Posts Tagged ‘ Europe ’

Really? Ireland/Iceland/Greece Outperform Germany?

Friday, December 17th, 2010
Michael Mandel



Michael Mandel is the chief economic strategist at the Progressive Policy Institute and the founder of Visible Economy LLC, a New York-based news and education company.

by Michael Mandel

Is it true that the three basket-case countries of Europe–Greece, Ireland, and Iceland–have outperformed Germany on real GDP and productivity growth? Or do the implausible official numbers demonstrate the bankruptcy of the global economic statistical system?

I was nosing through the just-released OECD Economic Outlook (top secret project, don’t ask), and I noticed something very interesting.  The Outlook includes forecasts through 2012 for all sorts of macroeconomic variables,  so we can now look at a 15-year time period (1997-2012) which includes the ten years of  tech+housing boom (1997-2007) and the five years of the financial bust. Here are two charts comparing the strongest economy in Europe, Germany, with the three basket cases, Greece, Ireland, and Iceland. We’re looking at real GDP growth and total economy labor productivity growth:

and

These charts show that the three basket-case countries of Europe–Greece, Ireland, and Iceland–substantially outperform Germany during the boom years, which is to be expected (blue bars).  For example, Greece had productivity growth averaging 2.4% per year from 1997 to 2007, compared to only 1% per year for Germany.

What is more surprising is that  Greece, Ireland, and Iceland continue to outperform Germany, even when we factor in  the 5 years of the bust, including forecasts through 2012 (the red bar).  For  example, average real GDP growth in Iceland is projected to be 2.7% annually over the 1997-2012 time period, almost double the 1.4% growth rate of Germany.

What can we make of these disparities? After all, we economists have been trained to believe that productivity growth is an essential measure of the health of an economy. Here are four possible explanations:

  1. OECD forecasters have drunk too many bottles of wine, leading to overoptimistic forecasts
  2. Five years post-bust is too short: The basket-case countries will be suffering for many years.
  3. Boom-and-bust beats slow-and-steady in the long-run.
  4. The usual way of measuring Gross Domestic Product overestimates  both debt-fueled growth (Iceland, Greece) and growth fueled by supply chains (Ireland).

As anyone who has been reading me for a while knows, I lean towards #4.  I think there’s a first-order problem with the way we measure GDP growth, because trade–including flows of knowledge capital–is being incorrectly counted, or not counted at all.   That’s a big gotcha, since bad macro data have and will distort decision-making by policymakers,corporate leaders, and investors.

This piece is cross-posted at Mandel on Innovation and Growth

Stop the Madness: The New Politics of Stunts

Friday, October 8th, 2010
Mike Signer



Mike Signer is a senior fellow at the Progressive Policy Institute.

by Mike Signer

On the heels of the controversy about this week’s perhaps terror alerts in Europe, I reflected on a recent experience with the very real costs of what you might call the terrorist-hysteria complex.

Two weeks ago, I was in Afghanistan on a U.S. government-sponsored mission to observe the Parliamentary elections on Saturday, September 18th. The day before, I sat on the balcony of our guesthouse and watched a dangerous drama unfold just outside. Our security guards strung a black curtain along our balcony rail to block prying eyes. Through two of the panels, I watched as a member of the Afghan National Police crouched behind a wall of olive-green sandbags about a hundred feet away and aimed his automatic rifle at a curve in the road to the right.

We were in Panjshir, a valley about two and a half hours north of Kabul. At that moment, a mullah up the road was leading a protest at an elementary school in response to the burning of a Koran by by two men in Tennessee named Bob Old and Danny Allen. (This was different from Terry Jones, the Florida preacher who canceled his burning.)

You probably never heard about the Tennessee story. When you watch the video, it’s mind-blowing that these two characters somehow animated events oceans away. But seven thousand miles away, amped up both by a local hair-trigger media and Afghan opportunists looking to stir up trouble, Bob Old and Danny Allen — names we will almost certainly never hear again — created real danger and real expense.

On the mission with me were two security professionals from the UK and the U.S., two Afghan security men, a translator, and my partner, all funded by a U.S. aid agency and U.S. taxpayer dollars. We were supposed to be out in the field, interviewing government officials, asking probing questions about the quality of the election, the depth of the rule of law. I should have been helping to determine whether the billions of dollars and gallons of blood our warfighters have poured into Afghanistan is worth it.

But we instead spent the day stuck in our guest house, pawns in the mad world of stunt-driven politics. There was a striking parallel between the stunts back in America and the Taliban’s efforts in Afghanistan. Both were aimed at controlling the actions of millions through discrete acts of violence. Both take advantage of the nexus of blogs, a 24-hour news cycle, and political opportunism. And both have real consequences not only on our perception of reality, but on policy.

Read the entire article in the Huffington Post.

Explaining the Europe Terror Alert

Tuesday, October 5th, 2010
Jim Arkedis



Jim Arkedis is the director of PPI's National Security Project.

by Jim Arkedis

When the US State Department issued a terror alert for European travel this week, it raised the inevitable questions: Should I travel to Europe?  Where should I avoid?  Is this thing really serious?

