Next Crisis: The ECB-induced Sovereign Debt Bubble

By Sam Vaknin
Author of “Malignant Self-love: Narcissism Revisited”

As 2011 came to a close and in the first months of 2012, the European Central Bank (ECB) initiated a massive injection of liquidity into Europe’s embattled banking system. The ECB provided 3-year loans amounting to half a trillion euros at nominal and minimal interest rates. At first, the risk-averse banks re-deposited the funds with the ECB. Later, however, they embarked on an arbitrage operation of unprecedented proportions using the cheap money to purchase sovereign bonds with historically high coupons issued by the likes of Italy and Spain. Thus, the ECB ended up fostering yet another unsustainable bubble in sovereign obligations and threatening the balance sheets of the very institutions it seeks to prop up when the bubble inevitably bursts.

The global credit crunch induced by the subprime mortgage crisis in the United States, in the second half of 2007, engendered a tectonic and paradigmatic shift in the way central banks perceive themselves and their role in the banking and financial systems.

On December 12, 2007, America’s Federal Reserve, the Bank of England, the European Central Bank (ECB), the Bank of Canada and the Swiss National Bank, as well as Japan’s and Sweden’s central banks joined forces in a plan to ease the worldwide liquidity squeeze.

This collusion was a direct reaction to the fact that more conventional instruments have failed. Despite soaring spreads between the federal funds rate and the LIBOR (charged in interbank lending), banks barely touched money provided via the Fed’s discount window. Repeated and steep cuts in interest rates and the establishment of reciprocal currency-swap lines fared no better.

The Fed then proceeded to establish a “Term Auction Facility (TAF)”, doling out one-month loans to eligible banks. The Bank of England multiplied fivefold its regular term auctions for three months maturities. On December 18, the ECB lent 350 million euros to 390 banks at below market rates.

In March 2008, the Fed lent 29 billion USD to JP Morgan Chase to purchase the ailing broker-dealer Bear Stearns and hundreds of billions of dollars to investment banks through its discount window, hitherto reserved for commercial banks. The Fed agreed to accept as collateral securities tied to “prime” mortgages (by then in as much trouble as their subprime brethren).

The Fed doled the funds out through anonymous auctions, allowing borrowers to avoid the stigma attached to accepting money from a lender of last resort. Interest rates for most lines of credit, though, were set by the markets in (sometimes anonymous) auctions, rather than directly by the central banks, thus removing the central banks’ ability to penalize financial institutions whose lax credit policies were, to use a mild understatement, negligent.

Moreover, central banks broadened their range of acceptable collateral to include prime mortgages and commercial paper. This shift completed their transformation from lenders of last resort. Central banks now became the equivalents of financial marketplaces, and akin to many retail banks. Fighting inflation – their erstwhile raison d’etre – has been relegated to the back burner in the face of looming risks of recession and protectionism. In September 2008, the Fed even borrowed money from the Treasury when its own resources were depleted.

As The Economist neatly summed it up (in an article titled “A dirty job, but Someone has to do it”, dated December 13, 2007):

“(C)entral banks will now be more intricately involved in the unwinding of the credit mess. Since more banks have access to the liquidity auction, the central banks are implicitly subsidising weaker banks relative to stronger ones. By broadening the range of acceptable collateral, the central banks are taking more risks onto their balance sheets.”

Regulatory upheaval is sure to follow. Investment banks are likely to be subjected to the same strictures, reserve requirements, and prohibitions that have applied to commercial banks since 1934. Supervisory agencies and functions will be consolidated and streamlined.

Ultimately, the state is the mother of all insurers, the master policy, the supreme underwriter. When markets fail, insurance firm recoil, and financial instruments disappoint – the government is called in to pick up the pieces, restore trust and order and, hopefully, retreat more gracefully than it was forced to enter.

The state would, therefore, do well to regulate all financial instruments: deposits, derivatives, contracts, loans, mortgages, and all other deeds that are exchanged or traded, whether publicly (in an exchange) or privately. Trading in a new financial instrument should be allowed only after it was submitted for review to the appropriate regulatory authority; a specific risk model was constructed; and reserve requirements were established and applied to all the players in the financial services industry, whether they are banks or other types of intermediaries.

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Can the Albanians in Macedonia be Bought off?

