Finance, Original Articles, World

Default To Survive: A Greek Tragedy

In 1999, eighteen nations in the European Union (EU) established a monetary union, known as the ‘Eurozone’. Nations in the Eurozone can formulate their individual fiscal policies (the ability to set taxes and adopt spending policies), but an European Central Bank (ECB) decides the common monetary policy (supply of money, interest rates and economic growth) for all member nations.

The idea worked well during times of economic prosperity, however, the ECB’s one-size fits all policy is suspect in the face of a global financial crisis.

The problem: Handling of public finances by member governments.

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Original Articles, World

Afghan War: The politics of logistics

It is said, logistics is the stuff that if you do not have enough of, the war will not be won as soon as.

With the ‘War against Terror’ getting protracted for well over a decade, the United States of America and the Obama administration is learning this the hard way. Escalating civilian deaths, rising war costs and a susceptible foreign policy is pushing America to rethink its Af-Pak strategy. It is struggling to find a solution to teething logistical problems of getting man, machine and rations to its troops in the war zone through long and dangerous supply lines.

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India, Original Articles

The Sanyasi’s knotty politics

A bearded man running around in women’s clothing, on national television, even as lathi wielding police officers chase him all over the place; is a moment that is one of the most repugnant pictures that defines where the country’s latest fascination – the anti-corruption revolution is heading.

The UPA government and its biggest party, the Congress is a pro at handling dissent, revolutions and the good old hunger strikes. However, its recent misadventures with the public protests and the activists who have become  rallying figures for a public anger makes one wonder about what went wrong.

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Original Articles, World

The coming of the third intifada

The blusterous Jasmine revolution that changed the political landscape of the Middle East seemed more like a whimpering draught when it blew over Palestine. You would not be wrong to assume that Palestinians slept through the Jasmine Revolution. However on the weekend of May 14th-15th, – a period the Palestinians call naqba, a day of great catastrophe when Israel was created 63 years ago, hundreds of unarmed Palestinians stormed Israel’s defences and entered the Jewish nation.

This event, seen as the beginning of their third intifada (uprising), set in motion demonstrations and protests across the borders of Israel. However, what looked like Palestine joining the list of countries that toppled governments and dictators during the Arab spring slowly withered away as losses mounted in the face of Israel’s crackdown. Nevertheless, the en masse has emboldened Palestinians who have seen decades of diplomacy and violence failing miserably in bringing peace and recognition to the Palestine state and its people. The demand by Palestinian moderates to Israel asking tit to return to the 1967 borderlines, the period before Israel captured major chunks of Palestinian land during the Six Day war between Israel on one side and Egypt, Syria and Jordan on the other has been categorically rejected by Israel’s right wing Prime Minister, Binyamin Netanyahu.

For the Israelis the main reason for repudiation of demands lies in its concern about the security of the Jewish homeland and the control of the holy land of Jerusalem. Israel opposes the binational solution of 1967, as it burdens it with the challenging task of relocating about half a million Jews settlers living in the West Bank and East Jerusalem, areas Palestine believes belongs to them. Netanyahu sees this and the exponential population growth of Arabs living in Israel as the biggest internal threat to  Israel.

For this very reason, since the days of its charismatic leader in the 1960s, David Ben-Gurion, Israel’s policy towards the Palestinians has been to rid Israel of non-Jews. Understanding the political futility of such a task, Ben-Gurion tried, rather unsuccessfully, to force the Palestinians to leave by restricting job opportunities, reducing land holdings, and cracking down on dissent that has risen from a few thousand Arab Israelis.

However, four decades of subterfuge have cost Israel its global standing where it is increasingly seen as am obstinate and aggressive nation. Facing pressure from its oldest ally, the USA, and following President Barack Obama’s speech asking Israel to return to 1967 borderlines, (a demand, once again furiously refuted by Netanyahu) has led to the lowest ebb in US-Israel relations. President Obama, running for a re-election risked riling the powerful pro-Israeli lobby even though it wields enormous clout in American politics. This sudden change in American foreign policy is because of Netanyahu’s continuous refusal to halt the expansion of Jewish settlements in West Bank and the US Government’s frustration with the Israeli obfuscation.

Netanyahu must realize the futility of this sparring as unlike last time, Obama is now riding on popular wave following the death of Osama Bin Laden. By trying to bundle the Al Qaeda and Hamas – the Palestinian party that runs the Gaza Strip, and portraying the Palestinian Government as one run by a terrorist organization with who compromise is not an option Netanyahu is trying his best to appease his right wing coalition government. His rejection of Palestinian demands has brought to fore the Jewish-Arab Israeli relations that have been superficially amiable since the 1967 war. However, the fallout in the binational talks will lead to things becoming increasingly dangerous as more Arab Israelis are empathizing with their Palestinian cousins.

