Monthly Archives: January 2010

A potentially decisive moment is approaching in the Cyprus settlement talks that started in September 2008.  Ban Ki-moon, the United Nations secretary-general, is to visit the divided island on Sunday and stay there until Tuesday.  He does not, of course, have the authority to impose a settlement or even seriously to bang heads together.  But what he can do is impress on the Greek Cypriot and Turkish Cypriot leaders that the world is watching them and that a great deal hangs on the outcome of their negotiations.

A sense of urgency hangs over the talks because presidential elections will be held in Turkish Cypriot-controlled northern Cyprus on April 18.  Mehmet Ali Talat, the leftist president who helped revive the effort at reaching a comprehensive settlement more than 16 months ago, looks vulnerable to the challenge of Dervis Eroglu, the nationalist prime minister.

Eroglu says that, if he wins, he will not break off the talks with Demetris Christofias, the Greek Cypriot leader.  But the prospects for a deal would surely diminish, because Eroglu advocates a “two-state solution” to the Cyprus problem – i.e., one based on recognition of the north’s separate statehood.  This is not only unpalatable to the Greek Cypriots but runs contrary to the whole thrust of the UN-sponsored negotiations.  

The temptation to be cynical about the Cyprus talks is strong, but should be resisted.  I have met both Talat and Christofias, and I do not doubt their sincerity when they say they want a deal.  However, both men are operating under severe political pressures in their respective communities, and the time constraints are starting to tell.

True, it can sometimes feel as if time has stood still since Turkish forces invaded and partitioned the island in 1974.  The Greek Cypriots, who control the internationally recognised government of Cyprus, appear to feel little incentive to negotiate a settlement.  After all, they have spent almost six years as full members of the European Union, and have even been allowed into the eurozone, without having to pay any political price at all.

As for Turkey, it is surely an anachronism for a country that has modernised itself and opened itself up to the world so much over the past 30 years to continue to station at least 21,000 troops on Cyprus (the Greek Cypriots say the real figure is 43,000).

But as an excellent commentary by Didem Akyel of the International Crisis Group points out, “if this round of talks fails, that will be the surest route to partition, resulting in great losses for Cypriots and all others affected by the dispute”.  It would certainly strike a blow at Turkey’s already waning hopes of EU membership and at the possibility of closer EU-Nato co-operation.

Ah, but perhaps there are some EU countries that would secretly welcome both prospects?

How can Greece dig itself out of crisis?  From the sunny shores of south-eastern Europe, it could do worse than take a look at the windswept, north-western corner of the continent and study what the Irish government is doing.

As I noted last week, Greece, in spite of the disastrous condition of its public finances, has hardly suffered at all so far in terms of the living standards of ordinary citizens.  Gross domestic product is thought to have slipped by a mere 1.1 per cent last year.  By contrast, Ireland has experienced a vicious recession: between the fourth quarter of 2007 and the second quarter of 2009, Irish GDP slumped by more than 10 per cent.

Moreover, the Irish banking sector fell into such distress as a result of the global financial crisis that the government was forced to inject €11bn, or 7 per cent of GDP, into its banks last year.  It has also been forced to establish a “bad bank” – the National Asset Management Agency – to detoxify the system.  If it had not been for the unorthodox support measures provided by the European Central Bank, it is entirely likely that the Irish financial sector would have gone into meltdown.

But now the Irish government is doing its bit to overcome the crisis.  Cuts in public sector wages and welfare benefits form part of what is the most stringent budget in Ireland since the declaration of independence in 1919.  For sure, the yawning budget deficit will not be closed overnight, and Ireland will have to live with a public debt far higher than it had in its Celtic Tiger days.  Economic recovery will be fragile.

But given the constraints of European monetary union (devaluation is not an option, there is no national control over interest rates, and so on), Ireland has bitten the bullet and pushed through the only measures that will work.

Brian Lenihan, Ireland’s finance minister, made an interesting point last year when he said other European Union governments were amazed at the mild public reaction to the austerity measures in the 2010 budget.  There would have been riots in France, he observed.

What about Greece?  The conventional wisdom is that a Mediterranean government can’t adopt Irish-style rigour because people will pour into the streets, social order will be threatened and the authorities will back down.  This is too condescending, in my view.  Street protests have a ritualistic quality in France, Italy and elsewhere in southern Europe, and there is no automatic reason why they should throw a government off course.

