Monthly Archives: August 2013

One thing about America’s imminent intervention in Syria is painfully simple: this is a no-win situation for the US. A good choice does not exist.

Given the options available, a limited punitive strike in reaction to Bashar al-Assad’s chemical weapons use is decidedly the correct course of action – both on moral grounds as well as from a pragmatic perspective weighing US national security interests. The use of chemical weapons was in fact a game changer, and the issue goes well beyond the war raging in Syria. This is when American leadership matters: there is no one else left standing who can deliver a reminder that weapons of mass destruction won’t be tolerated, however awkward and belated that reminder may be.


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With the stakes so high, it is appalling – albeit unsurprising – to witness the political gamesmanship at work within the US, and among allies who are shirking support for strikes. Domestically, many are prepared to remain on the sidelines or come out in vocal opposition, not because they think it is better policy to do so, but rather to make political hay or take easy shots at President Obama. Look at House Speaker John Boehner’s letter to the president and the Congressional constituency clamouring for Mr Obama to wait for a vote of approval.

Even the British are now prepared to look on and watch after a clear political miscalculation by David Cameron (who supported the strikes). In an unexpected twist, the House of Commons voted against striking Syria, largely on the back of scepticism about military action from the Labour party. Call us cynical, but Ed Miliband, Labour leader, may have voted against the government’s motion allowing action in part because of the political advantages inherent in weakening Cameron with a public display of his tactical ineptitude.

And it’s particularly easy to come out against Mr Obama’s stance, simply because it has been so publicised. Mr Obama is clearly telegraphing his coming actions so as to reduce the risk that limited strikes lead to retaliatory escalation or an expanded American role in the Syrian civil war. The downside? Mr Obama’s open-book game plan gives opposition and allies alike plenty of room to score points without changing the overall policy trajectory. American allies like Saudi Arabia and Qatar implicitly support the strikes, but Mr Obama’s position has given them wiggle room to remain on the sidelines and stay mum, knowing full well that America will still follow through with strikes.

Perhaps politicians feel entitled to make political hay out of a crisis that was born out of political rhetoric. It was Mr Obama himself who set the redline with offhand remarks last August – even his advisers didn’t anticipate the comments that are now forcing his hand. In doing so, Mr Obama made it easy for the British to remain on the sidelines; we should have anticipated that our allies’ support was not a foregone conclusion when we first put this policy into place. After all, it’s very hard to lead from behind when our allies are even further behind us. And from a humanitarian perspective, the redline feels arbitrary – why punish Mr Assad for killing a thousand people with chemical weapons, when 100,000+ deaths have gone unanswered?

On the contrary, it’s very clear what is at stake for national interests – America’s credibility itself. That’s because this goes beyond Syria in two fundamental ways. First, we must act because we said we would. The world will judge our capacity to respond in future situations by the resolve we show here. This isn’t about neocon pre-emptive war. It’s about standing up for values that will define global development in the 21st century.

Second, it matters for the region. Make no mistake, any lack of resolve by the US will strengthen the legitimacy of the Mr Assad government and by extension Iran and Hizbollah. And with all the blustering about Syria, the latest International Atomic Energy Agency report indicating Iran’s rapid strides toward nuclear breakout capacity was swept under the rug with little media attention. This is the true American priority in the region, and it is imperative that a broken redline on Syrian weapons of mass destruction use doesn’t blur the line regarding Iran’s.

Mr Obama’s blunder last year in setting the redline is no excuse for undermining America’s national interests now. Even if this were pure politics, going forward with the strike is still the right thing to do; if anything, it is even more compelling, from a perspective of upholding America’s credibility and putting the US in the best possible situation with regard to Iran’s sprint for nuclear weapons capability. By squabbling and speaking out against it, our allies and our politicians are undermining the message that the strikes will send.

All our elected officials, democrats and republicans, need to come together. Those speaking out against the policy may be scoring easy points – but at America’s expense.

Ian Bremmer is President of Eurasia Group and author of “Every Nation for Itself.” Jon Huntsman was the governor of Utah from 2005 to 2009 and the US ambassador to China from 2009 to 2011.

The British Parliament’s rejection of a motion endorsing UK participation in expected military action against Syria is nothing less than stunning – an event with a political significance that transcends the immediate debate over whether and how to respond to what appears to have been wide-scale use of chemical weapons by Syrian government forces against civilians in their own country. Continue reading »

Veterans of intervention recognise the signs: a ghastly atrocity against civilians tips reluctant politicians and public opinion into action. The chemical attacks last week in the Damascus suburbs of Ghouta have echoes of the massacres in the Bosnian town of Srebrenica or more recently the imminent killing of civilians in Libya by the forces of the late dictator Muammar Qaddafi. In each case, caution is put aside as the moral and geopolitical costs of inaction appear greater than the costs of action.

Syria seems today to have reached that point. The regime’s belated agreement to let the UN weapons inspectors cross town to investigate what happened in Ghouta may reflect that it realises it risks isolating itself as a pariah. In the UK and France, commentators and politicians have made up their minds that it is time to do something about Syria. Government forces could only have instigated such an attack, with UN weapons inspectors just arrived in town, in order to seek a psychological knock-out blow against the rebels: if Bashar al-Assad can do this with impunity and still the West dithers, goes his implicit message to his opponents, then the rebels should give up on ever getting the western weapons and military support they had counted on. Continue reading »

There will be many catastrophic outcomes to the present political chaos in Egypt, but the one that every Muslim dreads which will have the worst consequences for the wider Arab and Islamic world will be the increasing spread of sectarianism and intolerance that will now flourish out of the Arab world’s most important state and Islam’s bastion of thought, learning and tolerance for centuries.

