I have plead before for letting the markets have their way with the currencies of Serbia and other countries. This time I want to explore the arguments for it.
The British pound fell 30% against the euro in 2008 and the fall is continuing. Yet the British Central Bank lets it go. It has learned its lesson from 1992 when Soros made US$ 1.1 billion speculating against the pound. Yet surprisingly countries that are new to free markets don't show this reluctance. Russia has spent $200 bln supporting the ruble until now - and has little to show for it. Serbia and other countries keep supporting their currencies too.
Their are basically two supporters for this monetary support: the IMF and the EU:
- the IMF operates defends the interests of foreign creditors. As local companies will need more local money to pay their foreign bills after a devaluation some will get in trouble and go broke. This means that the foreign creditor won't see its money. IMF doesn't like that.
- the EU aims for extending the euro zone. Countries who want to enter this zone need to keep their currencies in line with the euro for some time.
However, one can wonder whether the euro is really such a success as the EU paints it. I love being able to travel without having to change money. But the business case for the euro is weaker: The EU likes to stress how many billions are saved by not having to change money and not having any currency risk. Yet it doesn't show in the rather weak economic growth figures of the euro zone. Given the poor performance of the Euro zone until now in the economic crisis (we do worse than the US) this crisis may well mean the end of the Euro as we know it.
Very threatening is that nowadays people start openly talking that some country in the euro zone might go broke (the favorite examples are Greece and Italy). Italy used to have a high inflation economy and it regularly adapted the exchange rate to keep its currency competitive. This worked very well and Italy had a vibrant economy. Nowadays Italy is in the low inflation euro zone and it seems to have difficulty adapting to it. Being to able to devalue it currency was seen as a blessing by the Italians - not as a curse. This brings me to Slovakia that is very happy that it doesn't have to support its currency as it has entered the euro zone. I wonder whether they still will be happy in a year or two - or that they will broke as it proved to difficult to adapt their economy to the new reality without a devaluation. They are lucky that they didn't have a very skewed trade balance. But the crash of the car market may destabilize their economy.
An often heard objection against devaluation is that people will become poorer as they can buy less for their money. But that ignores that the country is living above its means and that it needs to reduce its trade deficit. Doing so with a devaluation spreads the pain equally over all citizens. The alternative (that the IMF favors) is firing thousands of government employees and stopping most government investment. That means spreading the pain less fair and usually with more damage to the economy.
One has also to consider the price one pays for an overvalued currency. It not only leads to an ever-increasing foreign debt, it also harms the national industry that cannot compete against the foreign imports. Supporting the currency subsidizes foreign imports at the expense of the local industry. All the Asian fast growth economies had an undervalued currency. The only country that used to have a sound economy combined with a strong currency was Germany with the Mark. But Germany compensated it with a very conservative fiscal policy, leading to trade surpluses.
At the moment one can see both models existing next to each other. While Ukraine has - on advice of the IMF - floated its currency that since has halved in value the Baltic states have kept their currency locked to the Euro - and they are paying a heavy price for that. It will be interesting to see which countries come out the best in the long term. In the mean time the Baltics lobby for a fast entry to the Euro zone.
Thursday, February 05, 2009
Ethiopia, Yugoslavia, Soviet Union
Today I attended a lecture from an Ethiopian exile who is worried about the future of his country. He fears that it may fall apart with the present legistlation. Ethiopia is a country where no ethnic group has the majority and the largest group (the Oromo) is not the dominant group. However, the country has a very long history.
Ethiopia is at the moment a one-party state. This party was originally marxist, but in its economic policies it has given up on communism. However, its minority policy is a carbon copy of how the communists treated minorities in Yugoslavia and the Soviet Union.
On paper it looks all very nice: lots of minority rights (including the right to secession). Many Western activists love it as the right way to treat minorities. However, it is a kind of Macchiavellian divide-and-rule strategy that cuts the country up in a multitude of rivalling ethnic groups. It leaves an empty center that is only filled by the party. Nothing else is left on that level to challenge the domination of the party.
