Markets, World Affairs

The Never-Ending Greek Debt Slavery Saga Revisited

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Obedience is not enough. Unless he is suffering, how can you be sure that he is obeying your will and not his own?

George Orwell, 1984

‘To say [Varoufakis’ Adults in a Room] is the best memoir of the Eurozone crisis,’ writes Adam Tooze, ‘is an understatement.’ I would second that had I read others. Memoirs are simply not my genre. But the former Greek finance minister’s testament is a different matter altogether.

Although far from disinterested, Varoufakis is a reliable reporter from the trenches. His critique of the Troika is truly devastating. Simply put: They knew. They knew that their plan was guaranteed to fail. They knew that Greece was bankrupt and would never be able to pay back all the money that it owed. They knew that without debt relief in one form or another, there was simply no path back to sustainability. They knew that austerity was devastating the Greek economy and worsening its debt burden. They knew that pouring good money after bad was a non-solution. They, Varoufakis insists, did not even want their money back.

Yet, utilizing an impressive arsenal of Kafkaesque red tape they obstructed all potential solutions, and using all available means of diplomatic and financial coercion, arm-twisted successive Greek governments to submit to never-ending debt slavery. Why? Adam Tooze explains it best:

The main function of disciplining Greece, Varoufakis tells us, was to serve as a warning to the French of the price of fiscal indiscipline. In other words its purpose was to perpetuate and widen discipline. But that in turn was not so much an economic as a political problem. Berlin wanted to avoid the terrifyingly difficult distributional politics of even larger scale exercises in cross border bail outs and “transfers”. Holding the line in Greece was a way of containing what could have become a spiraling political disaster for the CDU and their coalition partners.

We will return to the strategic rationale for putting Greece in debtors’ prison. But first, How did we get here?

Greece was a victim of global macro forces well beyond its control. In 2001, Greece gave up monetary independence and adopted the euro. This meant that regaining lost competitiveness and correcting macro imbalances would require a real devaluation (ie, wages would have to fall in nominal terms); thus requiring an extraordinarily painful ‘structural adjustment’ programme in IMF-speak.

Bond markets responded to the advent of the euro by compressing sovereigns spreads; meaning that Greece could borrow at virtually the same interest rate as Germany. (See Figure 1.) Greece was thus able to borrow large sums from bondholders—debt that was only revealed to be unsustainable when sovereign spreads widened with the onset of the eurozone crisis.

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Figure 1. The spread between Greek and German sovereign bond yields.

At the same time, northern banks dramatically expanded their lending to Greece. Greek debt to foreign banks grew from €135 billion as of 2004Q1—surely up from a much lower level since 2001—to €217 billion in 2008Q1. (See Figure 2.)

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Figure 2. Foreign banks’ credit to Greece.

More generally, Shin (2012) has shown that a banking glut in Europe was the principal driver of the financial boom in the European periphery as well as the United States. The idea here is straightforward: Fluctuations in the risk-bearing capacity of global banks drive fluctuations in the supply of credit. But let me offer a more precise thesis.

The credit boom preceding the financial crisis in the US and peripheral Europe was the great sucking sound of the wholesale market for collateralized funding. The extraordinary expansion of mortgage credit to, say, US households was due to demand for raw material (ie, mortgages) required for the manufacture of private-label mortgage-backed securities. (There was a persistent ‘shortage of safe assets’ in the global financial system.) In 2003-07, Pozsar (2015) shows, Wall Street was hard at work feeding the machine it had constructed to intermediate between cash pools (central banks, corporate and state treasuries, money-market mutual funds, et cetera) demanding ultra-safe assets in the money markets and portfolio managers demanding risk assets for their relatively high yields in capital markets. No wonder that Mehrling et al. (2013) describe shadow banking as ‘money market funding of capital market lending’.

Note that the centrality of the wholesale funding market does not undermine the role of the dealers’ risk-bearing capacity as the main state variable (or explanatory variable). To the contrary, funding markets exist in only as much as dealers make them. Physically, the interdealer funding market—the supercore of the dealer ecosystem and hence the global financial system—is a network of phone and Internet connections between traders at global banks. The point is that Shin (2012)’s finding—that fluctuations in balance sheet capacity drive fluctuations in credit supply—is only being fleshed out here; not superseded. [Of course, the risk-bearing capacity of the sell side ought to be measured relative to the financial size of the buy side. See Farooqui (2017) for the primacy of the relative scale of balance sheet capacity in pricing the cross-section of stock returns.]

The preceding paragraphs may seem like a digression. They are anything but. For the ‘excess elasticity’ of global finance was the fundamental reason why Hollande and Merkel had to impose debt slavery on Greece. The denouement of the financial boom unleashed by the unprecedented expansion of European balance sheet capacity came when excessive bank leverage met mounting losses on subprime loans. Germany and France could not acknowledge the scale of the bailout required by the banks to their audiences at home. They had to be bailed out without recourse to more public funds. While American policymakers used the AIG bailout to secretly bail out Goldman Sachs and JP Morgan, the Europeans used the Greek bailout to secretly bail out French, German and Dutch banks.