The once and future Prime Minister of Macedonia, Nikola Gruevski, has surrendered large swathes of his government to his Albanian coalition partners, DUI, the political incarnation of the rugged insurgents who roiled the country in an armed conflict in 2001. Even the sensitive Ministry of Defense is now in their hands. Moreover: Gruevski, the ostensible arch-nationalist gave way on a host of issues largely perceived by ethnic Macedonians of vital interest. Albanian will now be used as official second language everywhere, for instance and effective amnesty will be granted to Albanian terrorists who are alleged to have murdered and mutilated civilians. The measures are to be passed in the rubberstamp parliament in the form of fast track legislation. This unseemly alacrity is decried by both opposition and legal scholars as non-constitutional.
But will the Albanians be placated by these concessions? Can they be bought off? Is their long-term strategy of an incremental takeover of the state and its institutions paying off?
Western thinkers – even in the era of virulent nationalism – ignored Thucydides’ dictum (“People make war because of: honour, fear, and interest.”). They believed that throwing money at discontent – in the form of better and freer commerce – is the perfect and irretrievable antidote to war. They accentuated interest at the expense of fear and honour. The all-pervasiveness of this fallacy amounts to an almost reflexive defence mechanism of denial of the reality and inevitability of war and of its role as arbiter and pacifier.
In the Balkan, both the United States and the European Union continue this tradition. The association and stabilization agreements they often dangle and rarely sign, are sometimes followed by civil wars. The stability pact brought no stability. And the profusion of aid money and credits served only to augment flagrant corruption and arm the combatants.
The same tried and disproven methods are now applied by cynical and weary diplomats in Macedonia. Aid is withheld and promised as a bargaining chip. Elusive EU membership is supposed to concentrate the minds of the antagonists. But Macedonia’s problem is one of honour, and of fear, and only then – of self interest.
The Albanians in Macedonia are economically better off than their kith and kin anywhere else in the Balkan. This, they claim, is no thanks to the state. Official unemployment amongst the young is intolerably high. Access to secondary and higher education limited (especially since the use of the Albanian language in these institutions is restricted). They are under-represented in public administration. The physical infrastructure of their villages and cities is crumbling or altogether non-existent.
To this the Macedonians retort that Albanians make up a hefty chunk of the informal economy, thus distorting official unemployment figures. Albanians in western Macedonia largely do not pay taxes – an act of civil disobedience long preceding the current insurgency. Their admitted undr-representation in state administration is due to the lack of properly qualified and educated cadre. That they prevent their women from attending school does not help. And infrastructure all over the country is decrepit, Macedonia being the third poorest country in Europe.
What preceded what – discrimination poverty or the reverse – is immaterial except to traditional Balkan hair splitters. Economic problems should and can be solved by economic and regulatory means, goes the West. A tweaked constitution, the right laws passed, credits to small and medium enterprises and, presto, problem solved.
But the Macedonian problem – now in its second century – is a lot deeper than any Western pocket.
The Macedonians regards the current state of Macedonia as the final realization of a dream. It occupies less than a third of the historical territory known as Macedonia – but it is theirs, a sovereign state, where they are fully Macedonian in language and in custom. Macedonia to the Macedonians is, in other words, a fatherland, not merely a convenience. They cling to their tiny plot even more tenaciously in the face of Serb, Greek and Bulgarian disparagement. The Greek doubt the authenticity of the current inhabitants of Macedonia as do the Serbs (to whom Macedonia is “south Serbia”). The Bulgarians regard Macedonian as a villager’s dialect of Bulgarian. This inane opposition by their neighbours hardens Macedonian resolve to prevail and perpetuate both their national identity and their language. This is a throwback to the 19th century concept of nation-state – a space populated by a more or less homogeneous people with their own history, national myths, language, and political agenda.
Where the Macedonian’s attitude is historical – the Albanians’ is territorial (“Albania is where Albanians are”). To them Macedonia is a mere territory inhabited by two major nations (the Macedonians and the Albanians). It is a political and economic partnership. As such, it can theoretically be dismantled, or substantially altered at will. Since no single nation in such a citizen’s compact can have a privileged position – they each can veto each other’s decisions and vision.
This Albanian rendering of Macedonia is much closer to the American instrumental ethos of the state. To Americans, the USA, is the outcome of a social contract constantly re-negotiated and rephrased. It is founded upon piles of documents – the Constitution, the Bill of Rights. It is an abstract entity in flux, re-defined by its constituents and managed by semipternal arbitration.
The Albanian position is also close to the European Union’s new found totem of the “multi-cultural society”. States belong to their citizens, regardless of colour, race, or origin. Germany, the United Kingdom, and France are slowly being transformed into immigrant societies – dysfunctional melting pots of hitherto foreign cultures and societies. This tendency is further enhanced by the gradual emergence of the European supranational federation. Sovereignty is in the descendant – national cohabitation in the ascendant.
Here lies the danger to Macedonia’s future. Both the USA and the EU are likely to coerce Macedonia to adopt a contract-based, multi-cultural solution to the crisis. The Americans are likely to impose on it an American style constitution – and the European are likely to implement a bevy of “minority rights” measures. In a region still steeped in nationalistic lore and enthralled by the spectre of the nation-state, these would spell the end of Macedonia as a political entity. At the very least it would spell the end of Macedonia as the homeland of the Macedonians.

Putin’s Last Days?

I. Putin’s Twilight
Putin is losing his grip on power. His allies – not least former KGB and current FSB operatives – are deserting him in droves, put off by his recent economic failures as much as by his clownish and narcissistic public conduct. Erstwhile faithful oligarchs are now hedging their bets, putting feelers to the West and even colluding with the banished Khodorkovsky and Berezovsky.
In June 2010, Mikhail Kasyanov, A former Russian prime minister, offered a spirited defense of incarcerated tycoon and Putin nemesis Mikhail Khodorkovsky. In a packed court in Moscow he labelled new charges against the disgraced oligarch “absurd”.

The week before, Russian President Dmitry Medvedev criticized Prime Minister Vladimir Putin’s government for suppressing information or ignoring environmental problems. He threatened to get the presidency involved, encroaching on Putin’s turf, hitherto strictly off-limits.