To make sense of this alert, a history lesson is in order.

This history lesson takes us back to Christmas, 1988 in Frankfurt, West Germany. Back in the days before the classified interwebs, information didn’t flow particularly quickly between US government entities.  Photocopying and physical circulation were standard practices.  So, when something big came up, specific information might not be widely distributed.  Government workers weren’t exactly Tweeting it to one another on SIPRnet (the SECRET-level USG computer network).  It’s hard to believe, but back in the day, everyone didn’t know everything about each other all the time.

In the days before the holiday, the U.S. consulate in Frankfurt received vague threat information about a potential terrorist attack targeting American citizens.  The information didn’t state much, other than that the strike would emanate from Germany or possibly London.  The Regional Security Officer posted the threat information on a public bulletin board in the consulate, and many American government workers changed their Christmas travel plans.

As you’ve probably figured out by now, the travel warning turned out to be credible – the Lockerbie bombing of December 21, 1988 killed 190 American citizens, 270 total, traveling from London to JFK airport.  The flight had originated in Frankfurt, where the bomb was originally smuggled aboard.

While it was of course good that certain American government employees had avoided the catastrophe, a policy problem arose.  In short, there was a double standard in place:  Americans (and their families) who happened to work for the government in Frankfurt as everything from intelligence officers to economic advisors to custodians avoided the tragedy due only to their preferential position.  Americans elsewhere in Europe, whether in government or not, weren’t warned.

The resulting “No Double Standard” policy emerged.  Generally, it says that when the U.S. government receives what it deems credible threat information, it has a duty to alert all Americans, not just those who work for the government.  The State Department alert issued about travel to Europe over the weekend fulfills the “No Double Standard” requirement.

So, does this mean that the current intelligence is as specific as that which preceded the Lockerbie bombing?  No.  However, it does mean that the government has credible, but possibly vague, information about a possible attack.

What does “credible” mean, then?  Media reports indicate that the information was gleaned from an individual detained in Pakistan.  Based on his access to information, officials have assessed that his reporting likely contains a grain of truth – that a group of operatives is interested in conducting a Mumbai-style attack in Europe.

However, they do not know when, where, or – quite critically – how developed the plot is or whether the alleged plotters have the operational capability to pull something off.  Authorities just believe their source is telling the truth.

Issuing the alert also puts potential plotters on their heels – European security services’ guard is raised and targets will be harder to access, which might just dissuade an attack in the first place.

Bottom line is that U.S. and European governments have vague but credible information about a discussion of a terrorist plot.  Whether the alleged plotters are serious and capable of executing it is likely yet to be determined.  Issuing the alert is a legal requirement designed to raise awareness among the public at large, not necessarily an indication that a terrorist attack is certain to occur.

Photo credit:  Daniel Horacio Agostini

The Eastern European Energy Void: A Case For American Leadership

Wednesday, September 29th, 2010
Jim Arkedis



Jim Arkedis is the director of PPI's National Security Project.

by Jim Arkedis

Parts of Hungary may well still conjure drab images of the Cold War: bleak and desolate wheat fields, maybe a blue-gray sky, skeletons of Soviet-era construction.

Stereotypes, of course, often contain a grain of truth. The New York Times’ recent profile of Oroszlany, some fifty miles east of Budapest, harks back to that bygone era.  Some 3,000 of the town’s 20,000 residents work in industries related to coal; with that many directly tied to the industry, it’s not hard to imagine how deep into the economy coal’s tentacles stretch.

But that’s changing — authorities announced that Oroszlany’s coal mine would close within three years.  The mine’s closure is well-intended, as the European Union — of which Hungary became a member in 2004 — seeks to end government subsidies for carbon-producing sources of energy.  Dirty coal is, of course, a chief protagonist.

This noble clean-energy goal has created a painful short-term “bridging” problem: The coal-fired power is disappearing too fast, and Hungary is left with an energy shortfall. It simply doesn’t produce enough domestic power right now to keep up with demand.  Figuring out any role that the U.S. or EU might play as Eastern Europe makes this transition is becoming ever more important.

This energy transition is an issue Gabor Rajnai, Oroszlany’s mayor, understands all too well. He wonders how his town is going to keep warm in the winter.  He frets Russian natural gas will fill the gap.  Rajnai probably remembers New Year’s Day 2006, when Vladimir Putin, then Russia’s president, sent a shockwave across Europe when he directed Gazprom, the state energy company, to shut off the flow of gas to the Continent.  Thanks to a price dispute with Ukraine, Europe froze, as it did again when Russia slowed down gas supply again in March 2008.  To make up for this year’s drop in coal-fueled power, Hungary will again import Russia gas.

This is the latest in a deepening dependency.  In March 2008, Putin and Ferenc Gyurcsany, his then- Hungarian counterpart, signed a contract that deepened cooperation on natural gas projects, including Hungarian financing of a Russian pipeline through the country.  In other words, as NATO-member Hungary transitions to a cleaner fuel sources, it is lashing itself ever tighter to the world’s coldest petro-dictator.

