This Cruel Austerity Experiment has Failed

The facts are clear. This cruel austerity experiment has failed

While the human cost of economic stupidity is all too visible, the world's leaders are paralysed by their dogma

• 
• • Will Hutton
  • guardian.co.uk, Saturday 2 June 2012 21.00 BST

A woman receives a free meal from a soup kitchen organised by a Greek humanitarian group in Athens’ main Syntagma Square. Photograph: Kostas Tsironis/AP

Last week was an awesome warning of where go-it-alone austerity can lead. It produced some brutal evidence of where we end up when we place finance above economy and society. The markets are now betting not just on the break-up of the euro but on the arrival of a new economic dark age. The world economy is edging nearer to the abyss, and policymakers, none more than in Britain, are paralysed by the stupidities of their home-spun economics. Yanis Varoufakis, ex-speechwriter for former Greek prime minister George Papandreou and now an economics professor in the US, said last week: "There is precisely zero chance of austerity working. It is the same as thinking you can escape from gravity by waving your arms up and down."

It could hardly be more sobering. Money has flooded out of Spain, Greece and the peripheral European economies. Signs of the crisis range from Athen's soup kitchens to Spain's crowds of indignados protesting in the streets against austerity and a broken capitalism. Youth unemployment is sky-high. Less visible is the avalanche of money flowing into hoped-for safe havens in the US, Germany and even Britain. The last time the British government could sell government bonds at interest rates as low as today's was in the early 1700s.

George Osborne and his acolytes proclaim this as a triumph of the government's economic policies. They are gravely mistaken. Rather it portends fears that the international economic order may collapse because if so many countries are simultaneously pursuing austerity, where's growth to come from?

Virtually everywhere you look there are signs of a weakening world economy. At home, manufacturing suffered its biggest plunge for three years, and this in an economy already suffering its longest depression since the 19th century. American jobs growth is petering out. Unemployment in Europe averages 11%. Even China witnessed a sharp fall away in factory activity in May.

Yet none of this should be a surprise. We live in the aftermath of one of the biggest financial and intellectual mistakes ever made. For a generation the world, with the London/New York financial axis at its heart, surrendered to the specious theory that lending and financial contracts could grow many times faster than the underlying economy. There was a blind belief that in a free market banks could not make mistakes. Free markets didn't make mistakes – only clumsy bureaucratic states made economic mistakes. Or so they said. Financial alchemists, guided by the maxims of free market fundamentalism, could make no such errors.

Except that they did. The result was the financial crisis of 2008. Had governments not underwritten their overstretched banks with trillions of dollars, euros and pounds, an even worse global slump would have ensued. But while the banks could continue trading, the hundreds of trillions of loans and financial contracts they had made did not go away.

And because governments had guaranteed their deposits, as in Ireland, or had to inject capital into them as Spain has been doing all last week, this private bank debt has steadily become public debt. Here is a classic case where all the gains were privatised, and all the losses were socialised. It was the much-maligned state that had to step in and clear up the mess left behind by the private sector. The free market wasn't so free after all – in fact it proved astonishingly expensive for the public purse. People across Europe still pay the price.

This is no solution. Overstretched banks have become more cautious about lending new cash; and even strong banks are caught up in the backwash because if they step into the breach they could fall into a vortex of falling property prices and declining economic activity, becoming weak in turn. So as banks stand aside from their crucial function of generating credit, governments and central banks must step in to generate the demand that has now disappeared.

But they have not done so to a sufficient degree. Part of the problem is that the more bank debt that governments guarantee, the less room for manoeuvre they feel they have – especially as their stagnating economies forces up welfare spending and depresses tax revenues.

But the larger problem is intellectual. The dominant ideology of the day – from the same roots that delivered the crisis – forbids it. A consensus stretching from US Republicans through to Angela Merkel's Christian Democrats via George Osborne's Treasury continues to claim that the state is the source of economic bad. The state threatens enterprise, invites damaging taxation, and is the root cause of spreading inflation. The state must balance the books just as the private sector must.

This is not just an economic but a moral necessity, they argue. Living within one's means rather than "maxing" out on debt appeals to American, British and German individualistic Protestantism. Inflation is even more a sign of moral degradation: it means reneging on promises, rewarding spendthrifts and penalising savers. We had the good years. Now we must take our medicine. The public and private sectors must retrench simultaneously worldwide. Enterprise and free markets will do the rest. The "march of the makers" will step in to fill the void left by public austerity measures.

This is a first-order moral and economic mistake. Human beings need each other for mutual support. In economic terms this means that no individual, either as a person or a company, can manage existential risk by themselves. That risk needs to be shared and mitigated otherwise the risk is not accepted. There would be no enterprise or innovation – the risks of failure too great. That is why there is a role for both private and public sectors. It is governments who provide the means through which we express our social obligations and pool our risks.

This is the heart of Keynesian economics – a different set of moral and economic propositions than those which prevail. Today we can see an almost laboratory experiment on a global scale of why Keynes was right and his detractors wrong. There is no doubt what Keynes would advocate now: a government-sponsored increase in demand co-ordinated across as many countries as possible and an acceptance of a temporary but closely managed increase in inflation to reduce the real value of debt.
The enormous legacy of private debt – whether in Britain, Germany, Spain, the US or Greece – and the fiendishly complicated way so many of the loans have been organised and distributed around the world financial system cannot be easily unwound. Sir Philip Hampton, chair of RBS, warned this week it might take a generation for RBS investors to recover their money.

The choice is thus stark. To commit to decades of economic stagnation, the break-up of the eurozone, the risk of trade protection and autarchic economic policies, the dismantling of the west's social contracts, the imposition of high unemployment and the political fallout that will follow.

Or to change course.

The technical means are relatively simple. Governments must replace targets for inflation with targets for the growth of prices and growth of output combined. Central banks should inject money into their financial systems by offering to buy new bank loans made to support new investment, new innovation or new infrastructure – helped by partial government guarantees.

Governments also need to increase demand. They can do this directly – with targeted and time-limited tax cuts or spending increases. They can also move indirectly, taxing the rich more aggressively and re-allocating the proceeds in tax cuts to those on middle incomes and lower who tend to spend more – along the lines that both presidents Obama and Hollande have proposed. There is also a case for a financial transactions tax – both to raise crucial revenue and to cap the growth and frenetic speed of financial transactions. Finance has become too powerful. It needs constraining.

Will any of this happen? The west is at a cross-roads, and although such proposals will be fiercely opposed by the British, German and American right they need to be beaten back. After all, it is their ideas that have brought us to this pass. It is not too fanciful to argue that the future of western capitalism depends upon how this argument plays out – and how quickly, if at all, there is a change of course.

If there were global justice, Nato would be in the dock over Libya

Liberia's Charles Taylor has been convicted of war crimes, so why not the western leaders who escalated Libya's killing?

