Daily Archives: September 22, 2011

The showdown at the UN corral has been averted, for now. Palestinian president Mahmoud Abbas has delivered a letter seeking statehood to the UN Security Council, but has made clear that he does not expect an immediate vote, thereby at least delaying, the need for a US veto. But no one should be breathing a sigh of relief, because without swift action, the Middle East is now teetering on the edge of a new period of armed conflict.

In recent months the existing order in the Middle East and north Africa has been upended; new powers are jockeying for position and old ones (including Israel) have many reasons to deflect attention from internal unrest by magnifying external threats. Avoiding a vote on the current proposal for Palestinian statehood is the right short-term expedient for all concerned, but a new international strategy to move the peace process forward is now a regional and global imperative. 

Conventional wisdom may now be only half right when it comes to solving Europe’s mess. Fixing the sovereign debt problem is still necessary, but longer be sufficient. Europe must also move quickly to stabilise the banks at its core in ways that go far beyond what the European Central Bank announced on Wednesday. As senior BNP Paribas executives prepare to tour the Middle East in an attempt to raise fresh funds and shore up confidence, other banks must also show greater urgency and seriousness in dealing with capital and asset quality shortfalls if a bigger economic crisis is to be averted.

There are worrying signs of an institutional run on French banks. Credit markets now put their risk of default at levels indicative of a BB rating, which is fundamentally inconsistent with sound banking operations. If it persists, the banks would have no choice but to delever their balance sheets in a very drastic and disorderly fashion. Europe would then be thrown into a full-blown banking crisis that aggravates the sovereign debt trap, renders certain another economic recession, and significantly worsens the outlook for the global economy. So far neither the authorities nor the banks have done, or are doing enough to stop – let alone reverse – this worrisome trend. As a result, Europe is on the verge of losing control of orderly solutions to its debt crisis.