The [big] three French banks’ loans to the Italian, Spanish and Portuguese governments alone came to 34 per cent of France’s total economy – €627 billion to be exact. For good measure, these banks had in previous years also lent up to €102 billion to the Greek state.…

Why did Deutsche Bank, Finanzbank and the other Frankfurt-based towers of financial incompetence need more? Because the €406 billion cheque they had received from Mrs Merkel in 2009 was barely enough to cover their trades in US-based toxic derivatives. It was certainly not enough to cover what they had lent to the governments of Italy, Ireland, Portugal, Spain and Greece – a total of €477 billion, of which a hefty €102 billion had been lent to Athens. [The €102 billion in this quote is quite likely a typo—that’s the French banks’ exposure to Greece. As Varoufakis tells us later, the German banks’ exposure was €119 billion.] 

So, of every €1000 handed over to Athens to be passed on to the French and German banks, Germany would guarantee €270, France €200, with the remaining €530 guaranteed by the smaller and poorer countries. This was the beauty of the Greek bailout, at least for France and Germany: it dumped most of the burden of bailing out the French and German banks onto taxpayers from nations even poorer than Greece, such as Portugal and Slovakia. 

This disturbing transformation of the banking crisis in the northern core into a sovereign debt crisis on the periphery was accomplished in the very first phase of the eurozone crisis; well before Varoufakis arrived on the scene.

As soon as the bailout loans gushed into the Greek finance ministry, ‘Operation Offload’ began: the process of immediately siphoning the money off back to the French and German banks. By October 2011, the German banks’ exposure to Greek public debt had been reduced by a whopping €27.8 billion to €91.4 billion. Five months later, by March 2012, it was down to less than €795 million. Meanwhile the French banks were offloading even faster: by September 2011 they had unburdened themselves of €63.6 billion of Greek government bonds, before totally eliminating them from their books in December 2012. The operation was thus completed within less than two years. This was what the Greek bailout had been all about.

Thereafter, the European strategy was to enact a morality play to cover up the crime; complete with bloodletting—aka austerity—and moral sermons blaming the victim. The Troika’s treatment of Greece was tantamount to economic warfare. By the time Varoufakis got in the cockpit, the Europeans had developed the full apparatus of control. The reason he found the Troika to be Kafkaesque, is that the insiders were committed to controlling the narrative. They could not negotiate honestly with Varoufakis both because they feared the markets and because they would then be admitting guilt. While some individuals involved in the ‘institutions’ even admitted the crime to Varoufakis, institutionally the Troika was designed to bury the dirty little secret.

This is, of course, not to disagree with Adam Tooze about the role played by political constraints in Berlin, Paris, and indeed, Washington. Indeed, political constraints are precisely what drove the bank bailouts underground and started the Greek Debt-Slavery Saga.

VAROUFAKIS SAYS he had a financial deterrent to get Draghi to back off from financial strangulation and give him breathing room.

[The €33 billion] Greek debt to the ECB were legally momentous: any haircut of that sum or delay in its repayment would open Draghi and the ECB up to legal challenges from the Bundesbank and the German Constitutional Court, undermining the credibility of its overall debt-purchasing programme and causing a rift with Chancellor Merkel, who would never take on both the Bundesbank and the German Constitutional Court at the same time. Facing their combined might, Draghi was sure to find his freedom drastically curtailed, thus undermining the markets’ faith in his hitherto magical promise to do ‘whatever it takes’ to save the euro – the only thing preventing the currency’s collapse. 

‘Mario Draghi is about to unleash a major debt purchasing programme in March 2015, without which the euro is toast,’ I said. ‘The last thing he needs is anything that will impede this.’…I had no doubt that if a Syriza government signalled early on its intention to retaliate by haircutting the Greek SMP bonds held by the ECB in this way, it would deter the ECB from closing down the banks.

Calling the deterrent “potentially very powerful,” Tooze reports that

…the faction within the Tsipras cabinet that wanted to avoid a break was too strong. Varoufakis was never allowed to make the critical threat at the right moment. Greece was driven to a humiliating compromise without ever having deployed its deterrent.

Game-theoretically speaking, whether Varoufakis’ deterrent was effective cannot be answered without knowledge of the preferences of other players. Even if Draghi himself could be deterred, as indeed seems likely, that was only going to grant Greece a short term lease on life. There is no reason to believe that it would’ve forced the Troika to negotiate in earnest. A Greek threat to activate the deterrent could just as easily have yielded a Schäuble solution with the Troika turning the screws to push Greece out of the eurozone in the service of discipline. We cannot answer that without knowing just how much Merkel feared Grexit.

A distinct possibility is that the deterrence strategy was leaked to the Germans by someone in the Greek war cabinet—infiltrated as it was by the Troika—and that Merkel let it be known to Tsipras that the activation of the threat, or perhaps even its deployment against Draghi, would harden the Troika’s stance. What I mean to suggest is this: Tsipras is not a scoundrel. Why did he capitulate if the deterrent was in fact effective? Did he know something about the preferences of Greece’s jailers that Varoufakis did not? Could it be that Varoufakis’ dirty bomb was a recipe for tactical victory but strategic defeat? Is that why Tsipras capitulated instead of deploying the deterrent?

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Trump is Pushing Iran into Russian Arms

The most important consequence of the Bush demolition of the Iraqi state has been the reemergence of Iran as the most influential power in southwest Asia. The core of southwest Asia is now a vast zone of Iranian influence that General Suleimani ominously calls the “Greater Persian Gulf region.” Iran is now the dominant foreign power in Lebanon, Syria and Iraq, and has significant influence in Yemen and Afghanistan as well. With thousands of Iranian troops fighting in the Levant, Iran is projecting its power further west and more deeply than at any time since the peak of Safavid power in the seventeenth century.