Decades of suppression have seen a distinct rise in radicalism in Palestine. Ignoring this movement will cost Israel dearly and put the two groups on the path of collision such that every Israeli will see every Palestinian new born as a potential dissenter and every Palestinian will rise up in revolt as they prepare for the third intifada – the final uprising to avenge its humiliation.

Original Articles, World

The cost of rebuilding Japan: A Global meltdown?

The painfully arduous history of one of the world’s most ancient archipelagos, Japan, stands in congruity with the troika of disasters that hit the nation in the week following March 11. Being hit by a magnitude-9 earthquake (equivalent 30,000 Hiroshimas), a Tsunami that wiped out whole towns, and the nuclear crisis unfolding at the Fukushima nuclear plant, has put even the famous Japanese resilience to test.

The economic impact of the earthquake & tsunami, estimated to be in trillions of dollars with repair costs of approximately $600 billion will trouble a nation already reeling under record debt levels and a deflationary economy.

However, there is an unseen benefit amidst the ruins. The Japanese economy that has been in a state of prolonged stagnancy for the past two decades may get a kick-start in the aftermath of the earthquake. However, this revival may come at a price of a global meltdown.

To understand this phenomenon, it is imperative to understand the Japanese money trail. Investments, savings and money held by Japanese companies, financial institutions and insurers run into trillions of dollars. During its days of record growth, Japan pumped in cash by the truckloads into the world securities and treasuries market. Now, whenever a catastrophe struck Japan, the domestic companies and financial institutions needed money for rebuilding activities while insurers needed it for payouts. This money, for the most of it, came from investments made by these organizations overseas.

So how does this lead to a global meltdown? Japanese insurers over the years have reinsured their risks with other insurers. The insurance trail that has puffed up into a global labyrinth of reinsured risks has made Japan’s risk, the world’s risk. As Japanese organizations now start selling their overseas assets to pump money into the domestic markets, two likely outcomes will take place.

The first being, the Japanese domestic markets, awash with fresh cash will finally see an increased level of economic activity with heavy investments primarily in infrastructure, realty and energy.

This repatriation will lead to the strengthening of the yen and may possibly lead to  inflation making a come back in the Japanese economic cycle that has suffered deflation for a long time. The second effect will be a global scarcity of capital. With most of the funds being diverted to Japan, the global markets will bear the brunt of the paucity.

Another effect could be the frequently overlooked fact about Japan’s huge trade surpluses with manufacturing powerhouses of China, South Korea and Taiwan who source huge volumes of components from Japan. Thus, even with a strengthening yen, these countries will still have to purchase components from Japan. With the earthquake striking at major electronic industry clusters and ancillary industries, major supply disruptions will surely affect production all over the world and the rising yen will shrink profit margins.

The impending debate and public outcry over nuclear power in the face of the Fukushima nuclear plant episode may force Japan to look at other sources like oil and natural gas to fulfil its energy needs. This will in turn send oil prices skyrocketing and lead to higher inflation and food prices all over the world.

In its efforts to ease the pressure in the markets, the Bank of Japan is resorting to quantitative easing by pumping in more money into the economy. The effect of these measures coupled with Japan’s rebuilding exercises will take time to unravel. In the meanwhile, even with a moribund economy, Japanese cash is still a major player in the global money markets. So, while Japan rebuilds itself, the world that was just about emerging from the subprime crisis could well be thrust back into another one.

Original Articles, World

Asia Pacific: An arms race in the offing

The nineteenth century American naval historian Alfred Mahan once asserted that the nation with the most powerful navy will hold the reigns of control in the new world. Global military strategists seem to share his assertion. For, any crisis on global sea routes has the potential to affect the entire world economy.

This is primarily because, in the last year alone, almost $7 trillion in trade plied along the sea routes of China, South Korea, Japan, and Vietnam, while almost half of all global trade passed through the Indian Ocean. In such a scenario, China, for the first time in over four centuries has paddled out of its traditional waters with a view to exert its sphere of influence in the Pacific region.

The Asia Pacific has long been the home of U.S. warships and under the sway of American control that is slowly being forced to make way for the Chinese intrusion. Most of this change is owing to America’s weakening global power and China’s thumping economic prowess that makes protecting its trade routes imperative to its growth story.

 As the Chinese influence grows, there is a growing disquiet amongst its neighbours in the region. India, is queasy about the growing presence of Chinese naval vessels and port facilities in the Indian Ocean, an area it feels belongs in its security zone. The recent investments by China in Srilanka and Bangladesh to build ports and naval bases have raised alarm bells in the Indian establishment.

China’s ambitions have led India to aggressively expand its naval arsenal that includes three new aircraft carriers and several nuclear-powered stealth submarines. South Korea similarly is also upgrading its naval arm and military. However, amongst all the nations, the one that is the most nervous, is the island nation of Japan.

