Mario Draghi’s Ongoing Faustian Pact

Word has it that Mario Draghi is busily working up a new version of his “whatever it takes” methodology. This time the objective is not saving the Eurozone, but maintaining the region’s inflation at or near the ECBs official 2% inflation objective. The first time round the President of the Euro Area’s central bank had it easy, since market participants took him at his word and he effectively needed to do nothing to comply. This time though, as they say, it will be different.

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Greek Re-entry (or Grentry) Not The Game Changer Many Think It Is

There is no doubt that Greece’s recent bond sale was an exciting and even invigorating moment for many people. The WSJ’s Simon Nixon, for example, called it “a symbolically important moment for the euro crisis”. Reuters’ Marius Zaharia suggested the speed of the come back could even be a game-changer for the heavily indebted southern European country. Certainly there can be little doubt that, as Nixon puts it, the turn round in market fortunes was a remarkable achievement, illustrative of just “how far market sentiment toward Southern Europe has changed”. 
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On The Trail Of Italian Debt

Looking for trends and correlations in that landslide of economic data which arrives, day in and day out, on our desks is normally something akin to trying to find a needle in a very large and raggedy haystack. From time to time, however, some things are just to obvious not to be noticed, like the ever rising levels of debt on the EU periphery and the growing demand from political leaders there for some kind of QE type initiative from the European central bank, for example. Sure, there is no obvious causal connecting here – the missing “middle term” linking the two would probably be all that ongoing deflation risk – but the inability of governments to contain their debt levels is a consequence of having low growth and low inflation, as is the wish being ever more insistently expressed by Southern Europe’s political leaders that the ECB were more like the Bank of Japan. Continue reading

Inflate!

Here’s an interesting chart.

The eurozone version of this is the debate about to what extent the relative increase in prices in southern Europe in the 2000s represented an increase in wage costs, and to what extent it represented wider inflation. I certainly remember a lot of concern about “mileuristas”, and of course the Greek version of living on €1,000 a month was living on €700 a month. The classic example is the fact that the CPI doesn’t include housing costs, and there was a housing bubble, dammit.

I used to be quite snarky about people who claimed there was really huge inflation because they saw someone selling this or that for so much and it wasn’t like that in my day. I am less so now. In a real sense, if inflation doesn’t include food or housing or healthcare or energy, is it a useful measurement?

So you might think I would be pleased at the content of this piece. But I’m very far from it. The reason is, basically, Piketty.

If you want r to get under g and stay there, inflation and financial-repression is a big part of the picture. And for this to be of any use, it has to be proper inflation – i.e. the sort that includes wages. You could make a case that the price stability the ECB achieved was actually more like “wage stability”. I wonder if prices expressed in terms of earnings is a measure we should monitor.

More intercepts.

This FT piece from Ukraine is notable for the role of signals intelligence proliferation.

Kiev also on Saturday released audio tapes of phone calls it purported proved close ties between Vladimir Lukin, a Kremlin envoy sent to negotiate the release of the OSCE German-led military mission taken hostage by separatists last week, and an alleged Russian agent leading the separatists.

Ukraine said the intercepted phone calls proved that Mr Lukin enjoyed a cosy working relationship with Igor Girkin, a senior security official for the separatists in Slavyansk. An arrest warrant has been issued for Mr Girkin, who Kiev say is a Russian citizen and military intelligence agent who created unrest in Crimea before it was annexed by Moscow in March.

In one of the tapes, Mr Lukin is heard asking Mr Girkin: “How warm is the atmosphere, and when can we meet?” In another, the rebel leader is heard telling the Kremlin envoy: “I was given the order to give assistance to you, and not to the European partners.”

Firmly Anchored Expectations, No Postponement of Purchases?

This article from former European Central Bank board member Jürgen Stark (Doomsayers risk a self-fulfilling prophecy) has been occasioning a lot of commentary over the last week or so. According to Stark, the current deflation debate “lacks three important points: an in-depth analysis of the forces driving inflation down; a clear distinction between “benign disinflation” and “bad deflation”, with a spiral of decreasing prices, wages and output triggered by negative expectations; and a better understanding of the European Central Bank’s approach”. Continue reading

It’s not like this was a surprise

Or, why reading David Remnick is nearly always a good idea:

I spoke with Georgy Kasianov, the head of the Academy of Science’s department of contemporary Ukrainian history and politics, in Kiev. “It’s a war,” he said. “The Russian troops are quite openly out on the streets [in Crimea], capturing public buildings and military outposts. And it’s likely all a part of a larger plan for other places: Odessa, Nikolayev, Kherson. And they’ll use the same technique. Some Russian-speaking citizens will appear, put up a Russian flag, and make appeals that they want help and referendums, and so on.” This is already happening in Donetsk and Kharkov.

