Showing posts with label france. Show all posts
Showing posts with label france. Show all posts

Nov 24, 2008

Obama Tilts to Center, Inviting a Clash of...

Since winning the US presidential election, Barack Obama has been assembling a team to help him govern.

No-one has yet been officially appointed to the new cabinet and many remain subject to vetting and Senate confirmation before taking office.

Here are some of the key people Mr Obama has chosen or is said to be considering:

Treasury Secretary: Timothy Geithner

Head of National Economic Council: Lawrence Summers

Health Secretary: Tom Daschle

Attorney General: Eric Holder

Secretary of State: Hillary Clinton

Homeland Security Secretary: Janet Napolitano

 

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Nov 17, 2008

On G-20 and GM: Economics, Politics and Social Stability

November 17, 2008

Graphic for Geopolitical Intelligence Report

By George Friedman

The G-20 met last Saturday. Afterward, the group issued a meaningless statement and decided to meet again in March 2009, or perhaps later. Clearly, the urgency of October is gone. First, the perception of imminent collapse is past. Politicians are superb seismographs for detecting impending disaster, and these politicians did not act as if they were running out of time. Second, the United States will have a new president in March, and nothing can be done until he defines his policy.

Given the sense in Europe that this financial crisis marked the end of U.S. economic supremacy, it is ironic that the Europeans are waiting on the Americans. One would think they would be using their newfound ascendancy to define the new international system. But the fact is that for all the shouting, little has changed in the international order. The crisis has receded sufficiently that nothing more needs to be done immediately beyond “cooperation,” and nothing can be done until the United States defines what will be done. We feel that our view that the international system received fatal blows Aug. 8, when Russia and Georgia went to war, and Oct. 11, when the G-7 meeting ended without a single integrated solution, remains unchallenged. Now, it is every country for itself.

From Financial Crisis to Cyclical Recession

The financial crisis has been mitigated, if not solved. The problem now is that we are in a cyclical recession, and that every country is trying to figure out how to cope with the recession. Unlike the past two recessions, this one is more global than local. But unlike the 1970s, when recession was global, this one is not accompanied by soaring inflation and interest rates.

All recessions have different dynamics, but all have one thing in common: They impose punishment and discipline on economies run wild. This is happening around the world.

China, for example, faces a serious problem. China is an export-oriented economy whose primary market is the United States. As the United States goes into recession, demand for Chinese goods declines. Chinese businesses have always operated on very tight — sometimes invisible — profit margins designed to emphasize cash flow and to pay off debts to banks. As U.S. demand contracts, many Chinese firms find themselves in untenable positions, without room to decrease prices, lacking operating reserves and insufficiently capitalized. Recessions are designed to cull the weak from the herd, and a huge swath of the Chinese economy is ripe for the culling.

If the world were all about economics, culling is what the Chinese would do. But the world is more complex than that. A culling would lead to massive unemployment. Many Chinese employees live on Third World wages; indeed, the vast majority of Chinese have incomes of less than $1,000 a year. To them, unemployment doesn’t mean problems with their 401k. It means malnutrition and desperation — neither of which is unknown in 20th century Chinese history, including the Communist period. The Chinese government is rightly worried about the social and political consequences of rational economic policies: They might work in the long run, but only if you live that long.

Economic Restructuring vs. Stability

The Chinese have therefore prepared a massive stimulus package that is more of a development program to make up for declining U.S. demand. It aims to keep businesses from failing and spilling millions of angry and hungry workers into the street. For the Chinese, the economic problem creates a much larger and more serious issue. It is also an issue that must be solved quickly, and the amount of time needed outstrips the amount of time available.

This is not only a Chinese problem. Wherever there is an economic downturn, politicians must decide whether society — and their own political futures — can withstand the rigors recessions impose. Recessions occur when, as is inevitable, inefficiencies and irrationalities build up in the financial and economic system. The resulting economic downturn imposes a harsh discipline that destroys the inefficient, encourages everyone to become more efficient, and opens the doors to new businesses using new technologies and business models. The year 2001 smashed the technology sector in the United States, opening the door for Google Inc.

The business cycle works well, but the human costs can be daunting. The collapse of inefficient businesses leaves workers without jobs, investors without money and society less stable than before. The pain needed to rectify China’s economy would be enormous, with devastating consequences for hundreds of millions of Chinese, and probably would lead to social chaos. Beijing is prepared to accept a high degree of economic inefficiency to avoid, or at least postpone, the reckoning. The reckoning always comes, but for most of us, later is better than sooner. Economic rationality takes a back seat to social necessity and political common sense.

Every country in the world is looking inward at the impact of the recession on its economy and measuring its resources. Countries are deciding whether they have the ability to prop up business that should fail, what the social consequences of business failure would be, and whether they should try to use their resources to avoid the immediate pain of recession. This is why the G-20 ended in meaningless platitudes.

Each country is also trying to answer the question of how much pain it — and its regime — can endure. The more pain imposed, the healthier countries will emerge economically — unless of course the pain kills them. Ultimately, the rationality of economics and the reality of society frequently diverge.

Recession and the U.S. Auto Industry

For the United States, this choice has been posed in stark terms with regard to the dilemma of whether the U.S. government should use its resources to rescue the American auto industry. The American auto industry was once the centerpiece of the U.S. economy. That hasn’t been true for a generation, as other industries and services have supplanted it and other countries’ auto industries have surpassed it. Nevertheless, the U.S. auto industry remains important. It might drain the U.S. economy by losing vast amounts of money and destroying the equity held by its investors, but it employs large numbers of people. Perhaps more important, it purchases supplies from literally thousands of U.S. companies.

There can be endless discussions of why the U.S. auto industry is in such trouble. The answer lies not in one place but in many, from the decisions and makeup of management to the unions that control much of the workforce, and from the cost structure inherent in producing cars in the American economy to a simple systemic inability to produce outstanding vehicles. There might be varying degrees of truth to all or some of this, but the fact remains that each of the U.S. carmakers is on the verge of financial collapse.

This is what recessions are supposed to do. As in China and everywhere else, recessions reveal weak businesses and destroy them, freeing up resources for new enterprises. This recession has hit the auto industry hard, and it is unlikely that it is going to survive. The ultimate reason is the same one that destroyed the U.S. steel industry a generation ago: Given U.S. cost structures, producing commodity products is best left to countries with lower wage rates, while more expensive U.S. labor is deployed in more specialized products requiring greater expertise. Thus, there is still steel production in the United States, but it is specialty steel production, not commodity steel. Similarly, there will be specialty auto production in the United States, but commodity auto production will come from other countries.

That sounds easy, but the transition actually will be a bloodletting. Current employees of both the automakers and suppliers will be devastated. Institutions that have lent money to the automakers will suffer massive or total losses. Pensioners might lose pensions and health care benefits, and an entire region of the United States — the industrial Midwest — will be devastated. Something stronger will grow eventually, but not in time for many of the current employees, shareholders and creditors.

Here the economic answer, cull, meets the social answer, stabilize. Policymakers have a decision to make. If the automakers fail now, their drain on the economy will end; the pain will be shorter, if more intense; and new industries would emerge more quickly. But though their drain on the economy would end, the impact of the automakers’ failure on the economy would be seismic. Unemployment would surge, as would bankruptcies of many auto suppliers. Defaults on loans would hit the credit markets. In the Midwest, home prices would plummet and foreclosures would skyrocket. And heaven only knows what the impact on equity markets would be.

In the U.S. case, the healthful purgative of a recession could potentially put the patient in a coma. Few if any believe the U.S. auto industry can survive in its current form. But there is an emerging consensus in Washington that the auto industry must not be allowed to fail now. The argument for spending money on the auto industry is not to save it, but to postpone its failure until a less devastating and inconvenient time. In other words, fearing the social and political consequences of a recession working itself through to its logical conclusion, Washington — like Beijing — wants to spend money it probably won’t recover to postpone the failure. Indeed, governments around the world are considering what failures to tolerate, what failures to postpone, and how much to spend on the latter. General Motors is merely the American case in point.

The Recession in Context

The people arguing for postponement aren’t foolish. The financial system is still working its way through a massive crisis that had little to do with the auto industry. Some traction appears to be occurring; certainly there was no crisis atmosphere at the G-20 meeting. The economy is in recession, but in spite of the inevitable claims that we have never seen anything like this one before, we have. There is always some variable that swings to an extreme — this time, it is consumer spending — but we are still well within the framework of recent recessions.