Part of the reason is simply that Iran is arguably the most powerful state in the region. Figure 1 shows the distribution of war potential in the Middle East. All data is represented as national shares of selected power resources of the regional powers. Iran has a population of 80 million, a close second to Egypt’s 85 million. Its economy is comparable in size to Turkey’s and Saudi Arabia’s (although the latter is mostly income from oil sales on the global market and is not reflective of national capabilities). Iran has proven oil reserves of 160 billion barrels, second only to Saudi Arabia’s 269 billion. Its endowment of arable land is second only to Turkey’s. Most astonishingly, some 269,000 Iranians graduate with degrees in engineering or the sciences every year compared to just 212,000 in the rest of the regional powers combined.

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Figure 1. Distribution of war potential in southwest Asia. Source: CIA, World Economic Forum. 

Israel is barely visible in the spider chart of war potential—a major flaw of these metrics. Israel punches dramatically above its weight for a number of reasons. First, Israel is a settler colony of the crème de la crème of Europe. Perhaps as a result of sustained selection on cognitive ability in medieval Europe or the survival effect of the liquidation of the bulk of European Jewry (smarter Jews presumably escaped at higher rates than dumber Jews from the Nazis), Ashkenazi Jews have the highest IQs of any ethnic group ever recorded. Not coincidently, Jewish people are massively overrepresented among Nobel Laureates. Combined with the traditional Jewish emphasis on education (with universal literacy probably as early as the second century CE), the per capita skill-set and knowhow of the Jewish state has no counterpart anywhere else in the world. Second, Israelis are far more willing to fight for the flag—a very important factor in warfighting capabilities since the rise of nationalism at the end of the eighteenth century—than any other nation for obvious historical reasons. Third, like Prussia in the classical European balance of power, Israel’s geostrategic position has led to the development of a highly effective operational art of war that has made it into a modern day Sparta. Surrounded by hostile states and with neither the resources nor the manpower to win long, drawn-out wars of attrition, the militaries of both states cultivated an art of war that sought to front-load conflicts and seek the decisive victory. Fourth, Israel has successfully cultivated a close security relationship with the unipole—in no small part due to the influence of American Jewry. This has given Israel greater access to advanced weapons and military knowhow than any other regional power including Turkey (even though Turkey, unlike Israel, is a member of Nato).

Still, modulo the special case of Israel, Figure 1 provides a good approximation of the war potential of regional powers in southwest Asia. It shows that Iran has the most balanced portfolio of intrinsic power resources in the region. Saudi Arabia, by contrast, is a pure petrostate. Iran’s population is 2.7 times as large as Saudi Arabia’s. It has 5 times as much arable land, 4 times as many graduates, and produces 6.7 times as many engineers and scientists every year as Saudi Arabia. The Kingdom has been able to access and sell—with foreign expertise and knowhow—a much greater portion of its oil deposits and has, as a result, accumulated considerably greater financial resources than Iran.

Saudi Arabia has tried to convert its financial firepower into military might by spending gargantuan sums of money on weaponry. Figure 2 displays the real military spending of the regional powers as well as the real price of crude. (We start the clock in 1971 when the British left and the gulf RSC emerged.) The salafi oil monarchy is by far the biggest military spender in the region. Since 2003, Saudi military spending has grown rapidly along with the price of crude to reach levels dramatically higher than other regional powers.

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Figure 2. Military spending by regional powers in southwest Asia. Source: SIPRI.

But it is extremely difficult, if not outright impossible if other ingredients of national power are lacking, to convert financial resources into warfighting capabilities simply by spending giant sums of money. The most important determinants of national warfighting capability are after all the size and skill-set of the populace and its willingness to fight for the flag of the nation-state. The Saudi populace is much smaller, much less skilled, and not nearly as motivated to fight for the flag as that of Iran. This is why a war between Iran and Saudi Arabia will be pretty much a one-sided affair. However, since Saudi Arabia is a US protectorate it is not at risk of being conquered by its stronger neighbor. Due to the presence of the US pacifier, security competition in the bipolar gulf region has instead been projected onto regional playing fields.

The dominant story of the region since 2003 has been the expansion of the zone of weakness. Three hitherto strong states of the region, Iraq, Syria, and Libya, have joined Lebanon, Palestine, Yemen and Afghanistan (the last is on the border of southwest and south Asia) as the playing fields of the regional powers. The regional players are Iran, Saudi Arabia, Egypt, Turkey, and to a lesser extent Israel. Although each regional power has their own particular security interests, the object of the regional game is to secure the orientation of weak states, or if there is no central authority, to secure influence in the polity or security zone by bankrolling and arming local security actors. Even more important than the push factors of regional security competition are the pull factors of sub-state actors seeking patrons. These features are manifest in the Syrian war but are no less true of other parts of the zone of weakness.

Some players are more in demand than others. No one except the Phalangists wants to be caught hobnobbing with the Israelis. Even the Kurds are tight lipped about their security cooperation with the Jewish state. More generally, transnational identities allow states in the region to mobilize opinion across borders. Sunni Arab groups, including many salafi jihadists, look to Saudi Arabia and the other Sunni Arab oil monarchies for support. Shiite actors seek Iranian support. Due to the rise in sectarian temperature—most dramatically as a result of the Syrian war—regional Sunni Arab actors, like the Palestinian resistance groups Hamas and Islamic Jihad, that used to be Iranian clients have pulled back. On the other hand, actors that were barely Shiite, such as the Alawi regime in Syria and the Houthis in Yemen, have become Shitte, and pushed further into Iranian arms. So the rise in sectarian temperature cuts both ways.

