Wednesday, June 29, 2011

Two Articles of Interest

As you can see from the first article below, China is anxious to do what the US can no longer afford to do -- prop up the Euro and the EU. In addition, the Chinese need to invest their cash reserves somewhere after largely pulling out of the US sovereign debt market. That said China is actually interested in buying technology from Europe’s high-tech firms (particularly, Germany, UK, Switzerland and Sweden) in an effort to obtain what they cannot steal or buy from the US.

However, China’s intervention will change nothing. Greece is just the tip of the proverbial iceberg. Portugal and other southern and Eastern EUrozone members are also on the brink of financial failure -- their economies have been developed on the basis of unlimited credit subsidized by northern and Western Europe, vastly bloated government ministries, heavily subsidized agriculture and "white elephant" industries producing uncompetitive products, along with cradle-to-grave social security and medical care regardless of citizenship or employment. Europe has all of the problems the US has without the unfortunate American habit of overspending on hegemonic military adventures in places that don’t count. Still, European Social democracy is not fiscally sustainable. I suspect it must decline into socialist authoritarianism with democratic trappings or straightforward fascism where this evolution has already carried Russia, Ukraine and Belorussia.

It is also entertaining to see signs in English carried by the Greeks that declare their Prime Minister, “Goldman Sachs Employee of the Year.” As others in this discussion have pointed out, a Greek default, if properly structured and managed by the French and German Banks may turn out to be the best solution for Greece, but it’s very much open to question whether such an event can actually be managed in the political, as well as, financial sense. Throughout history as seen in France in the decades leading up to the revolution and Europe after WW II, these events tend to gather strength, then, run out of control.

The now seems likely that Europe is on the verge of making a sharp political and economic turn to the right. It is too soon to tell what this turn will mean, but it’s obvious that “more of the same” in economic terms is nearing its end. Bernanke’s “deer in the headlights” performance at the last press conference may work here, but it is not something the German-speaking peoples or their neighbors in the Netherlands and Scandinavia will tolerate. And hardship in any form is something Europe’s Latins and Greeks utterly reject.

In this connection, see the article that describes what may or may not be the case – the German Bundesbank is printing Marks as a contingency plan. I am unable to confirm the efficacy of this article’s claim, but my contacts in Germany and Austria confirm the widespread public sentiment for a restoration of German and Austrian sovereignty along with control of their own borders and migrant labor. Germany and Austria’s contemporary political leaders are viewed as transitional figures at best.

China: We'll spend billions to prop up the stricken euro

China has vowed to increase its support of the eurozone after pledging to spend billions of pounds propping up the single currency.

Premier Wen Jiabao said it will keep buying government bonds – the debts of stricken European nations.

In a boost for Greece ahead of a pivotal vote on greater austerity cuts tomorrow, Mr Wen said Europe could count on his ‘unremitting’ support.

However, according to billionaire speculator George Soros, the debt crisis has pushed the eurozone to the ‘verge of an economic collapse’.

It was all but ‘inevitable’ that at least one stricken member will have to exit the euro because of massive debts, the hedge fund tycoon warned.

Mr Soros said the EU had to come up with a ‘plan B’ to avert a catastrophe.

‘Fundamental flaws’ in the design of the currency union would leave crippled nations with no choice but to withdraw, he added.

Mr Soros warned: ‘The euro had no provision for correction. There was no arrangement for any country leaving the euro.’

In a devastating critique of the European response to the Greek crisis, Mr Soros accused political leaders of being in denial about the need for far-reaching reforms to avert the disintegration of the euro.

He said: ‘We are on the verge of an economic collapse which starts, let’s say, in Greece but could easily spread.’

His warning came just days after Bank of England’s Governor, Mervyn King, branded European attempts to shore up Greece as a ‘mess’.

Huge demonstrations are once again expected in Athens as the government there makes a final attempt to approve almost £25billion of cuts which are a condition of the latest bailout.

