Global Economic Crisis

There is the old story about the boy who cried wolf too often. Similarly, the Eurozone clique of inept politicians continues to parade out “final” Greek bailout deals. The most recent one is a virtual carbon copy of one submitted months ago. It seems to no longer matter. Even the ratings agencies, far more of a lagging than a leading indicator, now understand that all the talk in Brussels of a real solution  to the Greek debt crisis that also ring fences the other vulnerable Eurozone economies is just fantasy.

Proof this is the decision by Fitch in response to the latest Greek debt crisis plan. It cut its rating on Greek Sovereign debt further, from CCC to C, well inside the territory of junk bonds. Fitch added the following commentary: a default by Athens on its sovereign debt “is highly likely in the near term.”

The current Eurozone debt crisis is not only an acute economic and debt crisis. It is also political farce, with a heavy dose of irony. The motivation for the creation of the euro was noble; the European continent had ripped itself apart over centuries of internecine warfare, culminating with two world wars in the 20th century had massacred tens of millions of Europeans. What better way to unite Europeans and end this circle of bloodshed than to create a common currency, the euro. That explains how good motivation can lead to very bad ideas.

The concept that a common currency can be used by 16 nations with vastly different economic and fiscal policies  was sheer folly. The past two years have witnessed the irrationality of this concept. Yet, Eurozone politicians have so much invested in the survival of the euro, they are prepared to defend it to the last European taxpayer. This mantra inevitably means defending the euro to the last German taxpayer. And it now seems that the rulers of Germany recognize that they cannot indefinitely ransom off the financial future of their voters to subsidize the euro and expect to remain in power. Thus, after a series of “final” resolutions to the Greek debt crisis, which were supposed to prevent the sovereign debt contagion spreading to Ireland, Portugal, Spain and Italy (which has clearly not happened) German ruling circles are beginning to raise skepticism over the most recent promises of Greek politicians. This leads to the possibility that eventually the largely German subsidized loans to Athens to stave off bankruptcy may come to an end. Increasingly, there is not only talk from Greece about leaving the Eurozone. There is emerging talk within Germany’s political and financial elites that perhaps the farce of repeated Greek bailouts should end, Athens should default on its debt and be kicked out of the Eurozone.

The irony of the situation is that a project intended to end inter-European strife through a common currency has not only proven to be a fiscal and economic disaster for the continent. The crisis is now re-igniting the embers of past conflagrations and hatreds in Europe. An example was the recent front page of a Greek newspaper featuring  German Chancellor Angela Merkel wearing a Nazi armband and storm-trooper’s uniform.  The increasingly strident comparisons of Merkel with Nazis in the Greek press is a reference to World War II, when Nazi Germany conquered Greece and inflicted a painful  three and a half year military occupation of their country.  That the euro seems to be failing as a political tool as much as a monetary unit is proof once again that the path to Hell is so often paved with the best  of intentions.

After days of largely contrived drama, the nearly dysfunctional emergency coalition government in Athens announced a deal among ruling political parties for another austerity package, in the expectation that this will lead to the Eurozone going forward with the second bailout of Greece, involving another 130 billion euros. As everyone knows by now, this is a game. The political actors in Greece continue to come up with new, punishing austerity measures, while the politicos in Brussels assure the world, and especially the bond markets, that this time at last the Greek debt crisis has been permanently resolved.

It is unlikely that investors in sovereign debt will be impressed with the latest deal being offered by the government in Greece. They are aware that even Eurozone politicians, especially in Germany, are voicing skepticism over the sufficiency of the Greek measures to address their debt crisis. They are even more cognizant of the fact that the austerity measures create a fiscal drag on the Greek economy, leading to even further deficit problems despite cuts in government spending. The political turmoil in Greece, with another general strike being planned by the nation’s labor unions, is likely not to reassure the bond vigilantes.

Meanwhile, as the Greek debt and economic crisis boils over, the other PIIGS nations (Portugal, Italy, Ireland and Spain) are waiting in the wings with their own acute crises.

On February 4, 2012 one of the saddest events  in the history of the United Nations Security Council occurred. A resolution  seeking to end the violent suppression of the pro-democracy movement in Syria and largely sponsored by the Arab League was vetoed by Russia and China. Though 13 out of 15 Security Council members voted in favor of the draft resolution, the fact that the objecting nations are permanent members of the Security Council meant that the latest effort by the UN to end the bloodbath in Syria was torpedoed.

Since China makes no pretense to being a democratic country, and has a consistent policy of not “interfering  in the internal affairs” of other countries (and ensuring the issue of Tibet does not make it onto  the agenda of the United Nations), it is not surprising that Beijing sided with the Bashar al-Assad dictatorship. However, since Moscow at least claims that it is a democratic country and is genuinely concerned about the plight of the Syrian people, the Kremlin’s stubborn defense of Bashar Assad is as inexplicable as it is cynical. In effect, Moscow is telling the suffering people of Syria, as they are being bombarded by heavy artillery, to “drop dead.”

While the city of Homs was being shelled into oblivion by the dictatorship in Damascus, simultaneously with the draft UN resolution being watered down to appease Russia’s “concerns”   (specifying no military intervention was being authorized by the Security Council) the Russian foreign minister, Sergey Lavrov, was rationalizing with tortured nuance his government’s defense of the Assad crackdown on the Syrian people, seeking to equate the Syrian people’s resistance to the tyrannical Baathist regime to the violence of President Assad’s security forces. Thus, by seeking to halt the massacres being perpetrated by the Assad regime, the United Nations is “encouraging”  violence, according to the policymakers in the Kremlin, whose views are amplified by Moscow’s state-controlled propaganda arm, Russia Today.

Since the views articulated  by Lavrov are inherently illogical, one may ask what the true reason is for Moscow’s rigid support of one of the most brutally repressive regimes in the Middle East, at a time when the winds of change are blowing throughout the Arab world. It could be that Moscow wishes to preserve the Assad regime as a client state that has purchased billions of dollars worth of weapons (some of which are now being used by Assad against his own people). Some have theorized that the Kremlin fears that if the Assad regime falls, it will be replaced by an Islamist government, which would encourage Islamic separatist movements in Russia’s troubled Chechnya and Dagestan republics. What makes this reasoning questionable is that the most entrenched allies of the current regime in Damascus are the Islamic Republic of Iran and its Lebanese proxy, Hezbollah.

Mr. Lavrov may do well to reflect on a predecessor of his from Soviet times, Vyacheslav Molotov. It was Molotov, on behalf of Soviet dictator Stalin, who negotiated a non-aggression pact with Nazi Germany, unleashing the Second World War. When the Nazis unleashed their aggression against Western Europe in 1940, Molotov actually sent the German foreign minister a telegram indicating full support and understanding for the measures taken by Hitler. When German troops marched through Paris, Molotov congratulated the Nazis. One year later, the same  army that conquered Western Europe with Moscow’s approval invaded Russia, and nearly destroyed the country.

The Kremlin’s policy in support of the bloodthirsty Assad dictatorship may be cynical. However, based on Russia’s own calamitous history of aligning with foreign tyrannies, it is certainly not wise and may in the end harm Moscow’s most vital interests irreparably.