Consider the equity markets, which we regard as a long-term measure of the market’s evaluation of the state of the economy. In January 2000, the S&P 500 peaked at 1,455. This was the top of the market. In July 2002, 18 months later, the S&P bottomed out at 935. Over the next five years it rose to 1,519 in July 2007, the height for this cycle. It fell from this point until Nov. 12, 2008, when it closed at 852.30. This past Friday, it was at 873.29.

We do not know what the market will do in the future. There are people much smarter than we are who claim to know that. What we do know is what it has done. And what it has done this time — so far — is almost exactly what it did last time, except that in 2000-2002 it took 18 months to do it, while this time it was done in about 16 and a half months (assuming it bottomed out Nov. 12). But even if the market didn’t bottom out then, and it falls to 775, for example, it will have lost 50 percent of its value from the peak. This would be more than in 2000-2002, but not unprecedented.

The point we are making here is that if we regard the equity markets as a long-term seismograph of the economy, then so far, despite all the storm and stress, the markets — and therefore the economy — remain within the general pattern of the 2000-2002 market at the 2001 recession. That recession certainly was unpleasant, what with the devastation of the tech sector, but the economy survived. At the same time, however, it is clear that things are balanced on a knife’s edge. Another hundred points’ fall on the S&P, and the markets will be telling us that the world is in a very different place indeed.

A massive bankruptcy in the automotive sector could certainly set the stage for an economic renaissance in the next generation. But at this particular moment in time (it’s no coincidence that the crisis in the U.S. automotive industry comes as we enter a recession), a wave of bankruptcies would dramatically deepen the recession. This probably would be reflected by the destruction of trillions more in net worth in the equity markets.

There is a powerful counterargument to bailing out the U.S. auto industry. This argument holds that the auto industry is a drain on the U.S. economy, that it will never be globally competitive, and that if it is dragged back from the edge, no one will then say it is time to push it to the edge and over. The next time it will be on the brink will be during the next recession, and the same argument to save it will be used. In due course, the United States, like China, will be so terrified of the social and political consequences of business failure that it will maintain Chinese-like state owned enterprises, full of employees and generation-old plants and business models. Clearly, short-run solutions can easily become long-term albatrosses.

The only possible solution would be a bailout followed by a Washington-administered restructuring of the auto industry. This causes us to imagine a collaboration between the auto industry’s current management and Washington administrators that would finally put Detroit on a path to where it can compete with Toyota. Frankly, the mind boggles at this. But boggle though we might, hitting the economy with another massive financial default, a wave of bankruptcies, massive unemployment surges and another blow to housing prices boggles our mind even more.

The geopolitical problem confronting the world at the moment is that it has been forced to offer massive support to the global financial system with sovereign wealth — e.g., via taxes and currency printing presses. The world might just have squeaked through that crisis. Now, the world is in an inevitable recession and businesses are on the brink of failure. A wave of massive business failures on top of the financial crisis might well move the global system to a very different place. Therefore, each nation, by itself and indifferent to others, is in the process of figuring out how to postpone these failures to a more opportune time — or to never. This will build in long-term inefficiencies to the global economy, but right now everyone will be quite content with that.

Thus the financial crisis became a recession, and the recession triggered bankruptcies. And because no one wants bankruptcies right now, everyone who can is using taxpayer dollars to protect the taxpayer from the consequences of mismanagement. And the last thing any one cared about was the G-20 concept for the future of the economic system.

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Nov 15, 2008

Sarkozy wants new EU-US-Russia security accord

VALENTINA POP

14.11.2008 @ 18:04 CET

With Russia's backing for the G20 summit, French President Nicolas Sarkozy proposed a new security and defence arrangement between the EU, Russia and the US to be agreed at a summit mid-2009, calling both on Moscow and Washington to refrain from deploying missiles until that date.

Mr Sarkozy was speaking at a press conference on Friday (14 November) following the EU-Russia summit held in Nice, alongside his Russian counterpart Dmitry Medvedev.

President Dmitri Medvedev got French support on security and defence matters, despite not having fully complied with the ceasefire agreement in Georgia (Photo: Kremlin.ru)

"As acting EU council president I propose that mid-2009 we gather for instance within the OSCE [Organisation for Security and Cooperation in Europe] to lay the basis of what might be a future EU security arrangement ...which would of course involve the Russians and the Americans," Mr Sarkozy said, backing an idea originally proposed by his Russian counterpart.

He also expressed his "preoccupation" with Mr Medvedev's threat to deploy short-range missiles in the Russian enclave of Kaliningrad, on the shores of the Baltic Sea, bordering Poland and Lithuania.

"There shouldn't be any deployment in any enclave until we have not discussed the new geopolitical conditions of a pan-European security arrangement," he told Russia, while also calling on the US to "stop talking" about the missile defence shield which "only complicates things."

Mr Sarkozy seemed to be offering his role "as a potential mediator in Russian-American relations," AFP commented.

Mr Medvedev had threatened on 5 November to deploy short-range Iskander missiles in Kaliningrad if the Americans install their anti-ballistic missile shield in Poland and the Czech Republic.

Russian-EU entente for G20 summit

Mr Medvedev backed EU proposals for the G20 summit to be held in Washington on Saturday (15 November), calling them "almost identical" with his. The Russian president said he was backing a deep reform of the international financial system, as well as a second financial summit at end of February, after the new US president Barack Obama takes office.

Mr Sarkozy called the Russian financial and economic proposals "of very good quality" and "very close to the EU proposals."

"And I'm very satisfied to see that there is a will on the part of the Russian federation for strong decisions to come out of the Washington summit," he added.

Georgia hardly mentioned

The Russian-Georgian war was portrayed as a somewhat closed affair, with Mr Sarkozy congratulating himself and his team for having brokered the ceasefire agreement, calling for "diplomatic solutions" in the region through negotiations in Geneva and criticising "some prominent leaders" who were against him going to Moscow in August and were now against resuming EU-Russia partnership treaty talks.

He asked the Russians "to make progress" in their withdrawal from Georgia, especially the Akhalgori region within the South Ossetia region and the Perevi village, located just outside in Georgia proper. But he estimated that the Russians fulfilled "the essential part of their agreements."

For his part, Mr Medvedev rejected the idea of not having fully complied with the cease fire agreements, pointing that "the recognition of South Ossetia and Abkhazia is our final decision. It is irrevocable."

Mr Medvedev also rejected the EU's accusation that the Russian use of force in Georgia was disproportionate. He said Moscow's military intervention was "limited, necessary and in accordance with international law."

EU-Russia talks to resume on 2 December

The negotiations between Russia and the EU on a strategic partnership agreement, suspended after the Georgian crisis will be resumed on 2 December, a spokeswoman for the European commission told AFP.

The EU and Russian leaders gathered in Nice "agreed to retake negotiations on 2 December," said Christianne Hohman, spokeswoman for external relations.

She added that the December meeting would be at a technical level, between the heads of the negotiating teams.

Nov 10, 2008

Iran Returns to the Global Stage

November 10, 2008

Graphic for Geopolitical Intelligence Report

By George Friedman

Related Special Topic Pages

After a three-month hiatus, Iran seems set to re-emerge near the top of the U.S. agenda. Last week, the Iranian government congratulated U.S. President-elect Barack Obama on his Nov. 4 electoral victory. This marks the first time since the Iranian Revolution that such greetings have been sent.

While it seems trivial, the gesture is quite significant. It represents a diplomatic way for the Iranians to announce that they regard Obama’s election as offering a potential breakthrough in 30 years of U.S. relations with Iran. At his press conference, Obama said he does not yet have a response to the congratulatory message, and reiterated that he opposes Iran’s nuclear program and its support for terrorism. The Iranians returned to criticizing Obama after this, but without their usual passion.

The Warming of U.S.-Iranian Relations

The warming of U.S.-Iranian relations did not begin with Obama’s election; it began with the Russo-Georgian War. In the weeks and months prior to the August war, the United States had steadily increased tensions with Iran. This process proceeded along two tracks.

On one track, the United States pressed its fellow permanent members of the U.N. Security Council (Russia, China, France and the United Kingdom) and Germany to join Washington in imposing additional sanctions on Iran. U.S. Undersecretary for Political Affairs William J. Burns joined a July 19 meeting between EU foreign policy adviser Javier Solana and Iranian national security chief Saeed Jalili, which was read as a thaw in the American position on Iran. The Iranian response was ambiguous, which is a polite way of saying that Tehran wouldn’t commit to anything. The Iranians were given two weeks after the meeting to provide an answer or face new sanctions.

A second track consisted of intensified signals of potential U.S. military action. Recall the carefully leaked report published in The New York Times on June 20 regarding Israeli preparations for airstrikes against Iran. According to U.S. — not Israeli — sources, the Israeli air force rehearsed for an attack on Iran by carrying out a simulated attack over Greece and the eastern Mediterranean Sea involving more than 100 aircraft.