• 
• • Seumas Milne
  • guardian.co.uk, Tuesday 15 May 2012 22.20 BST

Illustration by Belle Mellor

Libya was supposed to be different. The lessons of Iraq and Afghanistan had been learned, David Cameron and Nicolas Sarkozy insisted last year. This would be a real humanitarian intervention. Unlike Iraq, there would be no boots on the ground. Unlike in Afghanistan, Nato air power would be used to support a fight for freedom and prevent a massacre. Unlike the Kosovo campaign, there would be no indiscriminate cluster bombs: only precision weapons would be used. This would be a war to save civilian lives.

Seven months on from Muammar Gaddafi's butchering in the ruins of Sirte, the fruits of liberal intervention in Libya are now cruelly clear, and documented by the UN and human rights groups: 8,000 prisoners held without trial, rampant torture and routine deaths in detention, the ethnic cleansing of Tawerga, a town of 30,000 mainly black Libyans (already in the frame as a crime against humanity) and continuing violent persecution of sub-Saharan Africans across the country.

A year after the western powers tried to make up for lost ground in the Arab uprisings by tipping the balance of the Benghazi-led revolt, Libya is in the lawless grip of rival warlords and armed conflict between militias, as the western-installed National Transitional Council (NTC) passes Gaddafi-style laws clamping down on freedom of speech, gives legal immunity to former rebels and disqualifies election candidates critical of the new order. These are the political forces Nato played the decisive role in bringing to power.

Now the evidence is starting to build up of what Nato's laser-guided bombing campaign actually meant on the ground. The New York-based Human Rights Watch this week released a report into the deaths of at least 72 Libyan civilians, a third of them children, killed in eight separate bombing raids (seven on non-military targets) – and denounced Nato for still refusing to investigate or even acknowledge civilian deaths that were always denied at the time.

Given the tens of thousands of civilians killed by US, British and other Nato forces both from the air and on the ground in Iraq, Afghanistan, Pakistan and Yemen over the last decade, perhaps Nato commanders prefer not to detain themselves with such comparative trifles. And Human Rights Watch believes that, whatever the real number of civilians directly killed by Nato bombing, it was relatively low given the 10,000-odd sorties flown.

But while Nato's UN mandate was to protect civilians, the alliance in practice turned that mission on its head. Throwing its weight behind one side in a civil war to oust Gaddafi's regime, it became the air force for the rebel militias on the ground. So while the death toll was perhaps between 1,000 and 2,000 when Nato intervened in March, by October it was estimated by the NTC to be 30,000 – including thousands of civilians.

We can't of course know what would have happened without Nato's bombing campaign, even if there is no evidence that Gaddafi had either the intention or capability to carry out a massacre in Benghazi. But we do know that Nato provided decisive air cover for the rebels as they matched Gaddafi's forces war crime for war crime, carried out massacres of their own and indiscriminately shelled civilian areas with devastating results – such as reduced much of Sirte to rubble last October.

There were also Nato and Qatari boots on the ground, including British special forces, co-ordinating rebel operations. So Nato certainly shared responsibility for the deaths of many more civilian than its missiles directly incinerated.

That is the kind of indirect culpability that led to the conviction last month of Charles Taylor, the former president of Liberia, in the UN-backed special court for Sierra Leone in The Hague. Taylor, now awaiting sentence and expected to be jailed in Britain, was found guilty of "aiding and abetting" war crimes and crimes against humanity during Sierra Leone's civil war in the 1990s. But he was cleared of directly ordering atrocities carried out by Sierra Leonean rebels.

Which pretty well describes the role played by Nato in Libya last year. International lawyers say legal culpability would depend on the degree of assistance and knowledge of war crimes for which Nato provided cover, even if the political and moral responsibility could not be clearer.

But there is of course simply no question of Nato leaders being held to legal account for the Libyan carnage, any more than they have been for far more direct crimes carried out in Iraq and Afghanistan. The only Briton convicted of a war crime over the bloodbath of Iraq has been Corporal Donald Payne, for abuse of prisoners in Basra in 2003. While George Bush has boasted of authorising the international crime of torture and faced not so much as a caution.

Which only underlines that what is called international law simply doesn't apply to the big powers or their political leaders. In the 10 years of its existence, the International criminal court has indicted 28 people from seven countries for war crimes and crimes against humanity. Every single one of them is African – even though ICC signatories include war-wracked states such as Colombia and Afghanistan.

That's rather as if the criminal law in Britain only applied to people earning the minimum wage and living in Cornwall. But so long as international law is only used against small or weak states in the developing world, it won't be a system of international justice, but an instrument of power politics and imperial enforcement.

Just as the urgent lesson of Libya – for the rest of the Arab world and beyond – is that however it is dressed up, foreign military intervention isn't a short cut to freedom. And far from saving lives, again and again it has escalated slaughter.

It will be Smarter to learn from the Germans

Easy to blame the Germans. Smarter to learn from them

Other leaders are being hypocritical when they shove all the responsibility for the euro crisis on to Angela Merkel

• 
• • Andrew Rawnsley
  • The Observer, Sunday 20 May 2012

Chancellor Angela Merkel with David Cameron. Photograph: Michel Euler/AP

 

As Noël Coward didn't quite sing, do let's be beastly to the Germans. This bitter tune is heard not just in Greece, but also in the corridors of Number 10, the Elysée Palace and the White House. Casting around for someone to blame for the crisis, the fingers of accusation point at Germany and its chancellor, Angela Merkel.

The jabbing fingers are furiously angry ones on the streets of Athens where German flags are burnt and the newspapers dress Ms Merkel in Nazi uniform. The jabbing continues in editorials in the American press, which charges Berlin with being single-handedly responsible for taking the world economy to the brink of the abyss. The jabbing is dressed in the language of diplomacy at this weekend's G8 summit where Barack Obama, François Hollande and David Cameron have ganged up on the German chancellor.

The American Democrat, British Conservative and French Socialist may not agree on much else, but on this, at least, they are together. It is one second to midnight in the eurozone because a recalcitrant and miserly Germany has refused to step up to its historic responsibility to do what is necessary to save the single currency. If the eurozone implodes, and carries away the global economy with it, the buck will stop in Berlin.

Let us begin by acknowledging that Germany does deserve a big helping of blame for the very scary state of the eurozone. Berlin shares, principally with Paris, responsibility for the original sin. That was to construct a badly designed and over-stretched single currency area containing contradictions that would explode under stress. In the pursuit of a European ideal, Germany forgot its usual prudence when Berlin nodded and winked at the admission of countries – Greece being the most extreme example – for whom euro membership was not only inappropriate but very dangerous.

It is fair enough also to observe that Germany has repeatedly failed to offer leadership that rises to the scale of the present crisis. When Germany has led, it has not always been in a well-judged direction. The austerity programme imposed on the Greeks as the price for continued membership of the euro was too draconian to be implemented in a democracy. The voters would surely revolt and they duly have.