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Figure 3. The regional game.

When the Syrian uprising began, Saudi Arabia saw a major opening to wrestle away Syria—a state that is central to the Sunni Arab imaginary—from the Iranian orbit. Weapons, money and fighters poured into the warzone through the Turkish rat line. Much of the flow originated in the oil monarchies and went to salafi jihadist groups such as ISIS, JN and Arhar al Sham. But the Iranian-Hezbollah intervention prevented the fall of Assad. Once the Russians intervened on the regime’s side, the great Saudi dream of rolling back Iranian influence in the Levant became tenuous. With the fall of Aleppo to the regime’s forces, all such hopes were dashed.

Meanwhile, the US-Saudi puppet in Yemen had been displaced by the Houthis with the support of the former Yemeni president (a Sunni). Saudi Arabia’s aggressive young leader Mohammed bin Salman al Saud (MBS), responded by launching an air war with the logistic and diplomatic help of the Obama administration.  There was a lot of brouhaha about Iranian influence in Yemen; Saudi Arabia’s backyard. But Iranian influence was always more imagined than real. The Houthi political movement, in fact, enjoyed broad-based, cross-ethnic support and was neither simply a Shiite group nor an Iranian proxy. The main consequence of the Saudi terror campaign in Yemen was to give a boost to Al Qaeda in the Arabian Peninsula (AQAP), one of the most dangerous and capable salafi jihadist groups in the region. (Yemen was not the only place where the main result of Saudi meddling was to strengthen salafi jihadism.)

Lost in the regional narrative was a potential gamechanger. This was an alliance between Russia and Iran—something that has never obtained ever before in history. Even though both were simply fighting together to save the Assad regime and there were no plans for a broader alliance, there was always the potential for one. The Obama administration was smart enough to know that it would not be in the US interest if Iran acquired a rival great power patron. (Obama went so far as to say that the Saudis and the Iranians would have to “share the region.”) As long as the United States could keep the door ajar just a little bit, Iran had more to lose from defying the Western alliance than gaining a great power patron.

In this trip, Trump has slammed the door in Iran’s face. It may further the interests of the oligarchs connected to the Trump White House. But it makes no sense in terms of US interests in the region. We should not be surprised if Iran gets closer to Russia and the Ruskies extend their influence in the Middle East as a result. I am not suggesting that this is a certainty. Russia has so far pursued defensive and limited aims—basically shoring up the Assad regime. But that is no guarantee that the Kremlin will not exploit this opening.

There was something deeply shameful about Trump declaring Iran to be a sponsor of terror whilst standing in the heart of terror finance; entirely bogus claims based on Iranian patronage of Hezbollah and Hamas, which for all their Islamic rhetoric are nationalist resistance groups; not Islamic terrorists. Islamic terrorists, like the one who murdered young kids in Manchester this week, are without a single exception salafi jihadists who are bankrolled by financiers in the permissive jurisdictions of the gulf oil monarchies that Trump just declared his eternal love for. In fact, Iran is the one Muslim power that is guaranteed to be an ally against salafi jihadism. If the United States was serious about tackling salafi jihadism, the place to start is to put the oil monarchies is a financial straightjacket—all financial flows out of the gulf ought to monitored by a terror finance task force set up by Western intelligence agencies.

It’s too easy to blame the Trump administration for following policies that are so manifestly against the US and Western interest. The truth is that the blame lies on a broad swath of the foreign policy community—including Democrats. Somehow the debacles of the Bush administration have failed to kill the rogue states doctrine that is at the root of America’s failed foreign policy.

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World Affairs

The Geopolitics of the French Election

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If populism prevails in France, it would have a much more dramatic impact on geopolitical affairs than the victory of populism in the offshore powers.

The immediate geopolitical impact of Brexit is now clear. Britain’s unilateral decision to withdraw has unified the continent against the perfidious Albion. Little England has, in effect, been forced into splendid isolation from the continent. Going forward, Britain will not have a seat at the European table.

Across the pond, Trump pulled off the greatest bait-and-switch in US political history. All promises of economic nationalism and isolationism have been shelved. Instead, the political high tide of the GOP is being mined in the service of plutocratic interests. While the Bannon-Sessions-Miller wing remains committed to constructing an ethnic security state—and is worryingly empowered to do so—the foreign economic and security policies of the United States are back in the hands of the Blob. Despite expectations to the contrary, Liberal Hegemonism is alive and well in the United States. American populism seems to have been tamed at least in so far as US foreign policy is concerned.

The consensus on the impact of a Marine Le Pen victory is that it would spell the demise of the European project. In particular, it would mean the end of the euro. But there is a perfectly feasible alternative scenario that may obtain if she wins. In that scenario, the French withdrawal will leave an even more unified and compact EU; one that would look more and more like a German Delian league.

I will argue that the second scenario is more likely than the first and that it would reconfigure European geopolitics in important and foreseeable ways. But first, how did we get here?


During the 1950s and 1960s, the core of the world economy was tripolar. Global industrial production was dominated by national champions of the United States, Japan and Germany (more generally, western Europe). Northern labor had a quasi-monopoly on Northern knowhow. More precisely, national labor pools had a quasi-monopoly on the knowhow of national industrial champions. Within this context, domestic bargains between labor and capital along the lines of the Treaty of Detroit enabled broad-based growth in the core of the world economy.