At the same time, reports circulated about Israeli planes using U.S. airfields in Iraq in preparation for an attack on Iran. The markets and oil prices — at a high in late July and early August — were twitching with reports of a potential blockade of Iranian ports, while the Internet was filled with lurid reports of a fleet of American and French ships on its way to carry out the blockade.

The temperature in U.S.-Iranian relations was surging, at least publicly. Then Russia and Georgia went to war, and Iran suddenly dropped off the U.S. radar screen. Washington went quiet on the entire Iranian matter, and the Israelis declared that Iran was two to five years from developing a nuclear device (as opposed to a deliverable weapon), reducing the probability of an Israeli airstrike. From Washington’s point of view, the bottom fell out of U.S. policy on Iran when the Russians and Georgians opened fire on each other.

The Georgian Connection

There were two reasons for this.

First, Washington had no intention of actually carrying out airstrikes against Iran. The United States was far too tied down in other areas to do that. Nor did the Israelis intend to attack. The military obstacles to what promised to be a multiday conventional strike against Iranian targets more than a thousand miles away were more than a little daunting. Nevertheless, generating that threat of such a strike suited U.S. diplomacy. Washington wanted not only to make Iran feel threatened, but also to increase Tehran’s isolation by forging the U.N. Security Council members and Germany into a solid bloc imposing increasingly painful sanctions on Iran.

Once the Russo-Georgian War broke out, however, and the United States sided publicly and vigorously with Georgia, the chances of the Russians participating in such sanctions against Iran dissolved. As the Russians rejected the idea of increased sanctions, so did the Chinese. If the Russians and Chinese weren’t prepared to participate in sanctions, no sanctions were possible, because the Iranians could get whatever they needed from these two countries.

The second reason was more important. As U.S.-Russian relations deteriorated, each side looked for levers to control the other. For the Russians, one of the best levers with the Americans was the threat of selling weapons to Iran. From the U.S. point of view, not only would weapon sales to Iran make it more difficult to attack Iran, but the weapons would find their way to Hezbollah and other undesirable players. The United States did not want the Russians selling weapons, but the Russians were being unpredictable. Therefore, while the Russians had the potential to offer Iran weapons, the United States wanted to reduce Iran’s incentive for accepting those weapons.

The Iranians have a long history with the Russians, including the occupation of northern Iran by Russia during World War II. The Russians are close to Iran, and the Americans are far away. Tehran’s desire to get closer to the Russians is therefore limited, although under pressure Iran would certainly purchase weapons from Russia, just as it has purchased nuclear technology in the past. With the purchase of advanced weapons would come Russian advisers — something that might not be to Iran’s liking unless it were absolutely necessary.

The United States did not want to give Iran a motive for closing an arms deal with Russia, leaving aside the question of whether the Russian threat to sell weapons was anything more than a bargaining chip with the Americans. With Washington rhetorically pounding Russia, pounding Iran at the same time made no sense. For one thing, the Iranians, like the Russians, knew the Americans were spread too thin. Also, the United States suddenly had to reverse its position on Iran. Prior to Aug. 8, Washington wanted the Iranians to feel embattled; after Aug. 8, the last thing the United States wanted was for the Iranians to feel under threat. In a flash, Iran went from being the most important issue on the table to being barely mentioned.

Iran and a Formal U.S. Opening

Different leaks about Iran started to emerge. The Bush administration posed the idea of opening a U.S. interest section in Iran, the lowest form of diplomatic recognition (but diplomatic recognition nonetheless). This idea had been floated June 23, but now it was being floated after the Russo-Georgian War. The initial discussion of the interest section seemed to calm the atmosphere, but the idea went away.

Then, just before U.S. presidential elections in November, the reports re-emerged, this time in the context of a new administration. According to the leaks, U.S. President George W. Bush intended to open diplomatic relations with Iran after the election regardless of who won, in order to free the next president from the burden of opening relations with Iran. In other words, if Obama won, Bush was prepared to provide cover with the American right on an opening to Iran.

If we take these leaks seriously — and we do — this means Bush has concluded that a formal opening to Iran is necessary. Indeed, the Bush administration has been operating on this premise ever since the U.S. troop surge in Iraq. Two things were clear to the Bush administration in 2007: first, that the United States had to make a deal with the Iraqi Sunni nationalist insurgents; and second, that while the Iranians might not be able to impose a pro-Iranian government in Baghdad, Tehran had enough leverage with enough Iraq Shiite factions to disrupt Iraq, and thus disrupt the peace process. Therefore, without an understanding with Iran, a U.S. withdrawal from Iraq would be difficult and full of potentially unpleasant consequences, regardless of who is in the White House.

The issue of Iran’s nuclear program was part of this negotiation. The Iranians were less interested in building a nuclear weapon than in having the United States believe they were building one. As Tehran learned by observing the U.S. reaction to North Korea, Washington has a nuclear phobia. Tehran thus hoped it could use the threat of a nuclear program to force the United States to be more forthcoming on Iranian interests in Iraq, a matter of fundamental importance to Iran. At the same time, the United States had no appetite for bombing Iran, but used the threat of attacks as leverage to get the Iranians to be more tractable.

The Iranians in 2007 withdrew their support from destabilizing elements in Iraq like Muqtada al-Sadr, contributing to a dramatic decline in violence in Iraq. In return, Iran wanted to see an American commitment to withdraw from Iraq on a set timetable. Washington was unprepared to make that commitment. Current talks over a Status of Forces Agreement (SOFA) between Washington and Baghdad revolve around just this issue. The Iraqi Shia are demanding a fixed timetable, while the Kurds and Sunnis — not to mention foreign governments like Saudi Arabia — seem to be more comfortable with a residual U.S. force in place to guarantee political agreements.

The Shia are clearly being influenced by Iran on the SOFA issue, as their interests align. The Sunnis and Kurds, however, fear this agreement. In their view, the withdrawal of U.S. forces on a fixed timetable will create a vacuum in Iraq that the Iranians eventually will fill, at the very least by having a government in Baghdad that Tehran can influence. The Kurds and Sunnis are deeply concerned about their own security in such an event. Therefore, the SOFA is not moving toward fruition.

The Iraqi Stumbling Block

There is a fundamental issue blocking the agreement. The United States has agreed to an Iraqi government that is neutral between Washington and Tehran. That is a major defeat for the United States, but an unavoidable one under the circumstances. But a U.S. withdrawal without a residual force means that the Iranians will be the dominant force in the region, and this is not something United States — along with the Iraqi Kurds and Sunnis, the Saudis and Israelis — wants. Therefore the SOFA remains in gridlock, with the specter of Russian-Iranian ties complicating the situation.

Obama’s position during the election was that he favored a timed U.S. withdrawal from Iraq, but he was ambiguous about whether he would want a residual force kept there. Clearly, the Shia and Iranians are more favorably inclined toward Obama than Bush because of Obama’s views on a general withdrawal by a certain date and the possibility of a complete withdrawal. This means that Obama must be extremely careful politically. The American political right is wounded but far from dead, and it would strike hard if it appeared Obama was preparing to give Iran a free hand in Iraq.

One possible way for Obama to proceed would be to keep Russia and Iran from moving closer together. Last week, Obama’s advisers insisted their camp has made no firm commitments on ballistic missile defense (BMD) installations in Poland and the Czech Republic, repudiating claims by Polish President Lech Kaczynski that the new U.S. president-elect had assured him of firm support during a Nov. 8 phone conversation. This is an enormous issue for the Russians.

It is not clear in how broad of a context the idea of avoiding firm commitments on BMD was mentioned, but it might go a long way toward keeping Russia happy and therefore making Moscow less likely to provide aid — material or psychological — to the Iranians. Making Iran feel as isolated as possible, without forcing it into dependence on Russia, is critical to a satisfactory solution for the United States in Iraq.

Complicating this are what appear to be serious political issues in Iran. Iranian President Mahmoud Ahmadinejad has been attacked for his handling of the economy. He has seen an ally forced from the Interior Ministry and the head of the Iranian central bank replaced. Ahmadinejad has even come under criticism for his views on Israel, with critics saying that he has achieved nothing and lost much through his statements. He therefore appears to be on the defensive.

The gridlock in Baghdad is not over a tedious diplomatic point, but over the future of Iraq and its relation to Iran. At the same time, there appears to be a debate going on in Iran over whether Ahmadinejad’s policies have improved the outlook for Iran’s role in Iraq. Finally, any serious thoughts the Iranians might have had about cozying up to the Russians have dissipated since August, and Obama might have made them even more distant. Still, Obama’s apparent commitment to a timed, complete withdrawal of U.S. forces poses complexities. His advisers have already hinted at flexibility on these issues.