Even as the Muslim Brotherhood and the army continue to battle it out in Cairo’s streets, Egypt’s vulnerable Coptic Christians are getting the blame – for siding with the military or the US, or for just being different. Ten per cent of Egypt’s 85m people are Christian and they have seen dozens of their churches and other symbols burnt down over the past two years.

Continue reading »

A man holds the body of a dead child among bodies of people activists say were killed by nerve gas in the Ghouta region, in the Duma neighbourhood of Damascus©Reuters

A man holds the body of a dead child among bodies of people activists say were killed by chemical attack in the Duma neighbourhood of Damascus. Reuters

With much of the world’s attention fixed on the drama playing out in the streets of Egypt, the civil war in Syria that has claimed as many as 100,000 lives grinds on in the shadows. But new allegations of massive use of chemical weapons by the regime of Bashar al-Assad have once more brought Syria into focus and raised anew the question of what more, if anything, should be done to stop what is going on there.

The US, France and the UK have called upon the UN Security Council to undertake an urgent investigation of this latest evidence of the possible use of chemical weapons that may have caused the deaths of hundreds. Meanwhile, Barack Obama’s administration is in a grave predicament, much of its own making. The US president has, on several occasions, declared that Syrian use of chemical weapons would cross a “red line”, constituting a “game changer” that would alter his calculus of what his country was prepared to do.

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What makes all this awkward and more is that the US essentially opted not to do anything when it became clear that the Syrian regime did use chemical weapons against its own citizens several months ago. To be precise, it chose not to respond with military force, but instead to open the possibility that it would supply less radical opposition forces with lethal weaponry. The reality that such support has been more rhetorical than real, and has done nothing to alter the military balance, makes US warnings appear empty.


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So what should be done if the new allegations of chemical-weapons use are true? It is essential to respond directly and meaningfully to any use of such weapons so they are not used again by the regime. But the reasons for a strong response transcend Syria. It will be a very different 21st century if weapons of mass destruction – whether they are chemical, biological or nuclear – come to be seen as just another type of weapon. There needs to be a robust taboo surrounding their use. Any leader must know that a decision to deploy them will sacrifice sovereign immunity and result in many in the world accepting nothing less than ousting and arrest.

There is also the more immediate question of American credibility. A president of the US cannot say something crosses a red line and then go on conducting business as usual. Doing so dilutes the impact of both threats to foes and assurances to friends. There is no way of knowing if past US inaction may have emboldened the regime to again use chemicals, but it is all too possible that not following through on threats could have consequences where the stakes are arguably larger – namely, Iran. On numerous occasions this president has said the US had no interest in containing an Iran with nuclear weapons but rather was committed to preventing Iran from acquiring a nuclear weapon. A president cannot afford to be selective when it comes to drawing red lines if he wants them to be respected.

There is, however, another consideration to take into account. This administration and the world have shown considerable caution about being drawn into the Syrian imbroglio, fearing for good reason that direct military involvement could prove costly by every measure and that many in the opposition constitute an alternative no better than the odious regime they are fighting. In the Middle East, the enemy of your enemy can still be your enemy.

Indeed, the top military figure in the US, General Martin Dempsey, chairman of the joint chiefs of staff, argued in a letter to a congressman just this week that the US should largely remain militarily aloof from Syria given the weak and divided nature of the opposition and the poor prospects for military options making an appreciable difference. Implicit in his letter was the view that large-scale military involvement would be a costly strategic distraction of uncertain promise.

Is there a way, then, to balance both the need to respond and the need for restraint? Two initiatives come to mind. The first would be to launch cruise missile strikes against select targets: anything associated with chemical weapons, command and control sites, and airfields used by government forces. The second would be to make good on the promise to supply those opposition forces deemed politically acceptable with significant numbers of anti-air and anti-armour capabilities.

Such a punitive response sends the message that use of chemical weapons will not be tolerated and will be costly for the regime. It does not preclude additional responses if warranted. But a limited action of this sort avoids enmeshing the US or any other government joining the effort in open-ended involvement in Syria’s civil war.

Such action is likely to be too much for some and not enough for others; be that as it may, it offers a way to reinforce critical norms without getting drawn into a costly and uncertain war.

The writer is president of the Council on Foreign Relations and author of ‘Foreign Policy Begins at Home: The Case for Putting America’s House in Order’

August is usually considered a bad month for implementing major changes to investment strategies. With so many traders on holiday and with volumes at seasonally subdued levels, liquidity can be quite patchy. Yet, this time around, there are good reasons why investors may wish to reconsider the conventional wisdom of waiting for the autumn to reposition their portfolios.

The next few months promise to be particularly tricky and volatile for markets, with uncertainty coming from the US, Europe, Japan and the Middle East.


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In the US, the Federal Reserve is expected to signal at its September policy meeting its appetite for tapering its exceptional support for markets and the economy. In deciding whether and by how much to alter its $85bn of monthly purchases of market securities, and in placing greater relative emphasis on forward policy guidance in the policy mix, central bankers may also provide us with greater details on the why. In particular, on the balance between positive reasons (because the economy is improving on a sustainable basis) and negative ones (because of worries about the collateral damage and unintended consequences of prolonged reliance on this experimental monetary policy).