What the Greek government needs to demonstrate is willpower, patience, intelligence and, above all, honesty – for this is, in the final resort, a crisis of confidence not in the Greek economy, but in the trustworthiness of the Greek political classes.

Athens invites Beijing to buy bonds (Kerin Hope & Jamil Anderlini, FT)

Lisbon moves to cut rising deficit (Peter Wise, FT)

Why did Lady Ashton take the EU’s foreign policy job (Charlemagne blog, Economist)

The memories came flooding back when I heard last weekend that Oskar Lafontaine, the leftwing German political leader, was withdrawing from national politics.  Lafontaine is the sort of public figure that lazy journalists often call “firebrand” (Ukraine’s Yulia Tymoshenko, though from the opposite end of the political spectrum, is another).

I first came across Lafontaine in November 1990, just after capitalist West Germany had taken over communist East Germany – a more accurate way of putting it, in Lafontaine’s opinion, than the weaselly term “reunification”.  He was the Social Democratic party’s candidate for chancellor in the first parliamentary elections in the newly united Germany, and he was holding a campaign rally in a sports hall in east Berlin.

Suddenly, there was a loud bang in the hall.  Lafontaine looked startled – with good reason.  A deranged woman had stabbed him in the throat on stage six months previously.  This time, however, it was just a child bursting a SPD campaign balloon.  “Amazing, all these Western toys you come across in the East these days,” Lafontaine murmured.

He went on to speak of the immense financial cost of reunification.  It wouldn’t be easy, he warned his east German audience, many of whom had known no political leaders in their lives except the awful Erich Honecker, the appalling Walter Ulbricht and the unspeakable Adolf Hitler.  People would have to work hard and not despair, Lafontaine continued.

As I looked around, I saw the east Germans stare at Lafontaine glumly.  This wasn’t the message they wanted to hear.  They preferred the promise of “blooming landscapes” made by Helmut Kohl, the Christian Democrat chancellor and mastermind of reunification, against whom Lafontaine was running.

Instead, here was Lafontaine, a self-confident stranger in a flashy suit, breezing in from the West, lecturing them on how to lead their lives and offering them no hope.  Although he correctly diagnosed the financial reality of reunification, he really was out of touch with the common people.  I saw this even more clearly when he was campaigning in his native Saarland and other parts of west Germany.  There he dined on oysters and Champagne, sitting next to his punk-haired girlfriend in a restaurant adorned with a modernist nude painting.  Guess who once tagged along for the ride on his campaign train?  Donovan, the flower-power minstrel of the Sixties.

Later in his career, Lafontaine was appointed finance minister in a SPD-led government in 1998, tried unsuccessfully to wrench German fiscal and economic policy in a radical left direction, and then resigned in a huff after a mere five months in office.  In 2005 he abandoned the SPD, and it wasn’t long before he hooked up with east Germany’s ex-communists in the newly formed Left party.

Some commentators are saying that Lafontaine’s departure is good news for the German left, because it increases the chances that the SPD and the Left party will be able to co-operate at national level and present a credible challenge to Angela Merkel, Germany’s chancellor, and her centre-right government.

Well, that might not be a bad thing.  In a democracy you need political competition.  But I notice that one such commentary, on the excellent Deutsche Welle website, persists in calling Lafontaine a “firebrand socialist”.  Will we never learn?  In most respects, he was a political failure.

There is a need to clear up some misconceptions about how Greece, or some other fiscal miscreant in the 16-nation eurozone, would be rescued by its partners in the event that it was unable to refinance its debts.

Quite a few commentators seem to think eurozone governments would find it hard to sidestep the ban on bail-outs specified in European Union treaty law.  The European Central Bank, the European Commission and certain EU governments, not least that of Greece itself, have contributed to the confusion by insisting in public that a rescue is undesirable and unnecessary (while quietly planning for precisely this contingency).

Actually, EU legal experts have known for some time that, although a rescue of a eurozone member-state would not be straightforward in legal terms, it would be far from impossible.

