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Tuesday, June 2, 2015

The Greek Dilemma

After a lengthy negotiation period, it appears that Greece and its creditors may be close to reaching a deal on extending economic relief in the form of more short-term bailout packages to the struggling country. In the next two weeks alone, Greece owes billions of dollars to the IMF and other creditors--an amount it is nowhere near capable of paying on its own. The risk of a potential default is very serious, and creditors know that. All that is left now is for the terms of new bailout money to be finalized, and taken to the Greek government for a vote.

Greek Prime Minister Tsipras has lobbied hard for fairer terms in an effort to make good on the anti-austerity promises that swept him into office months ago, yet his success has been mixed as he confronts a reality in which Greece's unstable level of debt leaves it holding very few cards at the negotiating table. Any new deal will include cuts to Greek pensions, reforms to labor laws, and possibly reforms to Greece's tax system, notorious for its ineffectiveness at collecting taxes. However, PM Tsipras' left-wing Syriza party must accept these compromises with the understanding that such a deal may be the only thing preventing Greece from running out of money entirely.

PM Tsipras. Courtesy of Financial Times

The problem is that this is only a short-term solution to a much larger issue--and that it may not be the right solution at all. It has become generally accepted that austerity is not the right way to help a struggling economy. Drastically cutting government spending during a period of high unemployment is only going to perpetuate unemployment, not help consumers get back on their feet and spend more. And with Greece's unemployment rate hovering around 25 percent - and much higher for youth - more austerity measures are going to hit the public hard.

Further, this isn't to say that there won't be a Greek exit from the Eurozone farther down the road. Greece's debt-to-GDP remains around 175 percent (compared to Germany's, which is less than 80 percent). Between paying back its creditors and paying bills at home, Greece is just barely staying afloat. Short-term loans will help stabilize the Greek economy temporarily, but what's to say that Greece needs another bailout months later?

A Greek exit would be catastrophic not just for Greece, which would have to revert to its (now extremely devalued) drachma currency, but would pose an existential threat to the Eurozone itself. If Greece exits, Italy may see an opening and exit as well. Spain is struggling nearly as badly as Greece and Italy, and would perhaps consider the same decision. Ultimately, Greece could set the stage for an exodus of damaged economies and a potential collapse of the euro as the currency for the EU.

Courtesy of WSJ

This crisis has been years in the making. The thought that countries with as much diversity in culture and financial stability as those that make up the EU could come together and operate under one set of financial guidelines is absurd. Sure, the U.S. dollar works well for all 50 states in America, but that is because they report to one federal government--not more than a dozen, as is the case in the EU. What a country like Germany and a country like Greece need in terms of economic policy are far too varied--yet they lack the flexibility to adopt policies that will benefit them. It is hard to see how the Eurozone can rebound when this is the case.

Yet at the end of the day, what is Greece to do? Unfortunately, there are simply no other options left than to take the money it is offered and pay what it owes. Whether it is the solution Greece needs is not the point--it is the solution Greece has, and the solution it must use. However, as loans are repaid, towns and cities all over Greece will likely look the same: scores of working-age citizens sitting in cafes without work, shuttered storefronts, and an ever-increasing disillusionment with the economic union and currency Greece adopted more than a decade ago.

Tuesday, May 19, 2015

The Iranian Nuclear Agreement: What Does it Mean for US Diplomacy and International Trade in the Middle East?

Photo by United States Department of State (Public Domain)
On April 2nd, the members of the P5+1, the European Union, and Iran reached an agreement on the framework for a Joint Comprehensive Plan of Action (JCPOA) regarding Iran’s nuclear program, outlining a set of parameters for a final agreement to be drafted by June 30th. Although a final comprehensive deal palatable to all parties will prove to be difficult, this framework agreement marks a milestone achievement in negotiations that have spanned over a decade. The nuclear accord faces resistance, however, by lawmakers in both the US and Iran, as it would require a broad leap of faith between two countries that have been at odds for over thirty years and have competing national interests in the region. An agreement with Iran would also call into question existing US alliances in the Middle East and lead to increased Russian influence in the region.

