Daily Archives: November 21, 2012

Israeli missiles continued to fall on Gaza; meanwhile, a bus was blown up in Tel Aviv. But by the end of Wednesday, a ceasefire agreement between Israel and Hamas, and brokered by Egypt and the US, was signed. However, there is a big difference between a truce that is an interlude between rounds of fighting and one that presages a promising political process. It might take a willingness to learn from Northern Ireland, of all places, to tip the scales towards the latter.

Decades of violence – “the troubles” – set the backdrop to negotiations. Success had its roots in British policy. London’s objective was to end the terrorism and bring about a political settlement. Doing so required persuading the Provisional IRA that it would never be able to shoot or bomb its way into power and that there was a political path open to it that would satisfy some of its goals and many of its supporters, if it would act responsibly.

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The government of Israel has internalised the first but not the second part of Britain’s strategy. Israel has carried out massive air strikes that have reportedly destroyed the bulk of Hamas’s Iran-supplied, longer-range missiles and killed dozens of Palestinians, including Hamas’s military chief.

But military force has limits. Israel cannot bludgeon the Palestinians into submission. Nor should it want to reoccupy Gaza: there is no reason to believe the results would be any better this time round.

Israel needs a Palestinian partner if it is ever to enjoy peace and be the secure, prosperous, democratic, Jewish state it deserves to be. But such a partner will not just emerge; Israel, as the stronger party, actually needs to help the process along.

Right now Israel has two potential but deeply flawed partners. The Palestinian Authority in the West Bank has an apparent desire to make peace but is too weak to make meaningful concessions. Hamas is easily strong enough but is unwilling to reject violence and accept Israel.

So Israel has a choice: it can work to strengthen the secular leadership on the West Bank or it can work to moderate Hamas. The former argues for dropping sanctions put in place to weaken and humiliate the PA. The latter means not just frustrating Hamas militarily but demonstrating that negotiation is likely to yield better results.

It is not clear whether Hamas is open to compromise. Even less clear, though, is what it has accomplished with this latest round of fighting. Hamas has again demonstrated its willingness to take the fight to Israel but also its inability to get results.

What has made the Hamas action singularly counterproductive was that it came on the heels of a visit to Gaza by Qatar’s prime minister and an infusion of financial support. Hamas had essentially weaned itself from dependence on Iran and Syria only to squander the opportunity.

Hamas is in competition with the PA that rules over the West Bank for who represents all Palestinians. Hamas enjoys an advantage, though: its agenda of political Islam much better captures the zeitgeist in Egypt and throughout the region, whereas those ruling the West Bank, including many former associates of Yassir Arafat, are widely seen as in the image of Arab strongmen who have been removed from power.

But Hamas only benefits from this comparison if it fully embraces political Islam as a means and not just an end. Distancing itself from armed aggression will not deliver a viable Palestinian state.

Israel needs to put Hamas to the test. It can do this by putting forward the outlines of a fair and comprehensive settlement and a reasonable path for getting there. The US should work closely with Israel in framing this proposal. Hillary Clinton, secretary of state, should use the rest of her time in the region to urge this course. Her goal should be to stimulate a debate in the Arab and Palestinian worlds that would press Hamas to change its ways or risk being caught between those who are even more radical and those prepared to compromise.

This was the dynamic created in Belfast. In the end, Gerry Adams and Martin McGuinness – the leaders of Northern Ireland’s Hamas equivalent – met the British challenge. They put down their arms, entered the political process and reached agreement with those they had fought for decades. Leaders of both communities deserve credit – but no more than the British, Irish and US governments that created a context for diplomacy.

It is up to Israel, the US and Arab governments to do the same now. No one can be certain the effort will pay off; what is sure, though, is that the choices and options will only become worse with the passage of time.

The writer is the president of the Council on Foreign Relations. He was the US envoy to the Northern Ireland peace process from 2001-03

Despite a courageous public stance by the International Monetary Fund, European officials failed again on Tuesday to deal with the critical issue of Greece’s debt sustainability. If this continues, they will undermine yet another bailout package for Greece and suffer further erosion in credibility, especially in the eyes of their own citizens. They also risk seeing another hard-fought cash infusion do little more than buy a few months for a struggling Greek population.

Greece’s problems are well documented. Years of economic mismanagement and resource misallocations have left the country with poor competitiveness, a bloated public sector, way too much debt, and bankrupt banks. To complicate matters further, the country’s short-term economic aspirations are yet to converge with the country’s inconvenient truths.

The political and social dimension is also concerning. Unlike other notable sovereign debt crises (South Korea in 1998, Brazil in 2002-3, Iceland in 2008-9, and Ireland in the past three years), Greek citizens continue to protest and disengage, showing no sign of rallying behind their elected officials in a national recovery effort.

This latest bailout package is meant to improve things: by injecting more money into an economy riddled with payments arrears and virtually no financing for working capital (let alone new plants and equipment); and by accompanying this temporary financial relief with measures to bring the budget under control, recapitalise banks and expand growth-enhancing structural reforms.

While well-intentioned, this bailout would likely fail if a major sticking point — Greece’s need for another major debt reduction — remains unresolved. The country would thus stay stuck in a recession that has ravaged the country for more than four years. Youth unemployment, already in excess of 50 per cent, would become more deeply embedded. And the social problems would continue, with a particularly devastating effect on the most vulnerable segments of the population.

When confronted with yet another failure, European officials would again point the finger of blame at the Greek government for not implementing the programme in full. Greece would again blame programme design. And the challenging regional environment would be lamented by all, as would the lack of responsive institutional mechanisms.

Thanks to the IMF’s willingness to speak out, a new element would now be hard to ignore: European officials’ repeated wish to brush under the rug Greece’s debt overhang.

The IMF’s insistence — at the cost of angering some of its most important political masters — is anchored by solid theory and experience.

Think of what happens when a huge dark cloud hangs over a home. Occupants will delay as much as they can any outside activities pending the passage of this menace. Same for a visibly outsized and unsustainable sovereign debt stock; in addition to draining government resources, it discourages fresh capital inflows critical for the “four Rs” of overcoming a debt crisis: recapitalisation, rehabilitation, restructuring and recovery.

Deep inside, European officials understand this. After all, they did fund a couple of years ago a significant haircut on Greek bonds held by private creditors. Today, some are suggesting another round of such “PSI” (private sector involvement). But the problem no longer resides with the private debt.

The devastating debt overhang now consists primarily of debt owed to European governments, institutions and the IMF. And all that Europe seems willing to consider right now is to extend principal maturities and reduce interest rates. Explicit official debt reduction operations — or “OSI” for official sector involvement — appear off the table.

By again refusing to take a meaningful haircut, European officials believe they are avoiding precedents that are not just politically tricky but could also fuel disruptive regional contagion. To the extent they are correct — and it is debatable — they would be winning a small battle by increasing the probability of losing the war.

Until recently, many European officials stubbornly held to the belief that “advanced countries” – and especially those that had risen to membership of such a privileged club as the eurozone – were structurally immune to “developing country debt crises.” Their outmoded mindset undercut responsive policy responses, wasting billions of Euros and undermining millions of lives. By again shying away on Tuesday from meaningful official debt reduction, Europeans signaled that they still lag realities on the ground.

The IMF is right. Greece urgently needs OSI. The longer Europe resists, the greater the risks to the integrity of Greece and to the credibility of Eurozone policy responses. Let’s hope that good sense prevails when European officials convene again next week.

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