Dear Socar

Dear Socar, Socar Public Relations and Socar of Georgia (if your website is working),

Normally when I put 50 lari worth of gasoline into my car, I get about half a tank. Earlier this week, I visited one of your affiliates in Tbilisi, paid for 50 lari of gas (the price per liter did not seem significantly different from the other filling stations nearby) and drove off. The needle eventually showed that I had gotten about a quarter of a tank of gas.

If I could remember exactly which affiliate I had this experience at, I would be able to avoid it. But it may just be easier to avoid Socar stations entirely. And to share my experience.

Sincerely,

Doug Merrill

Too Soon To Cry “Victory” On Latvia?

“Doom-mongers” – the Economist tells us – “are licking their wounds”. And why exactly are they licking their wounds? Well for two years now (apparently) they have been telling us that “the struggle to save the lat’s peg to the euro was bound to end in tears”. As you could imagine right in the very forefront of these so called doom-mongers is to be found yours very truly (and here), and of course Nobel Economist Paul Krugman (and here). Continue reading

Greece: citizenship for children of immigrants?

In between trying to deal with one of Europe’s worst economic crises and a crippling series of strikes, the Papandreou government in Greece has introduced a new immigration law. It would allow the children of immigrants to apply for Greek citizenship, provided that

(1) their parents have lived legally in Greece for at least 10 years, and
(2) the child has completed at least three years of schooling in Greece.

By one estimate, over 250,000 children and young adults would qualify for citizenship. As many as 100,000 of those may be of voting age.

This is a huge, huge deal. In order to understand why, you have to understand the odd position of immigrants in Greek society. Continue reading

No borrower solidarity

Greek Prime Minister, George Papandreou, on BBC 1′s The Andrew Marr Show

ANDREW MARR: It has been reported that you’d appealed to the Chinese and indeed possibly also to the Russians for financial support, that you wanted to sell bonds to those countries.
GEORGE PAPANDREOU: Well actually …
ANDREW MARR: Can you clear that up?
GEORGE PAPANDREOU: Yes. Well actually we haven’t, but we are of course open to diversify our portfolio.
ANDREW MARR: So you wouldn’t rule out Chinese or Russian …
GEORGE PAPANDREOU: I wouldn’t rule out different sovereign funds being interested in our bonds. Also we would like to diversify and will do so if that’s possible.

From the Abu Dhabi newspaper The National, quoting a person familiar with the Dubai World debt restructuring talks –

The Abu Dhabi Government intervened in the Dubai World situation last December with an injection of $10bn of bonds that enabled Nakheel to pay a $4.1bn bill for a sukuk Islamic bond. Some $4.9bn of that total sum has been spent, the person said, with the balance still available for the DFSF. “The $10bn will be enough because it has to be enough,” he said.

“It is akin to Greece. If the EU just bailed out Greece, it would be like throwing good money after bad.”

Two things to note.  The Greek PM did not restrict himself to Russia or China in the specification of possibly interested sovereign funds vis-a-vis Greek government debt.  Gulf funds would be an obvious alternative.  But The National’s probably well-connected source makes it sound like Abu Dhabi might be viewing Greece and Dubai as similar situations and thus sees its portfolio weight already as high as it wants for such circumstances.  And that’s despite their differences.  Dubai World is a state-owned but commercial company already in debt restucturing negotiations while Greece clearly has some fiscal restructuring to do, but not debt.  But still.  If they’re hoping to sell bonds in the Gulf, they may have some marketing to do first.

Sunday UK Strategic Defence Review Blogging: Chapter 1

So, here goes with the first in my series of posts on the UK’s strategic defence review as a blog.

Here are what the MoD thinks are the major forces that will determine the political environment:

The National Security Strategy sets out the key threats to the UK’s security and the underlying drivers of those threats. It makes clear that while there is no external direct threat to the territorial integrity of the UK, there are a variety of evolving threats for which we must be prepared, and different environments and domains in which we must be prepared to act, from counter-terrorism and counter-insurgency to maritime security, cyber warfare and capacity-building in fragile states.

We believe five major trends will impact on the international context for defence in the coming decades. The rise of the Asia-Pacific region as a centre of global economic and political power will create a major global shift as dramatic as the end of the Cold War. Continuing globalisation will make the world ever more open and interlinked in communication, trade, culture and transport, and we must ensure that those lines of communication remain open if the UK is to prosper. We will see serious climate change, whose impact is likely to be most severe where it coincides with other stresses such as poverty, demographic growth and resource shortages. We are likely to see growing inequality in many parts of the world, as economic development creates new divisions within and between countries. Proliferation will remain a cause for concern. Several states continue to pursue nuclear programmes in contrevention of their NPT commitments. Terrorists will continue to seek to exploit nonconventional means including chemical, biological, radiological and nuclear materials, with wider access to advanced technologies increasing the risks.