The market implications of the two are quite different, particularly for emerging markets. Having been on the receiving end of significant private capital flows prompted by the Fed’s quantitative easing, these markets require credible signals of solid growth prospects. Otherwise, both the prospect and reality of destabilising capital outflows increase the risks of internal policy slippages and an unbalanced policy mix, a phenomenon that is already evident in some countries.

September may also bring news of the next chairman of the Federal Reserve. With Ben Bernanke expected to step down in January at the end of his second term, markets will carefully assess the scope for policy continuity at the central bank – particularly at a time when investors have repeatedly relied on the “Fed put” to disconnect high asset prices from sluggish fundamentals.

Then there is America’s highly polarised Congress. When they return from their summer recess, lawmakers will be unable to avoid for long two important pieces of legislation: the immediate one required for the continued functioning of the government; and that needed to avoid a technical sovereign default a few months down the road. In both cases, there are already noisy political trade-offs in play; and they have less to do with merit and more with the manoeuvrings of an unusually polarised Congress.

The situation across the Atlantic is also quite uncertain. With German elections in September, and with few wishing to undermine Chancellor Angela Merkel’s likely victory, several national and regional initiatives have been placed on hold. This summer pause has reduced policy disagreements; but at the cost of heavily burdening the autumn policy agenda facing officials who have repeatedly proven reluctant to take prompt decisions absent crisis-like conditions.

This European uncertainty relates to more than discussions on the four legs of a robust eurozone – namely, supplementing monetary union with closer fiscal, banking and political integration. Officials also face politically-complex decisions on three particularly tricky programme reviews (Cyprus, Greece and Portugal). In each case, they need to find ways to increase funding and reduce the burden of debt.

In Japan, delays in unveiling the “third policy arrow” are undermining the policy pivot implemented by the Bank of Japan at the behest of Prime Minister Shinzo Abe. Judging from the recent sell-off in Japanese equities and the behaviour of the currency, markets are already signalling that Japan’s policy experiment will falter if exceptional monetary and fiscal stimulus is not accompanied quickly by structural reforms.

Given also the disproportionate damage to emerging markets, we should expect all this to reignite some tensions at the multilateral level ahead of the September G20 Summit in Russia and the early-October IMF/World Bank annual meetings in Washington.

Then there is the Middle East. The regional effects of the tragic civil war in Syria are now being amplified by developments in Egypt. And while the Egyptian situation is not as dire as Syria’s, it too lacks the institutional and political anchors needed to restore stability quickly.

Wherever you look at it, a long list of uncertainties is building up as the summer comes to an end. And it consists of factors that are not easily resolved by the tepid endogenous healing of the global economy – all of which points to quite a bit of autumn market volatility.

Mohamed El-Erian is chief executive and co-chief investment officer of Pimco

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Complaints about public officials’ short time horizons are well rehearsed: the gripe is usually that too many activist policies result from pandering to voters and special interests. But the reality is that measures are often discarded before they have a chance to work. Then, having not really tried, policy makers claim that the target was unattainable. In macroeconomics, it is the unemployed who suffer most from this repeated failure to follow through.

There is a rush in the US and Europe to prematurely declare stimulus policies ineffective at reducing unemployment. Much of the persistent joblessness is deemed structural and the costs of addressing long-term unemployment too daunting. Labour regulations and skills mismatches clearly play some role in keeping the jobless out of work, but their impact is exaggerated to excuse inaction.


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What a reversal from just a year ago. Last summer the US Federal Reserve’s Jackson Hole conference ended with a paper by Edward Lazear, a prominent Stanford economist, who argued that almost all US unemployment was cyclical and thus reparable through stimulus. That conclusion was then welcomed by Ben Bernanke, the central bank’s chairman. It was consistent with the Fed’s insistence that the level of employment that can be sustained by the US economy without stoking inflation – the “Nairu”, the non-accelerating inflation rate of unemployment – had not risen. Policy makers had not yet accepted high unemployment as a fact of life.

That was justified – and was consistent with the rate-setting Federal Open Market Committee’s subsequent decision to keep short-term rates near zero so long as unemployment was above 6.5 per cent and expected medium-term inflation was below 2.5 per cent. It injected stimulus, expecting that it would bring unemployment down.

Yet for the past three months, despite little improvement, most members of the FOMC have spoken about a desire to “taper” off stimulatory policy by September. They reaffirmed that desire even after the market interest rates rose almost 100 basis points as a result of their statements. This credit market tightening, combined with the ham-fisted fiscal sequestration – the across-the-board cuts in federal spending that took effect in March – have dragged on US growth.

Weak growth will not reduce unemployment. The FOMC members’ own forecasts for falling joblessness – which are used to excuse inaction – reveal they assume that the more than 4 per cent of US workers who dropped out of work after 2008 will not return to the labour market. That is unjustifiable defeatism.

Yes, there has been a demographic shift leading to falling growth in the female and immigrant labour forces – but these trends were identified before the crisis, and could explain at best a decline of a few tenths of a point. Some US workers received extended unemployment benefits, and others have moved on to disability rolls – but neither explain much of the higher unemployment rate. Most discouraged workers should still respond to a sufficient and sustained increase in aggregate demand.