Let’s hope this deal doesn’t end up putting Hungary on par with its Eastern European neighbor, the Czech Republic.  As detailed in a stunning mid-September article in The New Republic, Russia and Gazprom camouflaged a network of Czech shell companies to obfuscate the money trail that leads directly from Prague’s hand to Moscow’s mouth.

The Czech Republic faces the same bridging problem as Hungary, too: As coal plants are phased out, how will the country power itself before domestic, self-sustaining energy sources are brought online?  Nuclear power, as regularly championed by PPI, is an option, but as TNR chronicles, even the Russians are likely to win that bid too.

However, that doesn’t mean Hungary and the Czech Republic are doomed to fall in some sort of Cold War-style Soviet sphere of influence.  According to one industry expert, the region’s long-term prospects of creating secure domestic energy sources are more solid: Alex Cranberg of Aspect Energy thinks Hungary has solid reserves of its own gas yet to come online.

He told me he was first drawn to Hungary because its geological fingerprint reminded him of the southern US, and thinks the country’s natural gas industry — where Aspect has invested — is well-run and could produce a stable supply of clean natural gas over the long-haul.  The trick, he says, is getting to the tough-to-reach underground gas fields, which make up some 90 percent of the domestic supply.  That appears to be happening: in the last four years, Cranberg claims that his joint venture has gone from producing none of Hungary’s natural gas to 20 percent, and that slice of the pie should only grow.

But growing takes time, and ensuring that Hungary — and Eastern Europe — has access to a diverse supply of energy in the interim is an important policy initiative that Brussels, not to mention Washington, seems to have glossed over.  Vice President Biden was in Prague to lobby for Westinghouse’s nuclear bid, but local experts believe it might be too little too late. Helping develop domestic clean power sectors could be a productive initiative for both capitals, from economic, energy, and security perspectives.

Photo credit: Wally Gobets

One Winner in the Aviation Crisis: Europe’s Railways

Tuesday, April 20th, 2010
Mark Reutter



PPI Fellow Mark Reutter is the former editor of Railroad History and author of Making Steel: Sparrows Point and the Rise and Ruin of American Industrial Might (2005, rev. ed.).

by Mark Reutter

The media’s blanket coverage of the travel chaos gripping Europe has overlooked just one thing — fast and frequent trains have gotten hundreds of thousands of travelers to their destinations safely and on time while airplanes sat on the tarmac.

In fact, if there’s any winner in the crisis that began when a cloud of ash from an Icelandic volcano drifted over the continent, it’s Europe’s railways. They have operated with few disruptions at the same time air flight was grounded by authorities over safety concerns.

Since trains handle a large portion of commercial traffic between many cities, the average European has not been hurt by the “transportation tsunami” breathlessly described by CNN and other media outlets.

Travelers most affected by the air ban have been international flyers, such as British tourists coming back from Easter vacations in the Mediterranean and passengers on transatlantic flights, who couldn’t land in northern Europe, Scandinavia or the British Isles.

Since last Thursday, high-speed Eurostar trains have been the only direct link between London and the rest of the world. Running through the English “chunnel,” Eurostar has added trains to its daily roster of 32 trains to and from Paris and 18 trains to and from Brussels.

An estimated 50,000 passengers took the trains between Thursday and Sunday, a 30-percent jump from normal bookings. Eurostar’s website says trains are sold out through the end of this week, but that special service will be added to accommodate still-stranded air passengers.

Elsewhere in Europe, trains have been packed. A EuroCity train from Italy to France was so crowded over the weekend that people could barely squeeze through the doors. A Swiss Federal Railways spokesman said trains have been reconfigured with twice as many cars as normal to handle the increased patronage.

Although airports across Europe are preparing to resume limited flights today along “safe air corridors,” it will take days, if not a full week, before normal operations are reestablished, according to aviation officials.

Much will depend on the status of the Eyjafjallajökull volcano. It continues to spew out thick clouds of ash, whose microscopic shards of rock, glass and sand can stop jet engines by melting and congealing in turbines.

The volcano’s unexpected activity — leading to the biggest flight ban in aviation history — is a stark reminder of the vulnerability of air travel and the necessity of having solid transportation alternatives in a crisis.

Photo credit: http://www.flickr.com/photos/kbs478/ / CC BY-NC 2.0

Hindsight: Missile Defense Decision Actually is 20/20

Thursday, March 11th, 2010
Jim Arkedis



Jim Arkedis is the director of PPI's National Security Project.

by Jim Arkedis

If you supported the Obama administration on this one, it couldn’t have turned out any better.

Back in September, the White House decided to swap missile defense programs. Out was a ground-based system in Eastern Europe that depended on a stationary missile battery and radar station in Poland and the Czech Republic, respectively. It was geared towards a long-range ballistic missile threat, and was over cost, over schedule, and under-performing to boot.