If the Greek parliament does not pass the austerity budget tomorrow, the nation will receive no more support and is likely to run out of money by the middle of next month.

But the turmoil engulfing the region has not diminished China’s desire to buy up more European debt. China has foreign reserves of around £2trillion and is the largest creditor to the United States.

At the start of a three-day visit to Britain yesterday, Mr Wen said: ‘China is a long-term investor in Europe’s sovereign debt market. In recent years, we have increased by quite a big margin our holdings of government bonds. We will consistently continue to support Europe and the euro.’ Mr Wen, who will meet Prime Minister David Cameron today, flew into Birmingham Airport for a trip intended to boost China’s commercial, economic and political links with Britain. Business deals worth up to £1billion are expected to be announced during his visit.

As a lover of Shakespeare’s plays, the Chinese leader started with a tour of the house where the playwright was born in Stratford-upon-Avon.

He was escorted by Culture Secretary Jeremy Hunt, who said: ‘We want to have a broad-based relationship with China which encompasses political, economic and social dialogue.

‘But this visit is saying it’s not just about jobs, it’s about a broader cultural relationship which is the best possible way to make sure we understand each other and avoid the kind of misunderstanding that so can bedevil relationships, as has happened in the past.’

As human rights protestors demonstrated outside, Mr Wen also visited the MG car plant at Longbridge, which is owned by China’s Shanghai Automotive Industry Corporation.

The visit coincided with the launch of a new car, the British-designed MG6 Magnette, which will be assembled in the UK using parts from China.


By Martyn Brown

ALMOST three-quarters of Germans doubt that the euro has a future, a poll reveals.
They also believe rescue attempts are futile as billions more euros will be paid to bail out Greece.
A poll by German newspaper, the Frankfurter Allgemeine, found 71 per cent had “doubt,” “no trust” or thought there is “no future” for the euro. Only 19 per cent expressed “confidence” in it. Sixty eight per cent said they did not think the emergency bail-out of Greece would work.

A separate poll last week showed more than half of Germans thought that Greece should be thrown out of the euro. Rumors are also rife in Germany that Deutsche Mark bank notes are being printed again in preparation for ditching the euro.

It is said Germany’s central bank, the Bundesbank, has been ordered to print marks as part of contingency plans to leave Europe’s single currency.

The Bundesbank has been ordered to print marks

This would be an extraordinary step for Germany and would deepen the growing divide between Europe’s leading states.

Since its introduction in 1999, the euro has had a tough time trying to win over a skeptical German public, who saw the mark – one of the world’s most stable currencies – as a symbol of post-war prosperity, second only to the US dollar as the reserve option for investors.

Chancellor Angela Merkel now faces her biggest crisis. The opposition is speculating her government may fall as Germans become more vocal in their opposition to bailing out Greece.


Wednesday, June 8, 2011


By M K Bhadrakumar

There might have been a difference of opinion between the classical Greek dramatist Aeschylus and British romantic poet Percy Bysshe Shelley regarding the circumstances of the release of the Titan god Prometheus from captivity: whether it followed reconciliation with Jupiter, as the classicist thought, or a rebellion, as the romantic insisted. In either case, Prometheus was "unbound".

The exact circumstances of the endgame in Iraq and Afghanistan will remain a moot point, but the outcome is certain to be that the United States, which like Prometheus was chained to a mountain where he was daily punished by Jupiter's eagle and underwent immense suffering, is being "released" to normal life.

For Prometheus, it came as an existential moment and when Hercules came to unbind him, he was so relieved at the freedom "long desired/And long delayed" that he pledged to his love that they "will sit and talk of time and change/As the world ebbs and flows, ourselves unchanged".

