Celebrating the Occasional Posts of Mr. Cook!

Greece’s Ongoing Crisis

Short Observation:

I find it amusing that back in June I was of the opinion that Grexit was going to happen and most felt it would not. Now that the majority of political and economic leaders asked by the media are quick to opine that Grexit is likely to happen, I am more inclined to believe it will not. In any event, the story of the Greek financial crisis has been one of mismanagement and interesting shifts in political opinions and calculations. Thus, nothing should be ruled out. If the Greek government of Alexander Tsipras decides to play hardball and stick to its guns, so to speak, it will find itself with little to show for all the drama the world has seen these past weeks. However, if the proposal expected tomorrow is focused on economic growth and not simply a rejection of austerity and reform, I expect an agreement. My only fear against an agreement at this point is that stupidity could once again rear its head, as it so often does. While I still feel Greece would be better off in the long run with its own currency, I cannot recommend the pain of adjustment that such a move would entail. Especially when other countries are willing to lend one money to reform – assuming a growth-oriented proposal comes out tomorrow. Fingers crossed, eh.


Forget What I Just Said

Greeks have rejected the bailout terms in Sunday’s vote. With the Eurogroup members making clear they are open to continued negotiation, Alex Tsipras may be about to prove wrong those who doubted his approach. It depends on how much the Eurozone and IMF are willing to compromise. The latest proposal from the Greek government agreed to all but three points of the last creditor proposal. The points are trifling things in wider context, so an agreement should be well within reach on Monday. Not to dismiss the possibility of intangibility on both sides, but the probability is for an agreement soon.

Grexit Cancelled

Short Post:

I believe the past week of bank closure and warnings from Eurozone leaders have done the work of convincing the Greek people to vote yes and accept the bailout conditions on the table. Prime Minister Tsipras and his government also seem to be chastened if the latest proposal from them accepting all but a few conditions is any indicator. They clearly see the way the winds are blowing and if the populist alliance loses power, they are unlikely to get it back. However, Germany and other Eurogroup members have made it clear there will be no negotiations until the vote, which is a useful lesson in not making an enemy of your negotiation partner when you still need their help. If Tsipras keeps his word, the Syriza government will resign after the probable yes vote on Sunday, and a new Greek government will accept the bailout conditions. Overall, good drama, bad governing.

Grexit Update

Short Post:

Greece has requested a 29.1 billion euro loan from the European Stability Mechanism. Given that such a loan would probably take more than a month to negotiate, require similar conditions to the ones Greece is currently rejecting, and the debt payment is due today… I think it is safe to call this a red herring.

What is all the more remarkable is how uniformly people across Europe and Greece are against Grexit. Virtually no one outside of members of a few conservative groups have come out for it. The pain Greece would feel from Grexit would be great. And yet, this seems to be where we are headed. I suppose the saying that a committee can make a decision dumber than any of it members comes to mind…

The options should be Greek reform underwritten by billions of euros from the Eurozone, or Greek reform underwritten by Greek hardship. The second gives Greece the right to chose its own system and removes the Europe-wide uncertainty we are experiencing. The former would certainly be more comfortable for Greeks and likely force more reform, if not the right kind of growth-enhancing reform Greece needs. But sometimes the hard road is necessary. Hard roads for hard heads, I suppose. And there are a lot of hard heads currently making decisions in Athens.

On the popular opinion front I am impressed with the level of recognition we are seeing in the European media that the Eurozone loans were largely wasted and will never be fully repaid, but I still feel the train wreck that Alex Tsipras has set in motion will prevail. It sets the agenda, if you will, and leaves a choice of yes or no. That does not leave much room for further negotiation. It leaves none, and based on media reporting Greeks do not sound as worried about the implications of a no vote as they should. What should be a referendum expressing a nation’s rejection of austerity in favor of a more effective prescription (growth-enhancing reforms and investments such as cutting red tape, reducing inefficiencies, and fostering entrepreneurship) is instead an in/out vote on the euro, framed by the Tsipras government as a negotiation tactic. Clearly there is a great deal of foolishness to go around in this saga. At least Grexit will force the hard choices that Tsipras currently rejects making. What will be especially interesting is what happens after the first default. As several economists have pointed out, there is no actual mechanism to force a country out of the euro. Tsipras does not actually want to go. It could get messy.