We think that Bush will — after all his leaks — smooth the way for Obama by opening diplomatic relations with Iran. From a political point of view, this will allow Bush to take some credit for any breakthrough. But from the point of view of U.S. national interest, going public with conversations that have taken place privately over the past couple of years (along with some formal, public meetings in Baghdad) makes a great deal of sense. It could possibly create an internal dynamic in Iran that would force Ahmadinejad out, or at least weaken him. It could potentially break the logjam over the SOFA in Baghdad, and it could even stabilize the region.

The critical question will not be the timing of the U.S. withdrawal. It will be the residual force — whether an American force of 20,000 to 40,000 troops will remain to guarantee that Iran does not have undue influence in Iraq, and that Sunni and Kurdish interests are protected. Obama promised to end the war in Iraq, and he promised to withdraw all U.S. troops. He might have to deal with the fact that he can have the former only if he compromises on the latter. But he has left himself enough room for maneuver that he can do just that.

It seems clear that Iran will now return to the top of the U.S. foreign policy agenda. If Bush re-establishes formal diplomatic relations with Iran at some level, and if Obama responds to Iranian congratulations in a positive way, then an interesting dynamic will be in place well before Inauguration Day. The key will be the Nov. 10 meeting between Bush and Obama.

Bush wants to make a move that saves some of his legacy; Obama knows he will have to deal with Iran and even make concessions. Obama also knows the political price he will have to pay if he does. If Bush makes the first move, it will make things politically easier for Obama. Obama can afford to let Bush take the first step if it makes the subsequent steps easier for the Obama administration. But first, there must be an understanding between Bush and Obama. Then can there be an understanding between the United States and Iran, and then there can be an understanding among Iraqi Shia, Sunnis and Kurds. And then history can move on.

There are many understandings in the way of history.

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Nov 9, 2008

Brazil's Lula Urges 'Global Solutions'

G-20 Session Stresses Developing Nations' Role in Solving Crisis

SAO PAULO, Brazil, Nov. 8 -- Brazilian President Luiz Inácio Lula da Silva told international finance ministers Saturday that developing countries must be given a greater role in finding solutions to the world's financial crisis.

"This is a global crisis and demands global solutions," Lula said in opening remarks at a meeting of the Group of 20, an organization of major industrialized and developing nations. "The crisis started in advanced economies. It is a result of the blind belief in the market's self-regulation capacity and, by and large, of the lack of control of the activities of financial agents."

During the two-day gathering in Sao Paulo, officials are expected to discuss how the economic downturn has affected their countries and how governments can coordinate responses and stimulus efforts. Lula called on the group to come up with proposals for "substantial change of the world's financial architecture," saying the global credit crunch is hurting the world's poor.

Brazil and many other developing countries want to be included in meetings of the largest industrial nations, where the recent crisis originated. The G-20 began in 1999 during the Asian financial crisis, but the group's meetings, notwithstanding the emergency session in Washington scheduled for this week, have not included presidents and prime ministers.

Brazilian Finance Minister Guido Mantega said Saturday that his country refused to be "mere coffee drinkers" on the sidelines of the richer nations' meetings.

Many developing countries want to restructure organizations such as the International Monetary Fund and the World Bank to give the nations more of a voice in decision making, said Jenilee Guebert, a senior researcher with the G20 Research Group at the University of Toronto.

"Right now, the emerging economies essentially have no voice within the IMF-World Bank system," she said. "They want to be included. They want a bigger role in the international system. . . . We live in a globalized world, and they just feel that seven countries or eight countries shouldn't be representing the whole world."

Canadian Finance Minister James M. Flaherty said the countries are also discussing further interest rate cuts, Bloomberg reported. "The U.K. made a fairly dramatic rate drop this week, and there's more discussion here about that subject," Flaherty said.

Emerging economies have suffered during the crisis as investment funds fled for safer places, stock markets tumbled and local currencies lost value against the U.S. dollar. With the tightening of international credit markets, companies in emerging markets have had difficulty getting loans. In Latin America, falling commodity prices have hit particularly hard because of a dependence on exporting oil, minerals and agricultural products.

"Many developing countries are moving into a new danger zone," the World Bank said in a recent paper. "With this latest financial crisis, growth is slowing and is likely to weaken even more sharply. Developing-country exports to developed countries are falling, capital is being withdrawn from emerging markets, and short-term credit is drying up."

Lula said his main concern was the impact of the crisis on trade, fearing that rich countries will reduce imports.

"Brazil believes countries must avoid the temptation of resorting to financial and trade protectionism as a mechanism to overcome the crisis," he said.

The International Monetary Fund said last week that growth in the advanced economies would contract next year for the first time since World War II.

The United States is represented at the G-20 summit by David H. McCormick, undersecretary for international affairs at the Treasury Department, and Federal Reserve Chairman Ben S. Bernanke.

McCormick said in a statement that Lula "presented a constructive overview of the challenges we face and the need for developed and developing nations to work together in addressing those challenges."

Nov 5, 2008

Obama's Challenge

By George Friedman

The 2008 U.S. Presidential Race

Barack Obama has been elected president of the United States by a large majority in the Electoral College. The Democrats have dramatically increased their control of Congress, increasing the number of seats they hold in the House of Representatives and moving close to the point where — with a few Republican defections — they can have veto-proof control of the Senate. Given the age of some Supreme Court justices, Obama might well have the opportunity to appoint at least one and possibly two new justices. He will begin as one of the most powerful presidents in a long while.

Truly extraordinary were the celebrations held around the world upon Obama’s victory. They affirm the global expectations Obama has raised — and reveal that the United States must be more important to Europeans than the latter like to admit. (We can’t imagine late-night vigils in the United States over a French election.)

Obama is an extraordinary rhetorician, and as Aristotle pointed out, rhetoric is one of the foundations of political power. Rhetoric has raised him to the presidency, along with the tremendous unpopularity of his predecessor and a financial crisis that took a tied campaign and gave Obama a lead he carefully nurtured to victory. So, as with all politicians, his victory was a matter of rhetoric and, according to Machiavelli, luck. Obama had both, but now the question is whether he has Machiavelli’s virtue in full by possessing the ability to exercise power. This last element is what governing is about, and it is what will determine if his presidency succeeds.

Embedded in his tremendous victory is a single weakness: Obama won the popular vote by a fairly narrow margin, about 52 percent of the vote. That means that almost as many people voted against him as voted for him.

Obama’s Agenda vs. Expanding His Base

U.S. President George W. Bush demonstrated that the inability to understand the uses and limits of power can crush a presidency very quickly. The enormous enthusiasm of Obama’s followers could conceal how he — like Bush — is governing a deeply, and nearly evenly, divided country. Obama’s first test will be simple: Can he maintain the devotion of his followers while increasing his political base? Or will he believe, as Bush and Cheney did, that he can govern without concern for the other half of the country because he controls the presidency and Congress, as Bush and Cheney did in 2001? Presidents are elected by electoral votes, but they govern through public support.

Obama and his supporters will say there is no danger of a repeat of Bush — who believed he could carry out his agenda and build his political base at the same time, but couldn’t. Building a political base requires modifying one’s agenda. But when you start modifying your agenda, when you become pragmatic, you start to lose your supporters. If Obama had won with 60 percent of the popular vote, this would not be as pressing a question. But he barely won by more than Bush in 2004. Now, we will find out if Obama is as skillful a president as he was a candidate.

Obama will soon face the problem of beginning to disappoint people all over the world, a problem built into his job. The first disappointments will be minor. There are thousands of people hoping for appointments, some to Cabinet positions, others to the White House, others to federal agencies. Many will get something, but few will get as much as they hoped for. Some will feel betrayed and become bitter. During the transition process, the disappointed office seeker — an institution in American politics — will start leaking on background to whatever reporters are available. This will strike a small, discordant note; creating no serious problems, but serving as a harbinger of things to come.

Later, Obama will be sworn in. He will give a memorable, perhaps historic speech at his inauguration. There will be great expectations about him in the country and around the world. He will enjoy the traditional presidential honeymoon, during which all but his bitterest enemies will give him the benefit of the doubt. The press initially will adore him, but will begin writing stories about all the positions he hasn’t filled, the mistakes he made in the vetting process and so on. And then, sometime in March or April, things will get interesting.

