by Richard Gowan | Feb 23, 2008 | Conflict and security, Europe and Central Asia
While everyone still seems to be aghast that Kosovo’s declaration of independence somehow hasn’t resulted in unrestrained Sweetness and Light flooding across the Western Balkans, the general media line that “we are teetering on the edge of a precipice” isn’t entirely sustainable. Yes, sustained violence by the Kosovo Serbs has made life exceedingly difficult for the international presence. And yes, the assault on the U.S. embassy in Belgrade is a reminder that this isn’t just about a few weeks of posturing and rhetoric – people are very angry.
And as I noted a few days ago, the Kosovo Serbs may have identified clever tactics to exploit NATO’s weaknesses. But for all that, I’d still be pretty satisfied with how things have gone if I were a Kosovo Albanian. Five reasons why:
- The thuggish faction among the Kosovo Albanians has been kept in check: it’s clear that a lot of the Serb provocations over the last week have been aimed at getting the Kosovo Albanians to reply in kind. Before independence, UN officials almost all assumed that “some idiot will burn down a Serb’s house in week one”. That would give Belgrade a huge publicity boost. But that hasn’t happened – yet.
- The thuggish faction in Serbia is winning all the attention: Belgrade’s best hope for managing the crisis was to keep looking like the injured party. The huge peaceful rally that preceded the assault on the U.S. embassy was a good example of how to get that message across: a nation mourns, etc. But then a few cretins go after the embassy, and the headline is: a nation riots. No wonder that moderate President Boris Tadic and his allies have been lamenting “one of Belgrade’s saddest days”.
- Russian rhetoric is already starting to look bankrupt: there’s been much excitement because Russia’s ambassador to NATO has talked of using “brute force” if the EU and NATO break with the UN. Well, perhaps we are on the road to World War III, but another interpretation is that Moscow is actually pretty short on leverage and has thus had to play this card extremely early. Remember, Boris Yeltsin warned in 1999 that a NATO intervention in Kosovo would result in “a European war for sure and maybe a world war.” New crisis, same old play-book – even if the smell of vodka is less these days.
- The Europeans aren’t making utter fools of themselves: things looked bad at the start of the week when Spain signaled that it couldn’t support independence, but Spanish NATO troops have still been involved in handling disturbances. The big question was whether Germany would waver – it hasn’t. I’m not as confident as Daniel Korski that the EU has crossed a rubicon, but it hasn’t turned tail either.
- Lots of money is coming Kosovo’s way: welcoming Kosovo’s independence, George Bush pledged $335 million in aid – that’s about three times the level of U.S. aid last year. And there’ll be more to come from the EU. Of course, much of it will disappear one way or another, but would you say no?
It may all go horribly wrong tomorrow, or in a week, or a month or whatever. But don’t be fooled by all the shots of burning border-posts – by the (admittedly low) standards of post-Yugoslav state formation, this isn’t a bad start.
by Richard Gowan | Feb 21, 2008 | Conflict and security, Europe and Central Asia
So, Kosovo is burning – but only a little. While protestors in Belgrade grab headlines by attacking the U.S. embassy, a rather more subtle game seems to be playing out in Serb-majority north Kosovo itself. There has been violence, with a series of assaults on UN vehicles and border posts, but it seems to be deliberately limited. When NATO forces turn up, the attackers typically pull back. There has been a notable (and welcome) lack of casualties.
Many Kosovo-watchers, myself included, had feared something worse: large-scale violence intended to inflict some high-profile humiliations on NATO, comparable to those achieved by Albanian rioters in March 2004. Then, many NATO troops retreated into their camps – the French general sent to rebuild the force admitted it had faced “defeat”. While UN and NATO officials don’t like to admit it, this shock created much of the momentum towards the province’s independence (you can find Kosovars who believe the whole thing was rigged by the CIA).
When I visited Kosovo last fall for the Annual Review of Global Peace Operations, it wasn’t hard to locate international officials who thought that the Serb minority would attempt to pull off a similar coup. In an unpublished note I wrote at the time, I reflected on the mood of gloom:
Ask international officials in Kosovo if they think the EU could navigate a crisis, and their response is dark: in a deteriorating security situation, it would not be long before European troops, police and civilians found themselves being shot and killed. The Europeans will have no choice but to lock the situation down. That’s the optimistic take. In the pessimistic version, NATO would wade in to evacuate at-risk internationals – but be unable to halt Serb-Albanian violence.
Some had even grimmer visions of how matters might unfold. Here’s one worst-case scenario penned at about the same time (source: anonymous):
First, stories appear of Kosovo Albanian atrocities against a Serbian family . “Look,” say the Serbs, “Kosovars – and NATO – cannot be trusted to protect us.” Then Kosovar Serbs “spontaneously” rise up to defend themselves from ethnic cleansing, catching the sleepy NATO mission off guard. The Serb army moves into Kosovo – occupying the Serb-dominated areas to save their brethren. Russian President Putin calls for a ceasefire. Belgrade then concedes independence for the rest of Kosovo on condition that northern Kosovo is annexed to Serbia.