The United States, too, is re-emerging "unchanged". There is a flurry of activity as if making up for lost time - "unilateralist" military intervention in Libya; deployment of a F-16 squadron in Poland; establishment of military bases in Romania; resuscitation of the George W Bush era plans for deployment of a US missile defense system in Central Europe; revival of the entente cordiale among "new Europeans"; threatened "humanitarian intervention" in Syria; renewed talk of military action against Iran; a push for a long-term military presence in Iraq and Afghanistan; revving up of the expansion of the North Atlantic Treaty Organization (NATO) into Central Asia; violation of the sovereignty and territorial integrity of Pakistan; the threat of "regime change" in Sri Lanka; and last weekend the announcement of the deployment of light combat ships in Singapore.

All this has happened within a 100-day period. It was almost inevitable that the Caspian great game would be revived, too. After the unexplained hibernation in the period since the exit of the Bush presidency in the beginning of 2009, Richard Morningstar, the US's special envoy for Eurasian energy, has returned to the arena.

If his testimony at the hearing conducted by the US House Committee on Foreign Affairs last week had one single message, it was that the US's Eurasian energy strategy remained "unchanged" in its core agenda, namely, to challenge Russia's potential to use its vast reserves as an energy exporter to re-emerge as a big power on the world stage.

Cold War rhetoric surfaces

The geopolitical agenda of the US's Eurasian energy strategy was spelt out with characteristic bluntness at the same congressional hearing by noted Russia expert Ariel Cohen. There may be nothing strikingly new, arguably, in Cohen's thesis about Russia's "expansionist agenda" reflected in its energy policies, but nonetheless it merits reiteration by way of providing the backdrop to Morningstar's testimony. He was constrained by the norms of diplomatic practice to hold back on direct criticism of Russia, with which the Barack Obama administration is engaged in a "reset" at the moment:

· The Kremlin views energy as a tool to pursue an assertive foreign policy.

· Europe's level of dependence on Russia for energy is unacceptably high.

· Russia's attempts to exclude the US from Central Asian and Caspian energy markets.

· Russia is using energy to "re-engage" India, Southeast Asia, the Middle East, Africa and Latin America.

· Russia forces neighboring countries to direct their energy exports via its pipeline system.

· The absence of a "rule of law" blocks Western companies' entry into Russia's energy sector.

· Russia remains disinterested in developing energy ties with the US.

Cohen candidly spelt out the geopolitics. One, European demand for energy is projected to grow further and it could lead to greater dependence on energy from Russia, which has serious implications for Moscow's ties with Europe.

The point is, the US apprehends that Moscow will exploit the growing energy ties to stabilize its relationship with the countries of Western Europe, and that could weaken the spirit of Euro-Atlanticism and incrementally loosen the US's trans-Atlantic leadership.

Two, Germany has taken a strategic decision to abandon nuclear energy and to instead increase its energy imports from Russia. From the US viewpoint, steadily growing Russo-German ties have not only a historical resonance of great significance for European security but they could eventually weaken European unity and the underpinnings of NATO itself, which the US commands as its principal instrument for the pursuit of its global strategies.

Three, Russia is aspiring to graduate from the role of energy exporter to Europe to participation in the continent's energy distribution system and retail trade as well. Europe may eventually "face tough choices between the cost and stability of their energy supply, and siding with the US on key issues".

Conversely, Cohen anticipates, "As oil prices rise, it is safe to expect Russia's cockiness to return." What is this "cockiness" about? In geopolitical terms, it means a more assertive Russia in global politics. Cohen mentioned India more than once as a worrisome prospect for the US.

Chalk circles in South Asia

In essence, countries like India, where the US hopes to become entrenched as a strategic partner, may choose to be autonomous or "non-aligned" if Russia succeeds in developing stronger energy ties with them. With regard to India, in particular, the implications are far-reaching since the US's Asia-Pacific strategy and its containment policy toward China would become seriously debilitated if New Delhi opted out.

Interestingly, Cohen brings in Syria in this context. He claimed that Russia was "seeking to re-engage in a centuries-old balance of power in the Middle East" and Syria - like India in the Asia-Pacific - is pivotal, which is the reason why Moscow is rebuilding naval bases in Tartus and Ladakiye and is "supplying modern weapons" to it - like it does with India.