Iran and a U.S. Withdrawal From Iraq

Obama has promised to withdraw U.S. forces from Iraq, where he does not intend to leave any residual force. If he follows that course, he will open the door for the Iranians. Iran’s primary national security interest is containing or dominating Iraq, with which Iran fought a long war. If the United States remains in Iraq, the Iranians will be forced to accept a neutral government in Iraq. A U.S. withdrawal will pave the way for the Iranians to use Iraqi proxies to create, at a minimum, an Iraqi government more heavily influenced by Iran.

Apart from upsetting Sunni and Kurdish allies of the United States in Iraq, the Iranian ascendancy in Iraq will disturb some major American allies — particularly the Saudis, who fear Iranian power. The United States can’t afford a scenario under which Iranian power is projected into the Saudi oil fields. While that might be an unlikely scenario, it carries catastrophic consequences. The Jordanians and possibly the Turks, also American allies, will pressure Obama not simply to withdraw. And, of course, the Israelis will want the United States to remain in place to block Iranian expansion. Resisting a coalition of Saudis and Israelis will not be easy.

This will be the point where Obama’s pledge to talk to the Iranians will become crucial. If he simply withdraws from Iraq without a solid understanding with Iran, the entire American coalition in the region will come apart. Obama has pledged to build coalitions, something that will be difficult in the Middle East if he withdraws from Iraq without ironclad Iranian guarantees. He therefore will talk to the Iranians. But what can Obama offer the Iranians that would induce them to forego their primary national security interest? It is difficult to imagine a U.S.-Iranian deal that is both mutually beneficial and enforceable.

Obama will then be forced to make a decision. He can withdraw from Iraq and suffer the geopolitical consequences while coming under fire from the substantial political right in the United States that he needs at least in part to bring into his coalition. Or, he can retain some force in Iraq, thereby disappointing his supporters. If he is clumsy, he could wind up under attack from the right for negotiating with the Iranians and from his own supporters for not withdrawing all U.S. forces from Iraq. His skills in foreign policy and domestic politics will be tested on this core question, and he undoubtedly will disappoint many.

The Afghan Dilemma

Obama will need to address Afghanistan next. He has said that this is the real war, and that he will ask U.S. allies to join him in the effort. This means he will go to the Europeans and NATO, as he has said he will do. The Europeans are delighted with Obama’s victory because they feel Obama will consult them and stop making demands of them. But demands are precisely what he will bring the Europeans. In particular, he will want the Europeans to provide more forces for Afghanistan.

Many European countries will be inclined to provide some support, if for no other reason than to show that they are prepared to work with Obama. But European public opinion is not about to support a major deployment in Afghanistan, and the Europeans don’t have the force to deploy there anyway. In fact, as the global financial crisis begins to have a more dire impact in Europe than in the United States, many European countries are actively reducing their deployments in Afghanistan to save money. Expanding operations is the last thing on European minds.

Obama’s Afghan solution of building a coalition centered on the Europeans will thus meet a divided Europe with little inclination to send troops and with few troops to send in any event. That will force him into a confrontation with the Europeans in spring 2009, and then into a decision. The United States and its allies collectively lack the force to stabilize Afghanistan and defeat the Taliban. They certainly lack the force to make a significant move into Pakistan — something Obama has floated on several occasions that might be a good idea if force were in fact available.

He will have to make a hard decision on Afghanistan. Obama can continue the war as it is currently being fought, without hope of anything but a long holding action, but this risks defining his presidency around a hopeless war. He can choose to withdraw, in effect reinstating the Taliban, going back on his commitment and drawing heavy fire from the right. Or he can do what we have suggested is the inevitable outcome, namely, negotiate — and reach a political accord — with the Taliban. Unlike Bush, however, withdrawal or negotiation with the Taliban will increase the pressure on Obama from the right. And if this is coupled with a decision to delay withdrawal from Iraq, Obama’s own supporters will become restive. His 52 percent Election Day support could deteriorate with remarkable speed.

The Russian Question

At the same time, Obama will face the Russian question. The morning after Obama’s election, Russian President Dmitri Medvedev announced that Russia was deploying missiles in its European exclave of Kaliningrad in response to the U.S. deployment of ballistic missile defense systems in Poland. Obama opposed the Russians on their August intervention in Georgia, but he has never enunciated a clear Russia policy. We expect Ukraine will have shifted its political alignment toward Russia, and Moscow will be rapidly moving to create a sphere of influence before Obama can bring his attention — and U.S. power — to bear.

Obama will again turn to the Europeans to create a coalition to resist the Russians. But the Europeans will again be divided. The Germans can’t afford to alienate the Russians because of German energy dependence on Russia and because Germany does not want to fight another Cold War. The British and French may be more inclined to address the question, but certainly not to the point of resurrecting NATO as a major military force. The Russians will be prepared to talk, and will want to talk a great deal, all the while pursuing their own national interest of increasing their power in what they call their “near abroad.”

Obama will have many options on domestic policy given his majorities in Congress. But his Achilles’ heel, as it was for Bush and for many presidents, will be foreign policy. He has made what appear to be three guarantees. First, he will withdraw from Iraq. Second, he will focus on Afghanistan. Third, he will oppose Russian expansionism. To deliver on the first promise, he must deal with the Iranians. To deliver on the second, he must deal with the Taliban. To deliver on the third, he must deal with the Europeans.

Global Finance and the European Problem

The Europeans will pose another critical problem, as they want a second Bretton Woods agreement. Some European states appear to desire a set of international regulations for the financial system. There are three problems with this.

First, unless Obama wants to change course dramatically, the U.S. and European positions differ over the degree to which governments will regulate interbank transactions. The Europeans want much more intrusion than the Americans. They are far less averse to direct government controls than the Americans have been. Obama has the power to shift American policy, but doing that will make it harder to expand his base.

Second, the creation of an international regulatory body that has authority over American banks would create a system where U.S. financial management was subordinated to European financial management.

And third, the Europeans themselves have no common understanding of things. Obama could thus quickly be drawn into complex EU policy issues that could tie his hands in the United States. These could quickly turn into painful negotiations, in which Obama’s allure to the Europeans will evaporate.

One of the foundations of Obama’s foreign policy — and one of the reasons the Europeans have celebrated his election — was the perception that Obama is prepared to work closely with the Europeans. He is in fact prepared to do so, but his problem will be the same one Bush had: The Europeans are in no position to give the things that Obama will need from them — namely, troops, a revived NATO to confront the Russians and a global financial system that doesn’t subordinate American financial authority to an international bureaucracy.

The Hard Road Ahead

Like any politician, Obama will face the challenge of having made a set of promises that are not mutually supportive. Much of his challenge boils down to problems that he needs to solve and that he wants European help on, but the Europeans are not prepared to provide the type and amount of help he needs. This, plus the fact that a U.S. withdrawal from Iraq requires an agreement with Iran — something hard to imagine without a continued U.S. presence in Iraq — gives Obama a difficult road to move on.

As with all American presidents (who face midterm elections with astonishing speed), Obama’s foreign policy moves will be framed by his political support. Institutionally, he will be powerful. In terms of popular support, he begins knowing that almost half the country voted against him, and that he must increase his base. He must exploit the honeymoon period, when his support will expand, to bring another 5 percent or 10 percent of the public into his coalition. These people voted against him; now he needs to convince them to support him. But these are precisely the people who would regard talks with the Taliban or Iran with deep distrust. And if negotiations with the Iranians cause him to keep forces in Iraq, he will alienate his base without necessarily winning over his opponents.

And there is always the unknown. There could be a terrorist attack, the Russians could start pressuring the Baltic states, the Mexican situation could deteriorate. The unknown by definition cannot be anticipated. And many foreign leaders know it takes an administration months to settle in, something some will try to take advantage of. On top of that, there is now nearly a three-month window in which the old president is not yet out and the new president not yet in.

Obama must deal with extraordinarily difficult foreign policy issues in the context of an alliance failing not because of rough behavior among friends but because the allies’ interests have diverged. He must deal with this in the context of foreign policy positions difficult to sustain and reconcile, all against the backdrop of almost half an electorate that voted against him versus supporters who have enormous hopes vested in him. Obama knows all of this, of course, as he indicated in his victory speech.

We will now find out if Obama understands the exercise of political power as well as he understands the pursuit of that power. You really can’t know that until after the fact. There is no reason to think he can’t finesse these problems. Doing so will take cunning, trickery and the ability to make his supporters forget the promises he made while keeping their support. It will also require the ability to make some of his opponents embrace him despite the path he will have to take. In other words, he will have to be cunning and ruthless without appearing to be cunning and ruthless. That’s what successful presidents do.

In the meantime, he should enjoy the transition. It’s frequently the best part of a presidency.