The European Central Bank has been denied the necessary firepower to get ahead of events because the Germans wouldn't allow it. Ms Merkel has never been a very easy partner for her peer group. One of Gordon Brown's officials who had a ringside seat during the negotiations at the London G20 describes her thus: "Incredibly stubborn. Immovable. She simply digs in." One of David Cameron's team says dealing with the German chancellor is "like trying to squeeze blood from the proverbial stone".

I expect she will concede just enough to the growth agenda being pushed by other G8 leaders for them to cobble together an end-of-summit communiqué that pretends they are all agreed. There will be a further attempt to reconcile the German insistence on fiscal discipline with the French call for measures to promote growth when the EU heads of government meet in Brussels on Wednesday. One proposal would see the European Investment Bank receive an additional €10bn in funding. The leaders are also likely to back a European Commission plan to issue "project bonds" – debt backed by all 17 eurozone countries to raise funds for infrastructure programmes in depressed regions. All of which will give them something to justify meeting and none of which is anything like sufficient to ease an immediate crisis of such magnitude that €10bn is peanuts.

Germany must take her portion of the blame for the calamities in the eurozone and the cataclysm that now threatens to unfold. But the more I hear people being beastly about the Germans, the more I see all the responsibility being shoved in their direction, the more my sympathies begin to lean towards Angela Merkel's dilemmas and her people's concerns. When Barack Obama calls for "decisive action" to save the eurozone, Germans hear him saying that they should write yet more large cheques to bail it out. When François Hollande demands a growth package, Germans ask who but they will pay for it when everyone else in Europe is broke. When David Cameron tells the eurozone to "put its house in order", Germans perceive a peremptory request for them to throw more good money after bad. Germany will probably end up picking up most of the bill for this disaster, but you can see why they are tired of being told to do so.

The demand has to be particularly galling when it comes from David Cameron, the prime minister of a country that is not a member of the euro and who leads a party that wills it to fail. Angela Merkel is entitled to feel that being told to relax on fiscal discipline is particularly cheeky – a kinder word than hypocritical – coming from Mr Cameron. In speeches to home audiences, the prime minister insists that he must defy "dangerous voices calling on us to retreat" and stick with his government's austerity programme on the grounds that: "You can't borrow your way out of a debt crisis." Yet when lecturing the Germans, Mr Cameron recommends that they should turn on the spending taps to get the eurozone out of its debt crisis.

His aides say that the prime minister wants to make common cause with Monsieur Hollande in pressing Chancellor Merkel for a more growth-orientated strategy in Europe. That would be the same Monsieur Hollande whom the prime minister would not deign to meet before he was elected to the Elysée, the same Monsieur Hollande who was badmouthed by Tories as a crazy leftie who would lead his country to ruin – Ed Balls in a beret.

The reason why Germany has found herself in this isolated position boils down to this: she has money and everyone else does not. Her economy is growing, her unemployment rate is much lower and her debts are under control. She is a rich country among paupers because Germany has been much better governed than her peer group. Some reckless German financiers laid stupid bets, but her banks were not allowed to hazard the rest of the economy in quite such a shocking way as banks were in Britain and America.

Germany took care of her finances much more prudently than her European neighbours. She has a welfare state, public services and infrastructure that provoke jealousy in any visitor from Britain. But she did not make the mistake of trying to buy them on the never-never. Germany did not build up the mountains of debt, both private and public, which bear down on Britain and others. As a result, German households and firms can borrow without being punished by the bond market vigilantes.

It is true that the Germans have had a fantastic deal out of the euro; a much better one than either they or anyone else anticipated when they thought they were sacrificing their beloved deutchsmark in the cause of European unity. The theory at the time was that the euro would help the less impressive economies to catch up and create, in Helmut Kohl's phrase, "a strong Germany in a strong Europe".

The actual result has turned out to be a strong Germany in a weak Europe. The euro has certainly boosted their exports-driven economy, which is one reason why Germans should be very fearful of its implosion. But it was not the euro that made them a great exporting nation in the first place. They were extremely accomplished at selling things when they were priced in the powerful deutchsmark because postwar Germany has been brilliant at manufacturing goods that others want to buy.

It was announced last week that Vauxhall will be building its new model of Astra at Ellesmere Port in Cheshire rather than in a German factory. This news was regarded as so remarkable that two cabinet ministers were sent north to mark it. While Vince Cable paid a celebratory visit to the plant, David Cameron made a speech in Manchester applauding a renaissance in the car industry. It is very good news for British manufacturing – so long as you don't linger too long over the caveat that Vauxhall is owned by General Motors of America. But such a fuss over one announcement draws attention to the rarity of Britain beating Germany at car-making since 1945.

The usual mode of British politicians is to be envious of what Germany has achieved. Ed Miliband commends the German model of industrial relations, in which workers are represented on company boards, as a restraint on the corporate excesses we have seen in Britain. With its record of investment in high-value industries and emphasis on making quality goods that the world wants to own, German strength is based on the solid prosperity that coalition ministers aspire to create when they talk about "rebalancing" the British economy.

Germany has its flaws. Angela Merkel has made her fair share of mistakes. But this is no time for contempt, especially not from Britain, for a country that is enviably competitive, rich, stable, free and socially and environmentally progressive. If there is a long-term solution to the miseries of the rest of Europe, it doesn't lie in being beastly to the Germans. It would be a better idea to try to learn from them.

Billions wiped off Europe's biggest companies as political rebellion rocks eurozone

More than £122.3bn was wiped off the value of Europe's biggest companies on Monday amid fears that the eurozone's commitment to austerity was being swept away by political rebellion - just as its debts hit record levels.

Image 1 of 3

Stockmarkets plunged as traders panicked that Angela Merkel could lose her key allies in France and the Netherlands Photo: AP

By Louise Armitstead

10:20PM BST 23 Apr 2012

139 Comments

 

Stockmarkets plunged as traders panicked that Angela Merkel could lose her key allies in France and the Netherlands and that the debt crisis rescue plans could unravel.

The Dutch prime minister Mark Rutte, who is one of the eurozone's "hardliners" on fiscal discipline, dramatically quit in the wake of his coalition's refusal to accept Europe's debt pact. Snap elections could be called as early as June.

Traders were also rattled by Francois Hollande's victory over Nicolas Sarkozy in the first round of the French presidential election. The socialist Mr Hollande has vowed to renegotiate the fiscal pact that including a 3pc of GDP deficit limit.

The political concerns were compounded by data that showed eurozone debt has hit 87.2pc of GDP - the highest level since the launch of the single currency in 1999. Eurostat said that the 17 eurozone members had reduced their deficits from 6.2pc of GDP in 2010 to 4.1pc in 2011 - but overall debt levels had risen by 1.9pc.

Spain, meanwhile, officially sank back into recession as the economy shrank 0.4pc in the first quarter of the year, and German manufacturing shrank at its fastest rate for three years in March. The French composite PMI also fell, according to Markit.

By the end of the day, the Stoxx Europe 600 index has sunk 2.3pc to its lowest level for three months. The German Dax dropped 3.4pc, while France's CAC and Spain's Ibex were down 2.8pc each. In London, the FTSE 100 closed down 1.9pc. In the US, the Dow closed down 0.8pc, the S&P 500 lost 0.8pc and the Nasdaq shed 1pc.

