Europe is a mess. Greece is the country on the continent closest to utter wreck. (And, if not for statements yesterday by Chancellor Merkel and President Sarkozy, there would literally be no hope for a life raft anywhere near Athens soon. This morning's FT smothers even those wan hopes.) Spain, Portugal and Ireland are not far behind ... or under.
Each of these countries has views on how Israel deals with the Palestinians, and they don't like it at all. Neither do the past and present "foreign ministers"—so to speak, but not exactly—of the European Union. The previous one also a past foreign minister of Spain, Javier Solana, whose main claim to distinction is that he is the grand nephew of Salvador de Madariaga, historian, politician and chief of the ill-fated League of Nations mission for world disarmament. It's a shame, neither Hitler nor Mussolini (nor Tojo) wanted to cooperate. So Solana's blood runs thick with hope and thin with achievement. He did spend his six years as a physics graduate student at the University of Virginia, with a good deal of his energy there siphoned off to march against the Vietnam war. Ho! Ho! Ho Chi Minh! Ha. Ha.
Solana's successor, the Baroness Ashton of Upholland (neé Catherine Ashton), was Labor leader of the House of Lords, testimony to the diminishing stature of the peers. In the eighties, she was treasurer of the Campaign for Nuclear Disarmament (CND); this was long after nutty but brilliant Bertie Russell was dead but in the midst of the deepest financial machinations of the Soviet Union in the atomic or anti-American atomic effort. Of course, she didn't know about that—although it is estimated that nearly 40 percent of the campaign's money came from Moscow. And, if she didn't know that, she is capable of knowing nothing.
Everybody is aware of the drama now being played out in Dubai. And, frankly, the relief given by Abu Dhabi, its abutting oil-rich emirate in the confederation of self-indulgent and non-productive Arabs, will only buy time for Dubai, which will have to turn over to its cousins whatever assets remain under its robes.
My previous item on Peter King touched a nerve with the excellent Alex Massie, who points out that King was an outright apologist for terrorism by the Irish Republican Army. Massie points me to this old New York Sun article (not by him) which has some great details:
Famine: A Short History
By Cormac Ó Gráda
(Princeton University Press, 327 pp., $27.95)
The earliest recorded famines, according to Cormac Ó Gráda in his brief but masterful book, are mentioned on Egyptian stelae from the third millennium B.C.E. In that time--and to an extent, even today, above the Aswan dam in Sudan--farmers along the Nile were dependent on the river flooding to irrigate their fields. But one flood out of five, Ó Gráda tells us, was either too high or too low. The result was often starvation. The stelae commemorate the philanthropy of the aristocracy in providing food to the hungry. Other records of famine in the ancient world can be found in texts as various as Gilgamesh, the Joseph narrative in Genesis, Nehemiah, Cicero, and the Book of Revelation, in which the figure of famine is the third of the four horsemen of the apocalypse.
In the popular imagination, the United States and Europe are assumed to be radically opposing poles--"Mars" and "Venus"--on issues such as market regulation, public education, social policy, health care, crime, and the environment. But is that really the case? The numbers would suggest otherwise. My book, The Narcissism of Minor Differences: How America and Europe are Alike, presents quantifiable data on a wide array of social conditions on each side of the Atlantic.
As America struggles to get its mojo back as a preeminent center of innovation and thereby prosperity, metropolitan and national economic leaders would do well to study the case of Israel. Israel? Yes, Israel. As Dan Senor and Saul Singer make clear in their bracing new book Start-Up Nation, Israel is a country of just 7.1 million people that may well be the world’s top techno-nation, yet in a way that has huge relevance for those thinking about America’s renewal.
In the face of war, internal strife, and rising animosity from other nations, this embattled sliver of sun-baked desert has flourished as a technology hub. The country boasts the highest density of start-up companies in the world, with a total of 3,850 now operating at a rate of one for every 1,844 Israelis. In 2008, the nation attracted more than $2 billion in venture capital in 2008, as much as flowed to the U.K.’s 61 million citizens or the 145 million people living in Germany and France combined. And for that matter, some 63 Israeli companies were listed on the Nasdaq in 2009, more than from any other foreign country, including Canada, Ireland, the U.K., Singapore, China, or India. Nor have the wars Israel has repeatedly fought slowed the country down. Since 1995, Israel’s broader economy has grown faster than the average for the world’s developed economies. During this decade, the Israel’s share of the global venture capital market did not decline--it doubled, from 15 to 30 percent.
How has this come about? In part Senor and Singer attribute some of this dynamism to a number of unique cultural characteristics, ranging from a tolerance for “constructive failures” to an “antihierarchical ethos” and penchant for “bottom up” debate, jury-rigging, and responsibility-taking. Also distinctive is the powerful cultural contribution of mandatory service in the Israeli military, which Senor and Singer believe inculcates through broad and deep training a focus on “adaptive problem solving.”