The Western economic miracle of the early postwar era came to an end as a result of the Japanese onslaught. Japan was able to combine its relatively low wages with high productivity growth to dramatically swell its shares of the global product market; helped along by the container revolution of the late 1960s that enhanced the integration of global product markets. Unable to compete with the Japanese, western firms tried in vain to increase the growth rate of their productivity. The western world slid into a deep stagflation crisis during the 1970s that prepared the ground for the neoliberal counterrevolution whose main agenda was to put finance firmly back in the saddle and tear up the Treaty of Detroit. That alone would’ve been sufficient to guarantee the rise of plutocracy, precarity and wage polarization. But even more momentous developments were underfoot that undermined the geoeconomic foundations of broad-based prosperity in the center countries even more thoroughly.

The 1980s witnessed the telecommunication and intermodal transportation revolution whereby transportation and communication costs collapsed enough to split the atom of national champions. The result was what Richard Baldwin calls ‘the second unbundling’ of global production whereby managers in the headquarter economies (US, Germany, Japan) trained cheap foreign labor within a day’s flying distance of headquarters to create Factory North America, Factory Europe and Factory Asia. This unified national labor markets at the regional level even as global product markets integrated further at the global level.

The addition of hundreds of millions of Chinese workers to Factory Asia created a tremendous imbalance between capital and labor. The result was even greater worker insecurity, wage polarization, and intensification of plutocracy. At the same time, the reemergence of global finance unleashed the financial cycle that also whipsawed market society with bubbles and financial crises.

The consequence of these global-macro fluctuations and structural changes was tremendous trauma in western market societies. This trauma manifested itself as the rise of populism and the destruction of the political center.


Back to geopolitics. A Le Pen victory in France cannot be ruled out with any degree of certainty. I claimed that if she wins, France and England would likely face a virtual German Delian league. The reason is twofold. First, European states are extraordinarily exposed to the risk of a dramatic unraveling of Factory Europe. A breakup of the eurozone would result in the effective repeal of deep integration on the continent and therefore a wholesale disruption of European value chains. In order to forestall such a catastrophic scenario, other states are likely to stick together. Second, while the renationalization of market society might be a viable strategy for medium-weights like the UK and France, it is decidedly not a viable strategy for either the small rich northern nations of the European core or the poorer nations on Europe’s southern and eastern periphery. Niether the Nordics and the Low Countries on the one hand, nor eastern European nations like Poland and the Czech Republic on the other, have any possibility of maintaining their prosperity after renationalization. Basically, the depth and breadth of skill-sets in every country except maybe Germany and perhaps Italy, provide an insufficient basis to compete in global product markets. They can put up tariff walls to protect domestic industry. But then the size of their national markets would sharply limit their firms’ economies of scale. That’s what doomed the import-substitution strategies of countless developing nations.

Le Pen dreams of an independent France that can stand up to Germany. But the reality is far more sobering. The harsh truth is that, after the second unbundling, without combining the knowhow of the North with the cheap labor of the South you can no longer be truly competitive in global product markets. This is even true of the United States. Renationalization is a recipe for geoeconomic irrelevance. Isolationist Britain and France will not become third world states, but they will be marginalized; both in Europe and in the global marketplace.

So what happens if I’m right and the UK and France face a German Delian league on the continent? France and the United Kingdom are independent nuclear powers and the main politico-military actors in Europe. They are essential partners for the United States. If and when they withdraw into isolationism, European security will rest on German shoulders. Le Pen has already declared her intention on a reorientation of Franco-Russian relations—away from deterrence in alliance with the western bloc to bilateral cooperation. But the security of the Baltics, the Nordics, and central and eastern Europe depends on more than US engagement. It requires a European great power partner. What this means is that the German Delian league would have to obtain its own conventional and nuclear deterrent. Pressures in this direction are already building as a result of growing doubts about the US commitment to defend Europe. They will intensify with the French exit, if it obtains.

One can think more systematically about the geopolitical implications of populism in England and France through the theory of regional security complexes (RSCs). Buzan and Wæver described the European great power RSC as a security community (a territorial cluster of states for whom war amongst each other is unthinkable) of great powers protected by one global power and threatened by another. This configuration is unlikely to last. The question is, How will it be transformed?

In the Policy Tensor’s view, the answer is that the British and French exits correspond to a major structural transformation of the European great power RSC. In particular, there is a strong potential for the emergence of a new, dominant security actor on the scene; namely, the German Delian league. Whether or not security competition reemerges in western Europe will then depend on whether the secondary powers (France and the UK) exacerbate the Russian threat to the league’s security. A possible withdrawal of the American pacifier—which is no longer unthinkable either—will make it considerably more likely. But whether or not security competition reemerges, we’re looking at a major transformation of the European RSC.

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An Irresistible Opportunity

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A cruise missile fired off from a US Navy ship to strike an airbase in Syria.

Despite the consensus in the agendasetting media, we do not yet know whether the Assad regime was behind the chemical weapons attack in the rebel held town of Khan Sheikhoun of Idlib province on Tuesday. There is ample evidence that nerve agents—probably sarin—caused the death of dozens and injured hundreds. It’s also clear that the Syrian Air Force bombed the town at the same time. What we don’t yet know is whether the chemical agents released were part of the payload dropped by the regime’s bombers as Western powers have alleged, or whether the bombs stuck a rebel weapons depot containing chemical weapons as Russia has claimed. It’s not out of the realm of possibility that Assad would blatantly test the new administration in this manner. What is clear is that it was not in Assad’s interest to be caught red-handed just as the White House was signaling that it was not interested in getting rid of him.