Yury Shevchuk, a Russian musician and Kremlin critic of renown challenged Putin for his brutal mistreatment of peaceful protesters. With elections looming, Putin was forced to dissimulate: “protests don’t hinder but, on the contrary, help” the government. “If I see that people are pointing to crucial issues that the authorities should pay attention to, what can be wrong with that?” he exclaimed, unconvincingly. “One should say, ‘thank you.'” Following this tacit admission of defeat, Russian opposition activists rallied in Moscow on May 1, shouting slogans comparing Prime Minister Vladimir Putin to Soviet dictator Josef Stalin. The authorities licenced the demonstration.

German Gref,  general manager of Russia’s banking behemoth, state-controlled Sberbank and the architect of Putin’s economic policies while he was President of Russia, said that “the first stage of economic reform, which had required a tightly held political system to push through change, was nearing an end. Russia must carry out sweeping political reforms to safeguard future economic growth” (Reuters).

As dictators the world over have learned to their detriment, a totalitarian regime is an all-or-nothing proposition. Cracks in the monolithically repressive state tend to grow into fissures and lead to a loss of power. The surest way to regime change is via political reform. Soft concessions yield harsh consequences and the overthrow of potentates and their cronies. Putin is repeating the mistake that the Shah and Gorbachev and a myriad other tyrants have committed: they hung themselves by giving the people a little rope. Putin’s days are numbered. His successor – not necessarily Medvedev – is sharpening the knife. This time, the transition may not be pretty.
II. Putin’s Background

