The European Crisis and The Pain In Spain

Europe’s Crisis & The Pain In Spain

Dispatches From The Edge

April 26, 2011

When the current economic crisis hit Europe in 2008, small countries on the periphery were its first victims: Iceland, Ireland, and Latvia. Within a year it had spread to Greece and Portugal, though the GDP of both nations—respectively 11^th and 12^th in the European Union (EU)—are hardly central to the continent’s economic engine.

But now the contagion threatens to strike at the center of Europe. Spain, the fifth largest economy in the EU and 13^th largest in the world, is staggering under a combination of debt and growth-killing austerity, and the balance books in Italy, the Union’s fourth largest economy, don’t look much better. Indeed, Italy’s national debt is higher than that of Greece, Ireland or Portugal, three countries that have been forced to apply for bailouts.

Spain is a victim of the same real estate bubble that tanked the Irish economy. In fact, house prices in both countries rose at almost exactly the same rate: 500 percent over the decade. A feeding frenzy of speculation, fueled by generous banks and accommodating governments, saw tens of thousands of housing units built that were never inhabited. There are currently 50,000 unsold units in Madrid alone and, according to the web site Pisosembargados, Spanish banks are on track to eventually repossess upwards of 300,000 units.

Bailing out Ireland, Portugal and Greece has strained the financial resources of the EU and the International Monetary Fund (IMF), but rescuing Spain would be considerably more expensive. If Italy goes—with an economy a third larger than Spain’s and more than twice as big as that of the EU’s three current basket cases—it is not clear the Union or its currency, the Euro, could survive.

Given the current tack being taken by EU and the IMF, that might not be the worst outcome for the distressed countries involved. The current formula for “saving” economies in Ireland and Greece consists of severely depressing economic activity that is likely to lock those countries into a downward spiral of poverty and unemployment that will last at least a decade.

First, it is important to understand that the so-called “bailouts” of Greece and Ireland, and the one proposed for Portugal, will not “save” those countries economies. As Simon Tilford, chief economist for Center for European Reform, points out, the money is being borrowed—at a high interest rate—to bail out speculators in Germany, France and Britain. It is German, French, British, and Dutch banks that will profit from these “packages,” not the citizens of Ireland, Greece, or Portugal.

Indeed, Portugal was forced to ask for a bailout, not because its economy is in particularly bad shape, but because speculators in other EU countries drove up borrowing rates to a level that the government could no longer afford. Rather than intervening to nip off the speculators, the European Central Bank sat on its hands until the damage was done, the government fell, and Portugal was essentially forced to sue for peace. The price for that will be steep: severe austerity, brutal cutbacks, rising unemployment, and a stagnant economy.

Spain and Italy are vulnerable to the same forces that forced Portugal to its knees, only they are far bigger countries whose economic distress will have global effects.

The current blueprint for reducing debt is to cut spending and privatize.  But in a recession, cutbacks increase unemployment, which reduces tax revenues. That requires governments to borrow money, which increases debt and leads to yet more cutbacks. Once an economy is caught in this “debt trap,” it is very difficult to break out. And when economies do improve, cutbacks to education, health care, housing and transportation put those countries at a competitive disadvantage.

For instance, Spain has drastically cut its education budget, resulting in a wave of “early leaving” students—at a rate that is double that of the EU as a whole—and a drop in reading, math and science skills. Those figures hardly bode well for an economy in the information age.

The “cuts to solve debt” theory is being played out in real time these days.

When the Conservative-Liberal alliance took over in Britain, it cut spending $128 billion over five years, on the theory that attacking the deficit would secure the “trust” of the financial community, thus lowering interest rates to fuel economic growth. But retail sales fell 3.5 percent in March, household income is predicted to fall 2 percent, and projections for growth have been downgraded from 2.4 percent to 1.7 percent. In terms of British people’s incomes, this is the worst performance since the Great Depression of the 1930s. “In my view, we are in serious danger of a double-dip recession,” says London Business School economist Richard Portes.