Borrowing costs for the core "sinner states" of Spain and Italy rose back towards "unsustainable" levels. French borrowing costs also rose, widening the spread between oats and German bunds to a record 146.9 basis points. The euro fell almost 1pc against the dollar.

The ECB's bond-buying programme went unused for the sixth week in a row last week, the central bank said. But Brussels moved to reassure markets that the fiscal pact, which Ms Merkel said would "last forever", was still intact.

The European Commission said the pact was signed by states, not governments. "Governments change but commitments on behalf of states cannot be changed without discussion with European partners," said the Commission.

The Dutch finance minister, Jans Kees de Jager, insisted his country would stand by its austerity plans. "The Netherlands will retain its solid fiscal policy and will also show the market it will lower its deficit and also have a path of sustainable government finances," he said.

My Weltanschhaung - 7 Feb 2012

- Am I glad that England lost 3-0 to Pakistan at cricket. You can blame Ajmal's action, you can blame the DRS but you still are unable to score enough runs. The cry of World number 1 is not so shrill now and I can remove my ear plugs.

- I am not really sure the NHS bill is privatisation by the back door or is it the vested interests of doctors, managers and nurses crying foul. Unfortunately, only time will tell and by then it maybe too late.

- India refuses to take UK aid, the UK wants India to continue to take its aid. Am I the only person wondering where all this decades long aid has gone and who benefitted from it?

- Its a pity that Sarah Palin will not win the Republican nomination.

-  The US, UK and France are upset that they did not receive a carte blanche to invade Syria. Afetr Libya, they were deluded to think the Russians would cooperate.

- Who will benefit from a war with Iran?

Don't blame the ratings agencies for the eurozone turmoil

Europe and the eurozone are strangling themselves with a toxic mixture of austerity and a structurally flawed financial system

• 
• • Ha-Joon Chang
  • guardian.co.uk, Sunday 15 January 2012 21.16 GMT

Standard & Poor's has decided to downgrade France's top-notch credit rating. Photograph: Philippe Huguen/AFP/Getty Images

 

Even the most rational Europeans must now feel that Friday the 13th is an unlucky day after all. On that day last week, the Greek debt restructuring negotiation broke down, with many bondholders refusing to join the voluntary 50% "haircut" – that is, debt write-off – scheme, agreed last summer. While the negotiation may resume, this has dramatically increased the chance of disorderly Greek default.

Later in the day, Standard & Poor's, one of the big three credit ratings agencies, downgraded nine of the 17 eurozone economies. As a result, Portugal pulled off the hat-trick of getting a "junk" rating by all of the big three, while France was deprived of its coveted AAA rating. With Germany left as the only AAA-rated large economy backing the eurozone rescue fund (the Dutch economy, the second biggest AAA economy left, is much smaller than the French economy) the eurozone crisis looks that much more difficult to handle.

The eurozone countries criticise S&P, and other ratings agencies, for unjustly downgrading their economies. France is particularly upset that it was downgraded while Britain has kept its AAA status, hinting at an Anglo-American conspiracy against France. But this does not wash, as one of the big three, Fitch, is 80% owned by a French company.

Nevertheless, France has some grounds to be aggrieved, as it is doing better on many economic indicators, including budget deficit, than Britain. And given the incompetence and cynicism of the big three exposed by the 1997 Asian financial crisis and more dramatically by the 2008 global financial crisis, there are good grounds for doubting their judgments.

However, the eurozone countries need to realise that its Friday-the-13th misfortune was in no small part their own doing.

First of all, the downgrading owes a lot to the austerity-driven downward adjustments that the core eurozone countries, especially Germany, have imposed upon the periphery economies. As the ratings agencies themselves have often – albeit inconsistently – pointed out, austerity reduces economic growth, which then diminishes the growth of tax revenue, making the budget deficit problem more intractable. The resulting financial turmoil drags even the healthier economies down, which is what we have just seen.

Even the breakdown in the Greek debt negotiation is partly due to past eurozone policy action. In the euro crisis talks last autumn, France took the lead in shooting down the German proposal that the holders of sovereign debts be forced to accept haircuts in a crisis. Having thus delegitimised the very idea of compulsory debt restructuring, the eurozone countries should not be surprised that many holders of Greek government papers are refusing to join a voluntary one.

On top of that, the eurozone countries need to understand why the ratings agencies keep returning to haunt them. Last autumn's EU proposal to strengthen regulation on the ratings industry shows that the eurozone policymakers think the main problem with the ratings industry is lack of competition and transparency. However, the undue influence of the agencies owes a lot more to the very nature of the financial system that the European (and other) policymakers have let evolve in the last couple of decades.

First, over this period they have installed a financial regulatory structure that is highly dependent on the credit ratings agencies. So we measure the capital bases of financial institutions, which determine their abilities to lend, by weighting the assets they own by their respective credit ratings. We also demand that certain financial institutions (eg pension funds, insurance companies) cannot own assets with below a certain minimum credit rating. All well intentioned, but it is no big surprise that such regulatory structure makes the ratings agencies highly influential.

The Americans have actually cottoned on this problem and made the regulatory system less dependent on credit ratings in the Dodd-Frank Act, but the European regulators have failed to do the same. It is no good complaining that ratings agencies are too powerful while keeping in place all those regulations that make them so.

Most fundamentally, and this is what the Americans as well as the Europeans fail to see, the increasingly long-distance and complex nature of our financial system has increased our dependence on ratings agencies.

In the old days, few bothered to engage a credit ratings agency because they dealt with what they knew. Banks lent to companies that they knew or to local households, whose behaviours they could easily understand, even if they did not know them individually. Most people bought financial products from companies and governments of their own countries in their own currencies. However, with greater deregulation of finance, people are increasingly buying and selling financial products issued by companies and countries that they do not really understand. To make it worse, those products are often complex, composite ones created through financial engineering. As a result, we have become increasingly dependent on someone else – that is, the ratings agencies – to tell us how risky our financial actions are.

This means that, unless we simplify the system and structurally reduce the need for the ratings agencies, our dependence on them will persist – if somewhat reduced – even if we make financial regulation less dependent on credit ratings.

The eurozone, and more broadly Europe, is slowly strangling itself with a toxic mixture of austerity and a structurally flawed financial system. Without a radical rethink on the issues of budget deficit, sovereign bankruptcy and financial reform, the continent is doomed to a prolonged period of turmoil and stagnation.

• © 2012 Guardian News and Media Limited or its affiliated companies. All rights reserved.

Nothing wrong in killing; you just shouldn't urinate on the corpses.

Robert Fisk: This is not about 'bad apples'. This is the horror of war

How many other abuses took place off camera? How many Hadithas? How many My Lais?