Conservatives howled that the White House was “abandoning its Eastern European allies” to a salivating Russia. Or was it a salivating Iran? Either way, conservatives were all worked up in a tizzy that, despite our mutual-defense pact with Poland and the Czech Republic, surely we were doing irreparable  damage to the NATO alliance.

In the Eastern European system’s place, the Obama administration (with unanimous support from the Joint Chiefs) decided to deploy a sea-based system that was designed to counter a short-to-medium Iranian ballistic missile threat because it had higher technical capabilities and could be deployed more rapidly. Part of the White House’s justification was a new intelligence estimate that said Iran was focused on its short-to-medium range missiles.

So, six months on, how’s that workin’ out for you?

It appears the White House may have—gasp—known what it was doing. I’m a day or so behind on this, but the Wall Street Journal reported this week that … wait for it … Iran has in fact started production of the Nasr1, a highly accurate short range cruise missile:

Iran said it has started a new production line of highly accurate, short-range cruise missiles, which would add a new element to the country’s arsenal.

Gen. Ahmad Vahidi told Iranian state TV Sunday that the cruise missile, called Nasr 1, would be capable of destroying targets up to 3,000 tons in size.

The minister said the missile can be fired from ground-based launchers as well as ships, but would eventually be modified to be fired from helicopters and submarines.

I’m curious as to how a cruise missile is fired from a helicopter, but I digress. The point is that the Obama has matched the current threat with appropriate, functioning, defensive capability. Game over!

And how about that abandonment? Here’s Eugeniusz Smolar, the director of the Center for International Relations in Warsaw, who said to the Guardian adopting the Obama administration’s approach was an easy call for Poland:

“This [new] proposal is much more Europe oriented because the new system is to deal more with the medium- and short-range threats, and this is exactly what Poland has been seeking,” Smolar said.

He added that the new plan is also “more NATO oriented, which is good, because it means there will be much less tension among the allies who have been complaining that Poland has been doing its own agreement with the U.S. outside of NATO.”

Euro-zoned Out

Thursday, February 11th, 2010
Mike Derham



Mike Derham is chair of PPI's Innovative Economy Project.

by Mike Derham

Things in Europe are looking grimmer than my chances of getting a taxi in blizzard-slammed New York City.

Today’s announcement that Germany and France are going to provide financial aid to Greece — with stringent IMF oversight — caps off weeks of speculation that the EU would have to bail out the Hellenic Republic. The newly elected left-wing government in Greece has come clean with what the previous conservative government had been hiding — Greece’s budget deficit for last year was a whopping almost 14 percent of GDP, and this year’s is looking not better. The new government, in a bid to reassure the markets — and the other members of the Eurozone that have all sworn to adhere to the deficit limits of the founding Maastricht Treaty — has promised to get government deficits down to three percent of GDP by 2012. Seeing the coming of severe austerity measures in the wake of what wags have been desperately trying to tag the “ouzo crisis,” Greek civil servants have unsurprisingly gone on strike.

The news is no better outside the Eurozone, where, to take the most latest example, Latvia is putting up numbers that are even grimmer. The Latvian economy shrank by 18 percent the past year, and it’s not likely to rebound anytime soon. (To put that in perspective, U.S. GDP fell by 30 percent over four years at the start of the Great Depression.) Latvia has pegged its currency, the Lat, to the Euro through the Exchange Rate Mechanism (ERM), in hopes of joining the Eurozone like Slovakia did last year, and like its neighbor to the north, Estonia, might do as soon as this July. The Baltic countries want to join the Euro, as adopting a strong currency is a surefire way to control inflation and make it easier for the government to borrow on the international markets (this is why several small economies have unilaterally adopted the Euro or the U.S. Dollar as their currency).

These two cases are emblematic of the issues facing several European countries. Greece has been lumped in with Portugal, Italy, and Spain to form the “PIGS,” southern Europe’s sluggish economies (Ireland is occasionally added to the group as a second “I”: “PIIGS”). Latvia’s problems are similar to those seen all over Eastern Europe, with Lithuania, Poland, the Czech Republic, and Hungary all facing similar — if less dire — straits. But while it looks difficult all over the EU, if I were a small business owner (or finance minister), I’d rather be in Latvia than in Greece.

Why? Because it could be a lot easier for Latvia to get out of its situation than Greece’s. Latvia has been facing a choice: aim for the Eurozone or faster recovery. While the benefits of a small country joining the monetary union make sense over the long term, when faced with a recession a currency devaluation might make more sense. This would immediately make domestic products — now cheaper to make — more competitive, stoking exports and, with them, job and GDP growth. Leaving the ERM would postpone joining the Euro for several years, which could make inflation a problem, but other countries, notably the UK, have been forced to leave the ERM before, and in the UK’s case it helped fuel a strong decade of growth in the 1990s.