As bad as things are in Britain, they are considerable worse in those countries that bought into the “bail out.” Ireland’s growth rate has been downgraded from an anemic 2.3 to a virtual flat line 1 percent, personal income has declined 20 percent, and unemployment is at 14 percent. Greece is, if anything, worse, with a 30 percent jobless rate among the young, an economy that is projected to fall 4 percent this year, and between 2 and 3 percent the next.

If Portugal—with an unemployment rate of 14 percent—takes the $116 billion bailout, it will torpedo what is left of that nation’s economy.

Even the managing director of the IMF seems to be taking a second look at this approach. Dominique Strauss-Kahn recently quoted John Maynard Keyes about the need for full employment and a more equal distribution of wealth and income. He also warned that bailing out the financial sector and focusing just on debt at the expense of the economy is a dead end strategy: “…the lesson is clear: the biggest threat to fiscal sustainability is low growth.”

Is this a serious change of heart by the organization, or does one needs to take the IMF director’s recent comments with a grain of salt? He is rumored to be resigning this summer to run for president of France as a Socialist. Hard-nosed market fundamentalism is not exactly the path toward heading up that particular ticket. And while Strauss-Kahn says one thing, the IMF’s board of directors—largely dominated by the U.S. Treasury Department—has yet to signal a change in course.

However, the director’s comments may reflect a growing recognition that “bailouts” that protect banks and their investors, while locking countries into a decade of falling growth and rising poverty, are not only politically unsustainable, they makes little economic sense.

The next step is debt restructuring, which means investors will have to take some losses—a “haircut,” interest rates will be lowered, and payments stretched out over a longer period of time. So far, Greece and Portugal are refusing to consider restructuring because it will affect their credit status, but in the end they may have no choice in the matter.

“The basic reality is that we cannot service our debt,” Greek economist Theodore Pelagid told the New York Times, “We don’t need another bailout, we need creditors to take a hit.”

Of course, there is always the Argentine approach: default. Faced with an astronomical debt burden, a stalled economy, and growing poverty, Buenos Aires tossed in the towel and walked away from the debt in 2001. “The economy shrank for just one quarter,” writes Mark Weisbrot of the Guardian (UK),”and then grew 63 percent over the next six years, recovering its pre-crisis level of GDP in just three years.”

So far there is no talk of defaulting by the financially stressed European countries, but the subject is sure to come up, particularly given the growing anger of the populace at the current austerity programs. Hundreds of thousands of people have poured into the streets of Athens, Lisbon and London to challenge the austerity-debt mantra, demonstrations that are likely to grow in the coming months as the full impact of the cutbacks hit home.

Iceland recently voted to reject a 30-year plan to pay British and Dutch banks $5.8 billion to cover their depositors who speculated on Iceland’s high interests rates. Britain and the Netherlands are threatening to block Iceland’s EU membership bid if it doesn’t pay up, but these days, threats like that might be treated more with relief than chagrin in Reykjavik.

The bailouts have had a devastating impact on European politics. Governments have fallen in Ireland and Portugal, and the Greek government is deeply unpopular. In essence, the demands of banks and bondholders are unbalancing democratic institutions across the continent.

Spain’s unemployment rate is 20 percent, the highest in Europe. If the EU and the IMF sells it a “bailout” similar to the ones Ireland, Greece and Portugal accepted, Spain’s “pain” will be long lasting and brutal.

And Italy—with its decade-long 1 percent growth rate—waits in the wings.

If Italy goes, the EU will be split between northern haves and southern have-nots. Can a house so divided long endure?

Libya and the Law of Unintended Consequences

Libya & the Law of Unintended Consequences

April 6, 2011

 

 

Coming to grips with the North Atlantic Treaty Organization’s (NATO) intervention in the Libyan civil war is a little like wresting a grizzly bear: big, hairy, and likely to make you pretty uncomfortable no matter where you grab a hold of it. Is it a humanitarian endeavor? A grab for oil resources? Or an election ploy by French President Nicolas Sarkozy?

But regardless of the motivations—and there are many—the decision to attack the regime of Muammar Qaddafi will have global consequences, some of them not exactly what NATO had in mind. For starters, forget a nuclear free Korean peninsula and pressing for wider adherence to the Nuclear Non-proliferation Treaty (NPT).

