10 October 2012
No Panic in Iran
By Gwynne Dyer
Iran’s currency virtually collapsed last week, and the public protests that followed in Tehran stirred memories of the massive anti-regime protests of 2009. This has caused excited speculation in the United States and its allies about the imminent fall of President Mahmoud Ahmadinejad, the abandonment of Iran’s uranium enrichment programme, or even the end of the whole Islamic regime. Don’t hold your breath.
Ahmadinejad blamed the currency crisis on the foreign sanctions that are crippling Iran’s trade, of course. His critics at home just blamed him: “The smaller part of the problem relates to sanctions while 80% of the problem is rooted in the government’s mistaken policies,” said Ali Larijani, the speaker of the Iranian parliament. But he would say that, wouldn’t he?
It’s true that Ahmadinejad has used the country’s large oil revenues to paper over some serious mistakes in running Iran’s economy, but the current crisis was caused by a steep fall in those revenues – which is directly due to the sanctions.
Four rounds of United Nations-backed trade sanctions, ostensibly meant to stop Iran from developing nuclear weapons, had already cut the country’s oil exports from 2.5 million barrels a day to 1.5 million b/d by early this year.
Then came new American sanctions that blocked any international bank doing business in Iran from access to the immense US market – so most of them ended their dealings with Iran.
In July came new European Union sanctions banning oil imports from Iran entirely. Since Europe was taking one-fifth of Iran’s remaining oil exports, that blow was enough to send the Iranian rial into free-fall.
Until 2009, the rate of exchange was fairly stable at about 10,000 rials to the dollar. Then it started to fall slowly, and then faster – and in a hectic few days last week, it tumbled a further 40 percent to a low of 35,000 rials to the dollar. That was when the protests began in Tehran’s Grand Bazaar, whose merchants were amongst the strongest supporters of the revolution in 1979.
The protests were contained without any deaths, and the shops in the bazaar are now open again. The rial has recovered slightly, stabilising at around 28,000 to the dollar. But that is one-third of what it was worth three years ago, and the effects are being felt in almost every household in the country. Formerly comfortable middle-class families are scrambling to put food on the table, and the poor are really suffering.
So the sanctions are working, in the sense that they are hurting people. But what are they accomplishing in terms of their stated purpose of forcing Iran to abandon its nuclear weapons programme? More importantly, perhaps, what are they achieving in terms of their UNSTATED purpose: triggering an uprising that overthrows the whole Islamic regime?
First of all, Iran doesn’t have a nuclear weapons programme. The International Atomic Energy Agency (IAEA) and the US and Israeli intelligence service are all agreed on that, although the public debate on the issue generally assumes the contrary. Iran says it is developing its ability to enrich uranium fuel for use in reactors, which is perfectly legal under the Nuclear Non-Proliferation Treaty.
It’s true that the same technologies give the owner the ability to enrich uranium further, to weapons grade, and there is good reason to think that Iran wants that capability. It’s probably not planning to make nuclear weapons now, but it does want that “threshold capability” in case things get really bad in the region and it needs a nuclear deterrent in a hurry.
A “threshold nuclear weapons capability” (but no nuclear weapons) is still not illegal. Other countries with enrichment facilities include Argentina, Brazil, Germany, Japan, and the Netherlands. Moreover, Iran’s stock of reactor-grade enriched uranium is under permanent IAEA supervision, and alarms would go off instantly if it started to upgrade that stock to weapons grade.
Israel’s current government has talked itself into a state of existential panic over Iran’s uranium enrichment programme, but the US government certainly doesn’t believe that Iran has any immediate plans to build nuclear weapons. So what are these sanctions really about?
Overthrowing the Iranian regime, of course. American sanctions against Iran long predate any concerns about Iranian nuclear weapons, and would not be ended even if Iran stopped all work on uranium enrichment tomorrow. The US legislation that imposes the sanctions makes that very clear.
Before sanctions are lifted, the president must certify to Congress that Iran has “released all political prisoners and detainees; ceased its…violence and abuse of Iranian citizens engaging in peaceful political activity; investigated the killings and abuse of peaceful political activists…and prosecuted those responsible; and made progress toward establishing an independent judiciary.” In other words, it must dismantle the regime.
Since stopping the enrichment programme would not end the sanctions, why would the Iranian government even consider doing so? And will the Iranian people rise up and overthrow the regime because sanctions are making their daily lives very difficult? Even anti-regime Iranians are proud and patriotic people, and the likelihood that they will yield to foreign pressures in that way is approximately zero.