Being a KGB officer was always a lucrative and liberating proposition. Access to Western goods, travel to exotic destinations, making new (and influential) friends, mastering foreign languages, and doing some business on the side (often with one’s official “enemies” and unsupervised slush funds) – were all standard perks even in the 1970’s and 1980’s. Thus, when communism was replaced by criminal anarchy, KGB personnel (as well as mobsters) were the best suited to act as entrepreneurs in the new environment. They were well traveled, well connected, well capitalized, polyglot, possessed of management skills, disciplined, armed to the teeth, and ruthless. Far from being sidetracked, the security services rode the gravy train. But never more so than now.
January 2002. Putin’s dour gaze pierces from every wall in every office. His obese ministers often discover a sudden sycophantic propensity for skiing (a favorite pastime of the athletic President). The praise heaped on him by the servile media (Putin made sure that no other kind of media survives) comes uncomfortably close to a Central Asian personality cult. Yet, Putin is not in control of the machinery that brought him to the pinnacle of power, under-qualified as he was. This penumbral apparatus revolves around two pivots: the increasingly fractured and warlord controlled military and, ever more importantly, the KGB’s successors, mainly the FSB.
A. The Military
In 2001, Russia announced yet another plan to reform its bloated, inefficient, impoverished, demoralized and corrupt military. Close to 200,000 troops are to go immediately and the same number in the next 3 years. The draft is to be abolished and the army professionalized. At its current size (officially, 1.2 million servicemen), the armed forces are severely under-funded. Cases of hunger are not uncommon. Ill (and late) paid soldiers sometimes beg for cigarettes, or food.
Conscripts, in what resembles slave labour, are “rented out” by their commanders to economic enterprises (especially in the provinces). A host of such “trading” companies owned by bureaucrats in the Ministry of Defense was shut down last June by the incoming Minister of Defense (Sergei Ivanov), a close pal of Putin. But if restructuring is to proceed apace, the successful absorption of former soldiers in the economy (requiring pensions, housing, start up capital, employment) – if necessary with the help of foreign capital – is bound to become a priority sooner or later.
But this may be too late and too little – the much truncated and disorientated armed forces have been “privatized” and commandeered for personal gain by regional bosses in cahoots with the command structure and with organized crime. Ex-soldiers feature prominently in extortion, protection, and other anti-private sector rackets.
The war in Chechnya is another long standing pecuniary bonanza – and a vested interest of many generals. Senior Russian Interior Ministry field commanders trade (often in partnership with Chechen “rebels”) in stolen petroleum products, food, and munitions.
Putin is trying to reverse these pernicious trends by enlisting the (rank and file) army (one of his natural constituencies) in his battles against secessionist Chechens, influential oligarchs, venal governors, and bureaucrats beyond redemption.
As well as the army, the defense industry – with its 2 million employees – is also being brutally disabused of its centralist-nationalistic ideals.
Orders placed with Russia’s defense manufacturers by the destitute Russian armed forces are down to a trickle. Though the procurement budget was increased by 50% last year, to c. $2.2 billion (or 4% of the USA’s) and further increased this year to 79 billion rubles ($2.7 billion) –  whatever money is available goes towards R&D, arms modernization, and maintaining the inflated nuclear arsenal and the personal gear of front line soldiers in the interminable Chechen war. The Russian daily “Kommersant” quotes Former Armed Forces weapons chief, General Anatoly Sitnov, as claiming that  $16 billion should be allocated for arms purchases if all the existing needs are to be satisfied.
Having lost their major domestic client (defense constituted 75% of Russian industrial production at one time) – exports of Russian arms have soared to more than $4.4 billion annually (not including “sensitive” materiel). Old markets in the likes of Iran, Iraq, Syria, Algeria, Eritrea, Ethiopia, China, India, and Libya have revived. Decision makers in Latin America and East Asia (including Malaysia and Vietnam) are being avidly courted. Bribes change hands, off-shore accounts are open and shut, export proceeds mysteriously evaporate. Many a Russian are wealthier due to this export cornucopia.
The reputation of Russia’s weapons manufacturers is dismal (no spare parts, after sales service, maintenance, or quality control).  But Russian weapons (often Cold War surplus) come cheap and the list of Russian firms and institutions blacklisted by the USA for selling weapons (from handguns to missile equipped destroyers) to “rogue states” grows by the day. Less than one quarter of 2500 defense-related firms are subject to (the amorphous and inapt) Russian Federal supervision. Gradually, Russia’s most advanced weaponry is being made available through these outfits.
Close to 4000 R&D programs and defense conversion projects (many financed by the West) have failed abysmally to transform Russia’s “military-industrial complex”. Following a much derided “privatization” (in which the state lost control over hundreds of defense firms to assorted autochthonous tycoons and foreign manufacturers) – the enterprises are still being abused and looted by politicians on all levels, including the regional and provincial ones. The Russian Federation, for instance, has controlling stakes in only 7 of c. 250 privatized air defense contractors. Manufacturing and R&D co-operation with Ukraine and other former Soviet republics is on the ascendant, often flying in the face of official policies and national security.
Despite the surge in exports, overproduction of unwanted goods leads to persistent accumulation of inventory. Even so, capacity utilization is said to be 25% in many factories. Lack of maintenance renders many plant facilities obsolete and non-competitive. The Russian government’s new emphasis on R&D is wise – Russia must replenish its catalog with hi-tech gadgets if it wishes to continue to export to prime clients. Still, the Russian Duma’s prescription of a return to state ownership, central planning, and subsidies, if implemented, is likely to prove to be the coup de grace rather than a graceful coup.
B. The FSB (the main successor to the KGB)
NOTE:
The KGB was succeeded by a host of agencies. The FSB inherited its internal security directorates. The SVR inherited the KGB’s foreign intelligence directorates.
With the ascendance of the Vladimir Putin and his coterie (all former KGB or FSB officers), the security services revealed their hand – they are in control of Russia and always have been. They number now twice as many as the KGB at its apex. Only a few days ago, the FSB had indirectly made known its enduring objections to a long mooted (and government approved) railway reform (a purely economic matter). President Putin made December 20 (the day the murderous Checka, the KGB’s ancestor, was established in 1917) a national holiday.
But the most significant tectonic shift has been the implosion of the unholy alliance between Russian organized crime and its security forces. The Russian mob served as the KGB’s long arm until 1998. The KGB often recruited and trained criminals (a task it took over from the Interior Ministry, the MVD). “Former” (reserve) and active agents joined international or domestic racketeering gangs, sometimes as their leaders.
After 1986 (and more so after 1991), many KGB members were moved from its bloated First (SVR) and Third Directorates to its Economic Department. They were instructed to dabble in business and banking (sometimes in joint ventures with foreigners). Inevitably, they crossed paths – and then collaborated – with the Russian mafia which, like the FSB, owns shares in privatized firms, residential property, banks, and money laundering facilities.
The co-operation with crime lords against corrupt (read: unco-operative) bureaucrats became institutional and all-pervasive under Yeltsin. The KGB is alleged to have spun off a series of “ghost” departments to deal with global drug dealing, weapons smuggling and sales, white slavery, money counterfeiting, and nuclear material.
In a desperate effort at self-preservation, other KGB departments are said to have conducted the illicit sales of raw materials (including tons of precious metals) for hard currency, and the laundering of the proceeds through financial institutions in the West (in Cyprus, Israel, Greece, the USA, Switzerland, and Austria). Specially established corporate shells and “banks” were used to launder money, mainly on behalf of the party nomenklatura. All said, the emerging KGB-crime cartel has been estimated to own or control c. 40% of Russian GDP as early as 1994, having absconded with c. $100 billion of state assets.
Under the dual pretexts of “crime busting” and “fighting terrorism”, the Interior Ministry and FSB used this period to construct massive, parallel, armies – better equipped and better trained than the official one.
