Problems of Recognition

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A developing story, of course, but the BBC is reporting that the US, UK, France, Germany and Italy recognizing or pledging to recognize the independence of Kosovo. Wikipedia is also quick off the mark with its entry on the now-official flag.

The EU has papered over its differences, with the common foreign and security policy consisting of saying that Kosovo “does not set a precedent,” and then leaving it to member states to decide their own relations with the territory. Spain is the biggest EU country withholding recognition; others in this group include Cyprus and Slovakia (worried about the Hungarian minority, one presumes, and given the approach of one of the parties in the governing coalition they may be right to, though a Köztásaság Kistranzdunaj (Republic of the Little Area Across the Danube) seems silly).

France has got to be a blow, considering it was the most pro-Serbian Western country during the conflict in 1999. If memory serves, some members of the French military were even charged with passing sensitive information to Serbia at about that time. French foreign minister Kouchner said that at some future date, both would be in the European Union together. I’m not sure that helps.

Consequences? Too early for me to say. It may indeed be a one-off, the last in the cascade of the former Yugoslavia.

Turkish prosecutor arrested

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This doesn’t seem to have gotten a lot of attention, but Kemal Kerencsiz was arrested last month.

Kemal Kerincsiz is a Turkish lawyer. He’s also the guy who tried to prosecute Turkish Nobel Prize winner Orhan Pamuk, Turkish-Armenian editor Hrant Dink, and several other writers for “insulting Turkishness”. And he’s been arrested — along with 32 others, including several military men — for being part of a massive conspiracy to commit violent acts against enemies of the state. The conspiracy is called “Ergenekon”, and the story is still coming out.
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Bad Parallels

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John Quiggin writes about the banking crisis:

Suppose Bank A owes a trillion dollars to bank B which in turn owes a trillion to C which in turn owes a trillion to D which owes a trillion to A. Now suppose that A gets into liquidity trouble and can’t pay. Then B is similarly in trouble and so in turn are C and D. If D could cancel the debt to A and forgive C who would in turn forgive B and so on to A, all would be well. But in the normal course of business you can’t do that. The fact that it’s zero sum doesn’t help. You need either wholesale resort to bankruptcy, or outside intervention.

It has strong parallels with John Maynard Keynes’ description of the financial consequences of the first world war. Basically, he said, everyone had ended up by owing everyone else a lot of money. Rather than the UK running a trade deficit with the rest of the world (and a services surplus), and a trade surplus with the empire, it had been running a surplus with its allies and a deficit with the empire’s civilian economy and the rest of the world.

The financially weaker allies had all turned to the next one up the chain for funds; Greece and Romania turned to Russia and Italy and they turned to France, which turned to the UK, which eventually turned to the US. As Europe was running a massive trade deficit with the rest of the world, the dollar claims everyone else accumulated could only be spent with the US; the adjustment path was meant to be that the British empire would spend the accumulated sterling claims buying things from the UK, and that the other allies would pay up. Netting out the numbers, Keynes concluded that the remaining dollar debt was manageable.

But the Russian revolution kiboshed this; if the Russians didn’t pay (and neither did some others), the French couldn’t pay, which meant the British couldn’t pay either. The solution the government offered was to make the Germans pay; Keynes pointed out that as nobody had any forex, there was no-one in a position to buy German exports, so they couldn’t pay either. Further, holding US dollars meant that Australia, say, could go and buy capital goods from the US instead. In a sense, the eventual solution was that Germany didn’t pay, but borrowed a ton of money from the US to finance its imports, paying with exports to the US; a Marshall Plan in one country, at least until the credit crunch meant it couldn’t roll over short-term paper.

Short-term commercial paper? Where have we heard that recently? Oh yes, at companies like IKB, Northern Rock, Citigroup, Morgan Stanley…substitute subprime mortgages for Russian bonds, SIVs and CDOs for France and Italy, and the UK for the major investment banks, and it’s quite eerie. But who are the Americans in this scenario?

Economic Interdependence Knits Europe Together (Perhaps)

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Well, sort of. I somehow doubt Jean Monnet would have been thinking of this when he came up with the idea of a Europe so closely bound together by trade war would be forever impossible. Rogue Planet reports that the biggest buyer of Bosnian armaments is…Serbia. Bosnia is also the biggest supplier to Serbia. Yes, that’s right; the people who were the targets of the JNA’s artillery in 1993 are selling its current owners the shells to go with it, and the people whose kinsmen were driven out of eastern Slavonia in 1995 by the Bosnian and Croat armies are relying on them for their ammunition.