Robert Fisk

Friday, 13 January 2012

So now it's snapshots of US Marines pissing on the Afghan dead. Better, I suppose, than the US soldiers pictured beside the innocent Afghan teenager they fragged back in March of last year. Or the female guard posing with the dead Iraqi prisoner at Abu Ghraib. Not to mention Haditha or the murder videos taken by US troops in the field – the grenading of an old shepherd by an Iraqi highway comes to mind – or My Lai or the massacre of refugees by US forces in Korea or the murder of Malayan villagers by British troops. Or the Bloody Sunday massacre of 14 Catholics by British troops in Derry in 1972. And please note, I have not even mentioned the name of Baha Mousa.

The US Marines' response to the pissing pictures was oh so typical. These men were not abiding by the "core values" of the Marines, we were informed. Same old story. A "rogue" unit, a few "bad apples", rotten eggs. Maybe.

But if there is one game of pissing on the dead, how many others happened without pictures? How many other shepherds got fragged in Iraq? How many other Hadithas have there been? There were plenty of other My Lais.

As laptop filmography gets better, so it all comes slopping out, the rapes and slaughter – and yes, by the Taliban the stoning of young women for supposed sexual misconduct in Afghanistan; by al-Qa'ida, executions and throat-cuttings in Iraq.

And no – the Americans are not the Nazis, the Brits are not the French Paras of 1960 Algeria (but surely we're not comparing the French paras to the Nazis). The Canadians handed prisoners over to Afghan thugs for brutal questioning but the Canadians are not like Saddam's secret police – and, I suppose, the Taliban are not Stalin's NKVD or Putin's KGB (before he became a statesman). And you can't compare – surely – the Soviet invaders of Afghanistan in 1979 with Genghis Khan.

So let's take a little guessing game. A British Sunday paper reveals shocking revelations of torture and cigarette burning, of physical brutality where prisoners must be hospitalised for a week, of possible electric torture. The French in Algeria? Saddam's mukhabarat? Nope. It's The Sunday Times Insight Team's report of 7 May 1972; the victims, of course, IRA suspects in Belfast. A "rogue" unit? A "few bad apples"? I doubt it.

When the Gloucestershire Regiment went on a rampage near Divis flats, smashing every window in the street the day before they were due to leave Belfast, the line was changed. They had been under "enormous strain" – but weren't these the "Glorious Gloucesters" of Imjin River fame? And the killer Paras of Derry – weren't these the same Paras of Arnhem Bridge?

And so we go on. Yes, British troops murdered SS prisoners after Normandy – just as the Red Army did in the Second World War and the Americans. And all this gets a bit dull, doesn't it?

Dresden was worse than the Blitz – but who started it? Hiroshima was worse than Pearl Harbour (ditto). The Canadians bayoneted German prisoners in the First World War – but the Germans really did committed atrocities in Belgium in 1914. And what about Waterloo? What did we do with the heaps of French dead? Why, we honoured them by shipping their corpses off to Lincolnshire and using them as manure on the fields of East Anglia.

If war were not about the total failure of the human spirit, there would be something grotesquely funny about the American reaction to the pissing pictures.

For note, it was not the killing of these men that worried the Marine Corps in the US – it was the pissing. Nothing wrong in killing amid the "core values" of the Marine Corps; you just shouldn't urinate on the corpses. And even more to the point: YOU MUSTN'T DO IT ON CAMERA! Too late. It comes to this. Armies are horrible creatures and soldiers do wicked things but when we accept all these lies about "bad apples" and the exceptionalism of crime in war – "there may have been some excesses" is the usual dictator-speak – we are accepting war and going along with the dishonesty of it and we are making it more possible and easier and the killings and rapes more excusable and more frequent.
And how should armies react? With one word: guilty.

Germany has benefitted from the Euro and should protect it.

There is only one alternative to the euro's survival: catastrophe

Little Englanders – and blinkered Germans – need to wake up to the implications of a fractured eurozone

• 
• • Will Hutton
  • The Observer, Sunday 13 November 2011
  • larger | smaller

It is hard not to have the gravest of forebodings about the European and British economies, and about the future of Europe itself. Nobody would start from here – an ill-designed single currency interacting with an insupportable burden of private debt created by oversized, undercapitalised banks. And it's as much a problem in the US and China as in Europe. There are only least bad ways forward: none good. This is a crisis in contemporary capitalism as much as a crisis of Europe's monetary regime and governance. It needs to be seen in those terms.

But so saturated is British commentary in jingoistic Euro-scepticism that Europe's travails are portrayed as proof positive that it is European visionary delusions rather than contemporary capitalism that is at fault. Greece, and indeed Ireland and even Italy, are urged to get out of the euro, for the euro to be smashed and for the entire EU project to be abandoned. This is the route to prosperity and wellbeing – with no trace of self knowledge as British trade performance deteriorates even after a monumental devaluation while our economy is still years away from recovering to 2008 levels of peak output. That is Europe's fault, or so runs the line – not the fault of our dysfunctional economic structures and policies.

However, Britain's interest is unambiguous: it lies in the survival of the euro. There is too much easy talk about countries leaving. Last week, financial policy committee member Robert Jenkins spelled out the consequences for Britain and for Europe of Greece now quitting the euro. There would be seismic bank runs in Ireland, Portugal, Spain and even Italy as citizens and companies, fearing the same could happen to them, moved their cash out of their countries. Weaker banks, tottering from losses in Greece, would fold. The European Central Bank would be overwhelmed. The European economy would slump – and Britain with it.
Greece's fight is our own. But what is being asked of Greece's new interim prime minister, Lucas Papademos, is impossible. Unemployment is 18.4%. The schedule of its foreign loan repayments over the next five years beggars belief. On the other hand, Greek capitalism, a network of family oligarchs rigging Greek markets and leading a society in which tax evasion is morally and socially acceptable, is in acute need of reform. Europe could have been organised around floating exchange rates rather than a single currency, but the vast overhang of private debt alongside crocked banks demands similar medicine.

And while staying in the euro is in the interest of Greece – and Italy – it is in the rest of Europe's interest too. But there has to be a quid pro quo for all the pain that such severe austerity involves. Private and public debt needs to be radically lowered; and in a world of little growth there are only two routes. Either it has to be forgiven by their creditors, or there has to be inflation. If the eurozone can deliver neither, its future is in question.

In July and, again, in October, the EU signalled it understood what needed to be done and moved towards it – a combination of decisive debt forgiveness, the creation of a European Monetary Fund, substantially financed by Germany and which could bail out stricken banks and even governments, and the empowerment of the European Central Bank to go beyond supplying emergency cash on crisis terms. Instead, it could act as a lender of last resort everywhere in the eurozone.

The system could potentially be put in place fast; the right sentiments have been uttered – but after each summit Germany has consistently blocked making the money flow. It has said no to the European Central Bank operating as a lender of last resort across the eurozone; no to creating a genuine European Monetary Fund on the scale needed; no to the creation of single euro bonds. Ireland, Greece and Italy are all doing their part. Germany must now do its – or the euro will buckle.

