After the 9/11 attacks the then American president George Bush adopted the view that the only long term solution to terrorism was a democratic middle east. The argument went that authoritarian states by their very nature generated political violence since that was the only way to achieve political change. In a free society an individual dissatisfied with the current state of society can take advantage of the democratic process to try to change things, in a repressive society void of political freedom that is not an option, instead armed resistance and terrorism fills this function.
While simply tracking down and killing terrorist was necessary, it would not stop terrorism, only altering the conditions which generated it would. So if the west ever hoped to be free from the threat of terror the Middle East needed to change.
A democratic Iraq with its dominant role in the Arab world was supposed to be the example others could emulate. This coupled with the pressure placed on traditional American allies in the region to gradually democratize and massive aid channeled through the CIA to pro-democracy groups in the region was hoped to transform it.
The political instability and violence that accompanied democracy in Iraq, hardly suitable to serve as a 'shining city upon a hill'. When Mr Bush pushed for democratic elections in the Palestinian territory of Gaza after the Israeli pull out of 2005, the Palestinians choose the Islamist terrorists organization Hamas to lead them.
More successful was his attempt to push for the first ever elections in Saudi Arabian history even if they were only regional elections. In the 2005 Egyptian election opposition candidates were allowed to play a larger role then ever under pressure from Washington. But as Mr Bush's much less idealistic successor became president in 2009 that pressure was removed. Saudi elections became a one off oddity with the next elections cancelled and Egypt's elections reverted to being completely rigged.
But then in 2011 the so called Arab Spring began and the dictatorships of Tunisia and Egypt disintegrated. With the support of NATO forces Libya seems to be heading in the same direction and Syria as well as Yemen is fighting large scale insurrection. This must truly be a dream come true for the neo-conservative followers of George Bush, this is just the Middle Eastern transformation they were trying to spark. To be fair Mr Bush probably also does deserve some credit, Wikileaks shun light on the around $200 million dollars Egyptian pro democracy activists were handed by the CIA in 2008-09, that couldn't have hurt. Even if many of his other schemes can't be said to have worked.
If democracy really will help alleviate the plague of terrorism remains to be seen. Those very authoritarian systems that are blamed for terrorism are also the same systems that keeps it in check.
Thursday, June 9, 2011
The Greek debt crisis made simple
The Greek debt crisis has dominated the news for a while now, yet surprisingly few people seem to actually understand what all the fuss is about. I thought a great topic to start of this new blog with would be a very simple explanation of the Greek debt crisis, so that even those with zero understanding of macro economic policy can wrap their head around it.
Basically Greece has built up a large and generous welfare state which it can not afford, and has instead paid for it with borrowed money. This practice works well for a while but as the debt grows so does the probability that Greece will fail to pay back it's loans. As this prospect of default becomes more and more likely, the interest Greece has to pay on its debt rises since investors want to be compensated for the risk they take when lending to Greece. The rising interest rates in turn makes it near impossible for Greece to afford its massive debt.
Here is where the EU and the IMF comes in with their rescue packages. This "rescue" basically means letting Greece borrow large amounts amounts of money at an affordable interest rate. In return for these loans Greece is expected to deeply cut spending and raise taxes in order to stop the growth of the debt, liberalize its economy in order to increase productivity with the hope of generating economic growth which would make future debt repayments easier and selling off state owned companies and land to free up money for debt repayment, a process also hoped to increase efficiency leading to economic growth.
If Greece does as it is told, this is supposed to increase the likelihood of Greece being able to repay its debt, bringing down interest rates making Greece's debt affordable once more, in effect solving the Greek debt crisis.
The problem is that this is not working. The Greeks are either unwilling or unable to go far enough to fix their economy so investors continue to see Greek debt as risky and demand a high interest rate that reflects this. The European response has been to simply let the Greeks borrow more cheap money from them, but most economists seem to believe that a restructuring is inevitable. Pretty much Greece acknowledging that its debt is simply too large and it will only pay back parts of it.
The risk with this and why Europe is so keen on helping Greece is that if Greece defaults on its loans, this will make the prospect of other debt ridden countries also defaulting on their loans seem more real, forcing up the cost of their loans worsening the European debt crisis.
Basically Greece has built up a large and generous welfare state which it can not afford, and has instead paid for it with borrowed money. This practice works well for a while but as the debt grows so does the probability that Greece will fail to pay back it's loans. As this prospect of default becomes more and more likely, the interest Greece has to pay on its debt rises since investors want to be compensated for the risk they take when lending to Greece. The rising interest rates in turn makes it near impossible for Greece to afford its massive debt.
Here is where the EU and the IMF comes in with their rescue packages. This "rescue" basically means letting Greece borrow large amounts amounts of money at an affordable interest rate. In return for these loans Greece is expected to deeply cut spending and raise taxes in order to stop the growth of the debt, liberalize its economy in order to increase productivity with the hope of generating economic growth which would make future debt repayments easier and selling off state owned companies and land to free up money for debt repayment, a process also hoped to increase efficiency leading to economic growth.
If Greece does as it is told, this is supposed to increase the likelihood of Greece being able to repay its debt, bringing down interest rates making Greece's debt affordable once more, in effect solving the Greek debt crisis.
The problem is that this is not working. The Greeks are either unwilling or unable to go far enough to fix their economy so investors continue to see Greek debt as risky and demand a high interest rate that reflects this. The European response has been to simply let the Greeks borrow more cheap money from them, but most economists seem to believe that a restructuring is inevitable. Pretty much Greece acknowledging that its debt is simply too large and it will only pay back parts of it.
The risk with this and why Europe is so keen on helping Greece is that if Greece defaults on its loans, this will make the prospect of other debt ridden countries also defaulting on their loans seem more real, forcing up the cost of their loans worsening the European debt crisis.
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