The humanitarian rationale was the one that brought the Arab League and the United Nations on board, although it is not entirely clear that such a crisis existed. Qaddafi’s blood-curdling rhetoric not withstanding, there is no evidence of mass killings of civilians.

UN Resolution 1973 authorized member states “to take all necessary measures…to protect civilians and civilian populations under threat of attack,” while also “excluding a foreign occupation force of any form.” But exactly what that meant depended on who was flying the fighter-bombers and launching the cruise missiles.

The French targeted Qaddafi’s army. The British tried taking out the “Great Leader” with a cruise. The Americans smashed up the Libyan air force, but as to offing Qaddafi, that depended on with whom you talked. President Obama said he wanted him out, his Defense Secretary said that wasn’t the mission, and U.S. Secretary of State Hillary Clinton played coy.

On one level, Operation Odyssey Dawn was what one military analyst called “the attack of the Keystone Krusaders.” It took a week to figure out who was in charge, and cooperation wasn’t helped when French Interior Minister Claude Gueant called the attack a “crusade.” It is not a word that goes down well in the Middle East.

But beyond the snafus is whether Odyssey Dawn is consistent with the U.S. Constitution and the UN Charter and what it means for the future.

According to the Constitution, unless the U.S., “its territories or possessions, or its armed forces” are attacked, only Congress can declare war. The Obama Administration did not consult Congress, nor did it claim Libya had attacked it, thus bypassing both the Constitution and the 1973 War Powers Act.

The UN Charter forbids countries from going to war except in response to an attack by another country. However, in 2005 the UN’s World Summit in New York endorsed a “Responsibility to Protect” (P2P) policy that member states have a responsibility to protect people from genocide, ethnic cleansing, war crimes and crimes against humanity. “P2P” was a response to the 1994 massacre of some 800,000 people in Rwanda.

“P2P,” however, requires that member states first “seek a solution by negotiation, enquiry, mediation, conciliation, arbitration, judicial arrangement…or other peaceful means of their own choice.”

But there was no effort to negotiate anything before the French started bombing. So, in strictly legal terms, UN Resolution 1973 is a little shaky. There is no question Qaddafi was killing civilians, but no one has suggested that it reached a level of genocide. One can, however, make a case for crimes against humanity. The problem is that you can make the same case against Israel’s invasion of Gaza in 2008-09, as well as the current crackdown against democracy advocates in Syria, Bahrain, Saudi Arabia, and Yemen, not to mention the 2009 massacre of some 20,000 Tamils in the last weeks of the Sri Lankan civil war.

“The contradictions between principle and national interest,” says Nigerian Foreign Minister Odein Ajumogobia, “have enabled the international community to impose a no-fly zone over Libya, ostensibly to protect innocent civilians from slaughter, but to watch seemingly helplessly [in Ivory Coast] as…men, women and children are slaughtered in equally, even if less egregious, violence.”

There is no question that some supported the intervention for genuinely humanitarian reasons. A brutal thug like Qaddafi is certainly capable of killing a lot of people.

But there were lots of irons in this fire.

“Sarkozy likes nothing better than a crisis, a fight and a gamble,” says Financial Times columnist Peggy Hollinger. “With his approval ratings at an all-time low, this [Libyan intervention] could be just what he needs to revive his faltering popularity at home.” However, in spite of France’s leading role in the attack, the President’s party took a shellacking in the Mar. 28 local elections.

For the U.S., Odyssey Dawn was a coming out party for America’s newest military formation, African Command (Africom).  It is no accident that, at the very moment that African oil reserves are becoming a major source for the United States, Washington should create a military formation for the continent. By 2013, African oil production is projected to rise to 11 million barrels of oil a day, and to 14.5 million by 2018. Gulf of Guinea oil will make up more than 25 percent of U.S. imports by 2015.

Is the intervention then over oil? Control of energy resources is always central to U.S. strategy, and, with world reserves declining, the scramble to hold the petroleum high ground is always part of the agenda. Right now Washington is in a resource competition with China, and while the U.S. does not use Libyan oil, its NATO allies do.

A major reason the Obama administration is tolerant of Bahrain’s monarchy is because the U.S. Fifth Fleet is based there, controling the Persian Gulf and the Red Sea, areas that hold the bulk of the world’s oil reserves.