Four, Russia is fostering the Shanghai Cooperation Organization (SCO) as an exclusive preserve to keep out the US, especially in the grouping's energy club. The SCO comprises China, Kazakhstan, Kyrgyzstan, Russia, Tajikistan and Uzbekistan.

The US is getting frantic that the SCO is gearing up to admit India and Pakistan as full members and Afghanistan as an observer. So far, the US had banked on the reservations of Russia and China over the SCO membership claims of Pakistan and India respectively, but the rethink in Moscow and Beijing on this score has set alarm bells ringing in Washington.

Moscow is outflanking the US by rapidly building up ties with Pakistan. A crucial vector in this accelerating relationship is energy cooperation. Moscow has begun discussing with Pakistan the nuts and bolts of its participation in the TAPI (Turkmenistan-Afghanistan-Pakistan-India) gas pipeline project.

The countries are restoring their air links; they have held two summit-level meetings within a year; and begun closely coordinating their approach to the stabilization of Afghanistan (which is integral to the execution of TAPI). Incidentally, Russia's special representative on Afghanistan Zamir Kabulov (the Kremlin's ace hand on Afghanistan) visited Islamabad last week for in-depth consultations.

The thrust of the Russian approach is to augment Pakistan's strategic autonomy so that it can withstand Washington's bullying. And Moscow estimates that Pakistan is keen to reciprocate. As a prominent South Asian scholar in Moscow, Andrey Volodin, wrote last week, "[Pakistan President] Asif Zardari's visit to Russia has shown that Pakistan is actively diversifying its foreign economic ties and foreign policy. This attitude is welcomed by Pakistan's main all-weather ally, China, which is pursuing a policy of 'soft reverse containment' of America in Asia, including Pakistan."

No more a Turkmen pipedream

Thus, the Russian-Chinese initiative to induct Pakistan and India as full SCO members holds out the prospect of dealing a devastating blow to the US's strategy to get "embedded" in Asia. The underpinning of a regional energy grid tapping into Turkmenistan's energy reserves gives a profound character to the matrix.

The fact is that the US all along paid lip-service to the TAPI, but its real interest has been in the so-called Southern Corridor for transporting Turkmen energy to Western Europe so that Russian dominance of the European market would be whittled down.

Russia is killing two birds with one stone. By diverting Turkmen gas to the huge energy guzzlers of South Asia - India is potentially one of the world's two or three biggest consumers of energy in the coming decades - Moscow is on the one hand undercutting the US's Eurasian energy strategy to evacuate the gas to Europe, while at the same time retaining its pre-eminent footing on the European energy market from being challenged by the Turkmen gas.

The big question mark on TAPI has been all along two-fold. First, there was doubt regarding Turkmenistan's energy reserves. However, the confirmation by British auditor Gaffney, Cline & Associates last week that Turkmenistan is sitting on the world's second-largest gas field - South Yolatan - completely changes the scenario. (Afghan President Hamid Karzai made an air dash to Ashgabat as soon as he heard the news.) The vast South Yolatan field covers an area of about 3,500 square kilometers - bigger than the country of Luxembourg - and as a top executive of the British auditor put it, "The South Yolatan field is so big that it can sustain several developments in parallel."

In short, Turkmenistan has the proven capacity to meet the energy requirements of China, India and Pakistan for many decades to come, and would still be left with a surplus for exports

to Russia. The prospect is shocking for US strategy if the so-called "SCO energy club", which is an idea that then-Russian president Vladimir Putin floated in 2005 a little ahead of time that is finally coming to fruition.