And it’s possible that the current, low-to-mid-level violence is the prelude to just that sort of escalation. That’s what everyone seems to be telling the New York Times:
“The Serbs appear intent on provoking an Albanian reaction and to make the international community’s mission here impossible, but we will not allow legal partition,” said one senior EU diplomat. But another European diplomat said that if Serbs pursued de facto division, “there is not a lot that could be done.”
But it’s possible that we’ll get to de facto division without really big violence. In the lead-up to Kosovo’s independence declaration, NATO managed to get a lot of troops – including Americans, French and Germans – into the northern part of the province. These probably have the potential to react pretty effectively to any sustained attack by the Kosovo Serbs (and any incursion by the Serb army would be an open invitation to NATO to use air power). After all, the Chadian rebels who thought that they could frighten off the EU this month with a direct show of force were only temporarily successful – and a lot of them are now permanently dead.
But the Kosovo Serbs may be onto a cleverer strategy: a drip-drip of violence that tires out NATO without being sufficient to provoke retribution, and demonstrating that the international community doesn’t really control the north. As long as the protestors avoid inflicting any major casualties, it will be hard to get really tough with them – the headline “NATO forces cut off Serb right to free speech/protest” isn’t exactly an appealing one. Rather than leave the Europeans and U.S. “with no choice but to lock the situation down”, this sort of persistent trouble-making has the potential to corrode NATO’s sense of purpose. The Kosovo Serbs may be being very cunning. Or they may just be hoping for a bigger fight soon.
by Richard Gowan | Feb 20, 2008 | North America, Off topic
Readers of this blog will, almost by definition, be well aware of the thoughts of Mr. Alex Evans on global risks, resilience, the new dynamics of international cooperation and so on and so forth. So they’ll be pretty used to this sort of stuff:
I think we face three challenges currently: The disappearance of the nation-state; the rise of India and China; and, thirdly, the emergence of problems and challenges that cannot be solved by a single power, such as energy and the environment. We do not have the luxury to focus on one problem; we have to deal with all three of them or we won’t succeed with any of them.
Yeah, yeah, give us a break. Except those sentiments don’t come from Alex but from, er, Henry Kissinger in a remarkable new interview with Der Spiegel Online (the best English-language news source on the web that nobody knows about).
Old Mr. Realpolitik hasn’t exactly turned that cuddly. He has wise things to say about how the Bush administration gives European governments an easy excuse for avoiding hard questions on foreign policy – and weird ones on Bush himself:
SPIEGEL: Isn’t German and European opposition to a greater military involvement in Afghanistan and Iraq also a result of deep distrust of American power?
Kissinger: By this time next year, we will see the beginning of a new administration. We will then discover to what extent the Bush administration was the cause or the alibi for European-American disagreements. Right now, many Europeans hide behind the unpopularity of President Bush. And this administration made several mistakes in the beginning.
SPIEGEL: What do you see as the biggest mistakes?
Kissinger: To go into Iraq with insufficient troops, to disband the Iraqi army, the handling of the relations with allies at the beginning even though not every ally distinguished himself by loyalty. But I do believe that George W. Bush has correctly understood the global challenge we are facing, the threat of radical Islam, and that he has fought that battle with great fortitude. He will be appreciated for that later.
SPIEGEL: In 50 years, historians will treat his legacy more kindly?
Kissinger: That will happen much earlier.
But back to the whole “problems and challenges that cannot be solved by a single power” malarkey. I’ve just returned from a week in the UK talking about Managing Global Insecurity, and although there were a lot of interesting conversations involved, I was struck by the deeply-embdedded European assumption that U.S. policy-makers just don’t get the twenty-first century risk agenda or concepts like human security. Well, piffle. As I noted late last year in a short piece for the Stanley Foundation, the whole presidential campaign has been shot through with this sort of thing:
One of the most prominent foreign policy themes of pre-presidential debates has been the need to get UN troops to Darfur. Hillary Clinton has “an aggressive plan to support public schools in developing countries” while Mitt Romney’s anti-jihad strategy centers on a “Special Partnership Force” that will win over foreign communities and leaders through “humanitarian and development assistance and rule of law capacity building.”
Such proposals leave outside observers scratching their heads. Ask the average anti-American to name the pillars of US international policy, and they’ll pick two: military power and unbridled capitalism. But the country’s leaders-in-waiting are promoting social democratic goods like public schooling and development aid. Is the US turning into a gigantic Sweden?