China is currently Africa’s largest trading partner, and accounts for 73 percent of the continent’s oil exports, with the bulk of their purchases from Sudan and Angola. Between Africom and the Fifth Fleet, the U.S. has its thumb on five out of China’s six main petroleum suppliers: Saudi Arabia, Iran, Oman, Sudan, and Angola.

War always has consequences, although not all of them are initially obvious. In war, as Carl von Clausewitz noted, the only thing you can determine is who fires the first shot. After that it’s all fog and plans gone awry.

But some consequences are clear. An unnamed North Korean Foreign Ministry official told Pyongyang’s Korean Central News Agency that “The Libyan crisis” was “teaching the international community a grave lesson…the truth that one should have power to defend peace.”

The official went on to suggest that the West had duped Libya into disarming its nuclear program in 2003 and then attacked it when it could no longer defend itself.

North Korea may be erratic, but there are many other quite sober countries that might draw similar conclusions. While most countries of the world adhere to the Nuclear Non-Proliferation Treaty, the nuclear powers—three of whom are currently bombing Libya—have yet to fulfill their obligations under Article VI to eliminate their arsenals and begin negotiations on general disarmament.

Until that happens, the temptation will be to obtain something that will level the playing field, particularly when some countries are so quick to resort to military power.

That is a world that will be infinitely more dangerous than the one in which we currently live.

 

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Killing Libya In Order To Save It

Killing Libya In Order To Save It

Dispatches From The Edge

March 31, 2011

 

There were two images from the Libyan war that are likely to spell real trouble in the coming years. One was of several U.S. A-10 attack planes, ungainly looking machines ugly enough to be nick named “Warthogs,” taxing down a runway. The other was of several rebel fighters dancing on top of a burning tank.

 

That tank, an old Russian-era T-72, was likely knocked out by one of those A-10s, which means those rebels fighters are almost certainly going to be in a world of hurt. Because, while they were celebrating, they were also breathing in the residue from the shell that killed that tank, a 30 mm depleted uranium munition (DUA).

 

DUA is the weapon of choice when it comes to killing armored vehicles, and A-10s are specialists at using it. The U.S. used 320 tons of it in the first Gulf War, 10 tons in Kosovo, and over 1,000 tons in the invasion of Iraq. It is lethal to tanks, but it also damages anything that comes into contact with it. Common photos back in 1991 were of U.S. soldiers climbing on top of knocked out Iraqi tanks to have their pictures taken or to look for souvenirs. When they did, they inhaled uranium oxide or impregnated their uniforms with it.

 

The soldiers didn’t know better because the U.S. Defense Department (DOA) told them DUA was harmless, even though the DOA knew better. In 1991 the U.S. Army’s Armament Munitions and Chemical Command concluded that “any system struck by DUA penetrator can be assumed to be contaminated with DU,” and instructed soldiers to wear protective masks, clothes and respirators “as a minimum,” and dispose of the clothing afterwards.

 

The only problem was that the Army never told the troops, even those whose job it was to deal with vehicles hit by DUA. No one said a word to the 144^th National Guard Supply Company of the 24^th Infantry Division who picked up 29 U.S. armored vehicles hit by DUA “friendly fire” to ship them home. When the tanks and armored personnel carriers arrived in South Carolina, they were interned in a radioactive waste dump. If the soldiers didn’t know the objects were “hot,” the brass did.

 

Many of those members of that National Guard company subsequently came down with the “Gulf War Syndrome” (GWS) that afflicted at least 118,000 out of the 700,000 soldiers who served in the 1990-91 conflict. Veterans suffer from chronic fatigue, headaches, muscle spasms, joint pains, memory loss, anxiety and balance problems, were twice as likely to develop amyotrophic lateral sclerosis (Lou Gehrig Disease), and between two and three times more likely to have children with birth defects.

 

DUA is one of the most deadly anti-tank weapons around. The enormous weight of the DUA “arrow” in each shell can penetrate four inches of armor as if it were margarine. It then explodes in a 10,000-degree fireball that reduces up 70 percent of the munition to powder. The powder can travel up to 25 miles from the initial blast site.