The first point here is something of a theme in the document – we state the problems, but have already decided what the solutions are going to be. This actually comes up in the very first paragraph of the executive summary:

The UK economy relies on trade and the free passage of goods and services. A stable international order is essential to our interests and security.

In the medium-term, success in Afghanistan is critical to UK security.

The next decades will see the development of a number of major trends, including a shift of power to the Asia-Pacific region and climate change.

Of course, anyone who relies on an executive summary deserves to be executed, but it is far from clear to me that the second point (success in Afghanistan) follows from the first or leads to the second, however you define “success”. It’s certainly a major alliance commitment, but its criticality to UK security is debatable, especially in the light of trade, international order, or the rise of Asian powers.

Similarly, there’s a sort of reiteration of standard War on Terror tropes – we’re asked to be very worried about terrorists getting hold of weapons of mass destruction.

Going through that little list of horrors under trends, there’s an interesting point that is missing. The rise of new world powers is not a matter of debate, but what about the corollary? Arguably, the UK and France remain medium powers; but the big change is surely that the status of the US as sole superpower is on the way out. It’s not yet clear how much of this change is accounted for by Chinese or Indian success and how much by American decline, in so far as “decline” is a useful concept, nor how fast and how far it will go. But that it exists is indeniable.

Surely “Coping with US relative decline” ought to be high on the UK’s political to-do list?

After all:

International partnerships will remain essential to our security, both membership of multilateral organisations – like NATO, the EU and the UN – and bilateral relationships, especially with the US….Within this multilateral framework, the UK has a range of close bilateral security and defence relationships. None is more important than that with the United States. The relationship is based on common values and interests which will endure in the 21st century, to our mutual benefit. The UK benefits greatly from bilateral co-operation in the nuclear, intelligence, science, technology and equipment fields. Our relationship also increases our impact on issues such as terrorism, proliferation and transnational crime that affect our security but over which in today’s globalised world our national influence is limited.

As anyone who reads this blog will probably know, I reckon several of those points should carry the Wikipedian tag “citation needed”. A major theme of Chapter 1 is the importance of multilateralism and international institutions, not just the formal ones like the EU, UN, and NATO, but also informal international institutions like maritime trade and telecoms interconnection. This is not new in British politics – up to a point it’s an implementation of the so-called international society approach associated with thinkers like Hedley Bull and Martin Wight.

But a key problem here is what happens if the bilateral special relationship and the multilateral institutions conflict. Since the second world war, it’s been a central assumption of policy that there is no conflict – the US is supportive of the institutions, it benefits from them, and therefore there is no problem. Relax this constraint, however, and the compass starts to spin crazily. What if the US wants to tear up the UN Charter, split NATO, commit a gaggle of war crimes? And we have to relax the constraint – not only do we have the example of Iraq, but we admit that the role of the US is itself changing and its relative power declining.

The answer is surely that a major aim of policy is to maximise our ability to say “no”. Otherwise, either the institutions themselves break down or get used to drag at least some of the members along. Looking at Iraq, it’s worth remembering that it’s not enough to be small and pro-European; the Netherlands, Spain, and Italy all ended up contributing significant numbers of troops, but hardly enough to give them any meaningful influence over the Americans. (Hey, a full armoured division and most of the RAF wasn’t.) Alternative scenarios include the creation of new multilateral institutions (that we might not like), a revived UN based on a balance-of-power settlement, or a pre-1914 scenario with five or so similarly sized world powers competing.

To be fair, the drafters of Chapter 1 do seem to be aware that – as Bruce Sterling might say – whatever happens, things are going to get weird, or to put that in civil service prose:

It will be harder to predict which threats will emerge as the most significant, leading to a future international context characterised by uncertainty.

They also draw conclusions from that:

On the basis of experience in the United Kingdom and internationally, if we continue to search for a technological edge, including improved protection for our personnel, we can expect the cost of successive generations of equipment to continue to rise at above the rate of inflation

Am I right to read this as a call for general-purpose capability and the avoidance of expensive and hyper-specialised gear? A sort of Toyota strategy, perhaps not the best analogy to use right now. In fact, of course, the industries that have been best at doing what Toyota did recently are the ones that supply the UK armed forces. Chapter 1 also touches on that:

We will need to establish a better balance between operational output and supporting activity and between the quality and quantity of our major platforms.