News of the agreement evoked mixed reactions from US lawmakers, with the Senate drafting a bipartisan bill that would allow Congressional oversight on the final deal. President Obama agreed to sign the existing bill, allowing a hold on lifting sanctions during a 30-day congressional review of the final accord. Nevertheless, both President Obama and Secretary of State John Kerry stated that they would not allow Congress to stand in the way of the best deal possible.

Many US lawmakers are hesitant to believe that the Iranian government will abide by its obligations under any agreement regarding the nuclear program, and their mistrust was exacerbated by the discrepancies between the fact sheets issued by the US and Iranian governments regarding the framework agreement.

The US fact sheet states that Iran will reduce the number of installed centrifuges to 6,104 IR-1s (Iran’s first-generation centrifuge) to lengthen Iran’s breakout time to one year (versus 2-3 months). Furthermore, IAEA inspections would be conducted on all of Iran’s nuclear facilities, and access would be provided for UN inspectors to examine suspicious sites and investigate any allegations of covert facilities. Should the IAEA confirm that Iran has held up its end of the final comprehensive deal, US and EU nuclear-related sanctions would be suspended. The framework also references a restructuring of UN Security Council resolutions in order to lift the past resolutions regarding the nuclear issue. Yet, other US sanctions and UN resolutions related to terrorism, ballistic missiles, human rights violations, and cargo inspections would remain in force.

Contrary to the US fact sheet, Iran’s fact sheet states that sanctions will be lifted at the time of the agreement, Iran will keep operating 10,000 centrifuges and not allow inspections of military sites, the Fordow site will continue enrichment activities, and the limits on the nuclear program will remain in effect for only 5 years.

Iranian President Hassan Rouhani acknowledged that drafting the final deal would prove to be the true hurdle of the negotiations, but highlighted that the advancement of negotiations to this late stage reflected an international commitment to the process. Meanwhile, other Iranian politicians expressed their frustration with the reaction from Congress and Iran’s lack of recourse should the P5+1 fail to meet their obligations under the deal. Analysts in the US remain optimistic that all parties will come to a deal through “creative negotiations” and speculated that the Iranian fact sheet was prepared by Iranian hardliners in response to the proposed US Congressional review of the agreement.

The framework agreement currently enjoys broad support from Iranian civil society as it promises the possibility of sanctions relief and economic growth. Sanctions relief should stabilize the foreign exchange rate and inflation, boost foreign private sector investments and domestic job creation, and increase foreign trade as businesses anticipate a sharp rise in economic and financial activity. Resuming oil production and exports will increase Iran’s hard currency revenues and should theoretically also revitalize its economy. This will ideally entrench the power of Iran’s moderates upon whom rest any hope of positive US-Iran relations in the coming years.

The prospect of a nuclear deal seemingly threatens Saudi Arabia, who believes that positive US-Iranian diplomatic relations and sanctions relief will lead to Iranian crude exports driving down oil prices and revenues, and fears that its long-standing alliance with the US will be in jeopardy. A change in oil prices is unlikely, however, as analysts believe that, while Iran should be able to export up to 500,000 barrels of crude oil per day by early 2016, the steady increase in global demand for oil should prevent this influx from impacting prices.

Despite Saudi fears and the fact that improved US-Iranian diplomatic relations will allow for cooperation against certain regional threats like the Islamic State in Iraq and Syria (ISIS), the US is not likely to drop its alliance with Saudi Arabia. Iran’s aid to Houthi rebels in Yemen has been detrimental to both the United States and Saudi Arabia, which has led to the US providing logistics and intelligence support to the Saudis.

The current Saudi campaign in Yemen is more than likely a show of force, intended to both distract from the nuclear deal negotiations and to remind the US of its existing alliance in the region. As a result, Saudi Arabia will likely scale back its campaign in Yemen once the nuclear deal is finalized. The current situation, however, exemplifies the contradictory interests the US will have to consider in the region for years to come should the nuclear deal come to fruition.