“They are doing this like it is a commonplace,” Kasianov went on. “I can’t speak for four million people, but clearly everyone in Kiev is against this. But the Ukrainian leadership is absolutely helpless. The Army is not ready for this. And, after the violence in Kiev, the special forces are disoriented.”

That’s from March 1.

Overtaken by events

The draft blog post said to watch out for funny business in Melitopol and Mariupol, Ukraine. Those are the largest settlements along the coast between Russia and the Crimean peninsula, and sit astride the road that runs from Rostov-on-the-Don and the Crimea. Mariupol is the second-largest city in the Donetsk region, with a population of nearly half a million. Melitopol is also a crossroads: east to Russia, south to the Crimea, north to Zaporizhia and west to Kherson.

Radio Free Europe/Radio Liberty’s daily summary noted:

By early evening there were reports of skirmishes between pro-Russia and pro-Ukraine groups in Kharkiv, a tense standoff in Zaporizhia, and the occupation by pro-Russian activists of local government buildings in Makiyivka and Mariupol. Pro-Russian activists were also reportedly moving on the Security Service building in Odessa.

So let’s go with a quick scoreboard from this weekend and last instead.

Kharkiv: occupation attempt repulsed
Zaporizhia: tense standoff
Kramotorsk: buildings occupied
Druzhkivka: buildings occupied
Yenakijeve: buildings occupied
Makiyivka: buildings occupied
Mariupol: buildings occupied
Luhansk: buildings occupied
Donetsk: buildings occupied
Slovyansk: buildings occupied
Mykolaiv: occupation attempt repulsed
Odessa: occupation attempt repulsed
Krasny Lyman: disturbances

The buildings that are being occupied are local city halls, police stations and administrative buildings. That most definitely includes any local arsenals.

This weekend has also seen the return of the “little green men,” so called during the occupation of the Crimea because their origins are so mysterious that they must be from Mars. Never mind that they wear Russian uniforms sans insignia, have equipment issued to Russian armed services, and use Russian words that are not generally used by Russian-speaking persons who live in Ukraine.

Ukraine’s acting president has not minced words. In a live televised address, Oleksandr Turchynov spoke of

war that is being waged against Ukraine by the Russian Federation. The aggressor has not stopped and continues to organize disorders in eastern Ukraine.

This is not a war between Ukrainians. This is an artificially created situation of confrontation aimed at weakening and destroying Ukraine itself.

He also said that a large-scale counter-operation would begin Monday morning. Stay tuned.

Looking back at last month’s guide to revisiting the 1930s, further east:

Kharkiv, Donetsk: Sudetenland. Some real tension, mostly trumped up and stage-managed confrontations. ((Check.)) Pleas for “protection” from some parts of a particular nationality to the outside power. ((Check.)) Not fooling anyone. ((Check.)) In contrast to then, Kiev would try to defend the frontier region militarily. ((Check, as of April 14.)) (The great powers will not intervene, should it come to that.) ((Check.)) Whether that defense would succeed is rather an important question. There’s not a major defensible barrier until the Dniepr. Speaking of which…

Dnepropetrovsk, Zaporizhia: Poland. The great powers would not be able to overlook the dismemberment of a major European state. They wouldn’t be able to stop it, either.

Zaporizhia hasn’t seen much in the way of disturbances. Yet.

Also: Toomas Hendrik Ilves noted on Twitter, “After these several weeks, Europe’s M-F, 9-5 foreign policy establishment might perhaps recognise what’s happening next door weekends too.” Maybe all of the little green men and their associated crowds have day jobs, or maybe the powers-that-be on Mars have noticed that Saturday is not a big day for news, and are timing their operations accordingly. It’s not likely that they read John Scalzi’s blog, but he makes a point concerning publicity and next weekend:

But of all the Saturdays in all of the calendar year, the very worst possible Saturday to announce anything is the Saturday between Good Friday and Easter. Because it’s the Saturday between Good Friday and Easter, that’s why — the Saturday sandwiched between two major religious holidays, which means the “weekend” that week starts on Thursday and Sunday’s news cycle is swamped by the most important Christian holiday of the year — Christmas is noisier for longer, but Easter is concentrated. If you’re the Pope, Easter Sunday is great for you, news wise. If you’re not the Pope, not. …
If I were a crooked politician who had been caught murdering kittens while masturbating to a picture of Joseph Stalin, then the day I would choose to have that news go out into the world would be the Saturday between Good Friday and Easter.

That Western and Orthodox Easter align this year makes the news gap even larger. People in the wider world will not be paying attention next weekend. Don’t be surprised if the little green men are very active indeed.

Old habits die hard

Occasionally, representatives of Germany’s Left party (Die Linke) will complain about being tagged as the successors to East Germany’s communist party. Well.