Oct 9, 2008

Sarkozy supports Russian security pact idea

ELITSA VUCHEVA

08.10.2008 @ 17:52 CET

EUOBSERVER / BRUSSELS – French President Nicolas Sarkozy on Wednesday (8 October) expressed readiness to discuss Russian plans for a "European Security Treaty," which would provide security guarantees for European and Atlantic states as well as a new framework of rules to govern relations.

Mr Sarkozy - who is also the EU's current president-in-office - met Russian president Dmitry Medvedev in Evian, France, for an international conference organised by the French Institute of International Relations (IFRI).

Mr Sarkozy (l) is ready to discuss the Russian idea (Photo: kremlin.ru)

"I heard president Medvedev present his ideas for a new security pact which would run from Vancouver to Vladivostok. We are ready to discuss it," Mr Sarkozy was reported as saying by Reuters.

The French leader proposed a summit of the Organization for Security and Co-operation in Europe countries to be held at the end of 2009 to "discuss [the Russian] proposals and those of the European Union for new concepts of a pan-European defence," according to German news agency DPA.

Mr Medvedev also called for a "special forum" to be convened, at which "the leaders of all European states and the leaders of key organisations in the Euro-Atlantic area could take part."

Prior to the meeting with the French president, the Russian president outlined in a speech his ideas for a pact that would include Russia, the EU and NATO countries and would contribute to crating "a unified and reliable system of comprehensive security."

Main ideas of the pact

A "Euro-Atlantic space" that would give powers to all members instead of favouring a US-led unipolar world would be the best option, Mr Medvedev argued.

The European Security Treaty would be based on "conscientious fulfilment of international commitments; respect for the sovereignty, territorial integrity and political independence of states [and] respect for all other principles that flow from the UN charter," he said.

It would contain "a clear affirmation of the inadmissibility of the use of force - or the threat of force - in international relations," as well as "guarantees of equal security."

The pact should also state that "no single state or international organisation may have the exclusive right to maintain peace and stability in the region. This applies fully to Russia too."

Finally, it would contain "basic parameters for arms control and reasonable sufficiency in military construction," and boost co-operation in areas such as terrorism and drug trafficking.

No to Sovietology

Russia had earlier this year already raised the idea of a European Security Treaty as a tool to overarch the EU and NATO, to which it does not belong. But its invasion of Georgia in August had up to now overshadowed debate on future institution-building.

On Wednesday, Mr Medvedev also reiterated Russia's opposition to the enlargement of the North Atlantic alliance, in particular to the east, stressing that his country was not interested in confrontations and calling on the US to stop accusing Moscow of conducting a Soviet-driven foreign policy.

"[Sovietology] belongs to the past … Sovietology, like paranoia, is a very dangerous disease, and it is a pity that part of the US administration still suffers from it," he said. "One should study the new Russia rather than reviving the ghosts of the Soviet Union."

Midnight deadline

To back his statement, Mr Medvedev said Russia would withdraw its "peacekeeping contingent" from security zones around Georgia's breakaway provinces of South Ossetia and Abkhazia "by midnight tonight" - ahead of a 10 October deadline stipulated in earlier peace accords.

The move would "pave the way for the resumption of negotiations on an ambitious framework agreement, both in terms of the scope and intensity of cooperation," Mr Sarkozy said, AFP reports, referring to stalled talks on an EU-Russia partnership pact.

Lithuania has threatened to block the talks unless Russia leaves South Ossetia and Abkhazia proper as well, the ELTA news agency said, citing a "senior diplomat."

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Oct 8, 2008

Beyond the Post-9/11 World

October 8, 2008

Graphic for Terrorism Intelligence Report

By Reva Bhalla

One day after 9/11, U.S. President George W. Bush declared a global “war on terror.” Al Qaeda had first reared its head years before in the 1993 World Trade Center bombing, the 1998 U.S. Embassy attacks in East Africa and the 2000 USS Cole bombing, but it was not until the World Trade Center towers came crashing down that the global international security community became almost completely consumed with battling global jihadism. Professors of political Islam came out of the woodwork, Osama bin Laden became a household name, university students started pouring into Arabic language courses and, for the first time, terrorism became a national security priority. This era became known as the “post-9/11 world.”

As we discussed last week, a great deal of debate continues within the international security community over the strength of the al Qaeda organization now as compared to seven years ago, with much of the U.S. intelligence community under the impression that al Qaeda is now stronger than it was before Sept. 11, 2001. Stratfor, on the other hand, has long maintained that the al Qaeda core — the tight group of individuals under the leadership of bin Laden and Ayman al-Zawahiri that masterminded the 9/11 attacks — has seen its leadership and operational capability significantly decline over the past seven years.

A strategic threat to the U.S. homeland on the scale of 9/11 requires things like a transnational financial network to wire funds, highly trained operatives disciplined in operational security, undetected preoperational surveillance of targets, and safe-haven territory that is not constantly being bombarded with airstrikes, among other essentials. While al Qaeda prime is busy dodging missiles and making videos, al Qaeda franchises are by and large struggling to stay relevant in their theaters of operation (e.g., Iraq) or are shifting over to a more active area of operation (e.g., Afghanistan).

This is not to say, however, that terrorism is dead. The jihadist movement has decentralized into smaller, largely uncoordinated organizations capable of carrying out attacks in such notably lawless hotspots as Pakistan, Afghanistan, Yemen, Iraq and Algeria. In addition, the threat of al Qaeda grassroots cells in the West with the limited capability of pulling off small-scale attacks remains, though advances by Western security agencies since 9/11 have largely hampered such groups’ efforts.

A Look Back at Cold War Terrorism

Scattered jihadist insurgencies will continue to erode stability in areas of the Middle East and South Asia for some time to come. But a larger terrorism threat is looming on the horizon, one that poses a more lethal threat to Western interests across the globe: the revival of state-sponsored terrorism.

This new phase of terrorism is developing in the context of growing state-to-state conflict between Russia and the West, for which Russian intelligence has long been preparing. Since the Russo-Georgian war in August, there have been a number of indications that Russia is looking to revive some of its Cold War contacts in places such as Cuba, Venezuela, Nicaragua, Syria, Lebanon and the Horn of Africa, among others.

Recent Russian activity in these areas invokes memories of the Cold War, when
the Soviets backed numerous left-wing militant groups in third-party countries, including the Palestine Liberation Organization, Germany’s Red Army Faction, Italy’s Red Brigades, the Japanese Red Army, the Sandinista National Liberation Front, the Revolutionary Armed Forces of Colombia, the Popular Movement for the Liberation of Angola and dozens of others. With Soviet assistance, training camps for militant groups were set up in such places as Libya, Iraq, Syria, East Germany, Bulgaria, Czechoslovakia and elsewhere. Through a Soviet ideology that emphasized the socialist perspective of class struggle, these groups were given the funds, training, weaponry and ideological ammunition to wreak havoc across the globe.

Back then, the United States lacked a comprehensive counterterrorism strategy for dealing with these state-sponsored terrorist groups. Though terrorism was rampant at that time, it was still difficult to prove the Soviet hand in many of the terrorist groups active then. (Many used a variety of pseudonyms to confuse Western intelligence agencies.) Inside the United States, the FBI handled KGB-sponsored militant activity as a purely law enforcement problem. Overseas, the CIA would work with liaison intelligence services to combat insurgent and terrorist groups and to undermine Soviet proxy regimes, attempting covert operations such as coups in Latin America.

Overall, the focus was still on state-to-state conflict, not on developing a counterterrorism strategy for specific groups. Once Soviet funding finally dried up with the fall of the U.S.S.R., the vast majority of these left-wing militant groups crumbled, and terrorism remained low on the priority list for U.S. national security — that is, until 9/11.

Learning to Cope with Nonstate Actors

When the terrorists struck on Sept. 11, 2001, the first logical step was to take out al Qaeda’s state sponsors. Going to war in Afghanistan to deprive al Qaeda of its primary state sponsor — the Taliban regime — was a relatively easy political decision for the United States. From there, however, things got complicated. While justifying a war in Iraq was difficult for the United States, Washington succeeded in compelling surrounding Arab regimes such as Saudi Arabia and Libya to give their full cooperation in stamping out al Qaeda. Pakistan’s security apparatus had deep relations with the very jihadists the United States was fighting, but carrying the war to a nuclear-armed Pakistan was a less attractive option than entering into a tenuous security alliance with Islamabad in hopes of eroding the jihadists’ support base.

As the jihadists’ list of state sponsors got shorter, the threat they posed became more diffuse. Though overall the jihadist threat had become less lethal, it had also become more difficult to stamp out in places like London, where grassroots cells had taken root. As a result, counterterrorism agencies are still grappling with the idea of waging a battle of ideas against jihadism and devoting more military resources to stability operations to deprive these groups of their support networks.