So there is no reason to hold back on trying to drive US unemployment down through monetary and fiscal policy. An elastic supply of labour will keep wage growth low, which will suppress inflationary pressure. There is some evidence of mismatch between vacancies and jobseekers’ skills at the aggregate level but Peter Diamond, awarded a Nobel Prize for work in this area, has warned against reading too much into this. There is little direct evidence of skills shortages.

While a precise breakdown of unemployment into cyclical versus structural components is impossible, policy makers need not worry. If anything, fixating on false precision of any labour market estimate is nothing but an excuse for inaction. Firstly, over or undershooting the Nairu temporarily does not lead to explosive changes in inflation.

At present, there is no danger of a 1970s-style wage-price spiral. Back then we had different labour market institutions (such as unions and inflation-indexing of wages) and bargaining power (pre-globalisation), as well as weaker central bank independence, which contributed to inflation. Marked growth in wage demands are unlikely. Those in jobs today are so eager to keep them that it is likely underemployment – working too few hours to make ends meet – will be a bigger problem.

Second, there is no way to find out the sustainable level of employment without experimentation. This was exemplified by the great triumph of the Alan Greenspan era at the Fed: letting the economy run hotter for longer in the mid-1990s than previous estimates of the Nairu would have allowed and discovering that employment could rise without inflation. True, that experiment was based on Mr Greenspan’s insight that there had been a rise in underlying productivity growth – and its growth may now be slowing. But the relevant question for policy makers then, as now, was how much labour sits unemployed, and the ability of that labour to start working again.

The costs of pushing a bit too far are small and reversible. But the costs of letting unemployment persist are vast. Even reforms to reduce structural unemployment, which worked in Germany a decade ago or in the US a decade before that, only take effect in an expanding economy. There is no good reason for the Fed to give up on the labour market – and thus no good argument for allowing the de facto tightening of monetary conditions to stand.

The writer is president of the Peterson Institute for International Economics


Letter in response to this article:

Start tapering now to prevent bubbles / From Dr Desmond Lachman

President Barack Obama has decided not to bring his influence to bear on Egypt. In a statement on Thursday, he spoke out against this week’s violence in the country and cancelled forthcoming joint military exercises, declaring that “our traditional co-operation cannot continue as usual.” But in effect, business as usual was what he championed. These were largely symbolic gestures that did not undermine implicit US support for the Egyptian military.

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America’s link to the generals is longstanding. That is the backdrop for the decision to acquiesce in July’s military coup against the Egyptian president, the Muslim Brotherhood’s Mohamed Morsi. It was a significant foreign policy misstep, compounded by the Obama administration’s subsequent statements and decisions. In early August John Kerry, secretary of state, described the military as “restoring democracy”. At the time it was incorrect. This week, it has become a stain on the White House.

On Wednesday the Egyptian authorities moved against the Brotherhood, who had organised protests against the coup. The violence escalated; some of the opposition were armed. More than 500 people have died. The Islamists have attacked churches and police stations across the country. The pro-military and pro-Brotherhood factions are now too polarised for any compromise to take shape. How can you broker a deal when the two sides are digging in deeper?

The issue is less about whether or not there was a military coup in July but rather why the revolution in 2011 failed to take root. Depending on how you look at it, the revolution was incomplete, unsuccessful, or, more cynically, it never got rolling to begin with. That’s not a narrative that people like to hear. The military wasn’t “restoring democracy” in July because democracy never managed to take root in the first place; the military didn’t give up power. There was change – some generals were replaced – and there was hope for more. But to say the military ever reported to the new administration and then overthrew it is fiction. The military retained enormous political and budgetary authority, and the Brotherhood-written constitution codified its power.


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Still, there was a real possibility that things would improve, albeit incrementally, as happened in Turkey in the 1990s. An elected government could have come in, beholden to the military, but over time, it could have stripped the military of its vested powers and the country could have lurched towards true democracy. This is the Egypt spring scenario: a trajectory that was plausible had Mr Morsi built out a broad governing coalition capable of addressing Egypt’s underlying power structure. But in November 2012 Mr Morsi declared himself above the law and served as the mouthpiece for an organisation that was (and is) in many ways anti-democratic, with attacks on churches and intimidation of its critics.

After the military’s actions in the past few weeks, there is no going back. For the US government, for Mohamed ElBaradei, for the Saudis and Emeratis, for everyone who was on board with the interim government, the chance for a settlement between the post-coup regime and the Brotherhood has evaporated. The majority either backs the military or the Brotherhood. Excluded from politics, the Brotherhood and its supporters will become more radicalised.

The military is playing to its base, which views the Brotherhood as a threat. The few who hoped to bridge the gap between the two sides can no longer play a role. The best that can be said is that Egypt is not Syria – civil war is unlikely. The military retains sufficient power to ensure the country stays together. It can put a floor under potential instability.

While Washington has had virtually no influence on developments in Egypt over the past six weeks, it does have leverage. If it wants to push the government to end the crackdowns and commit to free, fair elections and real transition by a near-term date, it could threaten to rescind aid or suspend military co-operation. Today, army commander General Abdel Fattah al-Sisi is far too distracted to be concerned with or influenced by the US. But it will eventually matter to Egypt – and it would immediately send a signal to other powers.

Whether the US would really be willing to make good on these threats – moves that could leave Egypt’s military less equipped to maintain stability – is another story. Based on Mr Obama’s comments on Thursday, he will cling to the status quo as long as it remains acceptable. In Syria, the US has dragged its feet in providing support to the opposition. In Egypt it will drag its feet in unwinding its support of the military. In Syria, central authority has eroded into chaos, with neither side able to take firm control of the country. In Egypt, the recent chaos has exposed that a central authority has had firm control all along.