Many genuinely retired KGB personnel found work as programmers, entrepreneurs, and computer engineers in the Russian private sector (and, later, in the West) – often financed by the KGB itself. The KGB thus came to spawn and dominate the nascent Information Technology and telecommunications industries in Russia. Add to this former (but on reserve duty) KGB personnel in banks, hi-tech corporations, security firms, consultancies, and media in the West as well as in joint ventures with foreign firms in Russia – and the security services’ latter day role (and next big fount of revenue) becomes clear: industrial and economic espionage. Russian scholars are already ordered (as of last May) to submit written reports about all their encounters with foreign colleagues.
This is where the FSB began to part ways with crime, albeit hitherto only haltingly.
The FSB has established itself both within Russian power structures and in business. What it needs now more than money and clout – are respectability and the access it brings to Western capital markets, intellectual property (proprietary technology), and management. Having co-opted criminal organizations for its own purposes (and having acted criminally themselves) – the alphabet soup of security agencies now wish to consolidate their gains and transform themselves into legitimate, globe-spanning, business concerns. The robbers’ most fervent wish is to become barons. Their erstwhile, less exalted, criminal friends are on the way. Expect a bloodbath, a genuine mafia gangland war over territory and spoils. The result is by no means guaranteed.
III. Putin: Historical Precedent
France’s Empire is very reminiscent of Vladimir Putin’s reign in post-Yeltsin Russia.
Karl Marx regarded Louis-Napoleon’s Second Empire as the first modern dictatorship – supported by the middle and upper classes but independent of their patronage and, thus, self-perpetuating. Others went as far as calling it proto-fascistic.
Yet, the Second Empire was insufficiently authoritarian or revolutionary to warrant this title. It did foster and encourage a personality cult, akin to the “Fuhrerprinzip” -but it derived its legitimacy, conservatively, from the Church and from the electorate. It was an odd mixture of Bonapartism, militarism, clericalism, conservatism and liberalism.
In a way, the Second Republic did amount to a secular religion, replete with martyrs and apostles. It made use of the nascent mass media to manipulate public opinion. It pursued industrialization and administrative modernization. But these features characterized all the political movements of the late 19th century, including socialism, and other empires, such as the Habsburg Austro-Hungary.
The Second Empire was, above all, inertial. It sought to preserve the bureaucratic, regulatory, and economic frameworks of the First Empire. It was a rationalist, positivist, and materialist movement – despite the deliberate irrationalism of the young Louis-Napoleon. It was not affiliated to a revolutionary party, nor to popular militias.  It was not collectivist. And its demise was the outcome of military defeat.
Like the French Second Empire, it follows a period of revolutions and counter-revolutions. It is not identified with any one class but does rely on the support of the middle class, the intelligentsia, the managers and industrialists, the security services, and the military.
Putin is authoritarian, but not revolutionary. His regime derives its legitimacy from parliamentary and presidential elections based on a neo-liberal model of government. It is socially conservative but seeks to modernize Russia’s administration and economy. Yet, it manipulates the mass media and encourages a personality cult.
Like Napoleon III, Putin started off as president (he was shortly as prime minister under Yeltsin). Like him, he may be undone by a military defeat, probably in the Caucasus or Central Asia.
The formative years of Putin and Louis-Napoleon have little in common, though.
The former was a cosseted member of the establishment and witnessed, first hand, the disintegration of his country. Putin was a KGB apparatchik. The KGB may have inspired, conspired in, or even instigated the transformation in Russian domestic affairs since the early 1980’s – but to call it “revolutionary” would be to stretch the term.
Louis-Napoleon, on the other hand, was a true revolutionary. He narrowly escaped death at the hands of Austrian troops in a rebellion in Italy in 1831. His brother was not as lucky. Louis-Napoleon’s claim to the throne of France (1832) was based on a half-baked ideology of imperial glory, concocted, disseminated and promoted by him. In 1836 and 1840 he even initiated  (failed) coups d’etat. He was expelled even from neutral Switzerland and exiled to the USA. He spent six years in prison.
Still, like Putin, Napoleon III was elected president. Like him, he was regarded by his political sponsors as merely a useful and disposable instrument. Like Putin, he had no parliamentary or political experience. Both of them won elections by promising “order” and “prosperity” coupled with “social compassion”. And, like Putin, Louis-Napoleon, to the great chagrin of his backers, proved to be his own man – independent-minded, determined, and tough.
Putin, like Louis-Napoleon before him, proceeded to expand his powers and installed loyalists in every corner of the administration and the army. Like Louis-Napoleon, Putin is a populist, travelling throughout the country, posing for photo opportunities, responding to citizens’ queries in Q-and-A radio shows, siding with the “average bloke” on every occasion, taking advantage of Russia’s previous economic and social disintegration to project an image of a “strong man”.
Putin is as little dependent on the Duma as Napoleon III was on his parliament. But Putin reaped what Boris Yeltsin, his predecessor, has sown when he established an imperial presidency after what amounted to a coup d’etat in 1993 (the bombing of the Duma). Napoleon had to organize his own coup d’etat all by himself in 1852.
Napoleon III – as does Putin now – faced a delicate balancing act between the legitimacy conferred by parliamentary liberalism and the need to maintain a police state. When he sought to strengthen the enfeebled legislature he reaped only growing opposition within it to his domestic and foreign policies alike.
He liberalized the media and enshrined in France’s legal code various civil freedoms. But he also set in motion and sanctioned a penumbral, all-pervasive and clandestine security apparatus which regularly gathered information on millions of Frenchmen and foreigners.
Putin is considerably less of an economic modernizer than was Napoleon III. Putin also seems to be less interested in the social implications of his policies, in poverty alleviation and in growing economic inequalities and social tensions. Napoleon III was a man for all seasons – a buffer against socialism as well as a utopian social and administrative reformer.
Business flourished under Napoleon III – as it does under Putin. The 1850’s witnessed rapid technological change – even more rapid than today’s. France became a popular destination for foreign investors. Napoleon III was the natural ally of domestic businessmen until he embarked on an unprecedented trade liberalization campaign in 1860. Similarly, Putin is nudging Russia towards WTO membership and enhanced foreign competition – alienating in the process the tycoon-oligarchs, the industrial complex, and the energy behemoths.
Napoleon III was a free trader – as is Putin. He believed in the beneficial economic effects of free markets and in the free exchange of goods, capital, and labour. So does Putin. But economic liberalism does not always translate to a pacific foreign policy.
Napoleon III sought to annul the decisions of the Congress of Vienna (1815) and reverse the trend of post-Napoleonic French humiliation. He wanted to resurrect “Great France” pretty much as Putin wants to restore Russia to its “rightful” place as a superpower.
But both pragmatic leaders realized that this rehabilitation cannot be achieved by force of arms and with a dilapidated economy. Napoleon III tried to co-opt the tidal wave of modern, revolutionary, nationalism to achieve the revitalization of France and the concomitant restoration of its glory. Putin strives to exploit the West’s aversion to conflict and addiction to wealth. Napoleon III struggled to establish a new, inclusive European order – as does Putin with NATO and, to a lesser degree, with the European Union today.
Putin artfully manipulated Europe in the wake of the September 11 terrorist attacks on the USA, his new found ally. He may yet find himself in the enviable position of Europe’s arbitrator, NATO’s most weighty member, a bridge between Central Asia, the Caucasus, North Korea and China – and the USA.  The longer his tenure, the more likely he is to become Europe’s elder statesman. This is a maneuver reminiscent of Louis-Napoleon’s following the Crimean War, when he teamed up with Great Britain against Russia.
Like Putin, Napoleon III modernized and professionalized his army. But, unlike Putin hitherto, he actually went to war (against Austria), moved by his (oft-thwarted) colonial and mercantilist aspirations. Putin is likely to follow the same path (probably in Central Asia, but, possibly, in the Baltic and east Europe as well). Reinvigorated armies (and industrialists) often force expansionary wars upon their reluctant ostensible political masters.
Should Putin fail in his military adventures as Napoleon III did in his and be deposed as he was – these eerie similarities will have come to their natural conclusion.