To shorten to 725 words, omit paragraphs 5, 9 and 10. (“Then…Iran”; and “It’s true…grade”)
6 June 2012
Another Euro Election
By Gwynne Dyer
It’s probably the first time that events in Spain have decided the outcome of a Greek election. Last weekend the European Union agreed to loan Spain’s nearly insolvent banks 100 billion euros on relatively easy terms. Syriza, the hard-left protest party that came from nowhere to dominate last month’s election in Greece, will therefore almost certainly emerge from next Sunday’s rerun of that election as the biggest party in parliament.
The party that wins the largest number of votes in a Greek election gets an extra fifty seats, so Syriza will probably lead the next Greek government. It would then demand a renegotiation of the EU’s much harsher terms for bailing out the Greek economy – and it might even get it.
That would prolong the agony of the euro, but it wouldn’t actually save it. The common currency is doomed, at least in its current form, precisely because countries like Greece and Spain were allowed to join the euro.
It’s not that they were more reckless and improvident than the northern European countries who were really guaranteeing the common currency’s value (though the Greeks certainly were). What dooms the euro is the fact that the southern European economies are far less efficient.
The fundamental mistake was made in 1999, when the political attraction of a common European currency triumphed over the economic rationality that said countries with radically different economies should not be trapped in a single currency. The current financial crisis, which threatens to destroy Europe’s prosperity and even its unity, is an inevitable consequence of that original error.
The economic logic argues that less productive economies should have their own currencies, which they can devalue from time to time in order to stay competitive. But the political imperative of European unity is still seen as linked to the euro (though it doesn’t have to be). Endless dithering over bail-outs is the result.
What happened to Spain illustrates the problem. Spanish governments were responsible in their euro borrowing: they never ran a deficit of over 3 percent before the world financial crisis hit in 2008. The euro did, however, let Spanish consumers and companies borrow money at a very low rate of interest, since everybody assumed that the powerhouse economies of northern Europe were the ultimate guarantors of euro debt.
The result was one of history’s biggest housing bubbles, a mountain of corporate debt as Spanish companies went in for headlong expansion – and huge exposure to bad risks by the Spanish banks that lent the money.
In 2008 the inflated property values crashed and the foolish investments came home to roost. The Spanish government’s borrowing ballooned as it poured money into saving the banks – and when it could not raise any more funds either, the European Union stepped in last week with 100 billion euros to stave off a default.
Well, it had to. A Spanish default would bring the whole rickety structure crashing down, and nobody has yet figured out how to dismantle the euro without a huge amount of collateral damage. The EU is merely doing crisis management and has no strategy for fixing the euro (other than a unified European state, which is not going to happen). But what interests the Greeks is the terms of the EU loan to Spain.
It was made directly to the troubled Spanish banks, with no obligation for the Spanish government to raise taxes or cut spending further. That is exactly the deal that Alexis Tsipras, the charismatic leader of the Syriza party, says he can get for Greece, and in this last week before the Greek election he will use the evidence from Spain to good effect. He will, of course, make no mention of the fact that Spain’s crisis and Greece’s are very different.
From the day the euro was launched in 2002, Greek governments borrowed like there was no tomorrow, and lied to the EU both about the scale of the country’s indebtedness and the purposes of the loans. (Much of the money went into the pockets of their own cronies and supporters.) The entire country was living far beyond its means, which is why the decline in Greek living standards since the crisis struck has been so steep.
Greek voters don’t want to hear about that. They just want the pain to stop, and many of them believe Tsipras’s promise that a new government led by the Syriza party can renegotiate the terms of the bail-out so it hurts less.
He may be right, at least in the short run. Even if there were some super-secret team of financial experts in Frankfurt working out how to wind the euro up without too much damage to the German economy, they would need to time their move very carefully. They would not want a Greek default to cause the euro to unravel prematurely, and a flat ‘no’ to Tsipras could bring that on very fast.
In fact, there almost certainly is no such team. There is no ‘Plan B’, and all the EU authorities are doing is endless, day-to-day crisis management. One day it will fail, but they’re not ready to admit that yet. So the Greeks may actually win some short-term relief by giving Syriza a mandate.
To shorten to 725 words, omit paragraphs 6 and 12. (“The economic…result”; and “From…steep”)
9 May 2012
Greek Default, Euro Collapse?