 

Depleted uranium is not highly radioactive, but it has a half-life of 4.4 billion years, and, if it gets into your system, it can be very dangerous. According to the U.S. Environmental Policy Institute, DUA “has the potential to generate significant medical consequences.”

 

“People have always assumed low doses are not much of a problem,” Alexander Miller of the U.S. Armed Forces Radiobiology Research Institute told the Guardian (British), “but they can cause more damage than people think.” A study by the Institute found that DUA could damage bone marrow chromosomes.

 

Not all of the Gulf War butcher bill can be laid at the feet of DUA. After 11 years of denying there was anything to GWS, the Pentagon finally admitted that at least 130,000 soldiers had been exposed to chemical weapon residue when the Iraqi arms depot at Kamisiyah was blown up. Modern battlefields tend to be toxic nightmares, and that was doubly so in Iraq.

 

But there is no question that DUA was a major contributor to the syndrome, particularly for those who developed immune related diseases. A standard effect of radiation is suppression of the immune system.

 

The effects of low-level radiation are hard to track, because many “hard” cancers take 16 to 24 years to develop. Iraqi medical authorities claim that the cancer rate in Basra—an area that was saturated with DUA in the Gulf war and the Iraq War—has jumped ten fold, and birth defects are much higher than in the rest of the country.

 

DUA is also used in 25 mm cannon shells, and 105 MM and 120 MM tank shells. The Army is using it to manufacture 50-caliber machine gun ammunition and is experimenting with using it for standard issue infantry weapons. It is also used to coat armored vehicles, making them almost impervious to non-DUA shells.

 

The U.S. is selling DUA to Israel, Egypt, Pakistan, some of our NATO allies—Germany and Italy won’t use it—Sweden, Taiwan, Saudi Arabia, Pakistan, Thailand, and other countries that the Pentagon will not reveal in the name of “national security.”

 

Depleted uranium is also a highly toxic metal and can damage the liver and kidneys, particularly if it gets into the water supply. If a DUA round misses a target, its “penetrators” are so heavy that they tend to go deep into the soil. “A major concern of the potential environmental effects of intact [DUA] penetrators or large penetrator fragments,” notes the World Health Organization, “is the potential contamination of ground water after weathering.”

 

Because of the dangers associated with DUA, in August 2002 a subcommittee of the United Nations found that the weapons violated seven international agreements, including the UN Charter and the Geneva Conventions. Efforts to ban it, however, have been vetoed by the U.S., France and Britain. In 2009 Belgium became the first country to ban the use of DUA, and in the same year the Latin American Parliament voted for a moratorium on its use.

The International Coalition to Ban Uranium Weapons that includes 120 non-governmental organizations is currently lobbying to get the weapons eliminated.

 

There are other rough beasts being visited on the Libyans these days as well, including cluster weapons, highly explosive canisters that can shred everything from people to tanks. U.S. warplanes have been dropping CBU-103, 104, 105, and AGM-154 A and B, all of which have a failure rate of anywhere from 5 to 23 percent. These unexploded “bomblets” can kill for decades.

 

During the bombing of Laos from 1964 to 1973, 90 million cluster munitions were dropped, killing more than 12,000 civilians. The bomblets continue exact a yearly toll of 100 to 200 people. More than 50 million clusters were dropped during the 1991 Gulf War, and in the two years that followed the war’s end, they killed 1,400 Kuwaiti citizens. A U.S. company hired to clear cluster weapons from a small area in Kuwait found 95,700 unexploded MK-118 submunitions from the notoriously unreliable CBU-99 “Rockeye” cluster bomb.

 

Unexploded clusters are still causing problems in Kosovo, and they take a steady toll of civilians in Afghanistan.

 

Libya has no-go areas dating back to the Second World War, when Italians, Germans and British seeded their fronts with land mines. Whatever government emerges in Libya today will have to deal with the aftermath of yet another war, this time created by DUA and cluster weapons. “The problem in defense is how far you can go without destroying from within what you are trying to defend from without,” Dwight Eisenhower once remarked.

 

A problem indeed. One hopes Libya manages to avoid what a village in Vietnam experienced, the one that was destroyed in order to save it.

 

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