The alternative to devaluation is deflation, a painful process where you ratchet down the prices of everything in your economy, from raw materials to salaries, to the point where they become competitive. This is the prospect that Greece is facing. In the Eurozone, Greece cannot lower it’s exchange rate against the markets it exports to — they all use the Euro. Devaluation also makes local currency-denominated debt much easier to pay. And this is where Greece is also getting hammered. As it looks increasingly unlikely to be able to pay its obligations, the yield on Greek debt has jumped. Greek debt is trading for less in the secondary market because investors are less sure that the government will be able to meet it’s obligations. As Greek banks hold significant amounts of Greek government debt, they are teetering on the edge of bankruptcy.

In the end, why should these issues in Europe be a concern to the U.S.? Surely problems in Athens will have limited impact on the largest economy in the world. Well, it’s worth remembering that the bankrupcty of Creditanstalt in Austria following the crash of 1929 was one of the sparks that turned a recession into the Great Depression.

The Administration’s Missed Opportunity on High-Speed Rail

Friday, January 29th, 2010
Mark Reutter



PPI Fellow Mark Reutter is the former editor of Railroad History and author of Making Steel: Sparrows Point and the Rise and Ruin of American Industrial Might (2005, rev. ed.).

by Mark Reutter

President Obama flew down to Tampa, Florida, yesterday to wield his stimulus bat for “transformative” passenger train development and struck a mighty bunt for high-speed rail.

All the hoopla by the administration (e.g., DOT Secretary Ray LaHood describing the $8 billion in grants as “an absolute game-changer in American transportation”) doesn’t change the fact that of the 29 projects awarded, only two – in Florida and California – qualify as high-speed rail by world standards.

Call the rest by what they really are – “higher speed rail” or “improving Amtrak on-time-performance rail.” The best of those projects, a $1.1 billion upgrade of the existing rail corridor between Chicago and St. Louis, will permit Amtrak trains to achieve 110-mph maximums and 70-mph averages between the two cities – far below the 125-200 mph standard set by the International Union of Railways.

Several corridor projects funded yesterday won’t even achieve 100-mph speed maximums because they are limited by the curves and grades of existing railroad rights of way that cannot easily, or cheaply, be modified for HSR service.

A Tiny Step Toward True HSR

Let’s look first at the two projects that PPI recently argued should have served as templates for the administration’s HSR program.

Florida may actually get by 2015 what is running daily in Europe and Asia – “bullet trains” on dedicated track that rocket between major cities. The administration awarded the Florida Department of Transportation $1.25 billion to start a long-planned line between Tampa, Lakeland, Disney World and Orlando. Utilizing a new right of way and electrically propelled trainsets, the line is expected to operate at 168-mph top speed. Construction of the railway later this year would employ at least 15,000 workers.

But with the apparent aim of spreading stimulus cash to all corners of the country, the administration handed Florida less than half of the $2.6 billion needed to complete the 88-mile line. It is unclear how this funding gap will be overcome. One possibility is that Florida will receive funds from the $2.5 billion in HSR projects allocated by Congress for fiscal year 2010.

California’s HSR project was the other big winner yesterday, with $2.25 billion (of $4.7 billion requested) to purchase land and complete environmental reviews for a 200-mph line between San Diego, Los Angeles and San Francisco/Sacramento. The overall cost for this project is estimated at around $50 billion. Even though California voters approved the sale of $9 billion in bonds for construction, the project needs a lot more money to come to fruition. Does the Obama administration have a plan to make sure the project is sustainable over the long term and that some segments are opened for revenue service in the near term?

If properly funded, the Florida and California projects hold promise of starting a true HSR infrastructure, with all of the economic and environmental benefits described in the PPI policy memo. But instead of insisting on advanced rail technology elsewhere, the Obama administration has settled for modest state projects with humble goals.

Aiming Low

Take the $598 million awarded to the states of Washington and Oregon to add sidings and improve signaling on the rail line between Seattle and Portland, which is owned jointly by freight carriers Union Pacific and Burlington Northern Santa Fe.

The administration’s fact sheet reports that passenger train travel time “will be reduced by at least 5 percent and on-time performance will increase substantially, from 62 to 88 percent.” Currently, Amtrak trains require 3½ hours to cover the 186 miles, a pokey 53 mph average. Reducing train time by 5 percent means saving all of 10 minutes.

Likewise, the $400 million in stimulus funds going to establish train service between Cleveland and Cincinnati would permit “speeds of up to 79 mph,” according to the administration’s fact sheet, while track upgrades between Raleigh and Charlotte, N.C., will “increase top train speeds to 90 mph.”

There is no doubt that President Obama is committed to upgrading intercity passenger rail. But yesterday he placed his feet squarely in both the visionary camp and the slow-speed Amtrak camp, spreading federal funds far and wide rather than focusing on two or three corridors that would give us trains equal to those in Europe and China.

Italy’s Pragmatic Progressives

Tuesday, December 15th, 2009
Will Marshall



Will Marshall is the president of the Progressive Policy Institute.

by Will Marshall

Alleanza L’Italia

The big news out of Italy last weekend was the vicious assault on Prime Minister Silvio Berlusconi in Milan. The attack overshadowed the birth of a new center-left alliance determined to give Italians an alternative both to Berlusconi and a left mired in stale, social democratic dogma.