By Gwynne Dyer
Last year, Germany’s Chancellor Angela Merkel warned: “Nobody should believe that another half-century of peace in Europe is a given. If the euro collapses, Europe collapses. That can’t happen.” But there is now a risk that the euro, the 10-year-old common European currency, might indeed collapse. The trigger could turn out to be last weekend’s election in Greece.
New Democracy and PASOK, the centre-right and centre-left parties that have alternated in power since democracy returned to Greece in 1974, were abandoned by voters in revolt against the savage austerity measures that those parties had accepted in order to keep the country in the euro. The beneficiaries were radical parties of the extreme right and left.
Most shocking was the rise of the neo-fascist Golden Dawn party. Its shaven-headed street-fighters give the Nazi salute and systematically attack immigrants on the streets – and it got 7 percent of the vote. Golden Dawn, together with two other ultra-nationalist parties that are equally hostile to immigrants, the euro and indeed the European Union itself, got the votes of one Greek in five.
Even more Greeks backed the hard-left parties which also reject the deal with the EU and the International Monetary Fund that gave Athens enough money (174 billion euros – $225 billion) to go on paying its immense debts. The price was brutal cuts in domestic spending in Greece, and the voters revolted against it.
Greek incomes have fallen sharply and one-quarter of the workforce is unemployed. It’s not a recession in Greece, it’s a full-blown depression, and Greek voters don’t want to hear about how massive foreign borrowing and corruption at home got them into this mess. They just want it to stop.
The main target for their ire is the deal that forced this austerity on Greece, and the chief victims have been the two traditionally dominant centrist parties that signed it. Between them, three years ago, they got almost 80 percent of the vote. This time they got just over 30 percent. The missing 50 percent mostly went to parties of the extreme right or radical left that reject the deal.
Those parties are too far apart on other issues to form a government in Athens with majority support in parliament, so there will probably be another election in June. If no coalition that will abide by the deal comes out of that election, then the EU will halt its financial aid to Greece – and when the next big payment on the country’s debt falls due at the end of June, Greece will default.
This raises two questions. What will happen to Greece if it defaults on its debts and crashes out of the euro? More importantly, what will then happen to the common currency, and to the European Union itself?
Countries that default on their debts have a very hard time. When Argentina defaulted in 2001, there was a 60 percent fall in domestic consumption. Bank accounts were frozen, supermarkets emptied, and imported goods disappeared from the market. Inflation soared, jobs disappeared, and by 2003 more than half the population was living below the poverty line.
On the other hand, Greece is experiencing a good deal of this misery already. Unemployment is as bad as Argentina’s was at its worst. But in a few years, freed from its burden of insupportable debt, Argentina’s economy took off. Foreign banks started lending to it again, and for nine years now its GDP has grown at around 8 percent a year.
Many Greek voters think they can renegotiate the deal with the EU and stay in the euro. That is almost certainly untrue. But in the end default may turn out to be better for them than staying in the euro and suffering endless austerity while trying to pay off an impossible load of debt.
The bigger question is: what happens to the euro if Greece leaves? The common currency was conceived as a vehicle for achieving the “ever closer union” that most EU
politicians used to orate about, but that was putting the cart before the horse. Without a single authority that can enforce the necessary fiscal and budgetary disciplines, such a currency is bound to fail.
Last Monday Jacques Attali, the former adviser to the late French president, Francois Mitterand, said that the euro will not last five more years “unless there is a single European state.” He’s probably right, but there is obviously not going to be a single European state in five years’ time.
Therefore, by Attali’s own logic, the euro as we know it is doomed. But Angela Merkel is probably wrong: that is unlikely to spell the end of the European Union itself. The EU survived perfectly well for forty years without a single currency.
The Greeks will probably be using new drachmas before long. The Spanish may also be back to pesetas and the Italians to liras before we are much older. Perhaps the euro will survive as the common currency of the rich and efficient economies of northern Europe, and perhaps not. But the demise of the euro would not mean the end of the EU or of peace in Europe.
To shorten to 725 words, omit paragraphs 9 and 10. (“Countries…year”)
28 December 2011
By Gwynne Dyer
Every year brings changes, but some years really are turning points: 1492, 1789, 1914, and 1989, for example. Does 2011 belong in the august company of such Really Important Years? Probably not, but it definitely qualifies for membership in the second tier of Quite Important Years.