The Egypt spring was always a lofty goal, requiring the military, the Muslim Brotherhood and Mr Morsi not to drop the baton. All three did. And by being too passive, the US didn’t do them any favours. After this week, any flicker of hope that the Egypt spring is within reach has been extinguished.

The writer is president of Eurasia Group

Francois Hollande©Reuters

If economic growth were correlated with ministerial hyperactivity, France would be bouncing back from recession even faster. President François Hollande has instructed his ministers to minimise time spent with their nearest and dearest, and told them that if they must take a break, it has to be in France, ideally punctuated with visits to local factories and employment agencies. Unemployment does not take a holiday, he explained.

To underline the point, the presidential spokesperson declared portentously that “power will not be on holiday” this year. Furthermore, ministers have been set homework: the whole cabinet must be back on parade at the Elysée Palace on August 19, ready for a discussion on the state of France in 10 years’ time.


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Mr Hollande has set an example himself. This week he was in La Roche-sur-Yon near the west coast to mark the signature of an agreement with an employer to recruit long-term unemployed people to fill vacancies. The obliging company? KFC.

The notion that the French might work in August, and praise the achievements of US fast-food outlets, will trigger cognitive dissonance among those of us who admire the French talent for combining labour and lifestyle. But even stronger than expected economic growth in the second quarter of this year, revealed by statisticians on Wednesday, will not dispel French anxieties about whether their model is sustainable. On Bastille day, Mr Hollande said that the economy was on the turn and that unemployment would soon begin to come down. But 85 per cent of those polled think that he is wrong on unemployment– as does the International Monetary Fund.

It is curious that politicians seem to believe that their perambulations can make a difference, especially when at some level they must know that the visits they undertake are chosen to coincide with some development that was happening anyway. Perhaps they do understand that and only think that gullible voters believe they are doing something useful. But such cynicism is not a peculiarly French vice. So apart from these symbolic gestures, what strategy can we discern?

An agenda of sorts was provided by Louis Gallois, the former chief executive of EADS. His report last year, critical of French taxation and spending policies, was “welcomed” by the government. But the Gallois recommendations are problematic. Labour market reform is difficult for a government with deep union roots and cuts in taxes on labour are constrained by France’s tight budget position. It must meet the EU’s fiscal deficit target of 3 per cent of gross domestic product by 2015, which will be a stretch if growth does not recover. Public spending is at 56 per cent of gross domestic product, 10 points higher than in Germany.

So with unemployment at 10.8 per cent and rising, it is perhaps not a surprise that Mr Hollande’s popularity is at historic lows. In June only 26 per cent of voters said they approved of his performance. The government’s strategy owes more to that distinguished 19th century macroeconomist Wilkins Micawber than to Mr Gallois. Mr Hollande’s team is hoping something will turn up – a strong US recovery, a eurozone revival, even a resurgent UK – to boost French exports. It is not an elegant posture.

All this might suggest that autumn in Paris will be hot, and not only because Mr Hollande has decreed that summer ends on August 19. But the president has one strong trump card in his hand – the opposition. Nicolas Sarkozy’s re-emergence as a potential presidential candidate has set the cat among the pigeons of the rightwing UMP party. Former prime minister François Fillon, who might otherwise have expected to run himself, is furious, pointedly refusing to applaud a Sarkozy speech to the party faithful. His mood was not improved by the news that improper spending by the Sarkozy campaign has caused the withdrawal of state financial support, putting the party’s finances into severe deficit.

Mr Fillon is now engaged in a campaign to denigrate Mr Sarkozy’s achievements in office, a delicate task since he was prime minister throughout. His attempts to, as Le Monde puts it, “décrédibiliser” Mr Sarkozy will damage the right as a whole in the short term.

With enemies like these, Mr Hollande can do without friends for a while. But if he is not to be condemned as a canard boiteux (lame duck) president, he will need to gain some momentum. Rumours of a reshuffle continue to circulate. Mr Gallois himself and Pascal Lamy, now liberated from the World Trade Organisation, may be offered roles. Certainly something more than a holiday from holidays is going to be required. Mr Hollande should recall that Mr Micawber had to emigrate to Australia, to run a bank, to restore his fortunes.

The writer is a professor at Sciences Po in Paris, chairman of the Phoenix Group, chairman of the UK Airports Commission and a former executive chairman of the FSA

The seal of the Federal Reserve Board of Governors©AFP

It is strange to see the equivalent of a political campaign over succession at the US Federal Reserve. After all, the chair is a presidential appointment, subject to Senate confirmation. It is not an election and, in the past, deliberations over these appointments have always been private. However, leaks have fed a widespread perception that President Barack Obama will soon nominate either Lawrence Summers, his former chief economic adviser and former Treasury secretary, or Janet Yellen, the current vice-chair of the Fed board of governors, to the four-year term that begins in late January. Supporters of each, including some in the White House, are campaigning publicly, trying to sway the president.

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But this decision should not involve popularity or politics. Nor, like Supreme Court appointments, does it need to consider questions of balance. And it is not, like cabinet appointments, a matter of appointing an adviser to the president. Quite the contrary. The Fed is both independent of the executive branch and, more important, the most powerful group of financial firefighters on earth. So its chair is the world’s most important crisis manager. It was the Fed’s massive intervention that saved the world from a full-on global depression, following the collapse of credit markets in late 2008. Given recent history, it is just a matter of time before its emergency tools are required again.