Countries pay a heavy price for such a policy:
- on the short term there are increasing tensions and low scale violence between ethnic groups. In Ethiopia this is visible in increasing number of deaths. Problematic is that often the local authorities are not neutral and the central government refuses to interfere.
- things become critical when the party falls apart. Then there is nothing left to keep the country together as the communists have removed many of the central institutions. In this situation Czecheslovakia, Russia and Yugoslavia have fallen apart. And even Ethiopia with its long history is at risk. People wonder whether the party would survive its present leader.
One can only wonder whether the West will take the lessons from Yugoslavia and the Soviet Union to heart: That the absence of credible central institutions doesn't mean that people don't believe in the state any more. Holding national elections and creating new central institutions should get priority above breaking up yet another state.
Ethiopia is at the moment a one-party state. This party was originally marxist, but in its economic policies it has given up on communism. However, its minority policy is a carbon copy of how the communists treated minorities in Yugoslavia and the Soviet Union.
On paper it looks all very nice: lots of minority rights (including the right to secession). Many Western activists love it as the right way to treat minorities. However, it is a kind of Macchiavellian divide-and-rule strategy that cuts the country up in a multitude of rivalling ethnic groups. It leaves an empty center that is only filled by the party. Nothing else is left on that level to challenge the domination of the party.
Countries pay a heavy price for such a policy:
- on the short term there are increasing tensions and low scale violence between ethnic groups. In Ethiopia this is visible in increasing number of deaths. Problematic is that often the local authorities are not neutral and the central government refuses to interfere.
- things become critical when the party falls apart. Then there is nothing left to keep the country together as the communists have removed many of the central institutions. In this situation Czecheslovakia, Russia and Yugoslavia have fallen apart. And even Ethiopia with its long history is at risk. People wonder whether the party would survive its present leader.
One can only wonder whether the West will take the lessons from Yugoslavia and the Soviet Union to heart: That the absence of credible central institutions doesn't mean that people don't believe in the state any more. Holding national elections and creating new central institutions should get priority above breaking up yet another state.
Sunday, January 25, 2009
The roots of Ahtisaari's Kosovo mistake
The Financial Times had lunch with Ahtisaari. It didn't come cheap (€284.45 for two people), but it gives a nice view in the way Ahtisaari thinks.
Ahtisaari (1937) joined the Ministry for Foreign Affairs of Finland at the age of 28. Before he had been involved in development aid. He made career and became Finland ambassador in Tanzania in 1973. Part of this job was keeping contact with liberation movements in southern Africa. This resulted in a UN job that made him responsible for Namibia in 1976. He stayed involved until Namibia's independence in 1989. Ahtisaari sees this as his greatest accomplishment and according to the article the Namibia agreement served as a model for South Africa later on.
Ahtisaari has tried to apply the lessons he learned from Namibia elsewhere. The lesson that he explicitly mentions is "I don’t think you can get any solution without the Americans, in most of the conflicts". I beg to disagree. Sure, the US can spoil negotiations: for years it supported Apartheid in its battle against communism and recently it torpedoed negotiations between Israel and Syria. But the record of the US in positively influencing peace is rather poor. About every other year it has some peace initiative in the Middle East, yet the only time it achieved something were the Camp David agreements in 1978. Usually the US is too pro-Israelian to achieve anything, but this time it was strongly motivated to get Egypt in its sphere of influence and outside Russia's.
Namibia happened to be another case were the US position helped instead of obstructed. The US had become convinced that Apartheid was no longer defensible. Yet it was afraid of the pro-communist leanings of the liberation movements. So it pressed for a solution that stressed democracy and guaranteed free markets. This position fitted with that of Namibia's white rulers as it protected them against nationalizations, land redistribution and other redistributive policies. It was the kind of chance that would hurt the Whites the least and so was most acceptable to them.
Kosovo was more like the Middle East. Lacking strong interests for itself the US had adopted the Albanian position as its own. This bound it to such unfortunately strict ideas as "no border changes". By adopting this as his own position Ahtisaari made it very difficult for himself to find a solution.