Three big stories ran right through the year, any one of which would have qualified 2011 for membership status. The Arab Spring is an epochal event, even if democratic revolutions may fail in some countries in the end. The euro crisis threatens the European Union with collapse and confirms the shift of economic power from West to East. And the struggle to prevent disastrous climate change was abandoned for the rest of the decade.
The name, it should be noted, is the Arab Spring, not the Muslim Spring, because a majority of the world’s Muslims already live in countries that are democratic: Turkey, Indonesia, Malaysia, Bangladesh, Pakistan, and even Iran (in roughly descending order of how democratic they really are). But the Arab countries seemed remarkably impervious to democracy – until it suddenly became clear that they weren’t.
The revolutions in Tunisia, Egypt and Libya were not just about elections. They were revolts against the arrogance and corruption of the ruling elites, against poverty, against the reign of fear that underpinned all of those regimes. But there was and still is a genuine democratic idealism at the heart of these revolutions, and despite all the disappointments and detours that will inevitably follow, something profound has changed in the Arab world.
Similar revolutions could well succeed to other Arab countries in the coming year, but in some cases they may not even be necessary. Formerly autocratic monarchies like Jordan and Morocco are in full retreat, hoping to safeguard their privileges by granting political freedoms to the people. And the long and increasingly bloody struggle in Syria could still end in a relatively peaceful transition to democracy, not a civil war.
We should have learned not to underestimate people by now. The Arab Spring is the culmination of a wave of non-violent revolutions that started in Asia in the 1980s (Philippines, South Korea, Thailand, Indonesia, Bangladesh, plus failed attempts in China and Burma). They spread to Eastern Europe and the former Soviet Union in 1989-91, ended apartheid in South Africa in 1994, and brought down Slobodan Milosevic in Serbia in 2000.
Then there was a decade-long gap, but now they’re back, and not just in the Arab world. The ruthless Burmese regime is retreating from power under relentless pressure from the pro-democracy movement led by Aung San Suu Kyi, and even Vladimir Putin in Moscow must suddenly feel vulnerable as he watches the crowds come out in Russia to demand their country back. Non-violence works. It will even work in China eventually.
From the sublime to the ridiculous. The decade-old euro, which aspired to become the common currency of the European Union and even a rival to the US dollar, is in acute danger of collapse, and the efforts of European leaders to save it have been comically inept. Seventeen of the 27 countries in the EU, including all the big economies except Britain’s, use the euro, but that number may drop sharply in the next few years. It might even drop to zero.
The euro was a political project from the start, and it may also die of politics. The initial idea was that a common currency would bind the EU members closer together, but it never made any sense for low-productivity economies like Spain, Italy and Greece to use the same currency as high-performing economies like Germany.
The only way it could have worked was for the richer countries to subsidise the poorer countries forever (like the richer regions of France or Japan subsidise the poorer regions). Then, provided that there was also a powerful central bank to stop the poorer countries from borrowing too much (because they now had a strong currency, which let them borrow almost unlimited amounts of money at very low rates), the whole project might work.
The richer countries like Germany and France had no intention of subsidising the poorer ones, and they wouldn’t allow a powerful central bank either, but the project went ahead anyway. The euro might have stumbled on, amid growing difficulties, for another decade – but the international financial crisis of 2008 put an end to that.
When the tide goes out, as legendary investor Warren Buffett put it, you find out who’s been swimming naked. The European economies were as naked as jaybirds, and so the vultures began to circle (to mix a metaphor). Every month of this year has seen another “crisis summit” meeting of EU leaders, but they have produced no credible solution to the euro’s problems because the richer countries are still unwilling to subsidise the poorer ones.
There are three possible outcomes to this mess. One is that the poorer countries simply bail out of the euro and revive their old separate currencies, which would cause some serious bank crashes in Europe and collateral damage elsewhere. The second is that the euro as a whole collapses, causing severe damage to all the Western economies including the United States. The third is that the European Union itself fall apart.
Option one is almost certain to happen. Option two is getting more likely by the month. Option three is still relatively unlikely – which is just as well, given what a disunited Europe used to be like. But the sheer vulnerability of what are still technically the world’s most powerful economies is now plain for all to see.
The power shift from the old Atlantic world to the emerging economies of Asia was going to happen eventually in any case: the five centuries when the Europeans and their overseas kin were global top dogs are at an end. But the arrogant risk-taking, blind greed, and sheer ignorance that caused the crash of 2008 and its after-shocks are making the shift happen a lot faster.