A nuclear deal also promises greater direct Russian influence in the Middle East through resumed trade relations between Russia and Iran. Naturally, US and Israeli lawmakers are suspicious of this relationship, as it brings the competing interests of another major world power into the region. The framework agreement has already prompted Russian President Vladimir Putin to lift a five-year ban on the delivery of the S-300 air defense missile system to Iran by the end of the year. Russia and Iran had agreed to the $800-million contract in 2007, but the delivery had been suspended in 2010 under strong objections from the United States and Israel. Iran hopes to receive the S-300s by the end of the year, but Nikolai Patrushev, head of Russia’s Security Council, noted that manufacturers needed at least half a year to complete production. Russia’s Foreign Minister Sergey Lavrov expressed his country’s interest in the success of this nuclear agreement with Iran and the lifting of all sanctions, stating that “[Russia is] confident that de-escalation of tension around Iran will improve bilateral trade-and-economic ties and, correspondingly, will be beneficial for Russia.”

Thawing the icy relationship between the US and Iran that has persisted for the past 36 years has vast implications for future diplomatic and trade efforts. Whether or not the nuclear deal could bring stability to this historically turbulent region remains to be seen, but at the very least, the opportunity to negotiate with Iran as a legitimate state actor instead of dismissing it as a rogue state opens the door to diplomatic approaches to the bigger issues in the region: the sectarian fighting between the Sunni and Shia populations in Syria and Iraq, the Houthi uprising in Yemen, and the relationship between Israel and its Arab neighbors. The real challenge will be bringing to the negotiating table competing regional interests and finding diplomatic solutions to these problems.

This article originally appeared on Ramen IR, an international affairs blog.

Monday, April 13, 2015

The Failures of Hashtag-tivism: #NousNeSommesPasGarissa?

Less than two weeks have passed since an Al-Shabaab attack on Garissa University in Kenya claimed 148 lives, largely students of the university, and already Kenya has faded from the headlines faster than you can say “Je Suis Garissa.” The attack raised fears of further strikes in Kenya, however, and a power transformer explosion mistaken for a terrorist attack at the University of Nairobi over the weekend caused a stampede that killed one and injured more than 100.
Kenyans mourn the victims of the Garissa attack.

This is the second major Al-Shabaab attack in the last two years, and the worst since the Westgate Mall attack in 2013 claimed 67 lives. A smaller Al-Shabaab attack on a quarry near the border last December also killed at least 36 people. Al-Shabaab is an Al Qaeda-linked terrorist group operating out of Somalia that grew out of the Islamic Courts Union, a relatively stable central government that was kicked out of Mogadishu by an international intervention in 2011. Al-Shabaab has been targeting Kenya ever since the country joined the African Union peacekeeping force in 2011, and transformed from a governing body into a terrorist group.

Thursday, April 2, 2015

It’s Just Africa: Democratic Elections in Nigeria Bring Back a Former Military Ruler

A historic election in Nigeria brought to power former military ruler Muhammadu Buhari, ousting incumbent Goodluck Jonathan. For the first time in Nigerian history, democratic elections led to the ruling party conceding victory to an opposition party. General Buhari was declared the clear winner by more than 2.5 million votes over his rival, and outgoing President Jonathan, whose party held power for the past 16 years, conceded by phone on Tuesday. He offered best wishes to his successor, urging his supporters to “use due process” to express any frustrations with the new government.

Thursday, February 26, 2015

Sucks to Be U(kraine)

Ukrainian leadership must be very weary these days.

It was reported yesterday that Russia has again escalated its conflict with Ukraine by threatening (again) to cut off gas supplies within the next two days if Ukraine cannot pay Gazprom, the Russian energy giant, what it owes. As fighting rages on in the east, winter rages on throughout Ukraine and Europe - natural gas is literally vital to the survival of many throughout the next several weeks. The natural gas dilemma also constitutes a severe economic threat to Ukraine, who has banned the purchase of foreign currency as its own continues to slide. Ukraine's economy is hanging on by a thread these days; any disruption in energy supplies would be catastrophic. Europe, too, is not in the most secure of financial positions - particularly the eurozone. With much of Western Europe's natural gas supply coming from Russia in pipelines that run through the Ukraine, they stand with as much to lose as Ukraine itself.

Courtesy of Telegraph

Perhaps most frustrating about Russia's threat is that the Ukraine alleges it prepaid months ago a sum large enough to cover their natural gas supply through the whole winter. So where is the discrepancy? It lies in Eastern Ukraine, which has been controlled by pro-Russian separatists for months. Russia has been pumping gas directly to the separatists through different pipelines in order to keep them warm as they serve as proxies in the fight to shatter Ukraine's sovereign borders. Russian President Putin is calculated in doing this: he can support those loyal to him across the border, without having to financially support them. All he has to do is argue that the region is technically part of Ukraine, so the energy supplied there comes out of Ukraine's budget.