Greek-Macedonian Name Issue Myths Debunked

In the absence of the glare of the global media, its coverage and exposure, the fourth-rate diplomats that stand in for the International Community in Macedonia ineffectually cajole its government with thinly veiled threats, Cassandra-like apocalyptic scenarios, and verbal bribery. To achieve their aims, they propagate three myths (not to say deceptions):

Myth number 1: The conflict initiated by Greece is “normal” and not intractable

The truth is that the “Name Issue” cannot be resolved because the diametrically-opposing positions of the parties occupy the same semantic and geopolitical space. Both fear for their cohesion and identity should they compromise.

The Greek demand – that Macedonia and, consequently, the Macedonians change their collective (national) name – is unreasonable ab initio. Unreasonable demands cannot be rendered reasonable by being modified or amended. Greek “flexibility” and “reasonableness” are, therefore, smokescreens behind which lurk irrationality and extremism.

Sovereign polities should never succumb to blackmail and extortion: not because of ethical or moral considerations or matters of national pride, but because concessions only tend to enhance the insatiability of blackmailers and extortionists. Macedonia gave in to Greek blackmail once (with regards to its flag), yet this did not slake Greece’s thirst for more.

The name issue negotiations consume vast and scarce resources, especially in terms of human capital. Macedonia is a poor country and this Greek diversion is proving to be lethal as far as its economic development and geopolitical prospects go.

In truth, Macedonia is winning the diplomatic and public opinion battle the world over. More than 120 members of the United Nations recognize it by its constitutional name and not a week passes by without a commiserating op-ed in some prime medium in the West. Greece looks bad: an extortionate bully in the throes of economic mayhem and domestic terrorism. Faced with such an asymmetry in global sympathy, why should Macedonia be the one to throw in the towel?

Myth number 2: A lack of progress (read: Macedonian capitulation) on the name issue will foster inter-ethnic unrest and worse

Ardent, well-choreographed protestations aside, the Albanians in Macedonia ought to be delighted with the lack of progress on both NATO and EU accession. The overwhelming majority of Albanians in Western Macedonia are enmeshed in activities which can only be charitably described as “informal”. The Albanians are the engine that runs the grey and black and criminal economies in Macedonia. EU accession will put an abrupt stop to all these lucrative endeavours and unravel networks that took decades to build and maintain.

Furthermore, the Albanian insurgency in 2001 was the outcome of copious nods and winks (and dollops of materiel) on the part of the United States and, to a lesser extent, the EU. No such support, implicit or explicit, is to be found today: the International Community is firmly and irrevocably committed to the Ohrid Framework Agreement and will not allow the Albanians to use weapons to try to alter its generous terms.

Albanian posturing concerning the Macedonian procrastination with regards to the Name Issue has to do with internecine strife between the two big Albanian parties: DUI and DPA. They both leverage the name issue and threaten civil war in order to re-divide the spoils of government on all levels.