The launch of the Alleanza L’Italia (Alliance for Italy) in Parma over the weekend effectively dissolved the brief union of the two major opposition parties: the Democrats of the Left (the main social-democratic party) and the smaller, centrist Margherita (which in Italian means a daisy, not a drink). The two merged into the Democratic Party in 2007 in a bid to unify Italy’s fractious center-left.

But it was an unhappy marriage. The Democrats suffered a string of electoral defeats and leadership changes. Moderates chafed at the doctrinal rigidity of the dominant social democratic faction, which they believe has helped to polarize society while convincing many middle-class voters that progressives aren’t capable of governing. “We want to redress the balance toward the center,” explained Francesco Rutelli, the former Margherita chief and mayor of Rome who is the moving spirit behind the Alleanza. What Italy needs, he said, is a new center-left governing platform grounded in the values of “freedom, economic innovation and social cohesion.” (Full disclosure: I attended the Parma meeting as a guest of the Alleanza).

What apparently triggered the divorce was the Democrats’ decision to join the Socialist caucus in the European parliament. “Socialist parties in Europe are being defeated everywhere,” noted another key Alleanza leader, Gianni Vernetti. He’s right. In the 2009 European elections, center right parties led in 21 out of 27 European Union countries. In what many observers are calling the “European paradox,” the global financial crisis has given no boost to social democratic parties, despite their traditional skepticism toward free market economics.

One reason is that Europe’s center-right parties long ago made peace with the “social market,” which they promise to manage more efficiently. European social democrats, meanwhile, often seem more interested in defending the welfare state status quo than in modernizing their economies and politics.

Alleanza’s organizers repeatedly stressed the link between Italy’s political polarization and its economic stagnation. They promised pragmatic reforms intended to spur economic innovation and growth. And they framed their appeals to groups that have been cool to the center-left – small business operators, entrepreneurs and especially young voters, whose economic prospects are especially bleak.

The Alleanza also seems determined to break with the quasi-pacifist stance of many on the European left. Vernetti, deputy foreign minister in the last center-left government, emphasized Italy’s responsibility to contribute to security in an interdependent world. He urged progressives to rise above partisanship and approve the government’s request for funds to send 1,000 more troops to Afghanistan.

Seen from one perspective, the Alleanza’s birth marks yet another rupture in Italy’s fissiparous center-left. But from another vantage point – the need for Italian progressives to fashion a credible governing agenda for reform and renewal, to forge a new political center — it is a promising development indeed.

Europe, We Love You, But Please Shut Up

Wednesday, December 9th, 2009
Jim Arkedis



Jim Arkedis is the director of PPI's National Security Project.

by Jim Arkedis

Over the course of the past week, the Swedish government, which currently holds the EU’s soon-to-be-extinguished rotating presidency, suggested that the European Union’s foreign ministries declare Jerusalem a divided city and the future capital of a Palestinian state. The draft statement also implied that the EU would recognize a unilateral Palestinian declaration of statehood.

The Israelis reacted harshly, and lobbied the Europeans to change the statement, which now reads, “If there is to be a genuine peace, a way must be found (through negotiations) to resolve the status of Jerusalem as the future capital of two states.”

Even the milder declaration hasn’t exactly received much enthusiasm from the Israelis, while garnering divided support between the Arab League and Palestinian Authority.

Skeptics say that Sweden’s stab at forging European unity was a cynical attempt to leave a legacy from its last crack at the EU presidency (with the advent of Herman Von Rompuy’s more permanent ascent to that post) to either show symbolic solidarity with Palestine or to forge a joint European position on an important issue.

And though the Palestinians are, of course, content to receive international backing, let’s be honest: This effort at joint European diplomacy looks like amateur hour and risks further destabilizing an already fragile process.

A few months ago, I had lunch with a friend involved in European social-democratic circles. He said (and I’m paraphrasing), “Europe can’t do anything on the diplomatic front with Israel/Palestine, but if America can broker a deal, we are ready and anxious to pay for the whole thing: security, development, trade… you name it.”

My friend was right — Europe hasn’t invested much diplomatic capital in the Middle East peace process. Issuing public and controversial statements of questionable utility could only upset – and, in the worst case, undo — the hard, delicate, behind-the-scenes work of the American administration.

We’d love for Europe to pay; but for now, we’d also love for it to shut up.

Germany’s Afghanistan Scandal

Tuesday, December 1st, 2009
Clay Risen



Clay Risen is the managing editor of Democracy: A Journal of Ideas and the author of A Nation on Fire: America in the Wake of the King Assassination. He was a 2009 Arthur F. Burns journalism fellow in Berlin.

by Clay Risen

Berlin the city is bracing for its first winter snows, but Berlin the seat of government is in the middle of a storm of a very different type.

On Sept. 4, a German military commander near Kunduz, Afghanistan called in a NATO air strike against two stolen German tanker trucks, allegedly unaware that hundreds of civilians had gathered around them. The resulting attacks left as many as 150 dead, but the Merkel government, then in the thick of its reelection campaign, said the casualties were a tragic but unavoidable mistake, and the issue was largely irrelevant on election day.

