"Going negative" is a political term of art, usually meaning that one candidate campaigns primarily by throwing mud at the other candidate(s). In our jaded times, going negative has come to predominate. Trash talking, if nothing else, captures attention.
These days, Europe is going negative for political reasons, although not in the usual sense. The European Central Bank announced recently that it was cutting the interest rate it pays on deposits from banks to -0.1%. In other words, banks that deposit funds with the ECB will pay a 0.1% fee for the privilege of having the ECB hold their money. The ECB claims to be concerned with a low nominal interest rate of 0.5%, and supposedly cut rates below zero to spur bank lending. Whether more lending will be done is unclear, as banks in the EU have been awfully finicky about extending credit in recent years (except to sovereign nations that sometimes aren't creditworthy). Banks could cover the costs of the ECB's negative move by lowering interest rates paid on deposits (i.e., on longer term deposits that still have a positive rate) and increasing lending rates for existing borrowers. There's no necessary reason for them to make new loans.
The 0.5% inflation rate that supposedly led the ECB to go negative isn't strikingly different from the low inflation that already prevailed in Europe. One can't help wondering how much the EU was motivated by politics, as opposed to monetary policy. The EU's badly conceived structure--a monetary union without true fiscal controls--encouraged overly enthusiastic borrowing by sovereign members, particularly those that were economically weaker. The resulting debt crisis was met with the EU's BYOB (bring your own bailout) policy that meant austerity for those least able to cope, and economic recession (or, in some EU member nations, depression). It's hardly surprising that political extremism flourished.
Nationalistic parties in Europe have recently made striking gains in EU parliamentary elections (yes, in the election of delegates to the EU Parliament, a quarter of whom now would favor the dissolution of the EU). It must scare the mudcakes out of the ECB's bureaucrats that a quarter of the EU's governing body would be pleased to defenestrate the ECB.
Moreover, nationalistic impulses in Russia led to its seizure of Crimea from Ukraine. Even though Russia formally transferred Crimea in political marriage to Ukraine in the 1950s, Vladimir Putin (Vlad the Invader, one might call him) seems to believe that Russia nevertheless holds a droit du seigneur to take Crimea for itself. In addition, Russian nationalism (plus surreptitious Russian military intervention) has fueled unrest in eastern Ukraine, leading to civil warfare. It now looks like Ukraine may go the way of Syria. Neither side is strong enough to win, and both sides are supported by outside interests that cannot afford to lose. Russia can protect its interests by keeping the insurgency going at a low boil, just enough that Ukraine is afraid to cozy up too closely to NATO. America has to do something to help Ukraine, but can't offer enough military assistance to decisively defeat the insurgents. (Given the pathetic performance of the Ukrainian military, the only way the insurgents can be defeated is if we send in the Marines, and that ain't happening). So, the nastiness of irregular warfare and flight of civilians from war zones, so familiar to observers of the Syrian civil war, is now being replayed in Ukraine.
Policy makers at the ECB undoubtedly noticed the rising manifestations of nationalism around them, and surely understand that the fiscal austerity imposed by the doyennes of the EU isn't doing a bang up job of fostering economic growth. That leaves the central bank as the only actor in this drama who can administer the antidote to extremism: the promotion of economic prosperity. So, the ECB surely is going negative for political reasons. And that's a problem. Central banks were created to foster financial stability, not political stability. But, with political processes in Europe (as well as in America) moribund on their best days, the ECB is trying to bail out a life raft with a tea cup. And it's not hard to figure out its chances of success.
Showing posts with label Crimea. Show all posts
Showing posts with label Crimea. Show all posts
Saturday, June 7, 2014
Sunday, March 16, 2014
How Putin Makes America Look Good
Not long ago, America was having a lot of bad hair days in foreign affairs. The war in Iraq ended without stirring speeches or victory parades. The war in Afghanistan is winding down, but won't have a prettier conclusion. America led from behind in Libya and messed up in Benghazi. Then, America led from even farther behind in Syria and, not surprisingly, got an aviary flip from the Assad regime when President Obama objected to the use of poisonous gas. To avoid being totally blown off by a two-bit tin pot dictator, the Obama Administration had to work with Vladimir Putin's autocracy for a face-saving compromise that still isn't near full implementation. America's grand strategy of pivoting toward Asia has floundered as extremism of numerous varieties keeps provoking eruptions in the Middle East and Europe.
Now comes Vladimir Putin--let's call him Vlad the Invader--who puts the shine on the United States. Using the most transparently farcical of pretexts, Putin seized Crimea from Ukraine. Okay, so there was a referendum in Crimea as to whether or not to "validate" the Russian land grab. But with thousands of Russian troops "guarding" the polls to ensure "integrity" to the voting process, we knew how the vote would turn out before the polls opened. There is nothing America can do to prevent Russia's annexation of Crimea, just as there was nothing America could do to stop Putin's 2008 land kleptomania in Georgia.