That is the right context for evaluating the forthcoming appointment. We are certainly lucky to have had Ben Bernanke, the departing Fed chair, in the job: he served heroically in this firefighter role and has established a model for the future. The implosion of Lehman Brothers in September 2008 triggered the worst financial crisis in the developed world since the 1930s. Indeed, there was a moment when lending to whole sectors of the economy ground to a halt. Mr Bernanke grasped the scale of the risk of an economic Armageddon and engineered a colossal monetary response.

Ultimately, the Fed provided what Bloomberg has estimated to be a breathtaking $13tn of support for the US credit system. Further, it directly recapitalised and regulated the entire American banking system. That the US economy is recovering now, spurred by healthy bank lending, is a direct tribute to his leadership.


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It may not be 2008 any more but serious financial crises are occurring with ever greater frequency. Since the mid-1970s, after a multi-decade period of global market calm, we have seen repeated currency, banking and debt crises, often bringing crippling economic effects to the regions that experienced them. The two most damaging of these have hit within the past five years. It is worth reviewing the record of these events and why they are repeating themselves.

The decade beginning in 1979 saw a US dollar crisis, the Latin America debt crisis and the American savings and loan debacle. The first two required international rescues and the latter a giant bailout from Washington. Then, the pace of such disasters accelerated during the 1990s. Mexico’s finances collapsed, Russia defaulted, a large US hedge fund imploded and, scariest of all, much of southeast Asia fell into financial crisis in 1997 and 1998. Virtually all of these failures required emergency rescues, with the Fed, as the world’s most powerful central bank, in the lead.

These events were, however, dwarfed by the epic credit collapse of 2008 and the eurozone sovereign debt and banking crisis that began in 2010. The former induced the worst US recession since the 1930s and years of stagnation. The latter has created depression-like conditions in southern Europe and halted growth across the entire continent. Without the Fed’s intervention, there would have been catastrophe.

Why such repeated crises? The answer, in part, is globalised financial markets where a currency crisis in Thailand shakes New York. An additional factor is that the velocity of global money flows increases every year, driven by the pressure for investment returns. We have also seen weak financial policy and poor regulation in many of these instances.

However, the message of history is the repetition of such crises and how the next one can occur at any time and from an unexpected source. Indeed, it is probably 50-50 as to whether Mr Obama himself will face one during the final three- and-a-half years of his presidential term – one that could even threaten his economic legacy.

The next Fed chair, therefore, must be experienced in managing crises such as these. That brings us to the apparent choice between the two lead candidates. Full disclosure: I have worked with Prof Summers and know Ms Yellen slightly. Both are highly qualified in virtually every respect. But Prof Summers had the key role in the Clinton Treasury during both the Asian financial crisis and the Mexican default. And, later, in the Obama White House during the huge credit crisis in 2009.

It would be hard to find an American who is more battle- hardened. That is why he should be the choice.

The writer is executive chairman of Evercore and was deputy US Treasury secretary in 1993-94

Matt Kenyon

It’s a funny thing about Washington: everyone complains about it, but no one ever seems to leave. Take former House leader Richard Gephardt. The Missouri Democrat twice ran for president as a voice of organised labour. Today he pockets $7m a year to lobby on behalf of corporate clients and advise them on busting unions. Or consider former journalist Jeffrey Birnbaum, who used to write exposés of the lobbying trade for The Wall Street Journal. Today he works for Haley Barbour, Mississippi’s Republican former governor who is now one of the most influential lobbyists in Washington.

Such fables of political principles discarded, betrayed or rented by the hour fill the pages of Mark Leibovich’s alarming and amusing new book This Town . Mr Leibovich captures the Gilded Age atmosphere of a capital where influence has been commoditised and marketed as never before. It is a gallery of rogues – some charming, some merely roguish – who flourish as the capital’s fundraisers, fixers, party-givers and talking heads.


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These people come together in a mutual advancement society where personal beliefs are no obstacle to green room friendships – like the one between gay marriage advocate Hilary Rosen and Biblical literalist Ralph Reed, a conservative political activist.

Mr Leibovich has little to say, however, about elected Washington, which has trended in precisely the opposite direction in recent years.

This other town is characterised by inflexible ideology and irreconcilable conflict.

The recurring hostage drama around the federal budget and debt ceiling is driven by zealots whose mission is to cut Washington spending down to size – the only debate they want to have is whether that size should be the levels of the 1950s, the 1920s or the 1820s.

Official Washington has precisely the opposite flaws of unofficial Washington: it is too stubbornly principled, too preoccupied by corruption and too contemptuous of those it disagrees with.

This Washington is well depicted in another recent book, Do Not Ask What Good We Do by the journalist Robert Draper. On issues such as climate change and immigration, the Tea Party caucus portrayed by Mr Draper believes that the act of searching for a solution itself constitutes a problem.

These patriotic anarchists refuse to accept the basic legitimacy of laws and decisions they disagree with, whether President Barack Obama’s health reform or court rulings upholding legalised abortion. They filibuster to prevent anyone ever filling posts overseeing the enforcement of gun laws or environment regulation. And, as we are about to experience once again, they also are prepared to shut down the entire federal government if they do not get their way. They do not think anyone will miss any of it, except for the Pentagon.