Since then, the civilian leadership of the military has shifted — Defense Minister Franz Josef Jung moved to the labor ministry, while Economics Minister Karl-Theodor zu Guttenberg took over the defense post. Jung left the spotlight, and zu Guttenberg immediately called the attack “militarily appropriate.” Everything seemed calm, for a few weeks.

But new evidence shows that Jung may have known of at least some civilian casualties only hours after the attacks. Even worse, the leading daily paper in Cologne, the Kölner Stadt-Anzeiger, reported that the Merkel government had internally determined before the election that the attack was not actually necessary, but had kept its assessment secret.

The new reports have led to Jung’s resignation, on Friday, as well as the sacking of two top defense ministry officials by zu Guttenberg. Merkel’s team now says it is “reassessing” the situation. But it’s unlikely to be enough: The parliamentary opposition, particularly the hard left, has been looking for an anti-war foothold for years, and the unfolding scandal is an excellent chance to step up its attacks on Merkel and zu Guttenberg, whom some see as a potential future chancellor candidate.

It’s important not to blow the scandal out of proportion. The German public response has been muted, in large part because no German soldiers died in the incident. For all its cultural differences, the public’s calculus for tolerating the violence of war is the same as in the U.S.: all death is tragic, but even civilian deaths overseas, at the hands of German troops, are unlikely to change the mood dramatically.

Indeed, one of the more salient aspects of the attacks is the discovery that German overseas aggression, long the bogeyman of German culture, is no longer such a big deal among the public. Germans are unlikely to accept, say, permanent bases or unilateral declarations of war anytime soon, but the Kunduz Affair shows that these days they are much less idiosyncratic in their attitudes toward war than the world has long believed.

Which isn’t to say that the scandal will have no effect. Given the conservatives’ hold on parliament, it is unlikely to disrupt their planned re-approval of the Afghan deployment next month. But it will make it harder to significantly increase troop deployments next year, something zu Guttenberg has hinted he will pursue in the coming months. Which is bad news for the United States and NATO, both of which are clamoring for more contributions from alliance members.

The Little Republic that Could

Tuesday, November 24th, 2009
Mike Derham



Mike Derham is chair of PPI's Innovative Economy Project.

by Mike Derham

Listening to the Scorpions’ “Wind of Change” while sitting in a restaurant in Pristina, the capital of the disputed Republic of Kosovo, on the 20th anniversary of the fall of the Berlin Wall, it hit me that Kosovo is an underplayed success story of nation-building. From an oppressed corner of Milosevic’s Yugoslavia, Kosovo has turned into a vibrant society. It has its share of problems, like all the other countries in the Balkans, but it has established itself as a case study for how Western democracies can work with a Muslim-majority country.

The fruits of this engagement were seen in the local elections held in Kosovo on November 15, the first held by Kosovo since it declared independence in February 2008. With the help of the Kosovo Democratic Institute (KDI) and the National Democratic Institute (NDI), I was able to participate as an observer of the elections, up in the northern part of Kosovo. We were able to watch the elections from both sides of the Ibar River, the de facto dividing line between the Serb- and Albanian-controlled parts of Kosovo.

At the polling centers we went to in Mitrovica south of the river and in the town of Vushtrria, staffers conscious of the historic nature of the vote were more than eager to show us around. The major (Albanian) parties all had representatives at just about every station, who followed the election closely. And the aftermath of the election was like it is for most elections around the world — political negotiating behind closed doors. Like elsewhere, democracy works as far as it goes.

Still a House Divided

Anti-aircraft gun in front of the Kosovo Museum and mosque - PristinaThe key words in Kosovo, however, are “as far as it goes.” It doesn’t go up to the Serb-majority area in the north. As dusk started to gather in Mitrovica, we headed north of the Ibar into the Serb-majority areas. Polling stations were supposed to open, but the Kosovo Election Commission had left them closed in most locations out of safety concerns. Gangs of “Bridge Watchers” milled around election sites — Serbians who watched who crossed the bridges across the Ibar and pelted rocks on those with Kosovo plates. (Hence our choice of a rental Land Rover with neutral Macedonian plates.) A temporary polling center was run literally out of the trunk of a car at the “invisible border” between Serb and Albanian areas by a Brit and an Aussie – but no one showed up.

We drove up to Bistricë e Shalës, an enclave of 200 Albanians in the otherwise exclusively Serb Leposavić municipality. The last part of the drive to Bistricë was a five-mile ordeal on a dirt road over a mountain and down into a nestled valley. You could see why Serbs had failed to drive Albanians out of the location during the 1999 war — which made it all the more impressive that the Election Commission had a polling station set up, complete with party and NGO observers. But with Serbs in the north boycotting the election, all 146 votes for mayor cast in the nearly 20,000-person municipality came from that station. The most immediate issue the Mayor-elect of Leposavić faces is the fact that over 99 percent of his electorate doesn’t recognize his mandate.