But America can and will react. The EU will talk a lot--and then talk some more. It will issue a few condemnations and maybe even an excoriation. But sanctions? Well, let's talk some more.
America's sanctions will be primarily economic. And Russia will respond in kind. America's economic interests will suffer. But Russia's economic interests will suffer more. Not necessarily in terms measured by dollars (or rubles), but in terms of relative pain. Russia has a much smaller and weaker economy than America. And Russia's economy is growing slower, with continued prospects for slow growth. Crimea requires significant subsidies, which will further drain Russia's resources, along with the added cost of all the military "exercises" the Russian Army is staging with walking distance of the Ukrainian border. From a strategic standpoint, Russia's nuclear arsenal is a match for America's. But Russia's economic arsenal is far weaker. And Russia's energy customers and trade partners will look elsewhere for supplies and opportunities, not wanting to give leverage to a bully with a powerful military.
The Cold War was primarily an economic struggle. America and the Soviet Union engaged in a 50-year competition to build to the most advanced and powerful military. Arsenals cost money, and America's vastly greater wealth left the Soviet Union moribund, unable to deliver prosperity or even anything approaching a First World standard of living for its citizens.
As America and Russia swap sanctions, it is important to keep in mind that, realistically, the goal isn't to force Russia out of Crimea. That won't happen. The goal is to turn the crisis into an opportunity to make America once again the world's shining beacon of freedom and democracy. America's sanctions, although likely to be ineffectual in terms of sending Russian troops back to the barracks, will contrast sharply with the EU's decrepitude, and the near silence from the Asia. As an ironic consequence, America's influence around the world, and especially in the periphery of Russia's borders with many former members of the Soviet Union and former Soviet satellite states, will likely grow. After all, no one likes a bully. The bottom line is Putin has made America stronger.
The outcome of the looming war of sanctions is difficult to predict with precision. But the advantage lies with America and its great economic strength. Germany and Japan won the early rounds of World War II. The Soviet Union won most of the early rounds of the Cold War. But we know how those stories ended. Even if Putin will be able to feel like a studly fellow for a while, time isn't on his side. Keep the faith.
Now comes Vladimir Putin--let's call him Vlad the Invader--who puts the shine on the United States. Using the most transparently farcical of pretexts, Putin seized Crimea from Ukraine. Okay, so there was a referendum in Crimea as to whether or not to "validate" the Russian land grab. But with thousands of Russian troops "guarding" the polls to ensure "integrity" to the voting process, we knew how the vote would turn out before the polls opened. There is nothing America can do to prevent Russia's annexation of Crimea, just as there was nothing America could do to stop Putin's 2008 land kleptomania in Georgia.
But America can and will react. The EU will talk a lot--and then talk some more. It will issue a few condemnations and maybe even an excoriation. But sanctions? Well, let's talk some more.
America's sanctions will be primarily economic. And Russia will respond in kind. America's economic interests will suffer. But Russia's economic interests will suffer more. Not necessarily in terms measured by dollars (or rubles), but in terms of relative pain. Russia has a much smaller and weaker economy than America. And Russia's economy is growing slower, with continued prospects for slow growth. Crimea requires significant subsidies, which will further drain Russia's resources, along with the added cost of all the military "exercises" the Russian Army is staging with walking distance of the Ukrainian border. From a strategic standpoint, Russia's nuclear arsenal is a match for America's. But Russia's economic arsenal is far weaker. And Russia's energy customers and trade partners will look elsewhere for supplies and opportunities, not wanting to give leverage to a bully with a powerful military.
The Cold War was primarily an economic struggle. America and the Soviet Union engaged in a 50-year competition to build to the most advanced and powerful military. Arsenals cost money, and America's vastly greater wealth left the Soviet Union moribund, unable to deliver prosperity or even anything approaching a First World standard of living for its citizens.
As America and Russia swap sanctions, it is important to keep in mind that, realistically, the goal isn't to force Russia out of Crimea. That won't happen. The goal is to turn the crisis into an opportunity to make America once again the world's shining beacon of freedom and democracy. America's sanctions, although likely to be ineffectual in terms of sending Russian troops back to the barracks, will contrast sharply with the EU's decrepitude, and the near silence from the Asia. As an ironic consequence, America's influence around the world, and especially in the periphery of Russia's borders with many former members of the Soviet Union and former Soviet satellite states, will likely grow. After all, no one likes a bully. The bottom line is Putin has made America stronger.
The outcome of the looming war of sanctions is difficult to predict with precision. But the advantage lies with America and its great economic strength. Germany and Japan won the early rounds of World War II. The Soviet Union won most of the early rounds of the Cold War. But we know how those stories ended. Even if Putin will be able to feel like a studly fellow for a while, time isn't on his side. Keep the faith.
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