These two contradictory Washingtons are both correct about one thing – each other. Official Washington is on the mark in its contempt for the city’s parasitic class, which cares about nothing and inflates the cost of everything Washington does. Unofficial Washington is accurate in its view of the Tea Party as nativist yahoos who do not appreciate that democracy requires dealmaking and compromise.

Yet rather than being on a collision course, these two Washingtons have become curiously symbiotic. The Tea Party makes sure there is no shortage of political ranting to fill the cable channels. Young Congressional staffers, meanwhile, see profitable futures at lobbying firms after a few years on government salaries.

By a magical process of acculturation, Washington transforms true believers into members of the stay-and-get-rich club. Half of former senators, and nearly as large a share of former House members, remain as lobbyists after leaving office.

What drives this process, to which both parties are subject, is the dazzling amount of money to be made in the neighbourhood of politics – as long as you do not work for the government.

The biggest change in Washington over the past 30 years is that social status there used to depend more on proximity to power than upon wealth. This was not necessarily a superior value system, but it did create a distinctive culture in which the city’s richest people were not treated as its most important people. Now Washington is America’s wealthiest city and has the same value system as every other.

Mr Leibovich and Mr Draper offer little by way of ideas how to fix the metropolis they depict so damningly.

It is not clear there is any way to fix it. Official Washington’s problem is primarily structural: state-level gerrymandering produces 30-sided congressional districts that favour extremists over moderates. Unofficial Washington’s problem is ethical; an older conception of public service has given way to the pursuit of wealth and personal advantage.

The result is a double knot of dysfunction that will not be untangled anytime soon.

The writer is chairman and editor-in-chief of the Slate Group


Letter in response to this article:

A global elite afflicted by media-driven careerism / From Mr Nicholas M Gilani

With interest rates floored near the nominal zero bound and with balance sheets having already expanded significantly, central bankers are placing greater emphasis on forward guidance to influence private sector expectations and behaviours.

By credibly committing to a transparent path, central bankers hope to avoid the instability that often accompanies changes to monetary policy. In the meantime, they would continue to support activity and markets, thereby providing more time for their economies to heal and for other policy making entities to get their act together.

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The European Central Bank is the only major monetary authority in the world that does not publish the detailed minutes of its proceedings nor the voting record of the members of its decision-making body. The discussions which have been recently started by some ECB governing council members have raised expectations that major changes will soon be introduced. These expectations may be disappointed.

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There are few places on earth as beguiling to visitors as Mongolia. Virtually everything about the place represents a seeming contradiction and a rare potential. Surrounded by undemocratic Russia and Communist China and with virtually no legacy of pluralism, Mongolia has nevertheless built an emerging democracy and this year played successful host to a global gathering for the Community of Democracies. Now a peaceful nation with a small military that has supported 15 peacekeeping missions around the world over the past decade, Mongol hordes under the command of Genghis Khan once conquered most of the known world.

Mongolia has moved exceedingly slowly to develop the most extensive deposits of globally necessary minerals and high quality coal that it possesses. The nation recognises that responsible exploitation and management of these reserves will make it a wealthy country able to spread prosperity to its people. And despite a heritage distinct from much of Asia, Mongolia nevertheless has become a vibrant member of the continent’s emerging community.

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Is it a coincidence or an effective new strategy that a spate of astonishing prison breaks in Iraq, Libya and Pakistan carried out by al-Qaeda has coincided with the movement’s leader promising to free its members worldwide – including those held in Guantánamo Bay?

Ayman al-Zawahiri, based in the Pakistan-Afghanistan borderlands, has been designated leader of al-Qaeda since the killing of his mentor Osama bin Laden in 2011. In his first audio recording for many months – posted on the internet at the end of July – he slammed US treatment of hunger striking inmates in Guantánamo and swore to free them all: We pledge to God that we will spare no effort to free all our prisoners . . . very oppressed Muslim everywhere.”


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Interpol sees a link: on Saturday it issued a global security alert advising states to increase their vigilance against al-Qaeda attacks. Interpol’s alert followed a US worldwide travel alert and the closure of 21 US embassies in the Muslim world as a result of a feared wave of attacks. That is already happening in what looks like a new drive by al-Qaeda to smash its way into vulnerable prisons to re-enlist its own fighters. On July 22 “al-Qaeda in Iraq” launched well-planned attacks on the prisons of Abu Ghraib and Taji, freeing as many as 800 prisoners. Iraq has seen a huge uptick of violence by al-Qaeda and other Sunni extremist groups largely aimed at killing Shias – some 700 people were killed in July alone.

On July 27, an attack in Benghazi, Libya, freed more than 1,000 inmates – some incarcerated for acts of terrorism, although the majority were more conventional criminals. On July 29 more than 150 heavily armed Pakistani Taliban, who are affiliated to al-Qaeda, rode into the town of Dera Ismail Khan in northwestern Pakistan in dozens of vehicles and motorbikes. They attacked the prison from three directions, freeing more than 250 prisoners. Militants from Uzbekistan and Chechnya also took part.

Now it becomes clearer that Mr Al-Zawahri’s appeal seems to be directed at al-Qaeda groups everywhere to free their prisoners from jails – even those in Europe or the US. The grouping appears to be taking advantage of the turmoil and protests across the Middle East and south Asia to free its most dedicated and committed followers in jail. This poses huge new problems for global security, just when the US and Nato is claiming the demise of al-Qaeda due to drone strikes and better counter-terrorism tactics.