The relevant section of the EU’s Lisbon treaty, which came into effect in December, appears to be Article 122.  This contains two clauses.  The first states that EU governments may decide to help each other out in the event of severe difficulties in the supply of certain products, above all energy.  The second clause states that when a member-state “is in difficulties or is seriously threatened with severe difficulties caused by natural disasters or exceptional occurrences beyond its control, the Council [of national governments], on a proposal from the Commission, may grant, under certain conditions, Union financial assistance to the member-state concerned.”

There it is, in black and white.  EU governments can grant financial assistance to a fellow member-state that is in serious trouble.

Of course, Greece’s woes have not been caused by a natural disaster.  You could also make a pretty strong case that it is the mistakes of Greek policymakers, not events beyond Greece’s control, that lie behind the appalling mess in the Greek public finances.  Still, if you don’t define the 2007-09 world financial crisis as an “exceptional occurrence”, then it hard to see what type of event could ever fall into this category.

Note that Article 122 stresses it would be EU national governments, acting on advice from the Commission, that would take the decision to rescue Greece – or Ireland, Portugal and so on.  There is nothing in the treaty requiring the ECB to state its opinion one way or the other.  So, on this question, it is important to listen to eurozone political leaders, above all Chancellor Angela Merkel of Germany and President Nicolas Sarkozy of France, as well as Commission president José Manuel Barroso.

None of them is any doubt whatsoever that, if the worst happens, they will have to rescue Greece.  As they see matters, the stability of one eurozone country is essential to the stability of all the others.  As one high-level EU policymaker put it this week: “The EU has all the instruments to deal with the situation in Greece.  We can do it, if the political will is there to do it.”

Re-emerging Europe (Lex, FT)

Manufacturing interventions seen futile (Chris Bryant, FT)

EU struggles to ‘fly the flag’ in Haiti (EurActiv)

Are they just teething problems?  Or is something more serious at stake?  One way or another, the first signs are emerging that the European Union’s new foreign policy structures, established under the Lisbon treaty that came into force last month, are capable of producing just as much discord and disharmony as the old arrangements.

Let’s take the EU’s response to the Haiti earthquake.  Baroness Catherine Ashton, the EU’s foreign affairs supremo, convened an emergency meeting on January 18 at which the 27-nation bloc quickly and efficiently agreed a generous aid package for Haiti worth over 400 million euros.  At a news conference after the meeting, she was asked if she would be visiting Haiti and, if not, why not.  She replied that she wouldn’t be going, because the United Nations had requested her and other foreign dignitaries to stay away in order not to disrupt the emergency aid effort.  However, Karel De Gucht, the EU’s outgoing humanitarian aid commissioner, would travel to Haiti.  A perfectly sensible response.

A few days later, the sleuth-like French blogger Jean Quatremer reported that Michel Barnier, France’s nominee for the next European Commission, had criticised Ashton in a briefing for French reporters for not visiting Haiti.  When he was France’s foreign minister and the Asian tsunami had struck in 2004, he had gone straight to the devastated region, Barnier recalled.

Well, as we all know, the lives of millions of catastrophe-hit Asians returned instantly to normal as soon as they caught sight of Barnier’s distinguished features on their shores.  On this occasion, however, Barnier felt obliged to issue a curious-sounding statement last Friday in which he said he had meant no disrespect for Ashton but Europe’s foreign and defence policy was “an area of work I have always been interested in”.  He is, by the way, the commissioner-designate for the EU’s internal market, not the commissioner-designate for the internal market and other areas of work he’s interested in.

What this episode reveals is that Ashton really has her work cut out to win the respect of some of her European peers.  They know perfectly well that she was appointed EU foreign policy high representative almost by accident last November and that she lacks experience in the field.  Barnier is not the only one sneering at her or trying to pull attention away from her.  Another is Miguel Ángel Moratinos, foreign minister of Spain, which holds the EU’s rotating six-month presidency.  Under the Lisbon treaty, foreign affairs are supposed to come strictly under Ashton’s authority, but Moratinos is waving Spain’s flag at every opportunity, making sure that Spain is attending or even running as many meetings as possible.