Grexit: It’s Happening

Short Post:

When one party becomes fed up with the other party in a relationship, cooperation becomes difficult. When said offending party is convinced that he or she need only play a better game of Chicken and the other party will fold, and this is not the case… well, let’s review the game. In Chicken, two cars are driven straight at the each other and the first driver to blink/swerve away is the loser. In this game between the (solvent) nations of the Eurozone and Greece, Prime Minister Alexis Tsipras has effectively decided that unbolting the steering wheel and tossing it out the window will bring Greece victory over its creditors. While a bold strategy, it unfortunately ignores the reality that what the Eurozone leaders are in fact driving is a train.

Little details like that are important when you play games at this level.

I suppose it is possible that the Greek voters will chose to accept the offered terms on July 5th. However, that does not seem to be the national mood. Everyone wants done with this unpleasant state of austerity and brinkmanship, Eurogroup leaders included. Greece cannot repay the hundreds of billions of euros she owes. While an argument can be made that five years of austerity politics and no growth have done an adequate job of reducing Greek wages for Greece to be economically competitive, a Greece running its own currency would do still better. As long as Greece is in the Euro, it will lack a key fiscal tool its economy needs. Nor is Greece willing to accept control of its public policy in exchange for the massive cash injections it would need to remain in the Eurozone. Unless the unpleasantness of the next week after the June 30th IMF default is enough to make Greeks change their minds or European public opinion leads the Eurogroup to blink, on June 6th Greeks will return to the drachma. For a preview of that, Iceland in 2009 shows how things could look. Or worse – Iceland just owed a lot of money. Greece has more fundamental systemic issues to deal with as well.

I doubt that Greece will exit the EU, though. There is no reason outside of spite for that. Greek should be in the EU. It should never have been in the Eurozone. This will be a harsh corrective, but as the saying goes, there is no time like the present.

The Promise of the Iran Deal

Having been asked about the deal between Iran and the P5+1, I will note there are both positive aspects and areas for concern. First, the good.

I am rather impressed that a deal was reached at all. If Iran was dead-set on building a nuclear weapon, nothing short of military attack would have stopped such development. Only Israel would have been willing to do so, and quite frankly the window on such an attack being effective closed several years ago. The US will not invade Iran. There is nothing sufficiently compelling for us to incur the costs of such an attack and occupation. Even an Iranian nuclear weapon and the prospect of a nuclear exchange between Iran and Saudi Arabia would not justify invasion to the American public. There is simply no appetite for it. Nor is there any among America’s allies. Iran is aware of this, regardless of the rhetoric Iranian hardliners like to spout out. That probably helped with the deal, though I speculate. Iran has proven time and again it is skilled at being an aggravating and non-constructive negotiating partner when that suits its interests. Previous negotiations have served more to protect Iran’s nuclear military potential than to remove it. This deal is far more reflective of a shift of Iranian interest perception than anything the P5+1 could say.

Next, please note that sanctions are the first hard step taken in the modern world for modifying an international state actor’s behavior. In this case, the pain helped drive negotiations. However, sanctions are nothing more than a tool. Only the behavior modification matters. In this case, Iran remaining a non-nuclear military power.

Having established this point, let us consider the deal. First, the only thing that is certain at this time is the Joint Statement by EU High Representative Federica Mogherini and Iranian Foreign Minister Javad Zarif. It looks good. It commits to create a Joint Comprehensive Plan of Action (JCPOA) by June 30th based on relegating Fordow to research status, enrichment only at Natanz and at a level to be agreed-upon but limited, and the modification of the Arak reactor to not produce weapons-grade plutonium, with the spent fuel to be exported in any event. All this is to be overseen by IAEA inspectors, and in exchange Iran will receive technical assistance, access to the global nuclear power market, and an end to sanctions imposed due to the nuclear issue. It is a commitment in principle to regularize Iran as a non-nuclear military power within the civilian nuclear power community. That would fair and an excellent outcome.