Japan has both, the volatile North Korea and the mistrustful China to worry about. Japan’s anxiety has lead to a reversal of decades of passive Japanese military presence in the Pacific that was up until now mostly dependent on America and its military base at Okinawa. Japan, traditionally militarized to defend its northern islands against Russia but has now shifted its focus to confronting threats from North Korea and especially China. The shift comes in the light of an understanding that America may not be able to come to its aid considering its economic dependency on China. Japan is now slowly coming out of its mould of a quasi-isolationist nation and is entering into close naval exercises with the America, South Korea, Australia and India.

As China seeks to alter the historic shift in the balance of power in Asia, other nations are jostling to determine the extent of China’s maritime ambitions. Security experts and strategists across the region believe that China, at the very least wants to dominate the Yellow Sea, East China Sea and the South China Sea. Geographically that is an enormous amount of reach and practically covers the trade routes of South Korea, Japan, Vietnam and the Philippines.

China’s maritime strategy is reminiscent of the imperial empires that controlled trade blocs and sea routes in the era of colonization. As nations ally together against what they see as a potential anti-access or denial zones that may be imposed on them by China to acclimatize its claim, the growing distrust and wariness involving the richest trade routes in the world will inevitably lead to an arms race and the possibility of a potential global conflagration.

Original Articles, World

Of Oil, Arms and a Chance for Change

As the Arab Revolt spread to neighbouring Arab nations, the revolution has become increasingly bloodier starting from Tunisia’s Zine el-Abidine Ben Ali who met the revolutionaries peacefully and promised changes, to Egypt’s Hosni Mubarak who tried to ride the revolt by offering a mixed bag of changes and coercion tactics. The Bahrain King Hamad bin Isa al- Khalifa resorted to bribing its populace and then by resorting to force but the Sunni dynastic ruler over a largely Shia population could not keep up the fight.

As the revolt reached the gates of Libya its supreme leader Colonel Qaddafi, infamous for his brutality, is lusting for blood. The Libyan people are well aware of their leader’s caprices. And no one expects him to forgo power like Zine el-Abidine Ben Ali or Hosni Mubarak. Marauding Gangs and African Mercenaries armed with machine guns aboard open backed trucks searching for people and snipers on rooftops fire indiscriminately at Libyans even as Qaddafi’s helicopter gunships attack from the skies. The Libyan capital lies strewn with bodies of bullet-laden corpses of its citizens as Colonel Qaddafi clambers against his own people to seize back the power that is slipping away from the iron-fisted grasp that controlled Libya for over four decades.

As the Western world comes to terms with the revolt, condemning and hollering at the the Libyan massacres, a queasy truth sticks out. The arms and ammunition that fuel the crackdown of the Arab Revolt by its monarchs and dictators come chiefly from America and Britain. The two countries have courted the Arab Nations including Libya for decades to ensure a smooth flow of oil to lubricate its economies. Their closet and strongest ally in the region, the kingdom of Saudi Arabia has so far remained insular to the revolt. However, even the powerful Saud Royal Family may not grapple with the situation if it continues to support the repression of the Bahrain people by Bahrain King Hamad bin Isa al- Khalifa.

The Middle East has remained stable in the past owing to enormous oil revenues, but its suppressed population is finally up against not just their own nation states but against the global construction of power whose foundation is based on oil flows, arm sales and instilling dictators in the heart of Middle Eastern politics. If the revolt succeeds then the people will eventually overthrow its despot leaders. However, the question that requires serious consideration is ‘What Next?’. Libya, even without Qaddafi will remain a violent place because it does not have adequate social institutions to fall back on. A pattern that is visible throughout the gulf. This coupled with inadequate constitutional laws and more importantly tribal animosities will leave Libya in wreckage that will take a lot of time and a lot of ingenuity to sort out. And, as the revolt spreads through the heart of Africa, the question will only get graver with time. The only hope is, like in Libya’s case, years of despotic rule will bring people together to forge a unique national identity that will ensure this magnificent chance in history is not squandered away.

As strategists around the globe study the revolt, the lesson that will be learnt is that the Arab revolt is essentially one of cynics and idealists. The cynics always believed that the Middle East will never be ready for democracy, that idealists clamouring for a people’s rule will never succeed. The Western world always believed that dictator governments are the only bulwark for the Middle East from falling prey to a wave of Islamic Revolution.  However, every once in a while, ordinary individuals bring about a revolution that can upset the predictions of even the most astute political pundits. And, that is precisely why dictators, and countries that engage them, should realize that there is chasmic difference between engaging and endorsing a dictator government. It is imperative that Western nations must press for universal values of people’s democracy and human rights while dealing and doing business with such countries. For, like the Tunisians have shown and as have the people of Tripoli, a revolution is in the offing.