As I said at the time, no, not really. But think back to Super Tuesday. Here’s the key foreign policy paragraph from Obama’s speech that night:
And when I am President, we will put an end to a politics that uses 9/11 as a way to scare up votes, and start seeing it as a challenge that should unite America and the world against the common threats of the twenty-first century: terrorism and nuclear weapons; climate change and poverty; genocide and disease.
And here’s the equivalent from Clinton’s speech the same night:
I see an America respected around the world again, that reaches out to our allies and confronts our shared challenges – from global terrorism to global warming to global epidemics.
And now the McCain-supporting Kissinger is in on the act. I’m off to go and watch the primary results roll in from Wisconsin – but if these guys are even semi-serious, the Europeans may find they’re behind the ideological curve in 2009.
by Charlie Edwards | Feb 13, 2008 | Conflict and security, Middle East and North Africa, South Asia
Paddy Ashdown is in trenchant mood in today’s FT.
With fighting in Afghanistan now entering its seventh year, no agreed international strategy, public support on both sides of the Atlantic crumbling, Nato in disarray and widening insecurity in Afghanistan, defeat is now a real possibility. The consequences for both Afghanistan and its allies would be appalling: global terrorism would have won back its old haven and created a new one over the border in a mortally weakened Pakistan; our domestic security threat would be gravely increased and a new instability would be added to the world’s most unstable region.
But then neither is continuing as we are. So what should we do?
Some say more troops should be sent and they are certainly needed. Some say those Nato members who are not sharing the burden of the fighting should do so – and they should. Some say we need more aid – and we do. We are putting into Afghanistan one 25th the troops and one 50th of the aid per head of population that we put into Kosovo and Bosnia.
Increasing resources in Afghanistan is clearly necessary, but it is not sufficient. Even if we were to provide what was necessary, and even if everyone pulled their weight, we would still find it very difficult to turn the tide, which is now running increasingly strongly against us.
Adding troops is key to this problem. But as James Travers’ argued in his regular national affairs column yesterday:
Adding 1,000 NATO troops and more air support won’t fix what’s wrong with this attempted rescue of a failing state. As Manley found and studies warn, unco-ordinated strategies countering the insurgency, corruption and the booming opium business aren’t working and demand hurried reconsideration.
And what about increasing resources? Clearly this is crucial – but let’s be realistic. The U.S. has spent the same amount on aid and development in Afghanistan over the past five years as the military burns through in Iraq every three weeks. And resources follow priorities.
So finally it begs the question: do we need a strategy? According to Ashdown:
What we lack above all is a strategy that all (including, crucially, the Afghan government and the international military) can buy into. We know well enough what the objective is – to help President Hamid Karzai’s government to govern so that we can hand over the tasks we are doing, including the fighting, to them.
And based on a strategy, we need to develop a plan – but as Ashdown notes, we haven’t agreed a single person to head up the fractured international effort, with the authority to bash international heads together and provide the support the government of Afghanistan needs to begin winning again. So what would Ashdown do?
Firstly, we (the international community) have to concentrate fiercely on the necessary and not be distracted by the merely desirable. To have too many priorities is to have none.
The first is security.
Our second priority should be governance.
The third priority, linking these two, is strengthening the rule of law, from the judiciary, to the police, to the security structures, to the penal code.
I think governments might suggest that this is what they are already doing in Afghanistan. The problem they would point to is coordinating their efforts . But I think there is also something to be said about how they go about developing and implementing policy; and here I think we need to take a very different approach. I call it Connecting the Dots – and I think it’s what we desperately need to do with complex problems such as Afghanistan’s future.
by Alex Evans | Feb 11, 2008 | Global system
Time to remind ourselves that while we’ve all been cooing over Obama and fretting over NATO cohesion, the small matter of the security of the world’s financial system has continued to smoulder. At dinner with a group of hedge fund analysts last week, it was abundantly clear that just because the issue has disappeared from the front pages for a time doesn’t mean it’s gone away: au contraire, one analyst was bluntly stating that all we’ve seen so far has been no more than the trailer.
Nouriel Roubini, bearish as ever (though let’s remember that he’s been consistently right so far), asks the big question:
Why did the Fed ease the Fed Funds rate by a whopping 125bps in eight days this past January? It is true that most macro indicators are heading south and suggesting a deep and severe recession that has already started. But the flow of bad macro news in mid-January did not justify, by itself, such a radical inter-meeting emergency Fed action followed by another cut at the formal FOMC meeting.
To understand the Fed actions one has to realize that there is now a rising probability of a “catastrophic” financial and economic outcome, i.e. a vicious circle where a deep recession makes the financial losses more severe and where, in turn, large and growing financial losses and a financial meltdown make the recession even more severe. The Fed is seriously worried about this vicious circle and about the risks of a systemic financial meltdown.