However, the White House has also put out a fact sheet that has been criticized by Mr. Zarif. There seems little need to comment on it at this time. It must be remembered that the deal process is a negotiation, with many constituencies. Furthermore, President Obama has displayed an impressively tin ear in the past in dealing with the sensitivities of many people and groups across both the United States and around the world. It may be that this “fact sheet” is indeed misleading, perhaps for domestic political purposes. The right wing on Congress is certainly reserved to a deal and seemingly following the lead of Israel’s Prime Minister Netanyahu, who is staunchly opposed. However, it is difficult to see how being caught lying to the public would help a deal gain Republican support. I can more readily suspect that the “fact sheet” reflects an optimistic understanding-in-principle from the negotiations that should have been kept confidential until the final agreement is reached. Iran has its own right wing opposed to the deal, and Mr. Zarif is well aware of it.

Ultimately, this deal should be considered a promising work in progress. When June 30th rolls around we will know if this is a good deal or a foolish one. Expecting the sanctions to be lifted all at once and immediately, for example, would be foolish and unrealistic. They cannot be easily reapplied. However, there is broad will in all concerned nations for this deal to go ahead. I believe it will, and it shall be a good deal. Just hope that the right wing on both sides does not sink it, and that such efforts receive no further aid from anyone, or any White House. The sensibility of the deal will be seen on the 30th.

Stabilizing Iraq Via Airstrike

It is depressing how often pessimism proves itself the most accurate forecast in the Middle East. Prime Minister al-Maliki should be gone now, in the best interests of Iraq. He is not. The temptation that power represents is a consistent challenge to humans; history and philosophy leave us in no doubt of that. It is a shame that al-Malaki could not overcome it for the good of his people. Now that Shia Iraq has rallied itself to stop ISIS (now just the Islamic State, or IS), it is Iraq’s minorities that shall suffer next.

IS has taken over the primary towns of Iraq’s remaining Christian population, as well as the Yazidi religious minority. Both face some combination of rape, torture, slavery, and death if caught. (Can I again mention that IS is a truly vile organization?) An uncertain number (probably around 40,000-50,000) of Yazidi refugees are trapped on Mount Sinjar and face genocide without immediate aid. Even President Obama, hardly a man known for boldness or taking action or making a decision, has authorized limited assistance and airstrikes to hinder IS. But to what end?

The Islamic State is not going away do to a major international ground invasion. Al-Maliki needs to go for mainstream Sunni Iraq to see its future as being with Shia Iraq. That has not happened, so it probably won’t happen any time soon. Therefore, the best that can be expected is containing IS. So now that Obama has actually made a decision, we should see limited humanitarian assistance and airstrikes sufficient to stiffen Kurdish defenses against further IS advances. Many Yazidi people will never make it off their mountain without more assistance that it currently appears they will receive. That assistance should be increased immediately. Hopefully this will happen, but trying to save 50,000 people trapped on a mountain, isolated save for the merciless army trying to slaughter them, at the eleventh hour… it is a very tall order. Even with full political support it is very hard. This may end very badly. I dearly hope it will not. But it could.

The other refugees are in a better situation. That really isn’t saying much, but at least they aren’t trapped on a mountain of death. With Obama, though, you really don’t know if US airstrikes will last. The Iraqi Kurds and Christians and Yazidi and other minorities need them to last. Airstrikes mark a new chapter in the Iraqi Civil War. Whether this new chapter includes Kurdish forces pushing IS forces back under cover of US airstrikes and genocide averted or it merely sees a temporary setback to IS and the death of thousands or tens of thousands of Iraqi minorities remains to be seen.

Saving Iraq Needs to Happen Soon, But Probably Won’t

Iraq is in bad shape right now. ISIS is the closest thing to pure evil you can find right now in a large organization, and it has taken nominal control of large swaths of Iraq. Its Syria breeding ground offers it strategic depth, confirming some of the worst fears voiced as Syria fell into civil war. Now there is little the world can do but watch the civil war spread to Iraq.