I’m not sure whether this is a heartening sign of increasing inter-dependence in the Balkans, a merely pragmatic way of bringing in some foreign exchange and taking advantage of the fact both parties have the same knockoff Soviet equipment, or insanity.

As they say, when life gives you lemons, make lemonade. Given that one of Bosnia’s few assets is a collection of Yugoslav arsenals and a big pile of left-over ammunition, you can hardly blame them for trying to turn them into cash. But Serbia? Right now on the eve of Kosovar independence? Isn’t that a tad risky?

In fact, the weapons may well be safer in Serbia than any of the alternatives. An under-reported story of the times has been the export of large amounts of weaponry from Bosnia-Herzegovina to a wide range of wars around the world. Not only is the Bosnian government keen to sell, it’s also spectacularly corrupt, and its officials are known to have connived at smuggling arms past the EU checkpoints at the ports and airports. One of the biggest arms-smuggling networks, that around Jet Line International and Tomislav Damjanovic, actually got started in the Bosnian war, and they were involved in the notorious incident of the 99 tonnes of armaments bought by US agents in Bosnia for use by the Iraqi army, and flown out by the even more notorious smuggler Viktor Bout, that never arrived in Iraq and remain untraced to this day.

Given that there is not currently a war in the Balkans, and that Serbia is more like a functioning state than, say, Iraq or Somalia – both places that have imported (and possibly re-exported) guns from Bosnia – it’s quite possibly better that the weapons go to Serbia than anywhere they are more likely to be used or to vanish into the black market. This, of course, assumes that the Serbs are not planning to re-sell them, which is quite a large assumption.

Kosovo independence tomorrow

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So Kosovo will declare its independence tomorrow.

Regular readers of this blog will already know my position on Kosovar independence: I completely lack enthusiasm for it, but think it’s the least bad solution. It’s been almost nine years since the 1999 war, and pretty much every alternative has been explored at length. The current situation, where Kosovo is run by the UN, has become deeply dysfunctional. Giving Kosovo back to Serbia is not an option.

So what will happen? Well, the Albanians are getting ready for a huge two-day party. The Serbs are divided; it’s pretty clear that President Boris Tadic prefers a policy of dignified inaction, while Prime Minister Kostunica is hinting broadly about something more aggressive. Closing the border? Turning of Kosovo’s lights? We’ll see in a day or two.

As for international recognition: somewhere between 20 and 30 countries are poised to recognize Kosovo pretty quickly, with a larger number inclined to recognize but planning to wait a bit. There’ll probably be a UN Security Council meeting next week, which will lead to much discussion but nothing concrete.

So, unless Serbia does something stupid — which is certainly possible — in the short run, not much will change. In the longer run, well, I’ve used the phrase “Balkan Taiwan” before. It’s not very close; really, Kosovo is unique. But I expect a long war of diplomatic attrition rather than a crisis. Again, we’ll see soon enough.

Jonathan Rauch is a horrible human being

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I’ll do a rare US-centric post, because this kind of stunned me. Rauch argues that republicans will call a democratic withdrawal from Iraq a stab in the back, and to avoid that Democrats should stretch out withdrawal over several years.

Why that would stop the wingnuts from shouting treason he doesn’t bother to explain, but more importantly: The lives or Iraqis or US troops goes unmentioned. The US national interest goes unmentioned. Just avoid contentiousness at all cost. Oh, and if there is any contentiousness it’ll be the dirty hippies fault.

Ecological economics

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Surfing around the internet looking for more information on ecological economics I came across the Ecological Economics weblog and a podcast by Josh Farley, assistant professor at the University of Vermont. In his podcast Farley talks about the unsustainability of the concept of indefinite economic growth: Beyond economic growth by Josh Farley.

I post this here on AFOE to encourage a debate on developing new economic models to deal with global warming and all its possible consequences. It is about time we, here on AFOE, start addressing something which may very well be THE issue in the coming decades. Where is the middle ground between maintaining our living standards and slowly destroying our world? Can we maybe develop new, sustainable economic models that will allow us to grow in a different way? In other words, are there ways to satisfy both the homo economicus and the homo ecologicus?

Fistful of CDOs?

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Spanish banks borrowed up to EUR 44 billion in December from the European Central Bank, “replacing banks’ use of wholesale capital markets, which have been strangled by the global credit crunch,” writes today’s FT. Furthermore, “The Spanish banking system is second only to the UK in Europe in its use of mortgage-backed bond makrets and other securitisations to fund lending.”

The European effects of the bursting of the US housing bubble have mostly been echoes, but maybe this is a sign that Europe has some bubbles of its own to worry about.