Germany's phobias are well-known – inflation and then slump led to Hitler. What's more, the German constitutional court has ruled that the EU is a Staatenbund (a group of states). This means that Germany can only constitutionally make fiscal transfers to other members if each one is agreed by the German parliament. But phobias and constitutional courts cannot trump the agonising choice facing Germany and Europe.
Germany profits richly from the way the eurozone is organised. It is the only country in Europe whose share of world trade has risen over the past 10 years. But it enjoys the same exchange rate as much weaker exporters such as Greece or Spain – a huge boon. Even Britain, with our much vaunted floating exchange rate, has seen our share of world trade fall by a third over the same period.

Germany now has to accept its part of the bargain. The choice must be confronted. One option to secure the euro's future is via widespread debt forgiveness and fiscal transfers backed by Germany; the only other route out is inflation.

Here I make a modest proposal. Instead of delivering purposeless lectures from the sidelines about the need for action while he prepares to blame Europe for the ongoing British stagnation, for which he is primarily responsible, David Cameron should make the intervention of his life. He should travel to Germany and make a speech in German – however embarrassing – spelling out the choices. If Germany is unprepared to accept them, he should argue that the least bad option is not for Greece to leave the euro – but for Germany, whose economy is strong enough to take the shock, to do so.

He should say that while it was right for Britain not to join the single currency as it was previously constructed, if Germany were to act responsibly, Britain would peg sterling to a reformed euro and in the long run even consider joining the regime. Moreover, Britain would do this either way, he could argue – eventually joining a single currency in which Germany accepted its responsibilities or a single currency without Germany.

Such a speech – which, of course, will never be made – would create turmoil in Germany. It fears isolation in Europe even more than it fears inflation. It prizes the undervaluation of its exports priced in euro. It would force its leadership to recognise that there are other potential ways of organising our continent other than around German preoccupations – and perhaps trigger the change in German policy that is needed. It would change the rules of the game at a stroke, and show that Britain is a European force with which to be reckoned. But Cameron is trapped into Little England isolationism. And Little Englanders, along with moralistic and blinkered Germans, threaten to sink both the idea of Europe – and its economy.

Financial fascism

By Chan Akya

If politics were just war by another name, then economics would be the favored armory of both sides. Europe has gone one step further last week, almost unimaginably bringing back the era of fascism as it contends with the unwieldy agglomeration of financial contradictions that the euro project has now become.

The birthplace of democracy, Greece, has gone back to a managed dictatorship after the collapse of the democratically elected George Papandreou government on Sunday, to be replaced by a national unity government with a technocrat at its helm. Reading between the lines, the idea isn't hard to understand: a pliant government in Athens that is helmed by a

 
eurocrat, unable to ask any questions of Brussels and unwilling to concede over any objections from the population of Greece.

The apparent crime of the Greeks was to ask their prime minister for a referendum on the latest series of proposals from European authorities on a new bailout for their country (see The men without qualities, Asia Times Online, October 29, 2011). This set off panic in stock and bond markets mid-week and prepared the stage for an ugly showdown as well as unprecedented developments.

For the European governments, this level of panic in the markets was simply unacceptable as it showed deep "ingratitude" on the part of the Greeks; that view of course conveniently ignores ground realities of austerity that the Greeks would endure on their own so that bankers in Paris and Frankfurt wouldn't face job or pay cuts.

Greece's prime minister was invited to the Group of 20 (G-20) meeting in Cannes, making the confab G-21 for a while according to wags, although I maintain that the "G" in G-20 stood for Greece all along. After receiving suitably strong tongue-lashings from German leader Angela Merkel and French President Nicholas Sarkozy, a suitably chastened Papandreou dropped plans for a referendum and instead started work on a national unity government that would have the implementation of the eurozone bailout plan as its major (and perhaps only) policy point.

G-20 released an insipid statement that went nowhere in terms of helping the Europeans. All the fond expectations of the Europeans were dashed to the ground - be it the increased role of the European Financial Stability Facility (EFSF) to which various countries would contribute (no contributions were forthcoming in the end), or expanded powers for the International Monetary Fund (IMF) to help manage the crisis (ditto).

Poorer countries objected to the very notion of further contributions to bail out rich European countries, particularly when the Europeans apparently couldn't agree on priorities. While the statement describes lofty ideals of growth globally, it does little to actually suggest ways and means of reversing the problems with countries and zones in recession: in particular, Europe.

To cut the eurozone's structural drag, countries will have to improve competitiveness. This can only be done if structural constraints on growth are removed, the main one of which is the overly generous social programs. Alternatively, Europe can choose to maintain social safeguards but will have to forsake a strong currency. Inflation would then do to the European lifestyles what common sense alone couldn't establish.

This is the meta context under which the European crisis resolution is being fought. Countries with savings - like Germany - do not wish to suffer from inflation but want instead that their southern neighbors simply destroy structural benefits instead. Southern countries would rather keep their benefit systems, but try to depreciate their currencies to a growth path.

Another issue and perhaps the core one is that the elite want one thing, and have decided to pursue that solution - written by bankers - without heeding the legitimate demands of those ostensibly being bailed out.

It gets worse. Not content with one unwieldy object, the G-20 also had to contend with a second one, namely Italy, wherein the government rejected calls for IMF aid while calling for "increased surveillance" and a formalization of the troika (European Union, IMF and European Central Bank) in case Italy needed funds later. Market observers who had to sit through months of uncertainty waiting for the Europeans to get their act together over a 100 billion euro (US$137 billion) bailout package for Greece will now have to do the same for a 1 trillion euro package for Italy.

Italian bonds crossed the magic level of 450 basis points (bps) in spread over Germany last week even as the EFSF failed in its attempted 13 billion euro funding deal. The level of 450 basis points is important because that sets rules with respect to collateral posting against global banks, and essentially puts a sovereign "in play" ie enhances volatility expectations in markets, with unspecified market demands for resolution driving sentiment.

It fell to the French president to tell off the Greeks in the end: plainly, he stated, that the Greeks could have any referendum they wanted, but would have to leave the euro if they went ahead with this particular one. Germany's most popular newspaper, the Bild, called last week for a referendum in Germany on whether Greece could stay in the single currency or not.

So it has come to this, that the French who started the era of modern European democracies with their storming of the Bastille and a cry of "liberty, equality and fraternity" essentially devalued their own history by telling the Greeks not to have inconvenient opinions. I can spy the ghost of Marie Antoinette demanding her head back.

The message from eurocrats couldn't have been more unequivocal if they had spelled it all out: democracy was an unnecessary complication in the grand European project.

Elsewhere, the new resident of the European Central Bank, Mario Draghi, conducted his first full meeting and started with an auspicious (I am being sarcastic) rate cut to get things going. The idea that the new ECB president would be populist and swing the monetary institution somewhat further on loose monetary policy than his predecessor ever managed was immediately (of course) played up in the popular media.

