Western cowardice in the Balkans (2x)

This weeks saw several illustration of Western reluctance to take important decisions, despite evidence that delay may only make matters worse.

The Greek debt
One year ago Greece received a large loan from the EU. Now it is back for more. Unexpected? No! Because Greece didn't keep its commitments? No! It was calculated from the beginning. The only thing that might have prevented a new Greek crisis was when the markets might have suddenly developed faith in Greece and decided to give it new loans against decent rates. But that was very unlikely: Greece was forced to large budget cuts and that usually translates in a shrinking economy; creditors don't like that.

The real problem are Greece's creditors. Because of the uncertainty they change higher interest rates and that put Greece in a hole from which it is difficult to get out. Normally a country's debts is restructured when in such a situation. That may mean that part of the debt is forgiven but it may also mean that the creditors just have to wait a little longer for their money.

And this is where things get dirty. With the first aid operation a year ago their was no "restructuring". It it suspected that Lagarde, who coordinated that support operation and as a consequence has now the best cards to become the next head of the IMF, did so to protect the French banks who are major creditors to Greece. Some people believe that this background and the bad result of the operation make Lagarde a bad choice for this job.

This time another Frenchman, Trichet, the head of the European Central Bank is trying to prevent a "haircut" for the banks. Yet his arguments that such a haircut might have disastrous consequences sound hollow. That countries go broke is a normal thing. If the European financial system cannot bear such a development then that means that Trichet has failed in his job as overseer of the financial sector. he doesn't have much power in this respect but he certainly has a moral authority that he hasn't used.

In the mean time Greece stays in the twilight zone. This has both good and bad consequences. The good thing is that there finally seems to be some momentum to modernize the way Greece is administered. One bad thing is that financial uncertainty leads to stagnation. The longer the situation isn't solved the worse it is for the European economy. Another bad thing is that Greece may be forced to excessive cuts and privatizations that will harm it in the long term. I would advise Greece to simply refuse such prescriptions.

Trichet is both right and wrong. Restructuring the Greek debt may have serious consequences. But delaying it has consequences as well and it is very likely that the longer we delay it the larger the total damage will be. Often the fall of Lehman Brothers that triggered the crisis in 2008 is used as an deterring example. But companies go broke all the time. The real problem with Lehman Brothers was that the central bankers hadn't taken the precautions that made it possible to handle such a bankruptcy in an orderly way.

P.S. Here is an article that discusses the way

Kosovo's borders
While Europe keeps stumbling along with the Greek debt the US showed very similar behavior when Assistant Secretary of State Philip Gordon declared himself against a partition of Kosovo. According to him it would be "a a recipe for disaster for the Balkans".

It looked hardly liked a balanced statement. Being in the Balkan Gordon has very probably heard the usual threats ("if that happens our people will riot") and his statement may have been a result of that.

The result is that Kosovo stays in the twilight zone too. It will not be recognized and its relation with its Serb minority will stay tense. We see something very similar happening in Bosnia.

Here too the West is only delaying. The problem stays, keeps causing harm and may in the end very well be "solved" in a less decent way - like Operation Storm solved Croatia's ethnic trouble. Not to mention that such "solutions" may very well lay the foundation for new conflicts.

So Gordon too takes the way of the coward - avoiding solutions because their implementation is tricky and can get out of hand. This is the wrong way. The West should together with the local ethnic groups find solutions and find ways to implement them. That will take both an open ear, an instinct for fairness and diplomatic skills.