Presumably the rulers of Dubai and Abu Dhabi are currently locked in negotiations regarding the exact terms that will be attached to a “bailout” for Dubai World. We’ll never know the details but if, as seems likely, the final deal involves creditors taking some sort of hit (perhaps getting 75 cents in the dollar, at the end of the day), does that matter?
Dubai probably has around $100bn in total liabilities, if we include off-balance sheet transactions, so total credit losses of $30-50bn need to be assigned. The direct effects so far seem small. HSBC leads the pack, in terms of exposure, but our baseline estimate is a 3 percent loss relative to its equity--not good, but manageable (and the stock already fell 5 percent on the news). The impact among other financial institutions that lent to Dubai seems fairly spread out and mostly within continental Europe.
Korean construction companies and Ukrainian/Russian steelmakers are also affected by the likely fall off in construction activity, but the broader boom in emerging markets is unlikely to be disrupted. The repricing of risk so far does not apply significantly to East Asia or Latin America.
However, there is a worrying impact on Ireland.
Officially, the only news coming out of Dubai on Sunday was that the central bank of the United Arab Emirates, the seven-state federation of which Dubai is a part, will extend ample credit to banks in Dubai. That should avert a series of runs now that it's pretty clear Dubai's banks have piles of bad loans sitting on their balance sheets.
Traders are racing to figure out what the default by Dubai World Group on $60 billion of debt means for their portfolios and the global economy. Dubai World is a conglomerate with large holdings of commercial real estate and ports across the globe, among other assets. The government of Dubai, one of seven states that form the United Arab Emirates, owns 100 percent of the company, but has no obligation to back its debt.
At this point, I see four potential consequences for the United States:
1.) A stronger dollar and lower interest rates. The immediate effect was for investors to shun risk and flee to safety. That benefited the U.S. dollar* and U.S. government debt, which suddenly became very attractive amid all the turmoil. Conversely, the debt of other Middle Eastern countries took a hit, as did the debt of countries like Greece, Turkey, Russia, and Ireland, which investors had already viewed somewhat skeptically.
2.) The end of financial bailouts abroad. This sounds like a bargain for us--the U.S. government can borrow on cheaper terms than it could before, which was already pretty cheap. That can hardly be a bad thing in itself at a time when we're borrowing trillions to prop up our fragile economy. The problem derives from the rising interest rates in countries investors are fleeing. If those countries need to issue more debt--say, because a big bank collapses and they need to bail it out--they will find it much, much harder to do so. As the FT's Willem Buiter puts it today:
Even banks and other financial institutions that would in the past (when fiscal pockets were deeper) have been considered too big and too systemically important to fail are now too big to save. Ireland’s government could not today afford to guarantee virtually all of the liabilities of its banking system, as it felt compelled to do at the beginning of this year.
If too-big-to-fail banks abroad are suddenly allowed to fail, that could depress foreign economies and--since many of them are markets for U.S. exports--act as a drag on growth in this country.
You never know which ones of your pieces are going to get around. Last week World Affairs published an essay I wrote exploring whether it would necessarily be such a horrible thing if only one language were spoken in the world.
I write that within a context: of the 6000 languages on earth, it is estimated that only about 600 will exist a hundred years from now. The big languages are edging the tiny ones, and even the medium-sized ones, out. In recent centuries, this has been first because of active extermination--Native Americans were often forbidden to speak their home languages in school--and later because of “globalization”: children raised in a city by migrant parents are unlikely to learn the language their parents spoke back in the village.
Congressman John Murtha passed away today. Below, you'll find a recent magazine feature that we ran on him--and the town he represented for 36 years.
Last week, the White House released a list of recipients of the Presidential Medal of Freedom, the highest honor that the United States government can afford a civilian. Among the 16 awardees are truly great figures: breast cancer philanthropist Nancy Goodman Brinker, theoretical physicist Stephen Hawking, and Sidney Poitier, the first African-American to win an Academy Award for Best Actor.
George Best, arguably the greatest British soccer player of all time, once said of David Beckham: "He cannot kick with his left foot, he cannot head a ball, he cannot tackle, and he does not score many goals. Apart from that, he's all right." Best minced his words at a time when Beckham was a runner-up for the 1999 FIFA world player of the year and at the peak of his career, having successfully recovered from vilification following a mindless tantrum that led to his expulsion from a 1998 World Cup game against Argentina.
Last month, a little-known British historian named Andrew Robert swas swept into the White House for a three-hour-long hug. He lunched with George W. Bush and Dick Cheney, huddled alone with the president in the Oval Office, and was rapturously lauded by him as"great." Roberts was so fawned over that his wife, Susan Gilchrist,told the London Observer, "I thought I had a crush on him, but it's nothing like the crush President Bush has on him."