To non-European outsiders, this looks chaotic and amateurish.  British anti-Europeans are having a field day.  Someone has to restore order fast.  Unfortunately, it won’t be Ashton – at least in the short term – because she still has only a threadbare staff working for her.  The call for discipline must come from none other than José Manuel Barroso, the European Commission president, Herman Van Rompuy, the EU’s full-time president, and – most important of all – Gordon Brown, Angela Merkel and Nicolas Sarkozy, the leaders of Britain, Germany and France.

Otherwise the EU’s image on the world stage, which took a hammering at December’s Copenhagen UN climate change conference, will slip even further.

Blow to eurozone recovery hopes (Ralph Atkins, FT)

Europe and an inscrutable China (Charlemagne, The Economist)

US data deal may be delayed (Toby Vogel, European Voice)

Bulgaria’s embattled nominee bows out (Tony Barber and Joshua Chaffin, FT)

FT rating of EU commissioners-designate (FT bureau, FT)

“I used to believe Britain had a lot in common with Europe. How wrong I was.” (Norman Tebbit, Telegraph)

There are some who say the forced withdrawal of Rumiana Jeleva as Bulgaria’s candidate for the European Commission on Tuesday was a blow to Commission president José Manuel Barroso.  After all, didn’t Barroso make public a letter in support of Jeleva as late as last Friday, only two working days before she crashed in flames?

I disagree.  The truth is, Barroso found himself in a very delicate situation and needed to extract himself from it without humiliating Jeleva, annoying the Bulgarian government and giving more excuses for the European Parliament to delay confirming his new Commission in office.  By and large, Barroso has achieved these three objectives.  He has handled the whole thing rather well.

Although he will never say it publicly, Barroso was not exactly thrilled when Bulgaria’s centre-right government nominated Jeleva to be the new humanitarian aid and crisis response commissioner.  As her confirmation hearing showed last week, she wasn’t up to the job – and, frankly, it wasn’t one of the top Commission posts in the first place.

But he had to accept Jeleva’s nomination because she was, after all, Bulgaria’s foreign minister.  Even as European Commission president, you can’t go round saying national foreign ministers are useless and you don’t want them on your team.  But in terms of her Commission prospects, Jeleva was toast as soon as her parliamentary hearing had ended.

Barroso must have known that.  But his primary goal was not to save Jeleva, it was to secure prompt confirmation of his new Commission.  His letter in support of her was a way of letting her down gently and signalling both to the Bulgarian government and to the party political groups in the parliament that he would be open to a different candidate.

Two other points.  First, Jeleva was a vice-president, no less, of the centre-right European People’s Party, the parliament’s largest political group.  How on earth did she rise so high?

Second, a note on pronunciation and the transliteration of Bulgarian words into English.  Jeleva’s name has caused confusion around Europe because the “J” has led some people to assume her name is pronounced “Ye-le-va”.  But the “J” in her name is not a German-, Polish- or Croatian-style “J”.  On the contrary, her name is pronounced “Zhe-le-va”.  The “J” is a French-influenced transliteration from the Bulgarian letter “ж“, which like its Russian equivalent is pronounced “zh” (think of the French name “Jean”, or how French people spell the late Soviet leader Leonid Brezhnev’s name – “Brejnev”).

If Jeleva were of Russian nationality, English-speakers would spell her name “Zheleva”.  Why, then, do English-speakers continue to use the French-based transliteration “j” instead of “zh”?  One reason is that Bulgarians themselves for a long time preferred to use “j”, because the use of a different transliteration system from that used for Russian helped to distinguish them from Russians.  But, in the interests of dispelling confusion, I am on the side of those who think it’s time to move – in English, at least - to “zh”.

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Peter Spiegel is the FT's Brussels bureau chief. He returned to the FT in August 2010 after spending five years covering foreign policy and national security issues from Washington for the Wall Street Journal and the Los Angeles Times, focusing on the wars in Iraq and Afghanistan. He first joined the FT in 1999 covering business regulation and corporate crime in its Washington bureau, before spending four years covering military affairs and the defence industry in London and Washington.

Joshua Chaffin is one of the FT's EU correspondents, covering areas including policies on trade, the environment and energy. He has worked in the FT's Brussels bureau since late 2008 and before that was an FT correspondent in New York and Washington DC.

Alex Barker is EU correspondent, covering the single market, financial regulation and competition. He was formerly an FT political correspondent in the UK and joined the FT in 2005.

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