The White House went for the strike because the chemical attack and the media’s reaction to it made it irresistible. After all, what was there to lose? Trump could distinguish himself from the previous occupant of the White House and provide succor both to much of his ‘America: Fuck Yeah!’ support base as well as the liberal hawks who occupy the center of Washington foreign policymaking. Indeed, in elite foreign policy circles, the chemical attack was very much seen as an opportunity that doesn’t come often and must be seized; what the President of the Council on Foreign Relations called “a rare second chance.”

As the story gained traction in the media, it became apparent to the administration that a symbolic action like a barrage of cruise missile strikes would be a big propaganda win for President Trump. Before the attack and even for a short while afterwards, the line from the White House was that ousting Assad was the last thing on the agenda. Whether that’s still the case is unclear. Secretary of State Rex Tillerson said in the aftermath of the strike that “steps are underway” to get rid of Assad. So is the administration seeking to oust Assad? No one knows; possibly not even the President himself.

The fundamental challenge of any strategy to oust Assad remains unchanged. There is no viable replacement for Assad. The rebellion is composed largely of Salafi jihadist outfits like al Nusra (since rebranded) and Ahrar al Sham. The United States could try to impose a moderate warlord as the leader of a post-Assad Syria. But that is unlikely to carry water in either rebel-held towns or regime-friendly cities. The only way a foreign power can impose a new regime in Syria is to occupy the country. United States armed forces could certainly pull that off—despite the Russian presence—but, politically, it would be extremely challenging for the administration to sell a large scale pacification campaign both to the foreign policy elite and to its support base.

The about-turn in Syria is part of the taming of Donald Trump by the establishment. The most important news of the week on the US foreign policy front wasn’t about Syria. Rather, it was the ouster of Steve Bannon, along with the reinstatement of the Joint Chiefs chairman and intelligence director, and the addition of the energy secretary, CIA director and UN ambassador, to the National Security Council’s principals committee. That event marks a decisive break from the amateur hour of the early Trump administration. The Bannon-Miller-Sessions wing of the administration seems to have lost a second round (after the Flynn affair) in their battle for the soul of the Trump White House on national security, to the centrist, a.k.a. liberal hegemonist, Tillerson-Mattis-McMaster wing.

Two other developments have been overshadowed by the strikes. The first is President Xi’s visit to Mar-a-Lago. That’s possibly the most important relationship of the Trump administration. If Trump thinks that shooting off some cruise missiles at a defenseless country is going to impress Xi, he is going to be surprised. Xi has more cards to play than any other nation facing the United States on the world stage. He would strongly prefer a United States bogged down in Syria. [I’ll write a full-length post on the balance of power in the Western Pacific soon.]

The second development that was overshadowed was not unrelated to the strikes. It was the reorientation of US Middle East policy in favor of the Sunni Arab autocrats. The strikes themselves are bound to have warmed the heart of Mohammad bin Salman, Saudi Arabia’s aggressive, young, de-facto leader. They also cap a remarkable couple of weeks in which Tillerson lifted the ban on fighter jet sales to Bahrain, a Saudi dependency; promised precision weapons to Saudi Arabia for its terror campaign in Yemen; and embraced Sisi, Egypt’s strongman. These developments are, of course, entirely congruent with the new hardline policy on Syria. The Policy Tensor had imagined that Nick Burns would run Clinton’s foreign policy when she became president. Now it seems that Tillerson is implementing Burns’ agenda for him.

What is really striking is that, despite expectations to the contrary, the United States is stumbling into a major confrontation with Russia. Whether this is the result of Trump’s financial ties to the oil monarchies or the lure of an easy win on the home front is not entirely clear. What is clear is that Trump is entangling the United States in a secondary theatre even as he meets with the real challenge to US primacy. Xi could not help but be pleased with the developments of the last few days.

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World Affairs

What the Leaked Shortlist for SecState Says About Clinton’s Foreign Policy

Democratic presidential candidate Clinton discusses the Iran nuclear agreement in Washington

Nothing tells us more about an incoming President’s foreign policy agenda than her pick for Secretary of State. Indeed, even more important than the actual pick is the short list, which gives a sort of overview of the administration’s foreign policy agenda. The shortlist reported by Politico and clearly leaked by the Clinton campaign, is therefore of considerable interest.

The press has focused on Joe Biden. The inclusion of Joe Biden is probably just a publicity stunt. Given the man’s name recognition Biden’s inclusion is aimed at generating positive media coverage. Even if he is seriously being considered that tells us little about Clinton’s agenda beyond the obvious nod to the Obama White House.

First consider who is not on the list. Secretary John Kerry: Despite all the talk about extending Obama’s work, by ruling out Kerry, Clinton is sending a clear signal that the new administration will be turning over a new leaf. Jake Sullivan: The name of the campaign’s unofficial foreign policy lead has not been floated. This doesn’t mean he is not being considered. Clinton may simply not wish to air the name of campaign insiders. Whether in State or in the White House, Sullivan is going to be a foreign policy principal. He is a known liberal interventionist who’s views are entirely congruent with Clinton’s. In the unlikely event that he is appointed SecState, he’ll be no more than a yes man. Tom Donilon: Obama’s former National Security Advisor is now attached to the Clinton camp. But his appointment as SecState is a very unlikely. The man has status issues with his boss.