First, start by reading this piece about the different groups involved. Then come back. Any sensible person can see there is a grand total of one group mentioned worth having hope about: the Sunni tribes. They are looking for peace and prosperity in the face of oppression from the man who would be the Shia Saddam Hussein over Iraq. Unfortunately, they have allowed some very unsavory groups to join this fight, with “ISIS” being the most prominent and thus becoming the catch-all term in the media for the various Sunni extremist groups involved. However, ISIS the group is also the most brutal and it is worth keeping separate from other Sunni extremist groups. Which in itself is a good indicator of how bad things are.

Here is what should happen. Prime Minister Nuri al-Maliki should immediately resign. His regime has been a cancer eating Iraq from the inside. A new government in Baghdad should embrace the Sunni tribes, offering greater autonomy and representation – also oil revenue – in exchange for ending their rebellion against the corrupt Maliki regime and turning on ISIS and other extremists. The new Iraqi government should also take measures against Shia extremists, reducing the influence of Iran that Maliki fostered and keeping Shia groups away from Sunni tribal regions before massacres occur. The Kurdish government should get involved in removing ISIS and foreign extremists, and should probably be allowed to keep Kirkuk if they promise to protect the rights of all the groups of people living there. In Syria Assad should stop allowing ISIS to set up its own draconian Fundamentalist Islamic state. Also Assad should leave Syria and a new government should be appointed comprising representatives from all non-extremist groups and given a mandate to restore and rebuild the country after jointly kicking out all the extremists from ISIS and Iran/Hezbollah. Wouldn’t that be nice.

Here is what will probably happen. Maliki will double down on all the things that led Iraq to this tragic situation. The coming Iraqi civil war will spill rivers of blood and the treasure of Iran and groups in the Gulf states. The Kurds will stand aside unless opportunity presents itself to secure something it wants for itself. The rest of the world will not intervene because there are no easy options to do anything useful militarily. However, the US will be active behind the scene, talking with Sunni tribal leaders, the Kurds, and the Iraqi government, as has been happening. However, that is only useful if someone is willing to listen. The Kurds know what they are doing, the Sunnis have been driven to desperation by Maliki, and Maliki has the backing of Iran and Shiites terrified by the prospect of ISIS. Change needs to happen in Baghdad, and is anyone going to bet on Maliki being the one to start it? So, civil war.

There is a chance, though. Other leaders in Iraq could replace Maliki themselves, joining together to form a new government. This has been suggested and discussed for months, and has gained traction with US calls for a new Iraqi government being a pre-condition to US involvement in Iraq’s current crisis. Will leaders emerge in Iraq able to replace Maliki? If so, it needs to happen quickly. Maliki will not go willingly unless he sees refusal to go as certain destruction. With Shia militia pouring towards the front lines by the tens of thousands, it is extremely unlikely the Sunni rebellion will even make it to Baghdad, much less take it over. Once the advance crests, most of America’s ability to influence political change in Baghdad will dissipate along with the fear of an imminent advance into the city by brutal Sunni extremists. Will Iraq’s leaders act quickly enough? One must hope so, for it is Iraq’s best hope for avoiding a fate nearly as grim as Syria’s.


More Ukraine

This is a good commentary on the Ukraine crisis by Lindsey Hilsum; one cannot envy Ukraine’s government right now.

Problems In Ukraine Get A Lot Bigger… Maybe

I have not been especially worried about the events in Ukraine over the past three years. Although the pro-Russian/authoritarian government of Viktor Yanukovych was doing Ukrainian democracy no favors, I was confident that the pro-Western/European citizens of Ukraine would eventually swing the direction of their country back towards Europe and democracy. I was correct in this broad evaluation, and in a surprisingly innovative campaign the Euromaidan movement succeeded in forcing the ouster of President Yanukovych and the return of the pro-Western groups to power… where they will have a long, hard grind to reforming Ukraine to the level of a modern European democracy, but that is generally the way it works. It is just a whole lot of work, coupled with solid integrity and a good dose of luck. No great nation was ever built in a day. Also, Ukraine is in desperate need of – to borrow from sporting terms – elite-level leaders to helm the nation through its tough reforms. But that is all on hold now, because of Russia – and I am worried.