To put it another way: enough with the cost overruns, and projects that spend £192m on PowerPoint presentations. This, of course, is much easier said than done and heavily reliant on the kind of people the MoD recruits to run its procurement operation.

Just What Is The Real Level Of Government Debt In Europe?

“If you don’t fully understand an instrument, don’t buy it”.

To the above advice from Emilio Botin, Executive Chairman of Spain’s Grupo Santander, I would simply add one small rider: Don’t sell it either, especially if you are a national government trying to structure your country’s debt.

In a fascinating article in today’s New York Times, journalists Louise Story, Landon Thomas and Nelson Schwartz begin to recount the mirky story of just how the major US investment banks have been able to earn considerable sums of money effectively helping European governments to disguise their growing mountain of public debt.

Wall Street tactics akin to the ones that fostered subprime mortgages in America have worsened the financial crisis shaking Greece and undermining the euro by enabling European governments to hide their mounting debts.

As worries over Greece rattle world markets, records and interviews show that with Wall Street’s help, the nation engaged in a decade-long effort to skirt European debt limits. One deal created by Goldman Sachs helped obscure billions in debt from the budget overseers in Brussels.

Even as the crisis was nearing the flashpoint, banks were searching for ways to help Greece forestall the day of reckoning. In early November — three months before Athens became the epicenter of global financial anxiety — a team from Goldman Sachs arrived in the ancient city with a very modern proposition for a government struggling to pay its bills, according to two people who were briefed on the meeting. The bankers, led by Goldman’s president, Gary D. Cohn, held out a financing instrument that would have pushed debt from Greece’s health care system far into the future, much as when strapped homeowners take out second mortgages to pay off their credit cards.

Continue reading

Few Surprises As Greece’s Economic Contraction Accelerates

Well, I may say there were no surprises, but in fact the Greek economy contracted more than many observers expected in the fourth quarter, while downward revisions to the rest of 2009 converted the present recession into the country’s worst since 1987. Evidently the latest numbers offer the first warning that all may not be as simple as it looks on paper for the Greek government’s plan to set their finances straight. As far as I am concerned the latest numbers simply confirm what should already have been abundantly evident – correcting the fiscal deficit without straightening out the rest of the economic distortions is going to make economic growth something which is very hard to come by. Continue reading

Eurozone Q4 GDP Growth Disappoints

GDP releases are, by their very nature, lagging indicators and thus do not tell us a whole lot about the current momentum in an economy. Moreover, the immediate focus of attention in the Eurozone remains, and rightly so, the situation in Greece (and Spain), and what precise plans are likely to emerge from the busy schedule meetings which is taking place between Eurogroup and EU finance ministers and heads of states. Yet, despite all the known shortcomings, GDP data remains our basic source of information about the health and progress of our economies, and with the Q4 data out today and the 2009 GDP summary we are able to arrive at some sort of interim conclusion [1] on what was obvioiusly an absolutely abysmal 2009. More importantly we are also able to take stock of a recovery which permanently promises to arrive, but never actually seems to do so, much to the chagrin, I am sure, of the various Eurozone policy makers (click for better viewing)

Continue reading

Kosovo: waiting for the ICJ

So Kosovo and Serbia are now waiting for the International Court of Justice to rule on whether Kosovo is independent or not.

Except, not really.

Back in October 2008, the new Government of Serbia asked the ICJ to rule on whether Kosovo’s unilateral declaration of independence (“UDI”) in March 2008 was legal. This was clever in several ways. Internally, the new, relatively liberal and pro-Western Serbian governmnent shored up its flank against certain sorts of nationalist attack. Externally, it showed Serbia being a good, reasonable international citizen by submitting its problem to the highest body of international justice. And tactically, it invited the Court to rule on a narrow issue — was the UDI, done in that way at that time, legal? — rather than the much broader and more fraught question of whether Kosovar independence itself could be legal.

The case went before the Court for several days in December of 2009, with 25 countries submitting oral or written testimony. A decision is expected in summer.

But here’s the thing:the ICJ is very unlikely to deliver a clear opinion. Continue reading

The Italian Economy Contracts Again in Q4 2009

Well, it isn’t only my German economy Q4 call, or my Japanese economy one which look OK right now, this Italian one also now seems very much to the point.

In fact, as I suspected it might, the Italian economy went back into contraction mode in the last three months of 2009.

Italy’s economy shrank by 0.2 percent in the fourth quarter of 2009, inverting the growth it had experienced in the third quarter, according to national statistics agency Istat in a preliminary forecast. Italian gross domestic product (GDP) shrank by 0.2 percent compared to the third quarter when adjusted for seasonal variations.

Continue reading