Another point that Ahtisaari doesn't mention is "principles". In the case of Namibia the principle that Apartheid was no longer acceptable played a strong role. I suppose that Ahtisaari derived from this the idea that the Kosovo negotiations needed a principle too. This became the idea that Serbs should no longer rule over Kosovo. I think that this was a major blunder as it declared the Albanian bad experiences with Serb rule and their wish not to repeat it as fundamentally different from the Serb bad experiences with Albanian rule and their wishes in this regard.
A third lesson may have been that you can solve everything by just having the right laws. The Whites in Namibia were happy without much minority protection, so why shouldn't the Serbs be able to do the same. This ignored the fact while the Whites in Namibia negotiated from a position of power the Serbs negotiated as a persecuted minority, half of which lived in exile. Being in a much worse position they need much stronger guarantees that this position will be improved.
Finally there is Ahtisaari modus operandi. He is a typical networker whose strength is that he knows so many people who can help him to solve a problem. However, once seeing him in a lecture gave me the impression that he is not very fond of details. I couldn't find a sign that he has any idea what the situation on the ground in Kosovo looks like.
Ahtisaari has been asked to mediate in the Croatian-Slovenian border conflict. He would be part of a troika that might also include Badinter.
Ahtisaari (1937) joined the Ministry for Foreign Affairs of Finland at the age of 28. Before he had been involved in development aid. He made career and became Finland ambassador in Tanzania in 1973. Part of this job was keeping contact with liberation movements in southern Africa. This resulted in a UN job that made him responsible for Namibia in 1976. He stayed involved until Namibia's independence in 1989. Ahtisaari sees this as his greatest accomplishment and according to the article the Namibia agreement served as a model for South Africa later on.
Ahtisaari has tried to apply the lessons he learned from Namibia elsewhere. The lesson that he explicitly mentions is "I don’t think you can get any solution without the Americans, in most of the conflicts". I beg to disagree. Sure, the US can spoil negotiations: for years it supported Apartheid in its battle against communism and recently it torpedoed negotiations between Israel and Syria. But the record of the US in positively influencing peace is rather poor. About every other year it has some peace initiative in the Middle East, yet the only time it achieved something were the Camp David agreements in 1978. Usually the US is too pro-Israelian to achieve anything, but this time it was strongly motivated to get Egypt in its sphere of influence and outside Russia's.
Namibia happened to be another case were the US position helped instead of obstructed. The US had become convinced that Apartheid was no longer defensible. Yet it was afraid of the pro-communist leanings of the liberation movements. So it pressed for a solution that stressed democracy and guaranteed free markets. This position fitted with that of Namibia's white rulers as it protected them against nationalizations, land redistribution and other redistributive policies. It was the kind of chance that would hurt the Whites the least and so was most acceptable to them.
Kosovo was more like the Middle East. Lacking strong interests for itself the US had adopted the Albanian position as its own. This bound it to such unfortunately strict ideas as "no border changes". By adopting this as his own position Ahtisaari made it very difficult for himself to find a solution.
Another point that Ahtisaari doesn't mention is "principles". In the case of Namibia the principle that Apartheid was no longer acceptable played a strong role. I suppose that Ahtisaari derived from this the idea that the Kosovo negotiations needed a principle too. This became the idea that Serbs should no longer rule over Kosovo. I think that this was a major blunder as it declared the Albanian bad experiences with Serb rule and their wish not to repeat it as fundamentally different from the Serb bad experiences with Albanian rule and their wishes in this regard.
A third lesson may have been that you can solve everything by just having the right laws. The Whites in Namibia were happy without much minority protection, so why shouldn't the Serbs be able to do the same. This ignored the fact while the Whites in Namibia negotiated from a position of power the Serbs negotiated as a persecuted minority, half of which lived in exile. Being in a much worse position they need much stronger guarantees that this position will be improved.