Myth number 3: EU Accession is Macedonia’s ticket to instant and sustained prosperity

The EU is in the throes of a life-threatening crisis and the entire enlargement project is in ever-growing doubt. Even if the EU were to emerge unscathed from this predicament, its harried officials still regard the Western Balkans as a cesspit, an Ottoman-Byzantine-Oriental Muslim-infested relic in the heart of an otherwise civilized, genteel, and Christian Europe (read: West). The more bigoted of the EU members are going to drag the negotiations with the likes of Macedonia as they have been doing with Turkey for decades now.

Macedonia currently enjoys all the benefits of EU membership without incurring any of its costs: it has free trade, visa-free travel, and access to regional development funds and EU tenders. The costs of accession are bound to be crippling: Macedonia’s sheltered and inefficient industries will crumble in the face of European competition; its judiciary and legislature will be buried under the 84,000 pages of the acquis communautaire; environmental, sanitation, and labour rules will render the private sector, such as it is in this benighted place, all but dysfunctional and insolvent; brain drain will likely reach epic proportions. Macedonia is not ready for EU accession. For the time being, it is better off as it is.

In the long-term, accession will bring with it sizable benefits in the transfer of technological knowledge and management skills and in encouraging foreign direct investment. But these welcome side-effects and by-products of EU membership depend crucially on an all-pervading internal transformation. Macedonains lack the skills, the knowledge, the emotional maturity, and the cultural background to have a state of their own, let alone a democracy. They have yet to develop a sense of being part of a cohesive collective. Their rampant individualism is malignant and they all perceive the state and any form of authority as potential and actual enemies.

So, why are Macedonians so keen on joining the EU?

Some of them hope to turn a quick profit as asset prices (shares, real-estate) react to the good news. Others can’t wait to abandon ship and join the throngs of economic immigrants from Bulgaria and Poland. Not one Macedonian I have met realizes the full implications of EU accession and not one of them gives a fig. They all perceive the EU as a “get-rich-quick” scheme.

The Battle of Books against Television in Eastern Europe

The cramped offices of Toper, Macedonia’s leading publisher of reference works, are a shrine to the book. Thickset tomes – mainly translations from the English – are strewn everywhere. The proud owners show us their latest crop: two beautifully bound, quality paper volumes – the Concise Britannica with more than 14,000 entries.

To translate this massive work to Macedonian (using the Cyrillic alphabet) took years. That the outcome is so updated, so visually appealing (with thousands of photos, maps, and tables), and so comprehensive defies belief. Macedonia is a tiny country of 2 million people and it is in dire economic and political straits. Toper hopes to recoup its investment via sales to institutions: schools, universities, and firms.

Macedonians – like all other East Europeans – are still enamoured of the written word and hold education and the educated in awe and deep respect. This is unlike the West where things digital reign supreme and where higher education and expertise are scorned as “crowdsourcing” and “mob wisdom” took over (for instance, in the form of the Wikipedia “encyclopedia”).

YouTube has already replaced Yahoo and will shortly overtake Google as the primary Web search destination among children and teenagers. Its repository of videos – hitherto mere entertainment – is now beginning to also serve as a reference library and a news source. This development seals the fate of text. It is being dethroned as the main vehicle for the delivery of information, insight, and opinion.

This is only the latest manifestation in a plague of intellectual turpitude that is threatening to undermine not only the foundations of our civilization, but also our survival as a species. People have forgotten how to calculate because they now use calculators; they don’t bother to memorize facts or poetry because it is all available online; they read less, much less, because they are inundated with sounds and sights, precious few of which convey any useful information or foster personal development.

A picture is worth 1000 words. But, words have succeeded pictograms and ideograms and hieroglyphs for good reasons. The need to combine the symbols of the alphabet so as to render intelligible and communicable one’s inner states of mind is conducive to abstract thought. It is also economical; imposes mental discipline; develops the imagination; engenders synoptic thinking; and preserves the idiosyncrasies and the uniqueness of both the author and its cultural-social milieu. Visual are a poor substitute as far as these functions go.

In a YouTube world, literacy will have vanished and with it knowledge. Visuals and graphics can convey information, but they rarely proffer organizing principles and theories. They are explicit and thus shallow and provide no true insight. They demand little of the passive viewer and, therefore, are anti-intellectual. In this last characteristic, they are true to the Internet and its anti-elitist, anti-expert, mob-wisdom-driven spirit. Visuals encourage us to outsource our “a-ha” moments and the formation of our worldview and to entrust them to the editorial predilections of faceless crowds of often ignorant strangers.

Moreover, the sheer quantity of material out there makes it impossible to tell apart true and false and to distinguish between trash and quality. Inundated by “user-generated-content” and disoriented, future generations will lose their ability to discriminate. YouTube is only the logical culmination of processes started by the Web. The end result will be an entropy of information, with bits isotropically distributed across vast farms of servers and consumed by intellectual zombies who can’t tell the difference and don’t care to.

East Europeans still pride themselves for being dyed-in-the-wool bibliophiles. Still, these traditions aside, the East may be succumbing to the West. Yet, while in the West it is the Internet and its visuals that is decimating the book, in Eastern Europe it is television.