Thus, the robust Russian and Chinese diplomacy on Pakistan to encourage a paradigm shift in its Afghan policy; the growing US impatience over Pakistan's "recalcitrance"; the SCO's keenness to get involved in the stabilization of Afghanistan; the US's insistence that it must have direct dealings with the Taliban rather than through an "Afghan-led" peace process; Washington's push to establish a long-term military presence in Afghanistan; Russia's and China's hurry to get India and Pakistan on board as SCO members; the US's overtures to India with a partnership that US Secretary of Defense Robert Gates described last week in a speech in Singapore at a regional gathering of defense ministers (including from China, Russia and India) as the "indispensable pillar of stability in South Asia and beyond"; Gates' affirmation of US commitment to a "robust" and "enhanced" military presence in Asia, especially in the Malacca Straits - all these have a hugely important "energy dimension", too.

Cohen is a Russia expert, but he mentioned Central Asia more than once in this testimony and pointedly brought to the notice of US congressmen that Russia was attempting to "push the US out of Central Asia, and successfully limited US participation in new Caspian energy projects, excluding it from the SCO's energy club".

Containing the energy superpower

Ambassador Morningstar in his congressional testimony kept up the diplomatic decorum and neatly sidestepped the geopolitics, sticking to a detailed presentation of the US's Eurasian energy strategy, which he projected as a mix of continuity from the George W Bush era but imbued with new realities. The principal vectors of the US strategy can be identified in the following terms:

· The US's intention to be deeply involved in Europe's energy security is never in doubt since "Europe is our partner on any number of global issues from Afghanistan to Libya to the Middle East, from human rights to free trade.

· The US will work for Europe's "diverse energy mix" both in terms of its sources of supply and transportation routes as well as the type of energy - " diversity of suppliers, diversity of transportation routes and diversity of consumers, together with a focus on alternative technologies, and renewable and other clean energy technologies, and increased energy efficiency". (The US is entering the European market as a big exporter of shale gas, which competes with Russia's natural gas.)

· The US's aim is to encourage Europe to develop a "balanced and diverse energy strategy with multiple energy sources with multiple routes to market". (Read reduce the dependence on Russia which is supplying one-third of Europe's energy needs currently).

· The US will encourage and help Central Asian and Caspian countries to "find new routes to the market". (Read bypassing Russian territory and pipelines).

· The US will push for the energy sector to be privatized, and to this end, will "create the political framework" in the post-Soviet space within which "businesses and commercial projects can thrive".

· The Obama administration's commitment to the so-called Southern Corridor - to bring natural gas to Europe via Turkey from the Caspian and "potentially other sources beyond Europe's southeastern frontiers" - is no less than that of the previous US administrations of Bill Clinton and Bush. The US will actively promote the three separate European pipeline consortia - the Nabucco, ITGI and TPA groups - and is "confident that a commercially viable Southern Corridor will be realized. The investment decisions to make that possible should occur by the end of this year."

· Washington pays particular attention to promoting Turkmenistan as a major supplier of gas for Europe via the Southern Corridor.

· The US will pitch for the integration of the Baltic states into the European energy market so they do not remain vulnerable to Russian supplies and/or political pressure.

· The US will challenge Russia's efforts to get a monopoly hold over Ukraine's energy sector.

· Europe should develop a single market for energy so that the kind of bilateral relationships that are developing between Germany and Russia or Italy and Russia or France and Russia do not happen.

· Europe should have more focus on shale gas development, which can be a substitute for Russian gas.

· Europe should take initiatives for "unbundling the distribution and supply functions of energy firms" so that Russia's leviathan company Gazprom's efforts to penetrate downstream activities can be stalled.

It's the Eurasian heartland, stupid

The US's Eurasian energy strategy almost entirely aims at “containing” Russia's pre-eminent role as Europe's energy supplier and its vast influence over the Central Asian and Caspian energy-producing countries. Cohen spoke of a future role for NATO as provider of security for the non-Russian pipelines, but unsurprisingly, Morningstar didn't visit the controversial idea, which was first mooted by the Bush administration. What is of utmost interest is that Morningstar didn't say a word about the feasibility of Turkmenistan or the Central Asian region providing energy for the South Asian region, although US diplomats traveling to Delhi unfailingly profess a keen interest in TAPI. What emerges is that the US's one hundred percent focus is on Europe's energy security - how supplies can be developed from the Caspian, Central Asian and Middle Eastern regions for Europe - and it pays lip-service to the TAPI.