Meanwhile, most likely according to Putin's plan, all of Europe is slowly destabilizing. Lithuania yesterday reintroduced conscription, out of fear of Russian aggression spilling over into its borders the way it did Ukraine's. Lithuanian leaders estimate adding 3,500 or so additional soldiers to their army each year, at least for the next five years. While not instituting a compulsory policy like their neighbor, Latvia has also pledged to ramp up its military spending and bolster its armed forces in the event of Russian aggression. If nothing else, the conflict in Ukraine has put the entire former Soviet bloc on edge as it creeps closer to an all-out armed engagement. Russia's unpredictability has only exacerbated anxieties.

And yet, the separatists in Eastern Ukraine march forward, this time to the port city of Mariupol. Should this be their destination, it would mark a significant shift in the conflict - Mariupol is on the way to Crimea, and it would indicate that the separatists are making an effort to carve out a path connecting their stronghold farther up north to the annexed Crimea. France's foreign minister has already warned Russia that this would be a red line, suggesting a retaliation of some sort, although this is a weak threat considering the fact that the conflict has lasted months without any direct military intervention from the U.S. or any European country. Should Ukraine fail to secure Mariupol, it's hard to see any real, effective response from the west.

Courtesy of Reuters

So what is Ukraine to do? For starters, it's time to give up the east.

This is a frightening suggestion, one that seemingly defies the logic that has kept the developed world relatively conflict-free in the 21st century. And there are major downsides - most notably, that it will be giving Russia what they want, and incentivizing similar action in other corners of the former Soviet bloc. But it is a necessary action, one that will mostly free Ukraine from conflict while stabilizing their economy.

As mentioned earlier, Russia has effectively equipped rebels in eastern Ukraine and enabled them to successfully fend off Ukrainian soldiers, while placing the entire financial burden of the roughly three million who live in the east on the shoulders of Ukraine. This is too large a burden for a country that is just barely remaining out of the grip of default, and undermines their military's position in the region. By ceding the region to Russia, the separatists will become Russian citizens; the three million that live there will look to Russia for financial support, and it will no longer be possible for Russia to wage conflict in Ukraine under the thin veil of the separatists being "Ukrainian citizens". Now, this is one belligerent nation attacking another - something that would garner a much swifter, and severe, response.

Ukraine will also be able to slowly allocate their meager finances elsewhere, such as industrial development (importantly, development that no longer relies on the fossil fuels Russia has stockpiles of), economic development, and independent energy supplies. This will be a long and difficult journey, but with the proper finesse, Ukraine can shift its economy and reach a modest stability that will allow for job growth and better ties with the eurozone. When (if) the conflict dies down entirely, foreign investment can accelerate this growth.

Courtesy of BBC

This is not a panacea, however. In the meantime, Ukraine and the rest of Europe must find alternative sources of energy in an effort to release themselves from the influence of Russian energy. Winter is far from over, and if Russia makes good on its promises to stanch the flow of natural gas, no amount of territory Ukraine cedes will save it from a humanitarian epidemic of unfathomable proportions. Energy must be sourced from Scandinavia, the U.S., and, if possible, the Middle East.

And finally, Europe and the U.S. must ramp up their support for Ukraine. There is a difference between neoconservatism and the war-mongering associated with it, and a calculated approach at how to support a struggling military that is defending itself against a truly existential threat. Great Britain pledged 75 military advisors to Ukraine, which is a great start. But until more arms are provided, and, more importantly, there is more humanitarian support from those who can afford it, Ukraine will continue to be on what appears to be the losing side of this conflict.

Ukraine has been at a crossroads for some time now. This conflict has killed thousands and is emerging as one of the greater crises Europe has seen since the breakup of Yugoslavia decades ago. The status quo is decidedly not working. Without a dramatic change in the strategy and overall goals of Ukraine and western Europe, nothing but a bleak 2015 (and probably longer) awaits, as Russia fortifies their foothold in Ukraine, potentially expands their aggression elsewhere, while the economies of the west erode.