Looking Forward

While more work has to be done to further degrade the threat of jihadism, counterterrorism agencies need to anticipate a revival of state-sponsored terrorism. State sponsorship is capable of transforming a small, largely ineffective group into a serious threat. With state sponsorship, a militant group that previously was capable of only popping off trash can bombs in Manila can access difficult-to-obtain materials (such as blasting caps and explosives) via the state sponsor’s diplomatic pouch. State sponsors can then train these groups to develop superior tradecraft in improvised explosive device construction for larger, deadlier attacks.

Militant groups with state backing also benefit from training in target surveillance and operational security — essential skills for avoiding scrutiny from hostile intelligence agencies. For militants always on the run, state sponsorship can provide a group with havens for planning and training purposes. Finally, state sponsors can prove essential in giving logistical support to militants who need funding and travel documents to move around with greater ease.

But having a state sponsor can also place limits on militants. A state sponsor is more likely to keep tabs on the activities of its militant proxies, keeping such things as weapons of mass destruction (WMDs) out of militant hands for fear of attacks on the sponsor’s own soil. With a state sponsor, a militant group will have less autonomy and thus less inclination to acquire nonconventional weapons. By contrast, more autonomous nonstate actors like al Qaeda are more likely to work to acquire WMDs — though their chance of success remains low.

The Russian Agenda

Russia is not the great power it was during the Cold War, but Moscow plans to reassert Russian prowess vis-a-vis the West, particularly as the U.S. military is still bogged down in fighting the jihadist war.

The Russia of today is not constrained by the need to wage an ideological war in the name of communism. Instead, potential Russian covert activity in regions such as Latin America, the Middle East and Africa would be focused more on generating chaos, thereby creating enough headaches for the West to keep the United States preoccupied while Russia works on consolidating its influence along the former Soviet periphery. To this end, disaffected Palestinian groups, beaten-down Kurdish militants in Turkey, Bolivarian Leftist movements across Latin America and separatist movements in Africa are all fair game for the Russians.

While the world has seen better economic days, the Russians still have ample petrodollars to support terrorist campaigns in parts of the world where Moscow has a strategic interest in undermining the West. Terrorism, relatively speaking, is cheap. For example, the FBI estimates that the 9/11 attacks only cost al Qaeda between $175,000 and $250,000 for flight training, travel and other expenses for the hijackers. The Russians, who have long been deep in the global arms trade, could even potentially turn a profit via arms sales to rebel groups in Latin America, the Middle East and Africa.

The extent to which Russia would re-engage in such terrorist campaigns depends on a number of factors, including the potential risk versus opportunity in supporting certain groups, the resources of the Russian SVR, the amount Russia is willing to invest in terrorism campaigns and the geographical areas where the Russians are more likely to find cooperative allies. For example, Russia has complex relations with Israel and Turkey to worry about, and it is now more or less lacking a Libya equivalent to export a terrorist agenda in the Middle East. Latin America, in contrast, offers a much lower risk opportunity for the Russians to sow instability in the U.S. backyard.

The potential revival of Russian state-sponsored terrorism is most likely still early in its development. But one should not forget that after the Cold War, many experts proclaimed a “New World Order” in which terrorism had become a thing of the past — and U.S. intelligence capabilities atrophied as a result. About a decade later, the 9/11 attacks caught the United States off guard and brought into being a new era of Islamist terrorism that is only now declining. With state-sponsored terrorism back on the horizon, the time has come to recognize the changing face of terrorism beyond the post-9/11 world.

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Oct 7, 2008

The German Question

October 6, 2008

Graphic for Geopolitical Intelligence Report

By George Friedman

German Chancellor Angela Merkel went to St. Petersburg last week for meetings with Russian President Dmitri Medvedev. The central question on the table was Germany’s position on NATO expansion, particularly with regard to Ukraine and Georgia. Merkel made it clear at a joint press conference that Germany would oppose NATO membership for both of these countries, and that it would even oppose placing the countries on the path to membership. Since NATO operates on the basis of consensus, any member nation can effectively block any candidate from NATO membership.

The fact that Merkel and Germany have chosen this path is of great significance. Merkel acted in full knowledge of the U.S. view on the matter and is prepared to resist any American pressure that might follow. It should be remembered that Merkel might be the most pro-American politician in Germany, and perhaps its most pro-American chancellor in years. Moreover, as an East German, she has a deep unease about the Russians. Reality, however, overrode her personal inclinations. More than other countries, Germany does not want to alienate the United States. But it is in a position to face American pressure should any come.

Energy Dependence and Defense Spending

In one sense, Merkel’s reasons for her stance are simple. Germany is heavily dependent on Russian natural gas. If the supply were cut off, Germany’s situation would be desperate — or at least close enough that the distinction would be academic. Russia might decide it could not afford to cut off natural gas exports, but Merkel is dealing with a fundamental German interest, and risking that for Ukrainian or Georgian membership in NATO is not something she is prepared to do.

She can’t bank on Russian caution in a matter such as this, particularly when the Russians seem to be in an incautious mood. Germany is, of course, looking to alternative sources of energy for the future, and in five years its dependence on Russia might not be nearly as significant. But five years is a long time to hold your breath, and Germany can’t do it.

The German move is not just about natural gas, however. Germany views the U.S. obsession with NATO expansion as simply not in Germany’s interests.

First, expanding NATO guarantees to Ukraine and Georgia is meaningless. NATO and the United States don’t have the military means to protect Ukraine or Georgia, and incorporating them into the alliance would not increase European security. From a military standpoint, NATO membership for the two former Soviet republics is an empty gesture, while from a political standpoint, Berlin sees it as designed to irritate the Russians for no clear purpose.

Next, were NATO prepared to protect Ukraine and Georgia, all NATO countries including Germany would be forced to increase defense expenditures substantially. This is not something that Germany and the rest of NATO want to do.

Finally, and perhaps most importantly, Germany spent 1945-1992 being the potential prime battleground of the Cold War. It spent 1992-2008 not being the potential prime battleground. Germany prefers the latter, and it does not intend to be drawn into a new Cold War under any circumstances. This has profound implications for the future of both NATO and U.S.-German relations.

Germany is thus in the midst of a strategic crisis in which it must make some fundamental decisions. To understand the decisions Germany has to make, we need to understand the country’s geopolitical problem and the decisions it has made in the past.

The German Geopolitical Problem

Until 1871, Germany was fragmented into dozens of small states — kingdoms, duchies, principalities, etc. — comprising the remnants of the Holy Roman Empire. The German-speaking world was torn apart by internal tensions and the constant manipulation of foreign powers.

The southeastern part of the German-speaking world, Austria, was the center of the multinational Hapsburg Empire. It was Roman Catholic and was continually intruding into the predominantly Catholic regions of the rest of Germany, particularly Bavaria. The French were constantly poaching in the Rhineland and manipulating the balance of power among the German states. Russia was always looming to the east, where it bordered the major Protestant German power, Prussia. (Poland at the time was divided among Prussia, Russia and Austria-Hungary.) Germany was perpetually the victim of great powers, a condition which Prussia spent the roughly half-century between Waterloo and German unification trying to correct.

To unify Germany, Prussia had to do more than dominate the Germans. It had to fight two wars. The first was in 1866 with the Hapsburg Empire, which Prussia defeated in seven weeks, ending Hapsburg influence in Germany and ultimately reducing Austria-Hungary to Germany’s junior partner. The second war was in 1870-1871, when Prussia led a German coalition that defeated France. That defeat ended French influence in the Rhineland and gave Prussia the space in which to create a modern, unified Germany. Russia, which was pleased to see both Austria-Hungary and France defeated and viewed a united Germany as a buffer against another French invasion, did not try to block unification.

German unification changed the dynamic of Europe. First, it created a large nation in the heart of Europe between France and Russia. United, Germany was economically dynamic, and its growth outstripped that of France and the United Kingdom. Moreover, it became a naval power, developing a substantial force that at some point could challenge British naval hegemony. It became a major exporting power, taking markets from Britain and France. And in looking around for room to maneuver, Germany began looking east toward Russia. In short, Germany was more than a nation — it was a geopolitical problem.

Germany’s strategic problem was that if the French and Russians attacked Germany simultaneously, with Britain blockading its ports, Germany would lose and revert to its pre-1871 chaos. Given French, Russian and British interest in shattering Germany, Germany had to assume that such an attack would come. Therefore, since the Germans could not fight on two fronts simultaneously, they needed to fight a war pre-emptively, attacking France or Russia first, defeating it and then turning their full strength on the other — all before Britain’s naval blockade could begin to hurt. Germany’s only defense was a two-stage offense that was as complex as a ballet, and would be catastrophic if it failed.