And so to the really bad news. The Arctic sea ice is disappearing faster than even the pessimists feared, massive floods are devastating huge areas (Pakistan, Thailand, Australia), and sea level is rising at twice the predicted speed, but nothing will be done about it for the next ten years. That, effectively, was the decision – or rather, the non-decision – taken at the annual climate change summit in Durban in December.
It has been clear since the debacle at Copenhagen in 2009 that a global agreement to curb the warming was in grave trouble, but the deal in Durban may have been worse than no deal at all. The only existing agreement, the Kyoto Protocol of fifteen years ago, has been extended for another five years, but it only limits the emissions of the developed countries, and even they will not be required to meet any stricter targets than those they accepted in 1997.
The emerging economies, whose emissions are growing very fast, still face no restrictions at all, although China is already the world’s biggest emitter of greenhouse gases. The target date agreed for a new, more ambitious global agreement is now 2015, but they won’t even start talking about that until 2013. And even if they do make a new deal by 2015, which is far from certain, they have already agreed that it will not go into effect until 2020.
It is not the first time that short-term self-interest has triumphed over the long-term common interest, but it may be the worst time. By 2020 it will probably be impossible to prevent the rise in average global temperature from exceeding 2 degrees C (3.6 degrees F), which is generally agreed to be the point of no return. After that, we will probably find ourselves in a new world of runaway warming. We know it, and yet we do nothing.
Compared to these huge changes in world politics, the global economy, and climate policy, everything else that happened in 2011 was very small potatoes, but some of it was very interesting.
Three bad men died, two of them violently: North Korea’s Kim Jong-il, Libya’s Muammar Gaddafi, and al-Qaeda’s founder Osama bin Laden. Four Latin American countries – Argentina, Guatemala, Nicaragua and Peru – elected new presidents. Five African countries – Congo, Ethiopia, Nigeria, Zimbabwe and Zambia – achieved higher economic growth rates than Brazil (though that was partly due to higher commodity prices).
An earthquake and tsunami devastated a large area of northern Japan, and the radioactive emissions from damaged nuclear reactors – about one-tenth of what came out of Chernobyl in 1986 – caused a global mini-panic. But in the end, the only country that announced a plan to shut down its reactors was Germany. (They’ll burn coal instead. Oh, good.)
American troops finally left Iraq in December, still insisting that they had accomplished their mission, whatever it was. NATO deployed its air power to help the rebels win in Libya, but it isn’t going to Syria. And the final shuttle flight from Cape Canaveral went into orbit in July. Dr Mike Griffin, the former head of NASA, said that “the human spaceflight programme of the US will come to an end for the indefinite future” – but the Russians and the Chinese are still sending people into space, and the Indians and the Europeans are working on it.
The multi-national African “peacekeeping” force that is fighting in Somalia grew dramatically in size, although that is no guarantee of success. Sudan split into two countries. And Nigeria faced a growing terrorist threat from the Islamist “Boko Haram” sect.
The race to become the Republican presidential candidate in the United States started as farce and went straight downhill, with each “anybody but Mitt Romney” contender less plausible than the one before. It resembled the old film “Those Magnificent Men in Their Flying Machines,” about a 1910 air race from London to Paris, in which a collection of extremely weird pilots in ramshackle biplanes and triplanes took turns being briefly in the lead and then crashed and burned. So Barack Obama will probably be back in 2012.
There were widespread riots in England in August, and the “Occupy” movement spread across the United States like measles (and went away almost as quickly). They were both really about the growing gap between the rich and the poor, but they had as little visible impact on how governments do business as anti-corruption campaigner Anna Hazare’s televised hunger strike in India.
India probably grew faster than China this year, though the final figures are not in – and India’s economy, unlike China’s, is not threatened by the biggest housing bubble in the history of the world. That race, if it really is a race, may have an unexpected result, though we will have to wait a couple of decades to know for sure.
Oh, and the world’s population reached the seven billion mark in 2011. It passed through one billion around 1800, and was still only 2 billion in 1940. Enough said.
I’m not going to suggest which paragraphs to cut if you want a shorter piece, because papers in different continents will have different interests. But any of the last eight paragraphs can be cut (except the very last) without affecting the flow of the piece. For deeper cuts, you could drop one of the three big chunks on non-violent revolutions, the euro crisis, or the climate, though that would require some editing work.