Monthly Archives: February 2014

The 2014 Winter Olympics in Sochi may have proved a distraction for Russia and its president, even as events in Ukraine were fast and furiously upsetting the old, pro-Moscow political order. But no sooner were the Olympic flames extinguished Vladimir Putin turned his full attention to influencing developments in the neighbouring country. His military chiefs ordered a major military exercise – involving almost 150,000 troops, hundreds of tanks and artillery batteries, and dozens of aircraft and ships – to start on Friday and last four days.

What is behind this dangerous military escalation? At the very least, a military exercise on this massive scale, so close to the borders with a sovereign state, is meant to send a stern message to the new leaders of Ukraine that there is a limit to that nation’s independence. Moscow has refused to recognise the new political order in Kiev, denouncing the parliamentary ouster of President Viktor Yanukovich as “armed mutiny.” Any new government in Ukraine will need to take account of Russia’s interests, or so the message goes. Read more

A careful reading of recent policy statements in advanced economies points to an intriguing possibility: after being forced into quite a similar stance, individual central banks will try to implement more differentiated monetary policy approaches. The driver is greater evidence of multispeed economic growth. The challenge is for other components of economic policies to support the more differentiated set of central bank policies. And what is fundamentally at stake is the much-desired shift from policy-induced growth to genuine self-sustaining private sector engines. Read more

Japan’s recovery programme is showing promising early results. Last autumn the economy enjoyed its fourth successive quarter of growth, its best performance in more than three years.

Many observers rightly praise the Bank of Japan’s shift to positive inflation targeting for contributing to the country’s recovery. Yet monetary policy is only one of the three “arrows” called for in Prime Minister Shinzo Abe’s programme for the Japanese economy. Also important are fiscal consolidation and structural reform. These initiatives, too, are moving in the right direction with the right priorities. But like monetary policy, they need to be bold to succeed. Read more

An intense debate has broken out among western law enforcement officials, intelligence agencies and academics about who or what today constitutes al-Qaeda. It is an important debate because AQ – the network and the ideology – remains a potent force and still one of the greatest threats to global stability.

The US intelligence chief James Clapper said last month that 7,000 foreign fighters have joined AQ affiliates and other groups in Syria to fight Bashar al-Assad’s regime. AQ now officially recognises branches of its network in seven new regions in Africa and the Middle East, while major European cities have become AQ recruiting centres for disaffected Muslim youth. Read more

Unless you are over 50, you will not remember the days before energy exports became a potent geopolitical weapon. At the onset of the second world war, the US supplied about 63 per cent of the world’s oil, with a barrel of oil costing about a dollar (roughly $17 in 2014 dollars). Decades later, an important shift took place when the US reached its peak oil production in 1970; as output became squeezed, oil was shifting from a suppliers’ market to a demand market.

The low energy prices of the 1960s and early 1970s are unlikely ever to return, but with the development of new drilling technologies in the US and a surge of new production there and elsewhere, the balance of power has begun to shift yet again. And in 2014, the impact of that trend on global oil markets – and on international politics – will begin to emerge. Read more

Tensions are running high in northeast Asia, yet remarkably little diplomacy is taking place. China and Japan are not communicating and there are only infrequent political exchanges between South Korea and Japan. Surprisingly, a notable exception to this dearth of diplomacy is the current dance between Shinzo Abe’s Japan and Vladimir Putin’s Russia.

Asia still struggles with its historical legacy, and the Russo-Japanese experience is no exception. Russia and Japan were the belligerents in one of the most spectacular naval battles of all time – the 1905 Battle of Tsushima, in which the Russian fleet was annihilated by a tactically superior Japanese squadron. Their traumatic history has proved difficult to overcome. In the last days of the second world war, the Soviet Union seized four Japanese islands in the Kurils in the northwest Pacific Ocean and expelled the Japanese citizens who lived there. These four islands (also known as the “Northern Territories” by the Japanese) have been lodged like a bone in the throat of Russo-Japanese relations ever since. Read more

The battle of the London airports is heating up. Although the Airport Commission, headed by Sir Howard Davies, is not due to give its final recommendation until after the 2015 general election, the two big contenders locked horns last month over their consultation processes and noise impacts.

At this stage, Heathrow has the loudest voice, and perhaps the most business support, but Gatwick provides a real, and under-appreciated, challenge. As more evidence is produced, the underdog may yet win the prize. Either way, the competition between them will sharpen the debate and likely result in a better outcome. Read more

It could be tempting for the rest of Europe to dismiss Swiss voters as irrational after Sunday’s referendum. The vote results in a constitutional amendment that will control immigration, including from EU countries, violating the terms of Switzerland’s treaty with Brussels. Yet to dismiss Swiss voters in this way would be a mistake.

The outcome of the vote is a blow for the government. Hope of meaningful EU concessions will melt away like the late spring snow. A country situated in the heart of Europe now faces a stark choice. Will it continue to enjoy the prosperity that springs from an economy deeply embedded in Europe, and accept the partial loss of political sovereignty that comes with it? Or will it become once again the master of its own domain and accept lower living standards as it grows more distant from European markets? The government must enact legislation within three years to implement the constitutional amendment. There is little time left. Read more

Some market watchers, shaken by the eye-popping increases in China’s debt indicators, have concluded that a financial crisis is imminent. After all, countries whose debt ratios have risen by similar magnitudes in just a few years have all crashed soon after. China, they say, seen as no different.

Yet when analysts drill into the balance sheets of borrowers and banks, they find little evidence of impending disaster. Government debt ratios are not high by global standards and are backed by valuable assets at the local level. Household debt is a fraction of what it is in the west, and it is supported by savings and rising incomes. The profits and cash positions of most firms for which data are available have not deteriorated significantly while sovereign guarantees cushion the more vulnerable state enterprises. The consensus, therefore, is that China’s debt situation has weakened but is manageable. Read more

A question haunting democratic politics everywhere is whether elected governments can control the cyclone of technological change sweeping through their societies. Democracy comes under threat if technological disruption means that public policy no longer has any leverage on job creation. Democracy is also in danger if digital technologies give states powers of total surveillance.

If, in the words of Google chairman Eric Schmidt, there is a “race between people and computers” even he suspects people may not win, democrats everywhere should be worried. In the same vein, Lawrence Summers, former Treasury secretary, recently noted that new technology could be liberating but that the government needed to soften its negative effects and make sure the benefits were distributed fairly. The problem, he went on, was that “we don’t yet have the Gladstone, the Teddy Roosevelt or the Bismarck of the technology era”. Read more

Last weekend officials from around the world once again gathered for the annual Munich Security Conference – a sort of Academy awards for security policy wonks. While senior officials covered the gamut of issues from Syria to the US’s Asia pivot and cybersecurity to climate change, talk in the corridors focused on two issues – the growing gap between German and American views on surveillance and spying and strong, co-ordinated statements by top German officials calling for a more assertive foreign and security policy.

These two issues may in fact be linked, in that greater German confidence may help close the widening gap between the two allies.

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For some time, the monthly release of the US unemployment rate has been seen as much more than a snapshot of conditions in the real economy. It has also provided important insights on the likely actions of the Federal Reserve, America’s most important economic policymaker and the world’s most powerful central bank.

This situation is evolving on both fronts, and the implications are widespread. Read more

Just when Pakistanis, foreign diplomats and the world were bracing themselves for a “let’s get serious” speech in which finally — finally — after months of dithering and delay Prime Minister Nawaz Sharif would announce an offensive against the murderous Pakistani Taliban, he stunned everyone by offering the insurgent group another period of grace for talks. Read more