The government of Kosovo has made strides towards solving this problem. A big step in the process is redistricting, creating new, Serb-majority municipalities to give the Serb minority more clout and buy-in to the process. While that has yet to make headway in parts of Kosovo that border Serbia, like Leposavić, it has worked in enclaves like Gračanica, home of a famous Orthodox monastery and over 10,000 Serbs. Despite Belgrade’s entreaties to boycott the Kosovo election, turnout in these enclaves was reputed to be around 30 percent, which compares favorably with Serb turnout for Belgrade-organized parallel elections last year. Mitrovica is scheduled to have similar, Pristina-organized elections next summer after a Serb-majority municipality is established there.

Posters for mayoral candidate, Ruzdhi Hexha. He did not win. – Prizren

But the solution to Kosovo’s relationship with Serbia is a tough one. Over the local Peja beer the night before the election, one observer familiar with both Serbia and Kosovo asked: “Why would the Serbs want it?” noting that Kosovo’s GDP per capita was less than one-third the rest of Yugoslavia’s 20 years ago. Certainly the beauty and cultural heritage of the Serb monasteries of Gračanica, Dečan, and Peć pull at Serbian heartstrings. But Belgrade’s lament that Kosovo is the heart of Serbia is met with the rejoinder that that heart beats in a foreign body. With Albanians numbering over 80 percent of Kosovo’s population a decade ago, and outnumbering Serbs in the country 10-to-1 now, Serbian claims need to be measured against the reality on the ground.

From a cynical perspective, Kosovo is an opportunity for Serbia — a small, poor Eastern European country — to get the focused attention of the U.S. and the EU. The foreign minister of Serbia, the young Vuk Jeremić, would be an unknown back-bencher if not for boosting his career by insisting on the indivisibility of Serbia and Kosovo. Both the president and prime minister of Serbia, considered strongly in favor of Serbian membership of the EU, would be tarred and feathered were they to publicly consider Kosovo anything short of an integral part of Serbia. As such, normalized relations will not come as long as this generation of politicians is in office in Belgrade.

Small Steps

A solution will have to come with the next generation. After visiting Bistricë, we went into the Serb part of Leposavić and met with an example of what that solution to the Kosovo problem will be. Savo is a Kosovo Serb who grew up in Leposavić and commutes into Mitrovica every day to go to school. A talented musician who, like most 18-year-old guys, has a fondness for Metallica and Green Day, Savo hopes to study music at the local university in Mitrovica. Over peach slivovica he and his brother home-brew, Savo explained that his parents consider themselves strictly Serbs. But, when asked, Savo conceded that he considered himself both Serbian and Kosovar. He was in fact dating an Albanian girl he met through a political awareness program NDI is sponsoring to integrate teens from both ethnic groups in Mitrovica. It’s this kind of incremental embrace of the opportunities in Kosovo — the opportunities that 30 percent of Serbs in smaller enclaves grasped when they went out to vote — that will lead to a solution that both Serbia and Kosovo can live with.

Gračanica Serbian Orthodox Monastery - GračanicaBut it’s a long road to get there. Helping both sides get down that road will be the carrot of accession to the EU. Both Serbia and Kosovo are part of the Western Balkan vacuum that exists within the European Union’s sphere. While Serbia is a full-on participant in the Stabilization and Association Process (SAA) that precedes EU accession, Kosovo has been part of the Stabilization Tracking Mechanism (which seems to be all the steps of the SAA, without the promise of EU candidacy at the end), with five of the 27 EU members, notably Greece and Spain, not recognizing its independence yet. Getting Serbia to the bargaining table with Kosovo as a prerequisite for EU accession would be a powerful motivator, much as the Greek Cypriot government in Nicosia was willing to talk to its Turkish counterpart before Cyprus’ EU accession in 2004.

For its part, Kosovo has so far been be willing to adhere to diplomatic niceties to assuage Serbia. The government in Pristina might want to consider another step of suggesting the exchange of “High Commissioners” with Belgrade. Taking a cue from the United Kingdom’s decolonization process in the 1950s and 1960s, such a move would acknowledge the special relationship between Serbia and Kosovo, allow Serbia to save face by not having to immediately accept a Kosovar ambassador, and — most importantly — give both countries a formal channel of communication to address their mutual concerns.

After dusk we went back to the Albanian part of Mitrovica to a school on the west side housing the biggest polling station in the city. As the clock ticked past seven o’clock and the polls closed, the polling station chairman asked for the door to the spartan classroom closed. I watched as polling officials, party representatives, and an observer from a local NGO gathered around the teacher’s desk. Opening the Election Commission’s booklet of directives, the chair began reading out loud the instructions.

As they went through the process the chair ordered one of the polling officials to retrieve the box of sealed disputed ballots to begin counting. A party official objected, saying that he interpreted the rules differently, and counting should proceed in a slightly different manner. After a couple of minutes of discussion, in which all had their say, the polling chair conceded the point, and ballots began to be counted. In that little corner of Kosovo, 500 miles behind the Iron Curtain that had lifted 20 years earlier, democracy slowly went to work.