In World War I, executing the Schlieffen Plan, the Germans attacked France first while trying to simply block the Russians. The plan was to first occupy the channel coast and Paris before the United Kingdom could get into the game and before Russia could fully mobilize, and then to knock out Russia. The plan failed in 1914 at the First Battle of the Marnes, and rather than lightning victory, Germany got bogged down in a multifront war costing millions of lives and lasting years. Even so, Germany almost won the war of attrition, causing the United States to intervene and deprive Berlin of victory.

In World War II, the Germans had learned their lesson, so instead of trying to pin down Russia, they entered into a treaty with the Soviets. This secured Germany’s rear by dividing Poland with the Soviet Union. The Soviets agreed to the treaty, expecting Adolf Hitler’s forces to attack France and bog down as Germany had in World War I. The Soviets would then roll West after the bloodletting had drained the rest of Europe. The Germans stunned the Russians by defeating France in six weeks and then turning on the Russians. The Russian front turned into an endless bloodletting, and once again the Americans helped deliver the final blow.

The consequence of the war was the division of Germany into three parts — an independent Austria, a Western-occupied West Germany and a Soviet-occupied East Germany. West Germany again faced the Russian problem. Its eastern part was occupied, and West Germany could not possibly defend itself on its own. It found itself integrated into an American-dominated alliance system, NATO, which was designed to block the Soviets. West and East Germany would serve as the primary battleground of any Soviet attack, with Soviet armor facing U.S. armor, airpower and tactical nuclear weapons. For the Germans, the Cold War was probably more dangerous than either of the previous wars. Whatever the war’s outcome, Germany stood a pretty good chance of being annihilated if it took place.

On the upside, the Cold War did settle Franco-German tensions, which were half of Germany’s strategic problem. Indeed, one of the by-products of the Cold War was the emergence of the European Community, which ultimately became the European Union. This saw German economic union and integration with France, which along with NATO’s military integration guaranteed economic growth and the end of any military threat to Germany from the west. For the first time in centuries, the Rhine was not at risk. Germany’s south was secure, and once the Soviet Union collapsed, there was no threat from the east, either.

United and Secure at Last?

For the first time in centuries, Germany was both united and militarily secure. But underneath it all, the Germans retained their primordial fear of being caught between France and Russia. Berlin understood that this was far from a mature reality; it was no more than a theoretical problem at the moment. But the Germans also understand how quickly things can change. On one level, the problem was nothing more than the economic emphasis of the European Union compared to the geopolitical focus of Russia. But on a deeper level, Germany was, as always, caught between the potentially competing demands of Russia and the West. Even if the problem were small now, there were no guarantees that it wouldn’t grow.

This was the context in which Germany viewed the Russo-Georgian war in August. Berlin saw not only the United States moving toward a hostile relationship with Russia, but also the United Kingdom and France going down the same path.

French President Nicolas Sarkozy, who happened to hold the rotating EU presidency at the time, went to Moscow to negotiate a cease-fire on behalf of the European Union. When the Russians seemed unwilling to comply with the terms negotiated, France became highly critical of Russia and inclined to back some sort of sanctions at the EU summit on Georgia. With the United Kingdom being even more adamant, Germany saw a worst-case scenario looming on the distant horizon: It understood that the pleasant security of the post-Cold War world was at an end, and that it had to craft a new national strategy.

From Germany’s point of view, the re-emergence of Russian influence in the former Soviet Union might be something that could have been blocked in the 1990s, but by 2008, it had become inevitable. The Germans saw that economic relations in the former Soviet Union — and not only energy issues — created a complementary relationship between Russia and its former empire. Between natural affinities and Russian power, a Russian sphere of influence, if not a formal structure, was inevitable. It was an emerging reality that could not be reversed.

France has Poland and Germany between itself and Russia. Britain has that plus the English Channel, and the United States has all that plus the Atlantic Ocean. The farther away from Russia one is, the more comfortable one can be challenging Moscow. But Germany has only Poland as a buffer. For any nation serious about resisting Russian power, the first question is how to assure the security of the Baltic countries, a long-vulnerable salient running north from Poland. The answer would be to station NATO forces in the Baltics and in Poland, and Berlin understood that Germany would be both the logistical base for these forces as well as the likely source of troops. But Germany’s appetite for sending troops to Poland and the Baltics has been satiated. This was not a course Germany wanted to take.

Pondering German History

We suspect that Merkel knew something else; namely, that all the comfortable assumptions about what was possible and impossible — that the Russians wouldn’t dare attack the Baltics — are dubious in the extreme. Nothing in German history would convince any reasonable German that military action to achieve national ends is unthinkable. Nor are the Germans prepared to dismiss the re-emergence of Russian military power. The Germans had been economically and militarily shattered in 1932. By 1938, they were the major power in Europe. As long as their officer corps and technological knowledge base were intact, regeneration could move swiftly.

The Soviet Union collapsed in 1991 and its military power crumbled. But as was the case in Weimar Germany, the Russian officer corps remained relatively intact and the KGB, the heart of the Soviet state, remained intact if renamed. So did the technological base that made the Soviets a global power. As with Germany after both world wars, Russia was in chaos, but its fragments remained, awaiting reconstruction. The Germans were not about to dismiss Russia’s ability to regenerate — they know their own history too well to do that.

If Germany were to join those who call for NATO expansion, the first step toward a confrontation with Russia would have been taken. The second step would be guaranteeing the security of the Baltics and Poland. America would make the speeches, and Germans would man the line. After spending most of the last century fighting or preparing to fight the Russians, the Germans looked around at the condition of their allies and opted out.

The Germans see their economic commitment as being to the European Union. That binds them to the French, and this is not a bond they can or want to break. But the European Union carries no political or military force in relation to the Russians. Beyond economics, it is a debating society. NATO, as an institution built to resist the Russians, is in an advanced state of decay. To resurrect it, the Germans would have to pay a steep economic price. And if they paid that price, they would be carrying much of the strategic risk.

So while Germany remains committed to its economic relationship with the West, it does not intend to enter into a military commitment against the Russians at this time. If the Americans want to send troops to protect the Baltics and Poland, they are welcome to do so. Germany has no objection — nor do they object to a French or British presence there. Indeed, once such forces were committed, Germany might reconsider its position. But since military deployments in significant numbers are unlikely anytime soon, the Germans view grand U.S. statements about expanded NATO membership as mere bravado by a Washington that is prepared to risk little.

NATO After the German Shift

Therefore, Merkel went to St. Petersburg and told the Russians that Germany does not favor NATO expansion. More than that, the Germans at least implicitly told the Russians that they have a free hand in the former Soviet Union as far as Germany is concerned — an assertion that cost Berlin nothing, since the Russians do enjoy a free hand there. But even more critically, Merkel signaled to the Russians and the West that Germany does not intend to be trapped between Western ambitions and Russian power this time. It does not want to recreate the situation of the two world wars or the Cold War, so Berlin will stay close to France economically and also will accommodate the Russians.

The Germans will thus block NATO’s ambitions, something that represents a dramatic shift in the Western alliance. This shift in fact has been unfolding for quite a while, but it took the Russo-Georgian war to reveal the change.

NATO has no real military power to project to the east, and none can be created without a major German effort, which is not forthcoming. The German shift leaves the Baltic countries exposed and extremely worried, as they should be. It also leaves the Poles in their traditional position of counting on countries far away to guarantee their national security. In 1939, Warsaw counted on the British and French; today, Warsaw depends on the United States. As in 1939, these guarantees are tenuous, but they are all the Poles have.

The United States has the option of placing a nuclear umbrella over the Baltics and Eastern Europe, which would guarantee a nuclear strike on Russia in the event of an attack in either place. While this was the guarantee made to Western Europe in the Cold War, it is unlikely that the United States is prepared for global thermonuclear war over Estonia’s fate. Such a U.S. guarantee to the Baltics and Eastern Europe simply would not represent a credible threat.

The other U.S. option is a major insertion of American forces either by sea through Danish waters or via French and German ports and railways, assuming France or Germany would permit their facilities to be used for such a deployment. But this option is academic at the moment. The United States could not deploy more than symbolic forces even if it wanted to. For the moment, NATO is therefore an entity that issues proclamations, not a functioning military alliance, in spite of (or perhaps because of) deployments in Afghanistan.

Everything in German history has led to this moment. The country is united and wants to be secure. It will not play the role it was forced into during the Cold War, nor will it play geopolitical poker as it did in the first and second world wars. And that means NATO is permanently and profoundly broken. The German question now turns into the Russian question: If Germany is out of the game, what is to be done about Russia?

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