Think about it like this - the ECB has been criticized for inflicting greater pain on the highly indebted countries by raising rates and failing to do more towards monetary easing. The incoming head of the ECB likely has very similar inclinations to his predecessor (he announced, for example, that there was no mechanism for any country to leave the euro) but has decided to have a stronger public relations battle by starting off with a small rate cut that would do absolutely nothing to resolve the core issues because high interest rates are not the issue while wide credit spreads very much are.

It has been clear with every new European approach to the crisis that the primary objective of any grouping is to save the European financial system at all costs. This system includes within it a unwieldy common currency that has simply failed to meet its objectives for the 11 years of its existence. Rather than consigning the project to the dustbin of history, the elite of Europe choose to perpetuate the currency's existence at the expense of the people.

This is what fascism is all about at the end - an overwhelming subjugation of the individual at the altar of nationalism, the authoritarian rule of a financial system that disallows countries from following their own courses.

Between them, it is difficult to read too much into the events; even allowing for a fair bit of doubt to gather in one's mind the unshakable end result is a feeling of deja vu as it appears that the fascist past echoed by the likes of Mussolini, Franco and Hitler has come back to roost.

This is no return to ancient Greek democracy

Matthew Norman

Wednesday, 02 November 2011

There may be nothing new under the sun, but according to the ancient Greeks it is quite the celestial Johnny-come-lately. Long before the sun, long even before the Titans rose and fell, and Zeus slew his father Cronos to seize control of Olympus, there was only Chaos. The mother of all things is back in charge as the muthah of all financial crises moves closer – thanks to the modern Greeks – to sucking us all into the Abyss (Chaos's firstborn, as you cosmology fans well know). Perhaps by now a semblance of order has re-asserted itself over the mayhem prevailing at the time of writing, with markets in freefall and confusion reigning over Greece's forthcoming referendum on the euro bailout. If so, it won't last long.

The date of that vote is as unclear as any intricate political calculations behind Prime Minister George Papandreou's decision to call it, or even whether he informed the Franco-German neo-axis powers before announcing it. Nor is it obvious what the precise implications for Europe might be, other than perfectly hideous.

Chaotic hardly seems an adequate adjective. The Greeks have unleashed pandemonium, and if there is any hope remaining in Pandora's box this time around, you'd want the Hubble Telescope to locate it. In the frantic quest for an upside, all I can dredge up is gratitude that I took the mediocre redbrick degree in Classics, hence all the tiresome and pretentious allusions, rather than in economics. Now that would have been a waste of time. No professional economist has much clue what's going on, beyond a basic appreciation that we are, as Richard Littlejohn will surely put it, going to Hellas in a handcart.

What is abundantly clear is that all the comparisons between this grumbling nightmare and the approach to war in 1939 were less fanciful than one would have liked, though in the globalised age everything moves faster. There was almost a calendar year between Neville Chamberlain declaring peace for our time and war with Germany. From the moment Angela Merkel and Nicolas Sarkozy waved their Greek bailout paper in Brussels and Mr Papandreou's startling announcement were barely five days.

Why he did so is the source of contention, but we can probably rule out any driving passion to invoke the memory of fifth century BC Athens. Some muscular Eurosceptics will posit that, in offering the plebiscite denied us, Mr Papandreou honours his nation's status as the birthplace of democracy. But politicians tend not to think in such grandiose terms when trying to navigate a course between a rock and hard place. Or, to continue this whirlwind odyssey through half-remembered lectures, between Scylla and Charybdis. The waters may be uncharted, but the menaces to Greece are in plain sight. On one side stand the unforgiving rocks of unending austerity within the eurozone, struggling to tame sovereign debt which remains crippling despite that offer of a 50 per cent haircut. Already suffering horribly and riven by civil unrest, the Greeks do not much fancy a future of penury under German dominion, as the explosion there of Nazi-themed cartoons and graffiti confirms.

On the other side lies the dreaded whirlpool of "disorderly default"... leaving the euro in disgrace, and attempting to return to growth via a devalued drachma, with no protection from the world's second reserve currency. Which is the quicker route to perdition is anyone's guess, but from this remove it looks a bit like offering a terminal patient the choice between a revolver and the hemlock.

Mr Papandreou, who seems neither a madman nor a nihilist, will not have taken this apparently deranged last throw of the dice without feeling irresistible pressure. Apart from a livid electorate, he is assailed by an opposition so irresponsible in promising cure without pain that it makes Ed Balls look like Stafford Cripps the day his hairshirt returned from Sketchley's with a wire-wool lining. In delegating the decision, he presumably believes this is the only possible way to compel the opposition to face reality and to scare the electorate into accepting that the alternative is worse than the bailout. It is, to put it gently, a monstrous gamble.

It is also playing with fire on behalf of the rest of us, within and outside the eurozone. If Greece goes, as begins to look inevitable, the fall of Italy becomes more imminent... and as with their respective empires long ago, the latter is rather more threatening to the rest of Europe than the former. Perhaps when your liver is being daily devoured by vultures, you can be forgiven for losing sight of any obligation to the world beyond your shores.

It hardly behoves a country that slags the euro off from the sidelines at every turn – to borrow from Mr Sarkozy's trenchant rebuke to David Cameron – to lecture others on the altruistic need to remain in it. But there is a strong sense that, just as with the supremacy of chaos, the Greeks have been here before. Disguised as a white bull, Zeus kidnapped Europa and ravished her. With this referendum, Greece seeks to take Europe hostage and is screwing her in Olympian fashion once again.

India named world's most depressed nation

By Jeremy Laurance, Health Editor in The Independent
Tuesday, 26 July 2011

One of the oddities of the human race is that people living in wealthier nations are less happy and more depressed than those in poorer ones. In France, the Netherlands and America, more than 30 per cent of people have suffered a major depressive episode, compared with 12 per cent in China, according to research from the World Health Organisation.

Overall, one in seven people (15 per cent) in high-income countries is likely to get depression over their lifetime, compared with one in nine (11 per cent) in middle- and low-income countries.

But there are exceptions to the rule. India recorded the highest rate of major depression in the world, at 36 per cent. It is going through unprecedented social and economic change, which often brings depression in its wake. The global study, based on interviews with 89,000 people, shows that women are twice as likely to suffer depression as men.

People in wealthier countries were also more likely to be disabled by depression than those in poorer ones. The findings are published in BMC Medicine. Depression affects over 120 million people worldwide. It can interfere with a person's ability to work, make relationships difficult, and destroy quality of life. In severe cases it leads to suicide, causing 850,000 deaths a year.

African Dissent on No-Fly Zone Counts

By M K Bhadrakumar

"Here is the true meaning and value of compassion and nonviolence when it helps us to see the enemy's point of view, to hear his questions, to know his assessment of ourselves. For, from his view we may indeed see the basic weaknesses of our own condition, and if we are mature, we may learn and grow and profit from the wisdom of the brothers who are called the opposition."
- "Beyond Vietnam: A Time to Break Silence" speech by Martin Luther King Jr, April 4, 1967, New York

At the height of the Egyptian uprising, well-known American investigative journalist Seymour Hersh said in an interview with al-Jazeera that the United States had a "Plan B" in the event of Hosni Mubarak stepping down. According to Hersh, it was none other than Amr Moussa - "whether he knows or not". There is nothing so far to show Moussa doesn't know.