Yesterday, the Parliamentary Assembly of the Council of Europe voted to strip the Russian delegation to that body of its voting privileges for the rest of 2014, as a reaction to Russia’s annexation of the Crimea. The overall vote was 145 in favor of revoking the Russians parliamentarians’ votes and 21 against, with 22 abstentions.

The German delegation voted 5-1 to revoke, with Yes votes coming from a Green, two Christian Democrats and two Social Democrats. The sole No vote? From a Left parliamentarian. Because Moscow, I suppose.

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Ukraine, Snowden, and SIGINT proliferation

OK, so what do EU chief diplomat Catherine Ashton, US assistant secretary of state Victoria Nuland, Estonian foreign minister Urmas Paet, Russian ambassador to Eritrea Sergei Bakharev, and his colleague in Zimbabwe Igor Chubarev all have in common? They’ve all had their mobile phone calls intercepted and leaked onto the web.

The first three, well, Russia, obviously. The bizarrely distant ambassadors are presumably a gesture by the US to demonstrate the reach of the NSA. At least that is what you might have said a few years ago. But we live in an age of intelligence proliferation today.

If you want to intercept GSM calls these days, you need a USRP, a few hundred dollars’ worth, and copies of GNU Radio, OpenBTS, and a few other open-source software packages, all of which are entirely free. Osmocom will be useful too, also free. A couple of £15 Motorola C115 phones. And of course a laptop. (If you just want to listen to voicemail, well, call Glenn Mulcaire.)

The same computational abundance that made it possible for the NSA and friends to overreach so spectacularly has also brought capability that not so long ago was reserved to them within the power of hayseed cops, nonstate groups, and competent individuals with a few hundred bucks. It didn’t have to be the Russians; it could have been Yanuk’s cops, or freelance anti-Maidan activists, or even rebels hoping to force the EU to act. It’s now probably easier to intercept real traffic and edit the recording before leaking it than it is to fake the whole thing.

You’d think people would take more care – someone should point the EU SITCEN at the Blackphone project at least – but then I learned something interesting. The State Department, after all, has all the secure communications it needs, but they have the problem that they are not secure against the boss, and fairly often it is necessary to say things you don’t want to send back to Washington. It’s a fascinating lesson.

In the other direction, here’s a detailed discussion of the Mexican Zetas’ radio network, although sadly lacking in technical content.

In general, we should expect much more of this.

This interacts with the whole Snowden affair in complicated ways. There’s a reassuring story (well, for some people) that says: Look, the silly Europeans and journalists and such have run into the Russians now. It’s like the Cold War. I’m young again!

Of course, it’s actually true that NATO member states near the borders are worried and are asking urgently for the alliance’s forces to be seen more often. But we shouldn’t be fooled that the case is now closed. Those same states are also exposed to information security threats, and the NSA (and friends) interference with major security infrastructure projects has exposed them further. It has also harmed the degree of confidence their allies can offer them. It’s in the nature of the technology that once you create an exploit, you can’t guarantee others won’t find it.

This also matters for less macro-scale politics. Back in 2007, I played a minor role in Dan Hardie’s campaign to get the British Army’s Iraqi employees landed in the UK. This involved communicating with people in places like Syria who were under varying degrees of threat, and Dan asked me for advice. At the time, you could be reasonably confident in Skype’s encryption and its distributed architecture, and that’s what we used. It had the huge advantage that it was utterly uncontroversial software that anyone might have, and that didn’t require us to distribute code or key material securely. I gave quite a bit of thought to this, in case it became necessary, and never arrived at any solution I found even close to convincing myself, let alone anyone else.

Today, thanks to the subversion of Skype, I would have to come up with some sort of scheme to deploy one of the hardened messaging apps, probably circumventing censorship en route, generate keys, and get them deployed and configured. Granted, most of the users would have a smartphone or netbook or tablet with them rather than using untrusted public machines, but on the other hand, potential interceptors are so much more aware of the possibilities now I think I might not try. In the current case, this activist in Belarus appears to have had his Skype calls intercepted.

This is a pity. Eli Lake reckons the US won’t share satellite imagery with Ukraine, but I’m not sure of the sourcing and I keep seeing US diplomats tweeting overhead photos. Do they need to, though? Proliferation cuts both ways. As I was saying with Dr Strauss, advice on working with the new tool set might be as good or better. Like this. Or this:

There’s a better photo here – the ones with the bubble under the nose are the Mi-24 attack helicopters.

No-one who reads this has any voice in the decision, but whether Insider Guy, Intelligence/Administrative Guy, or [name redacted, yes, seriously] gets the GCHQ top job is far less important than whether we decide to free the CESG security wing of the organisation and bring it back to London.