Clearly, the SCO summit meeting scheduled to be held in Kazakhstan next week becomes an historic occasion for the geopolitics of energy. The US congressional hearing in Washington last week was well-timed. The US apprehends a paradigm shift in the Asian power dynamic. The odds are heavily stacked against the US insofar as Russia and China are recrafting their South Asia polices that aim at harmonizing their ties with Pakistan and India respectively within the umbrella of the SCO.

A leading Chinese scholar, Yan Xuetong, director of the Institute of International Studies at Tsinghua University, stated at a recent seminar of the Institute of Asia-Pacific Studies, a branch of the Chinese Academy of Social Sciences:

“If we can establish relations with neighboring countries like what we are doing with members of the SCO, we will also succeed in moving fast. The establishment of SCO in the 1990s was widely recognized as one of China's most successful diplomatic moves. The purpose of establishing the SCO is to challenge the American strategic intention of extending its military breach to Central Asia.”

It destroyed America's intention of making Central Asia its sphere of military influence. With the SCO, China's relations with countries in the region have been greatly improved. In order to establish SCO-style relations with surrounding countries, China must ... establish all-weather strategic partnerships with them. Or it will be impossible for China to have more and better friendly international relationships than America. Indeed, the Afghan endgame is inspiring the several tracks in the geopolitics of Eurasia and Central Asia and South Asia, some running tracks, some dormant, some visible, some others nor so visible, to begin to converge. But the focal point is Eurasia.

Indeed, Sir Halford John Mackinder (1861-1947), the great British geographer and scholar-diplomat, who is considered one of the founding fathers of the esoteric subjects of geopolitics and geo-strategy, based his famous Heartland Theory on the ida that Eurasia remains the heartland of international politics. Curiously, when Prometheus had his liver eaten out daily by Jupiter's eagle - only to be regenerated at night - he was also chained to a rock in the Caucasus.

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.


Though I don’t buy into everything this man asserts, his message should be heard. It sets the stage for the future and the kinds of conflicts we are likely to witness. In addition, we Americans cannot dominate Central Asia nor should we try. To do so is to involve ourselves in a competition we cannot win, as well as in wars we don’t need to fight.

Americans are constrained for reasons of economy to peripheral operations. In essence, “Inchon yes, Yalu no!” The point is our long-term strategic influence depends more on our economic productivity and our resulting ability to influence events through friendly states that share our strategic interests than on our military power.

Here is an example of how this strategic thinking works. In 1879, Disraeli and Bismarck cooperated to end Russia’s War with Turkey. Bismarck told the Russian Foreign Minister, Gorchakov that Germany had no real interest in who controlled the Dardanelles and, thus, declined to join Russia’s war with Turkey. Britain, of course did have such an interest and Bismarck knew it. Britain’s Army was of little strategic concern to the Russians. However, Disraeli and Bismarck agreed that without access to the German credit markets and technology, Russia could not hope to triumph in a lengthy war with Britain given Britain’s ability to blockade Russian ports with the Royal Navy. The outcome was a negotiated settlement that ended the destructive war and left the Dardanelles in Turkish hands. The Germans extricated the Russians from a war they did not need to fight and the British avoided a conflict with the Russians over control of the straits. Ultimately, everyone benefited including Turkey. Germany’s Army, the most powerful in the world, did not fire a shot.

In today’s world, this sort of thinking should shape our interaction with the great powers competing for resources and regional power on the Eurasian Continent. In the end, such thinking promises to reduce the destructiveness and duration of conflicts despite the absence of lofty, moralizing rhetoric so popular with the Liberal interventionist Left and the NEOCONs.

Doug Macgregor