He's far too well connected not to know - career diplomat and foreign minister for over 45 years and secretary general of Arab League (AL) since 2001. He hopes to succeed Mubarak as Egypt's next president.

Moussa delivers ...
Moussa's bid got great fillip by the AL decision Saturday to recommend imposition of a no-fly zone over Libya. His star has risen far above Mohammed ElBaradei's. Two major Arab countries opposed the AL statement - Syria and Algeria - but Moussa rammed it through, thanks to the AL heavyweights clamoring for democracy to succeed and autocracy to end - Saudi Arabia, Kuwait, Oman, the United Arab Emirates, Bahrain, Yemen, Jordan.

What bizarre drama! The plain truth is that the North Atlantic Treaty Organization (NATO) and the European Union (EU) commanded AL to speak since they need a fig leaf to approach the United Nations Security Council.

The EU foreign policy chief, Catherine Ashton, was in Cairo on Saturday by Moussa's side to ensure America's "Plan B" delivered. And he did. Promptly, the US, Britain, France and Canada "welcomed" the AL statement. NATO will meet on Tuesday to tone up its stance on Libya.

Britain and France, who spearhead the breathtaking campaign to mobilize Arab "support" for NATO intervention in Libya, have had a dream run. British Prime Minister David Cameron and newly-appointed French Foreign Minister Alain Juppe visited Cairo to explore how far the military junta could take charge of the oil-rich eastern Libyan province of Cyrenica.

... but Africa dissents
The Western powers had earlier mentioned the AL and African Union (AU) in the same breath as representing "regional opinion". Now it seems the AU isn't so important - it has become an embarrassment. African leaders are proving to be tough nuts to crack compared to Arab playboy-rulers.

Unsurprisingly, there is a virtual media blackout on the AU's activities on Libya. It is, therefore, useful to recapitulate. "The [AU] council reaffirms its firm commitment to the respect of the unity and territorial integrity of Libya, as well as its rejection of any form of foreign intervention in Libya," Ramtane Lamamra, AU commissioner for peace and security stated in Addis Abbaba. The AU's 15-member peace and security council decided to "put in lace a high-level ad-hoc committee" to monitor the Libyan crisis.

The leaders of South Africa, Uganda, Mauritania, the Democratic Republic of Congo (DRC) and Mali would form the ad-hoc committee. "The ad hoc committee was set up ... to engage with all parties in Libya, facilitate an inclusive dialogue among them, and engage the African Union partners ... for the speedy resolution of the crisis in Libya," the bloc said. Lamamra said events in Libya needed "urgent African action" to bring about an end to the hostilities.

Most important, the AU "took note of the readiness of the government of Libya to engage in the path of political reforms. The council expressed the solidarity of the AU with Libya, and stressed the legitimacy of the aspirations of the Libyan peoples for democracy, political reforms, justice, peace and security as well as economic and social development".

Specter of disintegration
The paradox is, if you accept the principle of ascertaining the "regional opinion", then the AU's opinion becomes, arguably, more important to know than the AL's. Libya is as much an African country as an Arab country - if not more. The narrative of Libyan developments as a template of "Arab awakening" overlooks that reverberations and after-shocks of what happens are going to be felt deep inside Africa. As prominent Russian scholar on the region Yevgeny Satanovsky recently said:
It [unrest] won't be limited to the Middle East and North Africa ... The region will go through what Europe experienced in 1914-18. These processes always take a long time ... In Europe, the shooting started in 1914 and didn't stop until 1945 ... We have not seen what would happen to the other Gulf monarchies. We have not yet seen the end of the unrest that has gripped North Africa and the Middle East.

Algeria could still follow Libya's suit and Morocco might do the same. In January we saw Sudan split peacefully, but separatist elements have not been extinguished there. Former colonies tied together in unnatural conglomerates in the past by the English or the French never became integrated states. If this is so, we may still see disintegration of Nigeria, Kenya and other African countries.
Therefore, the British Foreign Office is opportunistic when it says the AL statement "is very significant and provides important regional support" for the idea of a no-fly zone. Abdullah bin Abdul-Aziz of Saudi Arabia, Hamad ibn Isa Al Khalifa of Bahrain, Qaboos Bin Al Said of Oman, Abdullah II of Jordan - these autocrats cannot be hailed as stakeholders in Libya's march to democracy.

The Gulf Cooperation Council (GCC) regimes are tottering on the abyss and themselves hoping NATO will salvage them. Their rulers keep their personal wealth of tens or hundreds of billions of dollars hoarded in Western banks and the umbilical cord cannot easily be broken.

Scarred memories
But, how is it that African states are different? First, when they hear Cameron or French President Nikolas Sarkozy or NATO secretary general Anders Fogh Rasmussen speak of military intervention in North Africa, it rings a bell in their collective consciousness - of scarred memories of imperial domination, the horrendous crimes that the British, French or Dutch perpetrated on African people. They know how difficult it will be to get a NATO army to vacate its occupation of Africa. (Afghan President Hamid Karzai said on Saturday: "I would like to ask NATO and the US with honor and humbleness and not with arrogance to stop their operations in our land. We are a very tolerant people but now our tolerance has run out.")

Africans know NATO will eventually slither its way into the heart of their resource-rich continent from the North African beachhead. So, the AU faces an existential problem - unlike the GGC client states or Jordan, which have no conception of national liberation. The only "Arab revolt" Abdullah or Abdullah II ever knew is what British intelligence and Lawrence of Arabia financed in the debris of the Ottoman Empire a hundred years ago.

Besides, what dreads the AU countries is that Libya has a history of disunity. It was only in 1951 that King Idris unified the three autonomous provinces of Tripolitania, Fezzan and Cyrenica. In the wake of the current strife, centrifugal tendencies have quickly resurfaced. Libya has dozens of tribes and Muammar Gaddafi knit together a tenuous alliance of some tribes but tribal feuds are common. The African countries share similar experience.

To be sure, Western intervention in Libya will necessitate at some stage involvement in "nation-building' - interference in the domestic affairs in the post-Gaddafi period. The native peoples will resent this involvement. And in the fullness of time, only the Islamist forces stand to gain. The stunning political reality of Libya is that Islam is the only unifying factor for the tribes and provinces of that fragile nation.

African leaders are genuinely nervous that the US is being myopic about the complexities involved. President Barack Obama should get to know them better, call them up from the Oval Office, reach out to them and consult them and ascertain whether they will accept NATO intervention in Libya. They are the real "stakeholders" - not the playboy kings, sheikhs or sultans from the bleached Arabian deserts. King would be pleased.

Ambassador M K Bhadrakumar was a career diplomat in the Indian Foreign Service. His assignments included the Soviet Union, South Korea, Sri Lanka, Germany, Afghanistan, Pakistan, Uzbekistan, Kuwait and Turkey.
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