Finally there is Ahtisaari modus operandi. He is a typical networker whose strength is that he knows so many people who can help him to solve a problem. However, once seeing him in a lecture gave me the impression that he is not very fond of details. I couldn't find a sign that he has any idea what the situation on the ground in Kosovo looks like.
Ahtisaari has been asked to mediate in the Croatian-Slovenian border conflict. He would be part of a troika that might also include Badinter.
Sunday, January 18, 2009
How to handle North Korea
North Korea is one of Obama's more delicate challenges. It looks like the regime hopes on better relations than with Bush. But on the other hand it is making its usual bunch of threats.
The special challenge of North Korea is that it is an absolute dictatorship. Unlike Milosevic or Mugabe North Koreas rulers have absolute control over their country. They won't allow dissidence to exist, let alone to florish. But the price for that power is that no one will tell them when they are wrong. This has consequences for how to handle them:
- be trustworthy. Anbsolute dictators are very suspicious. The US already broke its words several times in the past by finding "creative" excuses for not doing what they promissed. This works counter-productive.
- expect some unrealism. Dictators are used to not being contradicted and tend to form an unrealistic picture of the world. Domestic propaganda only worsens this. A small diplomatic victory can easily be explained like North Korea being more powerful than the US. Try to be consistent and clear. And avoid Cold War style rhetorics that may be taken more literal than intended.
- Given their suspicions dictators tend to come back on what they promissed. Unfortunately the US has a history where the smallest diplomatic slight is taken as an insult that needs heavy retaliation. This won't work and will only confirm the suspicions.
- The US has a history of undermining regimes that it doesn't like: from Allende to Milosevic to Putin. This doesn't work with an absolute dictatorship as it doesn't leave the room for opposition that this undermining exploits. With North Korea the chance for succes is zero and it will only make the situation worse by increasing distrust. There is a chance that the regime will implode by its own. But if the US as an outsider wants to end the North Korean dictatorship there is only one way: full military action. Other than that one can only hope for autonomous gradual improvement.
- this doesn't mean that one cannot be strict with North Korea's rulers. But such strictness should be accompanied with strict honesty and strict consistency.
The North Korea Deal That Wasn't discusses how the US ignored a North Korean offer to sell thousands of nuclear fuel rods and that they were ignored by the Obama administration.
The special challenge of North Korea is that it is an absolute dictatorship. Unlike Milosevic or Mugabe North Koreas rulers have absolute control over their country. They won't allow dissidence to exist, let alone to florish. But the price for that power is that no one will tell them when they are wrong. This has consequences for how to handle them:
- be trustworthy. Anbsolute dictators are very suspicious. The US already broke its words several times in the past by finding "creative" excuses for not doing what they promissed. This works counter-productive.
- expect some unrealism. Dictators are used to not being contradicted and tend to form an unrealistic picture of the world. Domestic propaganda only worsens this. A small diplomatic victory can easily be explained like North Korea being more powerful than the US. Try to be consistent and clear. And avoid Cold War style rhetorics that may be taken more literal than intended.
- Given their suspicions dictators tend to come back on what they promissed. Unfortunately the US has a history where the smallest diplomatic slight is taken as an insult that needs heavy retaliation. This won't work and will only confirm the suspicions.
- The US has a history of undermining regimes that it doesn't like: from Allende to Milosevic to Putin. This doesn't work with an absolute dictatorship as it doesn't leave the room for opposition that this undermining exploits. With North Korea the chance for succes is zero and it will only make the situation worse by increasing distrust. There is a chance that the regime will implode by its own. But if the US as an outsider wants to end the North Korean dictatorship there is only one way: full military action. Other than that one can only hope for autonomous gradual improvement.
- this doesn't mean that one cannot be strict with North Korea's rulers. But such strictness should be accompanied with strict honesty and strict consistency.
The North Korea Deal That Wasn't discusses how the US ignored a North Korean offer to sell thousands of nuclear fuel rods and that they were ignored by the Obama administration.
Wednesday, January 14, 2009
Ukrainian gas: US revenge for Georgia?