So to cheer you on your way on a foggy London morning in February, here’s Roubini’s 12-step “‘nightmare’ or ‘catastrophic’ scenario that the Fed and financial officials around the world are now worried about” – which “has a rising and significant probability of occurring”. Here’s the executive summary for those of you too lazy to set up a free subscription to read the whole thing:
1. This is already the worst housing recession in US history; prices will fall 20-30% from their peak. That would imply about 10 million homes in negative equity.
2. Financial system subprime losses are now estimated at $250 to $300 billion; and now spreading to near-prime and prime, through the same lax lending criteria: “this is a generalized mortgage crisis and meltdown, not just a subprime one”. And don’t forget all the off-balance sheet Structured Investment Vehicles etc., and the fact that “because of securitization the securitized toxic waste has been spread from banks to capital markets and their investors in the US and abroad, thus increasing – rather than reducing systemic risk – and making the credit crunch global”.
3. “The recession will lead – as it is already doing – to a sharp increase in defaults on other forms of unsecured consumer debt: credit cards, auto loans, student loans.” All of which makes the credit crunch even more severe – and takes it from large banks through to smaller banks. [Loan companies are already scrambling to tighten up lending criteria in the UK, as the FT set out over the weekend.]
4. “While there is serious uncertainty about the losses that monolines will undertake on their insurance of RMBS, CDO and other toxic ABS products, it is now clear that such losses are much higher than the $10-15 billion rescue package that regulators are trying to patch up.” As a result, their debt rating will probably get downgraded; which will lead to large losses for funds that invested in them, and another sharp drop in US equity markets. [For more background, here’s a story about monolines from last week that made the front page of the FT.]
5. Next, “the commercial real estate loan market will soon enter into a meltdown similar to the subprime one”, thanks to – guess what? – similarly reckless lending criteria. So, “the housing crisis will lead – with a short lag – to a bust in non-residential construction as no one will want to build offices, stores, shopping malls/centers in ghost towns”. [FT last week: outflows from UK commercial property up 76 per cent from third quarter.]
6. It’s entirely possible that a large regional or even national bank will go bust. “The Fed will have to reaffirm the implicit doctrine that some banks are too big to be allowed to fail. But these bank bankruptcies will lead to severe fiscal losses of bank bailout and effective nationalization of the affected institutions.” [Sound familiar?]
7. Bank losses on leveraged loans are already large, and rising – “leading to a freezing up of the CDO market and to growing losses for financial institutions”.
8. “Once a severe recession is underway a massive wave of corporate defaults will take place.” Roubini adds, “in a typical year US corporate default rates are about 3.8% (average for 1971-2007); in 2006 and 2007 this figure was a puny 0.6%. And in a typical US recession such default rates surge above 10%.”
9. The “shadow financial system” – non-bank financial institutions – will shortly get into serious trouble. And unlike proper banks, “these non-bank financial institutions don’t have direct or indirect access to the central bank’s lender of last resort support as they are not depository institutions”.
10. Stock markets in the US and abroad will start pricing in a severe recession rather than just a slowdown. Roubini notes that “in a typical US recession the S&P 500 falls by about 28%”.
11. Liquidity in financial markets will dry up all over again; the easing pf the liquidity crunch after central banks’ massive interventions in December and January will reverse.
12. “A vicious circle of losses, capital reduction, credit contraction, forced liquidation and fire sales of assets at below fundamental prices will ensue leading to a cascading and mounting cycle of losses and further credit contraction”.
All in all:
A near global economic recession will ensue as the financial and credit losses and the credit crunch spread around the world. Panic, fire sales, cascading fall in asset prices will exacerbate the financial and real economic distress as a number of large and systemically important financial institutions go bankrupt. A 1987 style stock market crash could occur leading to further panic and severe financial and economic distress. Monetary and fiscal easing will not be able to prevent a systemic financial meltdown as credit and insolvency problems trump illiquidity problems. The lack of trust in counterparties – driven by the opacity and lack of transparency in financial markets, and uncertainty about the size of the losses and who is holding the toxic waste securities – will add to the impotence of monetary policy and lead to massive hoarding of liquidity that will exacerbates the liquidity and credit crunch…
Can the Fed and other financial officials avoid this nightmare scenario that keeps them awake at night? The answer to this question – to be detailed in a follow-up article [here] – is twofold: first, it is not easy to manage and control such a contagious financial crisis that is more severe and dangerous than any faced by the US in a quarter of a century; second, the extent and severity of this financial crisis will depend on whether the policy response – monetary, fiscal, regulatory, financial and otherwise – is coherent, timely and credible. I will argue – in my next article – that one should be pessimistic about the ability of policy and financial authorities to manage and contain a crisis of this magnitude; thus, one should be prepared for the worst, i.e. a systemic financial crisis.