June 2005 IREX report, quoted by the Southeast Europe Times (SE Times), analyzes the media in countries in transition from Communism by measuring parameters like free speech, professional standards of quality, plurality of news sources, business sustainability and supporting institutions. It concludes that “most transition countries in Southeast Europe have made progress in the development of professional independent media”. The Media Sustainability Index (MSI) for 2004 begs to differ: “…(F)ully sustainable media have yet to be achieved in any of the countries.

Karl Marx decried religion as “opium for the masses”. Yet no divine worship has attained the intensity of the fatuous obsession of the denizens of central and east Europe with the diet of inane conspiracy theories, gaudy soap operas, cruel reality TV, and televised gambling they are fed daily by their local media. There is little else on offer except the interminable babble of self-important politicians. It is the rule of the abysmally lowest common denominator.

In Macedonia, it is impossible to avoid a certain entertainer, a graceless Neanderthal hulk with a stentorian voice, deafeningly employed in a doomed attempt to appear suavely quaint and uproariously waggish. The natives love him. Private, commercial TV in the Czech Republic – notably “Nova” – has surpassed its American role models. It has long been reduced to a concoction of soft porn, soundbite tabloid journalism and Latin American “telenovelas”. Jan Culik, publisher of the influential Czech Internet daily, Britske listy, once described its programming as “sex, violence and voyeurism … a tabloid approach”.

The situation is no different – or much improved – elsewhere, from Russia to Slovenia. As Andrew Stroehlein, former editor in chief of Central Europe Review, so aptly put it: “Garbage in, money out”. This sad state of affairs was brought on by a confluence of economic fads (such as privatization, commercialization and foreign ownership) and technologies of narrowcasting: satellites, DVD recorders, cable TV, regional and local “stealth” TV stations, podcasting, Internet broadband and HDTV.

Writing in Central Europe Review about the Romanian scene, Catherine Lovatt observed that “television was one medium through which Romanians could vicariously experience the ‘Western’ dream. The popularity of programmes such as Melrose Place indicates a preference for certain lifestyles – lifestyles that are as glamorous as they are out of reach. The seemingly unabating craving for commercial TV has been fuelled by the need to escape the Communist past and the stresses of today’s reality.”

Grasping its importance as a tool of all-pervasive indoctrination, television was introduced early on by the communist masters of the region. Still, tortuous stretches of personality cult and blatant, laughable, propaganda aside – monopolistic, state-owned communist TV, not encumbered by the need to compete, offered an admirable menu of educational, cultural and horizon expanding programming.

It is all gone now. The region is drowning in cheaply produced mock talk shows, hundreds of episodes of Latin American serials, hours on end of live bingo and lottery drawings, tattered B movies, pirated new releases and sitcoms and compulsively repeated newscasts.

From Ukraine to Bulgaria, commercial channels are prone to featuring occultists, conspiracy theorists, anti-Semitic “historians”, hate speech proponents, racists, rabid nationalists and other unadulterated whackos and have taken to vigorously promoting their pet peeves and outlandish conjectures.

The intrigue-inclined postulate that this visual effluence is intended to numb its hapless recipients and render them oblivious to the insufferable drudgery of their dreary, crime-infested, corruption-laden and, in general, rather doomed, lives. It is instigated by unscrupulous politicians, they whisper, eyes darting nervously. It is a form of state-sponsored drug, also known as escapism.

How to reconcile this paranoid depiction of a predatory state with the fact that most private television stations throughout the region are owned by hard-nosed, often foreign, businessmen?

The suspicious point to the fact that “local content” and “cultural minimum” license requirements are rarely imposed by regulators. National broadcasting permits were granted to cronies and insiders and withheld from potential “troublemakers” and dissidents.

It is also true that, as Stroehlein puts it, there is a massive “repatriation of profits generated from newly private stations to Western firms.” As a result, “local production companies are losing out, and the loss of funds damages the domestic entertainment and arts industry and the economy as a whole.”

And the collusion-minded have a point. The dumbing-down of audiences is as dangerous to newfound political and economic freedoms as are more explicit forms of repression. Both democracy and the free market will not survive long in the absence of an informed, alert, intellectually agile public. It is hard to retain one’s critical faculties under the onslaught of televised conspicuous consumption and the unmitigated folly of mass entertainers.

Many scholars and media observers believe that the battle has already been lost.

Péter Bajomi-Lázár, associate professor at the Communication Department of Kodolanyi University College, Budapest-Szekesfehervar in Hungary, wrote in January 2002 in a comparative study titled “Public Service Television in East Central Europe”:

“The transformation of public service television from a tool of agitation and propaganda into an agent of democratic control has been but a partial success in East Central Europe. Public service television channels have failed to find their identities and audiences in a market dominated by commercial broadcasters. Some of them are underfunded and their journalists encounter political pressure.”

But even where public broadcasters enjoy the proceeds of a BBC-like television tax – like in Macedonia – they fail to attract spectators. The stark reality is that when people are faced with a choice between intellectually demanding and challenging programs and easily digestible variety shows they always plump for the latter. It is easy to condition people to complacent passivity and inordinately tough to snap out of it once exposed. The inhabitants of central and east Europe are mentally intoxicated. The hangover may never happen.


Also Read:

The Mendicant Journalists

The Books of the Damned

The Christiane Way