Who’s actually on the list? Two names are obviously placed there for the sake of appearances. Wendy Sherman, the lead negotiator on the Iranian nuclear talks, is a sop to the doves. She simply doesn’t have the gravitas for the job. Admiral James Stavridis is a bureaucrat who’s vision for the American navy is centered on feel-good talking points and photo-ops. Neither is a serious contender.

So who is actually in the running that’s on the list? There are four serious contenders. Kurt Campbell, a key architect of the “pivot to Asia.” Bill Burns at the Carnegie Endowment for International Peace, known for his moderate liberal institutionalist views. Strobe Talbott, a personal friend of the Clintons and the president of the Brookings Institution, the think-tank recently criticized by the Times for close ties to foreign governments including gulf states. And most importantly, Nick Burns at Harvard, a foreign policy hawk who has promoted a hard line against Russia and Iran including imposing safe zones in Syria, and who has been a prominent critic of Obama’s foreign policy.

The real short-list reveals the full spectrum of the admittedly narrow liberal hegemonist world view. Campbell’s inclusion says that Clinton is committed to the pivot to Asia. If he is actually appointed that would reflect favorably on Clinton’s priorities. Bill Burns is the resident dove who is least likely to be appointed. But if he is, that would mean that Clinton is backing away from her hitherto hawkish agenda. Talbott would’ve been a front-runner but his appointment would now be quite controversial. Floating his name seems like a personal compliment.

In the Policy Tensor’s view, Nick Burns is the most likely pick. He will, of course, sail through the Senate confirmation process. His appointment would signal a return to a much more muscular US foreign policy.

The central flaw of the Clinton-Burns view is their assumption that the United States has permanent allies (Europe, Japan, Turkey, Sunni Arab states) and permanent adversaries (Russia, China, Iran, Syria). Obama’s biggest foreign policy achievements, Iran and Cuba, came from an outright rejection of this frame of reference. If Clinton appoints Nick Burns, she would be effectively burying Obama’s experiment with foreign policy realism. The United States would get dragged further into the Middle East cauldron and necessarily ignore the much more important arena further east (since there is, after all, limited bandwidth in DC). In light of the loss of the Philippines to China, this would be a grave mistake indeed.

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World Affairs

Did the Saudi Government Secretly Support ISIS?

On August 17, 2014, Clinton wrote to John Podesta, then Counselor to the President and later her campaign chair, outlining the intelligence on ISIS and laying out her policy position on how to deal with the challenge. Most of the stuff—on FSA, peshmerga, Turkey and so on—is clear from open sources but there was one particular bombshell. She claimed that the governments of Qatar and Saudi Arabia provided clandestine financial and logistic support to ISIS. Here’s the full paragraph:

Armed with proper equipment, and working with U.S. advisors, the Peshmerga can attack the ISIL with a coordinated assault supported from the air. This effort will come as a surprise to the ISIL, whose leaders believe we will always stop with targeted bombing, and weaken them both in Iraq and inside of Syria. At the same time we should return to plans to provide the FSA, or some group of moderate forces, with equipment that will allow them to deal with a weakened ISIL, and stepped up operations against the Syrian regime. This entire effort should be done with a low profile, avoiding the massive traditional military operations that are at best temporary solutions. While this military/para-military operation is moving forward, we need to use our diplomatic and more traditional intelligence assets to bring pressure on the governments of Qatar and Saudi Arabia, which are providing clandestine financial and logistic support to ISIL and other radical Sunni groups in the region. This effort will be enhanced by the stepped up commitment in the KRG. The Qataris and Saudis will be put in a position of balancing policy between their ongoing competition to dominate the Sunni world and the consequences of serious U.S. pressure. By the same token, the threat of similar, realistic U.S. operations will serve to assist moderate forces in Libya, Lebanon, and even Jordan, where insurgents are increasingly fascinated by the ISIL success in Iraq.

Now it is well understood that private donors in the gulf, including and especially rich Saudis and Qataris, have provided significant funding for ISIS. But Clinton said quite explicitly that the Saudi and Qatari governments were providing clandestine support. If the claim is true then this would be the greatest national security scandal in US history. For the United States government has gone out of its way to portray the Saudis as a valuable partner in the fight against ISIS.

The US has also gone out of its way to support the Saudis’ aggressive foreign policy in the region. Despite knowing that the Saudi terror bombing of Yemen would strengthen AQAP, the administration has provided blanket operational support for the air war. In Bahrain, the administration quietly acquiesced to the Saudi intervention to quell the uprising of the island’s majority Shia against the Al Khalifa. In Syria, the administration has repeatedly signaled its support for Saudi-backed salafist insurgents—often described as Western-backed—despite considerable concerns about their sectarian and ideological agenda.

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President Obama and Saudi Deputy Crown Prince Mohammed bin Salman

The systematic appeasement of the Saudis is presumably meant to mollify Saudi anger about US policy vis-à-vis Mubarak and the nuclear deal with Iran. But if it is publicly established that the Saudis directly supported ISIS, that would completely undermine domestic support for the US-Saudi alliance. Put simply, Saudi Arabia would become a pariah. Instead of talking about strengthening the alliance, we would be talking about containment. So this is an issue of considerable importance.

ISIS poses an existential threat to Saudi Arabia since the self-styled caliphate rejects the Saudis as the legitimate protectors of the two holy mosques; a job which would naturally fall on the caliphate if one were in existence. The Kingdom has also been the target of ISIS and its predecessors. The Saudis could conceivably use ISIS as a bludgeon against Assad and the Iranian-dominated regime in Baghdad. But such a policy would come with grave risks.