Russia has accused the US of orchestrating the Ukrainian actions in the gas price dispute.
I have had for some time similar suspicions. The consistent lying by the Ukrainian authorities and the conflicting statements of its officials give me the feeling that some game is played. For example most recently the Ukraine is accusing Russia of routing the gas in such a way that some Ukrainian regions would be cut off from gas. This sounds rather strange: I can't imagine that there is no technical solution for that. In addition you have some Ukrainian officials claiming that Russia isn't sending gas yet.
The US has been extremely successful hiding its role in the Georgian War. Even the most obvious question hasn't been asked. Before the war OSCE observers made a report in which they warned about Georgian war preparations. However, OSCE headquarters decided not to publish it. The big question is who blocked it. Most probably the US. Giving the US success in hiding even such blatant moves they may have become overconfident.
I hope it is not true. But the facts don't look auspicious.
I have had for some time similar suspicions. The consistent lying by the Ukrainian authorities and the conflicting statements of its officials give me the feeling that some game is played. For example most recently the Ukraine is accusing Russia of routing the gas in such a way that some Ukrainian regions would be cut off from gas. This sounds rather strange: I can't imagine that there is no technical solution for that. In addition you have some Ukrainian officials claiming that Russia isn't sending gas yet.
The US has been extremely successful hiding its role in the Georgian War. Even the most obvious question hasn't been asked. Before the war OSCE observers made a report in which they warned about Georgian war preparations. However, OSCE headquarters decided not to publish it. The big question is who blocked it. Most probably the US. Giving the US success in hiding even such blatant moves they may have become overconfident.
I hope it is not true. But the facts don't look auspicious.
Radical Islam in Kosovo
Only a small percentage of the Kosovars adhere to radical Islam. But that doesn't mean that is hasn't influence. Balkanalysis' Christopher Deliso has an article about it under the title Lingering Security Concerns in Kosovo, as Imam Attacked by Radical Islamists.
Aprt from discussing a few incidents where Wahabists tried forcefully to influence imam election, the article also discusses the influence of muslim radicals on Kosovo's judiciary: "Most significant, however, was a report that mid- to upper-level judicial appointments in certain regions of Kosovo, as well as other civil sector positions, were being given to fundamentalist sympathizers.".
The article continues with discussing the continuing influx of foreign money to finance Wahabism and its effect. But it is rather vague on the exact source of the money or the quantity.
Aprt from discussing a few incidents where Wahabists tried forcefully to influence imam election, the article also discusses the influence of muslim radicals on Kosovo's judiciary: "Most significant, however, was a report that mid- to upper-level judicial appointments in certain regions of Kosovo, as well as other civil sector positions, were being given to fundamentalist sympathizers.".
The article continues with discussing the continuing influx of foreign money to finance Wahabism and its effect. But it is rather vague on the exact source of the money or the quantity.
Tuesday, January 13, 2009
Stagflation
The international reaction to the financial crisis leaves me more and more puzzled. Everyone seems to be a Keynesian now. This reminds me of the reason Keynes got out of favor.
The 1973 oil crisis (that greatly increased the oil price) led to an international economic crisis. This became even worse when the Iranian revolution led to the second oil crisis that again doubled the oil price. Western governments generously spent money in order to stimulate the economy, but it didn't lead to growth, only to inflation. This became known as stagflation. In the end it was the Reagan-Thatcher doctrine of "economic reform" that got the world out of the crisis with its emphasis on less government.
Now it seems that the Reagan-Thatcher doctrine has had its time. The present crisis had to do with not enough government and there is demand for a stronger government role. But I wonder whether the financial stimuli will really help.
The 1960s and 1970s were the time of the rise of Japan. Much manufacturing jobs had gone there. Much of the compensation had been in the government related area. The financial drain of oil crisis exposed this as untenable. It looks like we have now a similar situation: the productive jobs have gone to China. Now the financial sector was the main creator of new jobs, but they were just as unproductive.