Do not underestimate the potential impact of prison breaks. According to Peter Bergen, a security analyst, a 2006 prison break in the Yemeni capital Sana’a led to the creation of al-Qaeda in the Arabian peninsula. The Afghan Taliban launched spectacular attacks against the Sarposa prison in Kandahar twice – in 2008 and 2011 – freeing almost 2,000 of its associates.

Al-Qaeda has managed to set some of its most battle-hardened members free. The attacks follow a similar pattern – as if there were a single training manual. First, more than 100 fighters drive into town – usually in some kind of disguise, such as police uniforms. Another 100 or more are deployed outside town to prevent reinforcements arriving and to allow the prisoners to escape on designated routes in empty buses.

Suicide bombers then blast their way through the walls or the main gate of the prison as follow up fighters kill any remaining guards. The attackers already have layout plans of the prison. They make a beeline for militants first – then free the rest of the inmates. Finally, everyone makes an orderly escape.

The Pakistan Taliban and the Islamic Movement of Uzbekistan has recently formed a new organisation called Ansar al Aseer that is specifically designed to free prisoners and support their families. Until recently, the usual tactic for freeing its jailed fighters was by kidnapping prominent locals or foreign tourists, then demanding ransoms and prisoner releases. However, governments are now increasingly refusing to oblige. Assaulting prisons is clearly the next best thing.

It is easy to blame the weakness or ineptness of governments where such prison breaks have taken place, but the truth is that released prisoners will help to revive al-Qaeda in many parts of the world and provide an enormous morale boost to its ranks. That only increases the chances of a revival in global terrorism on targets in Europe and the US. We have just entered a new phase in the war against terrorism.

The writer is author of ‘Descent into Chaos: The US and the disaster in Pakistan, Afghanistan, and Central Asia’


Zimbabwe’s election demonstrates a dangerous trend. If bullets do not fly and heads are not broken, many outsiders, notably neighbours, are happy to declare with relief that the poll appeared broadly free and fair.

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The art of stealing elections “peacefully” before the international observers arrive is advancing. In Zimbabwe, rural election rolls in areas supporting President Robert Mugabe appear to have been inflated with the names of the dead and impossibly old. Opposition area lists seem to have contracted. Local poll watchers claim it could have cost the opposition 1m votes. Activists for parties other than Zanu-PF were harassed and intimidated.

The head of the African Union observer mission, former President Olusegun Obasanjo of Nigeria, has already blessed the conduct of the poll, despite Morgan Tsvangirai, the opposition candidate, denouncing it as a “huge farce”. The Southern African Development Co-ordination Conference barely resisted Mr Mugabe’s insistence on accelerating the electoral timetable and has also given an initial endorsement of the result. Disappointing though this is, it is important to understand why both organisations appear to respond to electoral larceny with kid gloves.

A debate has opened up in Africa that implicitly pits development, or stability, against democracy and human rights. Zimbabwe is one front in this argument; so was Kenya’s contested election in March, and the questions that swirl around Ethiopia and Rwanda. The latter are both fast developing states where democratic practice runs a poor second.

African development is on a roll. Health and education indicators are improving at unprecedented rates; economic growth in many countries is faster than anywhere in the world; and foreign investment has at least until recently been flowing in at unprecedented levels. So why rock the boat? This stability argument, made by some of Africa’s most thoughtful leaders such as the late Meles Zenawi, Ethiopia’s former prime minister, has become an unspoken tenet of the continent’s political establishment.


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The justification is, in its way, an admirable one: poor citizens are finally enjoying a degree of emancipation from poverty. Even in Zimbabwe, growth has begun to reverse the shrinking of its economy that caused it to plunge from regional superstar to bottom of the league as Mr Mugabe sought to “indigenise” both its farming sector and the wider commercial economy.

However, this establishment is not having it all its own way. There is a vibrant emerging civil society – evident in the Zimbabwe and Kenyan elections, and indeed across the continent – which does not accept this button-down version of development. It has grown on the back of a middle class that is itself a result of the region’s economic success. The western image of Zimbabwe is of cowed peasant farmers. In fact, Harare has its share of latte-sipping middle class consumers. They did not vote for Mr Mugabe. Nor, by the way, did many of those peasant farmers.

And that is where these two visions of Africa need to find an accommodation. Disciplined development and democracy are not mutually exclusive. South Africa, a stability-conscious neighbour, wants to stop the flow of illegal migrants from Zimbabwe. Other neighbours want the country to return to political stability and do well so that their own growth is not impeded.

But, on the other side of the argument, a new generation sees that the continuation in office of an 89-year-old leader, with his henchmen and failed policies, postpones development rather than underwriting it. For this group, there is no development without freedom.

Europe and the US still expect to be allowed a voice in this debate. They do not have much of one; after all these years, Mr Mugabe’s best campaign lines were still about perfidious British interference. That does not, however, mean the world has to resign itself to a Zimbabwean status quo. A contested Mugabe victory may postpone change but it will not avert it. That new middle class, a feisty civil society and the disruptive power of markets and capital will ultimately prevail over the stability-at-all-costs mindset that appears to have allowed Mr Mugabe to steal yet another election.

The writer is a former UK minister for Africa and former head of the UN Development Programme, where he sought to negotiate a land reform settlement in Zimbabwe

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