Even supposing that the Saudis could stomach the risk and bankroll ISIS, the second part of the claim is even less credible. For if US intelligence was aware of Saudi clandestine support for ISIS, that information would be extremely difficult to suppress. It is hard to imagine that the administration would bank on keeping the lid on this explosive affair. Indeed, if it ever came out it would ruin the career of every single person involved in the conspiracy to cover up a matter of such grave national security interest.

A much more credible interpretation is that Clinton was being flippant. What she meant to say perhaps was that the indiscriminate support provided by the Saudis and the Qataris (as well as Turkey) for the insurgency against Assad was helping ISIS. Specifically, that the flow of weapons and funds from the gulf regimes to the insurgents was ending up with ISIS. There is considerable evidence to suggest that weapons and monies meant for other insurgent groups ended up in ISIS’ hands through raids and defections. The addition of a single word, inadvertently, would rehabilitate her claim:

While this military/para-military operation is moving forward, we need to use our diplomatic and more traditional intelligence assets to bring pressure on the governments of Qatar and Saudi Arabia, which are [inadvertently] providing clandestine financial and logistic support to ISIL and other radical Sunni groups in the region.

I believe this is the correct interpretation of the email. If I am wrong and Clinton’s words can be taken literally, then we may be facing a true game-changer in the Middle East. But pending further revelations, it would be unwise to give it much credence.

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World Affairs

Spin and Reality in Jarabulus

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As Turkish tanks rolled across the border into Syria apparently supported by US warplanes, Western newspapers echoed the official line from Turkey that the twin goals of the incursion were to “clear Islamic State militants from their remaining border stronghold, and roll back recent advances by Syrian Kurdish militias.” The White House called the incursion “an indication of important progress” in the campaign against ISIS. Meanwhile, Biden ordered the Syrian Kurds back across the Euphrates and threatened to withdraw American support if they failed to comply. “In return, the United States got something it has pushed for in vain for years, getting Turkey to take a more proactive stance” against ISIS. What is spin and what is reality?

To begin with there was simply no need for US air support. Both because Turkey has plenty of airpower of its own and because Jarabulus was absolutely deserted. ISIS had already fled, as US intelligence was well aware. No shots were fired. The prominence given to close US air support was instead a signal to Putin and Assad. The idea being that this was a joint US-Turkish operation, so don’t even think about resistance. The same concern was behind the timing of the operation which coincided with Kerry’s visit to Turkey, as well as Kerry’s very loud pronouncements of absolute support for the incursion. Forcible alterations of the territorial status quo are never a trivial matter, even if the target state has lost de facto control of the territory in question; especially so because the United States has been staunchly opposed to forcible territorial change in Ukraine, Georgia, the Senkaku islands, Taiwan and the South China Sea.

US warplanes have acted as the Syrian Kurds’ airforce for years; most recently in the recapture of Manbij a week before the Turkish incursion. At that point, Turkish officials said they expected the Kurds to go back east across the Euphrates. Preventing the Kurds from unifying the two Syrian Kurdish statelets into a single contiguous Syrian Kurdish de facto state along the border has been a consistent Turkish policy goal. There are two reasons for this. One is that unifying Rojava, the Syrian Kurdish region along the border, would be big symbolic victory for the Syrian Kurds that is likely to embolden Kurdish separatists inside Turkey. The second, more important reason, is that Kurdish control of the Syro-Turkish border would effectively close the rat line.

The rat line is the principal pipeline through which foreign fighters, money, weapons, ammunition and supplies flow to the Syrian rebels. From the beginning of the Syrian uprising, Turkey has been indiscriminate in regulating this flow. With the evaporation of the moderate opposition, almost all of this flow has ended up in the hands of jihadists. It is what keeps the rebellion against Assad alive. Without the rat line, much of the armed opposition would not survive for very long.

If the Kurds were to gain effective control over the Syrian side of the Syro-Turkish border, they would come to enjoy a veto over the rat line. They would immediately try to shut down the flow to non-allied rebels. That would dramatically alter the balance of power in the Syrian war against Turkish and Saudi proxies. Turkey, of course, cannot tolerate such a scenario.

The Policy Tensor believes that such a scenario is manifestly in the US interest: It goes furthest towards stemming the threat of Salafist Jihadism; the only identifiable US interest in Syria. The Obama administration instead frames the US interest in the context of the US’ geopolitical rivalry with Russia and Iran. Thus, the interests of allies become US interests. So we find the United States providing logistics for Saudi terror bombing of Yemen and diplomatic cover for the Turkish intervention in northern Syria backed by US security guarantees.

It is often claimed that the United States needs access to Turkey’s Incirlik air base, which is portrayed as “a key nexus in the campaign against the Islamic State.” The United States can use air bases in Jordan, Israel, Kuwait, UAE, Qatar, Baghdad-controlled Iraq and Erbil to conduct airstrikes against the Islamic State. Many of these are closer than Incirlik to ISIS territory and all of them are close enough. The US can also use naval platforms in the Eastern Mediterranean and the Persian Gulf. The claim doesn’t even pass the laugh test.

In going out of its way to support the Turkish incursion, the US is seeking to gain leverage against Russia as it negotiates a great power settlement in Syria. Ultimately however, the United States will throw the rebels under the bus. And we can expect it to do that with as much spin as it has just deployed to protect their lifeline.

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