Ukraine is in big trouble. A quick glance – see this, this, and especially this – shows that Ukraine has an ethnic problem, and one that Russia is in superb position to exploit. Russian President Vladimir Putin has no illusions about allying with Yanukovych, whom is understood to be held in low regard by the Russian President, but he is strongly interested in maintaining a pro-Russian political position in Ukraine as an integral part of Russia’s Near Abroad. Having failed to maintain a pro-Russian government in Kiev, what are his options to uphold Russian interests in Ukraine?

So many options are available – Russia may not have a generally desirable hand, if one had to play the game, he or she would quickly see Russia’s hand as a strong one. Putin could support the new Kiev government; he has not. Putin could adopt a “wait and see” attitude and make new policy decisions once emotions have settled and the new government goes to elections or after, during the tensions and struggles of implementing reform. Putin could try to prop up the pro-Russian movement with economic carrots and sticks towards Kiev; that has happened already. Finally, Russia could intervene with a variable measure of military force, from special operations teams supporting pro-Russian militias all the way up to overt invasion. And according the the word coming out of Ukraine, that is where Russia is headed.

The Crimea is historically Russian. It is the home to Russia’s Black Sea fleet and thousands of Russian troops. It is also a popular place for Black Sea sailors to retire. It is more Russian than Ukrainian (60% ethnic Russian), and if one looks out from Putin’s Kremlin there are not too many serious downsides to taking it back. Will a Europe reliant on Russian gas take on the Russian military to restore the mostly Russian Crimea to Ukraine? Will the US under Obama engage Russian ships and warplanes? President Obama has been noted to be cautious; it would take something extraordinary to induce him to take a firm stand militarily. It doesn’t help that Russia is needed for support in dealing with Iran and the US withdrawal from Afghanistan. There is also no base of popular support in the US for intervention at this time, though that could change. Putin could almost certainly rely on a broad base of support for a Crimea intervention, even though other Russians in government have come out to say that Russia will not intervene. He invaded Georgia six years ago, so we know he is willing to pull the trigger. Once he punches through the Ukrainian military – which the chaos of the Ukrainian political system at the moment will greatly aid – what does he have to fear? A G8 boycott has been mentioned. That’s a joke. In exchange for the Crimea, and perhaps a catalyst for a Russian-majority state arising from a fractured Ukraine, a boycott is very small potatoes indeed. Economic sanctions would also be very unlikely to dissuade him. The prospect of resistance from the minority Ukrainians and Tartars would be more persuasive, but Putin is, if nothing else, a bold man. It would be unwise to put an invasion past him.

Of course, Putin could still wish to maintain Ukraine intact, in which case this could simply be an autonomy push for the Crimea, threatening Kiev with deniable actions to buttress Russia’s position in the region. Or it could be nothing more than brash, angry posturing from a frustrated Russian President. There are a lot of things Putin could do, but one thing is for certain: none of them are going to help build a modern Ukraine. Some of them could destroy the country as it currently exists. That is a big worry.

Worry may be the name of the game tonight – tomorrow Crimea could belong to Russia, formally or functionally. The substantiated reports of Russian army movements related to the Black Sea fleet are provocative under the circumstances, but not cause for real concern. However, there have been unsubstantiated reports of Russian troop reinforcements to support Russian units that have taken over airports in the Crimea. If – and given the excitement and sensationalism involved in some of this reporting that is a big if – if those are true, it is probably too late to change the course of events, considering the players involved. For those thinking that an invasion would provoke war between Russia and NATO in the region, here is something else to consider: would historically Russian Crimea be worth a war to save ethnic Russians from political Russians for a divided and struggling Ukraine? When the opponents are both nuclear-armed and the territory has a Russian majority, bold, aggressive actions by Putin may reap him rewards. Or set the world ablaze. As mentioned, this is a good time to be a bit worried.