My expectation is that the financial stimuli won't work and that instead we will have to reform the financial sector.
The 1973 oil crisis (that greatly increased the oil price) led to an international economic crisis. This became even worse when the Iranian revolution led to the second oil crisis that again doubled the oil price. Western governments generously spent money in order to stimulate the economy, but it didn't lead to growth, only to inflation. This became known as stagflation. In the end it was the Reagan-Thatcher doctrine of "economic reform" that got the world out of the crisis with its emphasis on less government.
Now it seems that the Reagan-Thatcher doctrine has had its time. The present crisis had to do with not enough government and there is demand for a stronger government role. But I wonder whether the financial stimuli will really help.
The 1960s and 1970s were the time of the rise of Japan. Much manufacturing jobs had gone there. Much of the compensation had been in the government related area. The financial drain of oil crisis exposed this as untenable. It looks like we have now a similar situation: the productive jobs have gone to China. Now the financial sector was the main creator of new jobs, but they were just as unproductive.
My expectation is that the financial stimuli won't work and that instead we will have to reform the financial sector.
Monday, January 12, 2009
Serbian dinar is falling fast
Due to the Ukrainian gas crisis and the ongoing economic crisis the dinar is falling fast - despite the central bank spending $40 mln in one day to support it.
I have already repeated pled for a more sensible currency policy. The dinar is going to fall much more as Serbia's current account, trade and government deficits are simply not sustainable in the present economic climate. The Serbian central bank can react in two ways:
- it can fight the decline because it doesn't like the effect that the Serb companies that have lent in foreign currencies will have to pay back more and may get in financial trouble. This strategy amounts to subsidizing currency speculators. In the end the currency will still end low, but Serbia will be out of money.
- it can also let the fall happen and spend the money that it saves on supporting the companies that get in trouble because of it.
Until now Serbia chooses the first option. Rather foolish in my opinion.
I have already repeated pled for a more sensible currency policy. The dinar is going to fall much more as Serbia's current account, trade and government deficits are simply not sustainable in the present economic climate. The Serbian central bank can react in two ways:
- it can fight the decline because it doesn't like the effect that the Serb companies that have lent in foreign currencies will have to pay back more and may get in financial trouble. This strategy amounts to subsidizing currency speculators. In the end the currency will still end low, but Serbia will be out of money.
- it can also let the fall happen and spend the money that it saves on supporting the companies that get in trouble because of it.
Until now Serbia chooses the first option. Rather foolish in my opinion.
Monday, January 05, 2009
Israeli craziness in Gaza
With its attack on Gaza Israel has once again upped the level of inhumanity in the conflict with the Palestinians. As the dominant power the conflict is mostly Israels making. Unfortunately Israel is just as blind as the US when it comes to seeing what it does to those less powerful.
The Palestinians in Israel are in a comparable position as the Serbs regarding Kosovo and the Germans regarding Prussia and Silesia. They will have to resign to the loss of some territory. On the other hand the Israeli will have to resign in the fact that not all Palestinians will immediately resign and that they will be the target of rockets and terrorist attacks for some time to come.
A sensible strategy for Israel would be:
- formulate a simple tit-for-tat strategy. They might for example for every rocket into Israel send one back into Gaza. For this strategy to work they need reticence: when they kill a Palestinian leader in a quiet period this undermines the credibility of the tit-for-tat. Yet this is exactly what Israel has been doing in the recent past.
- allow the Palestinian economy to flourish. Palestinians who are busy to get rich have less time to think about attacking Israel. And as a bonus they will get less kids - important for all those Israeli who worry about the demographic balance. It will also lead to a situation in which it will become easier for the Palestinians to accept the status quo.
- Allow free trade. Israel would still control the borders but it would do so only to prevent the import of weapons.
- stop the expansion of the settlements. Do something similar on the Westbank as happened in the Gaza when Israel withdrew its settlements: create one continuous Palestinian territory where the Palestinians can move freely.
