by the central government. Instead the "moral" view of the EU led to immoral behavior. It now considered the rebellious Serbs in Croatia as insurrectionists instead of one side in a conflict. And it discarded Croat discrimination as primarily Croatia's "internal affairs". The result was predictable: Croatia didn't see anymore need for caution in its treatment of its Serb minority and the Serbs didn't see any other way than armed conflict to achieve their goals. Bosnia's war started in a similar way.
One would have supposed that more than a decade later the West would do better with Kosovo. Instead we see exactly the same pattern. The EU again couldn't resist the temptation to choose sides: this time by recognizing Kosovo. It could have chosen a neutral position and appointed a neutral mediator, but instead it appointed Ahtisaari whose misguided principles ("Kosovo should never again under Serbian rule") made any other outcome than unilateral independence impossible. A real neutral negotiator would asked the Albanians to convince Serbia that the rights of the Serb and other minorities were guaranteed.
Now too the real bad things happen afterwards when the EU has no longer the capability to see the behavior of both sides in the same light. Where in Croatia the EU crossed the line with its ignoring of the maltreatment of Croatia's Serbs, it seems now poised to cross the line with the privatization of Brezovica. Anyone can see that that will inevitably result in the end of the employment of many Serbs there. Past actions, like the evacuation of the court house, concerned symbols. Here it concerns directly the survival of Kosovo's Serb minority. And just as in the past the EU hid behind declarations about Croat "sovereignty" it now hides behind Kosovo sovereignty and the Ahtisaari Plan.
In 1991 EU nations secretly supported separationist preparations in Croatia and Slovenia. Then they prematurely recognized them under the excuse that Yugoslavia had dissolved: a distortion of the situation and dangerous exploit in international law that could be used against any multi-ethnic country. But perhaps the most dangerous was that the EU adopted the self-delusion that everyone would follow them. In fact nothing changed on the ground in Yugoslavia except that one side had gotten an ally and the other an adversary.
Rich provinces all over the world try to secede in the knowledge that they will be even richer when they no longer have to subsidize the rest of the country. In the case of Croatia and Slovenia there was the additional appeal of a speedy EU membership. Given these circumstances the secession of Slovenia and Croatia was probably unavoidable unless the EU adopted an explicit policy that took attraction of a speedy EU membership away. Instead the EU fell for Croat and Slovene propaganda that tried to paint their secession in moral colors. Milosevic was painted as an extreme nationalist. He wasn't. He was just asking what most politicians representing an underrepresented large ethnic group that felt discriminated against would have asked. His political methods weren't always nice, but he was faced with political adversaries in other republics who had extended their power far beyond what had been intended in the Yugoslav constitution. His involvement in mass urder in Bosnia was still in the future: for the moment his policies in Kosovo were very similar to Croatia's policies towards its Serb minority.
A sound policy would have taken a distance and let both sides struggle it out in the political arena. It would have stressed that without an agreement the republics were still part of Yugoslavia, but it the same time it would have discouraged violence or rigorous steps by the central government. Instead the "moral" view of the EU led to immoral behavior. It now considered the rebellious Serbs in Croatia as insurrectionists instead of one side in a conflict. And it discarded Croat discrimination as primarily Croatia's "internal affairs". The result was predictable: Croatia didn't see anymore need for caution in its treatment of its Serb minority and the Serbs didn't see any other way than armed conflict to achieve their goals. Bosnia's war started in a similar way.
One would have supposed that more than a decade later the West would do better with Kosovo. Instead we see exactly the same pattern. The EU again couldn't resist the temptation to choose sides: this time by recognizing Kosovo. It could have chosen a neutral position and appointed a neutral mediator, but instead it appointed Ahtisaari whose misguided principles ("Kosovo should never again under Serbian rule") made any other outcome than unilateral independence impossible. A real neutral negotiator would asked the Albanians to convince Serbia that the rights of the Serb and other minorities were guaranteed.
Now too the real bad things happen afterwards when the EU has no longer the capability to see the behavior of both sides in the same light. Where in Croatia the EU crossed the line with its ignoring of the maltreatment of Croatia's Serbs, it seems now poised to cross the line with the privatization of Brezovica. Anyone can see that that will inevitably result in the end of the employment of many Serbs there. Past actions, like the evacuation of the court house, concerned symbols. Here it concerns directly the survival of Kosovo's Serb minority. And just as in the past the EU hid behind declarations about Croat "sovereignty" it now hides behind Kosovo sovereignty and the Ahtisaari Plan.
Friday, December 11, 2009
The appeasement of China
When one studies the runup towards World War II the appeasement of Germany plays an important part. It was not just Munich 1938: on many prior ocassions (like the remilitarisation of the Rhineland) Germany had imposed its will with fait accompli's and military threats. In many cases Germany was just ondoing unfair provisions of the Versailles Treaty. Yet the effect was the same: Germany became used to getting its way unilaterally and became overconfident.
In China we see now a similar pattern. Everybody knows that China will have to do something about its trade surplus and its undervalued renminbi. Yet Obama (just as Bush before him) are too timid to say it openly. Instead they let themselves be lectured again and again by arrogant Chinese leaders. At the end of his last visit to China Obama even signed a common declaration that was widely seen a kowtowing to China's ambitions for regional hegomony.
The price of this indulgence is becoming higher and higher. The world economy is getting seriously out of balance and may end up in a crisis. China's leaders become more and more bold in their demands. Their recent noise about the Dalai Lama's visit to the Tamang region in India was the most striking example. And when one reads posts by Chinese on the internet it becomes clear that the problem is much wider. Many of them are extremely nationalist and quite a few threaten with war if China doesn't get its way.
One can only hope that it doesn't take too long before mr. Obama finally realizes that he can keep giving in to China forever because it will only lead to a steady increase of their demands. And this concerns not only the US: Other countries face the same problem with China.
In China we see now a similar pattern. Everybody knows that China will have to do something about its trade surplus and its undervalued renminbi. Yet Obama (just as Bush before him) are too timid to say it openly. Instead they let themselves be lectured again and again by arrogant Chinese leaders. At the end of his last visit to China Obama even signed a common declaration that was widely seen a kowtowing to China's ambitions for regional hegomony.
The price of this indulgence is becoming higher and higher. The world economy is getting seriously out of balance and may end up in a crisis. China's leaders become more and more bold in their demands. Their recent noise about the Dalai Lama's visit to the Tamang region in India was the most striking example. And when one reads posts by Chinese on the internet it becomes clear that the problem is much wider. Many of them are extremely nationalist and quite a few threaten with war if China doesn't get its way.
One can only hope that it doesn't take too long before mr. Obama finally realizes that he can keep giving in to China forever because it will only lead to a steady increase of their demands. And this concerns not only the US: Other countries face the same problem with China.
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