- next item is are the Palestinian refugee camps in Gaza and the West Bank. The UN is still financing those camps - 40 years after the war. The consequence is that the inhabitants are more or less locked up as hostages to Palestinian propaganda. Abolishing the camps would rob the Palestinians of a propaganda trophy, and so the Palestinian leaders forbid the inhabitants to move. The only solution in my opinion is that Israel - once it has allowed the economy in the Palestinian areas to recover - to abolish the camps. Most logical would be that Israel would forbid the UN any longer to financially support the refugees. Instead Israel itself would then provide unemployment allowances for those who need it. This will demand a good strategy and lots of money. But it needs to be done as living on allowances is one of the sources of frustration.
- Think about the Palestinians in refugee camps in Libanon and other countries. Give them the possibility to settle in the Westbank and Gaza and press their host countries to offer them citizenship. (this pressure can best be done by the US). And be prepared to pay them some indemnification in the end.
Only such a strategy can bring peace. It will still take a long time. And the corrupt nature of the Palestinian leadership will make it take only longer.
In contrast, the present strategy only moves the time of peace further away. When the Arab countries finally get their act together and modernize it might even be too late for Israel to survive.
Postscript: According to the Guardian the UN will ask the International Court of Justice an opinion about the legality of Israels actions. It looks like the legality of its economic boycott will also be asked. One can only hope that if the ICJ gives such an opinion the EU will proceed with sanctions to force Israel to give up its economic blockade.
The Palestinians in Israel are in a comparable position as the Serbs regarding Kosovo and the Germans regarding Prussia and Silesia. They will have to resign to the loss of some territory. On the other hand the Israeli will have to resign in the fact that not all Palestinians will immediately resign and that they will be the target of rockets and terrorist attacks for some time to come.
A sensible strategy for Israel would be:
- formulate a simple tit-for-tat strategy. They might for example for every rocket into Israel send one back into Gaza. For this strategy to work they need reticence: when they kill a Palestinian leader in a quiet period this undermines the credibility of the tit-for-tat. Yet this is exactly what Israel has been doing in the recent past.
- allow the Palestinian economy to flourish. Palestinians who are busy to get rich have less time to think about attacking Israel. And as a bonus they will get less kids - important for all those Israeli who worry about the demographic balance. It will also lead to a situation in which it will become easier for the Palestinians to accept the status quo.
- Allow free trade. Israel would still control the borders but it would do so only to prevent the import of weapons.
- stop the expansion of the settlements. Do something similar on the Westbank as happened in the Gaza when Israel withdrew its settlements: create one continuous Palestinian territory where the Palestinians can move freely.
- next item is are the Palestinian refugee camps in Gaza and the West Bank. The UN is still financing those camps - 40 years after the war. The consequence is that the inhabitants are more or less locked up as hostages to Palestinian propaganda. Abolishing the camps would rob the Palestinians of a propaganda trophy, and so the Palestinian leaders forbid the inhabitants to move. The only solution in my opinion is that Israel - once it has allowed the economy in the Palestinian areas to recover - to abolish the camps. Most logical would be that Israel would forbid the UN any longer to financially support the refugees. Instead Israel itself would then provide unemployment allowances for those who need it. This will demand a good strategy and lots of money. But it needs to be done as living on allowances is one of the sources of frustration.
- Think about the Palestinians in refugee camps in Libanon and other countries. Give them the possibility to settle in the Westbank and Gaza and press their host countries to offer them citizenship. (this pressure can best be done by the US). And be prepared to pay them some indemnification in the end.
Only such a strategy can bring peace. It will still take a long time. And the corrupt nature of the Palestinian leadership will make it take only longer.
In contrast, the present strategy only moves the time of peace further away. When the Arab countries finally get their act together and modernize it might even be too late for Israel to survive.
Postscript: According to the Guardian the UN will ask the International Court of Justice an opinion about the legality of Israels actions. It looks like the legality of its economic boycott will also be asked. One can only hope that if the ICJ gives such an opinion the EU will proceed with sanctions to force Israel to give up its economic blockade.
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