Global News Journal

“Collateral damage” grows in Mexico’s army-led drug war

I heard the bursts of gunfire near my house in Monterrey as I was showering this morning. Then the ambulance sirens started wailing, and as I drove my kids to school about 20 minutes later, a convoy of green-clad soldiers, their assault rifles at the ready, sped by us. In northern Mexico, where I cover the drug war, it has become a part of life to read about, hear and even witness shootouts, but today I shuddered at the thought: what if those soldiers accidentally ever shot at me?

It was in February 2007 that Amnesty International raised concerns over Mexican President Felipe Calderon’s decision, two months earlier, to send thousands of troops across the country to control Mexico’s spiraling drug violence. Echoing worries voiced by the United Nations, the rights group warned that sending the army onto Mexican streets to do the job of the police was a bad idea. Even individual soldiers have commented to Reuters, off the record of course, that they feel very uncomfortable about their new role.

Back then, when there was still plenty of optimism about winning the war against drug cartels, many Mexicans brushed off concerns of rights abuses and the possible deaths of innocent bystanders. Washington praised Calderon for his bold move.

But almost four years on, it would seem Amnesty, the U.N. and a host of other rights groups were right. For the family of slain architect Fernando Osorio, who was shot dead by soldiers who mistook him for a hitman late last month, they were certainly right. Fernando, 34, was killed on the outskirts of Monterrey, Mexico’s richest city, as he worked on a piece of land soon due to become a housing development. “The army is committing atrocities, they destroyed my family today,” Fernando’s father Oswaldo Osorio told reporters on Oct. 28.

In another tragedy a month before, four soldiers opened fire on a family traveling in their SUV along a highway outside of Monterrey, killing a 15-year-old boy and his father. Two students at Monterrey’s prestigious Tecnologico university were killed just outside the campus by soldiers earlier this year. Sadly, the list goes on.

The army occasionally apologizes. But for the Osorio family, little has been made clear. The army at first tried to justify their actions by saying Fernando was a drug hitman. The family found out what was going on from local media and from those working with Fernando on site. “It made the whole thing so much more painful,” his brother David told Reuters at the family home in suburban Monterrey. “If the army had come to us and said they were sorry and clarified things, well we might be able to understand that they are fighting a difficult battle. But right now, we don’t even know how to get Fernando’s belongings back (from the crime scene),” he said.

Whatever happened to Europe’s debt crisis?

If people stop commenting on the financial crisis, does it still exist?

A month ago, Europe was in the throes of fretting about Greece’s debt problems and whether they were going to spill over to Portugal and Spain, bringing down the euro and a decade of monetary union with it. At the same time there was intense anxiety about impending results from stress tests on nearly 100 European banks.

Every day — and sometimes several times a day – European Union officials, ministers, leaders or central bank governors would say something about the crisis, providing more fodder for frazzled financial markets to make another round of cliff-hanging calls over whether things were getting better or worse.

The market gyrations would prompt more questioning of officials, adding more verbal fuel to the fire, keeping the merry-go-round twirling.

Of course, decisions were also being taken that helped calm fevered brows — Greece took steps to cut government spending, the stress test results largely proved reassuring, and Portugal and Spain financed their debts through the markets without too much disruption.

But mostly, officials just stopped commenting on the crisis. Why? In large part because European went on holiday.

The European Union effectively shuts down in August — the Commission holds no briefings, the European Parliament is in recess and there are no leaders’ summits. This year most headed for the beaches in the last week of July.

Germany’s euro-zone bind

Whichever way you look at it, Germany is in a bit of a quandry.

For the past 11 years, since the launch of the euro single currency, Europe’s biggest economy has enjoyed steady current account surpluses as it has exported its manufactured goods around the world, while keeping labour costs down and productivity steady at home.

Its economic growth may not have been stunning in recent years, but it has experienced none of the huge budget-deficit and debt problems of its euro zone partners, particularly those in southern Europe such as Spain, Greece, Portugal and Italy. And it has none of the nagging competitiveness issues that all those countries also face.

Essentially it has a modern, open economy and has pursued steady, prudent economic management.

So when Greece’s debt crisis exploded — leaving the euro zone with effectively three choices: have Greece leave the euro, let Greece default, or bail Greece out — Germany was none too thrilled about any of them. Least of all, though, did it want to bail Greece out, believing that it wasn’t up to hard-working German taxpayers to pay off Greece’s debts when the country had spent the best part of a decade spending at will and doing nothing to overhaul its economy.

Alas Berlin, the heartbeat of the euro zone, naturally ended up having to be a central part of Athens’ bailout. And what’s more, the biggest contributor to the $1 trillion rescue package the IMF and European Union put together to prevent Greece’s problems spreading throughout the euro zone.

In reply, what Germany won from its euro zone partners — particular the profligate, uncompetitive, southern European ones — was a commitment to overhaul their economies. Greece, Spain and Portugal have basically promised to make changes to their public sector models, raising retirement ages, cutting state payrolls , raising some taxes, slashing spending and improving competitiveness. It’s going to take time and serious commitment, but Germany is hoping the southern European economies will ultimately look a bit more like Germany does.

Managing in a crisis, EU style

Never let it be said that the European Union doesn’t get things done.

It may have a slightly maddening way of going about it — last-minute, late-night summits, hours and hours of sweaty, closed-door negotiation, multiple conflicting plans put forward by the likes of the Finns, the Italians and, who knows, the Estonians – and then, hey presto, like the proverbial rabbit out of a hat, at 2 in the morning, a $1 trillion deal to haul the world back from the debt-crisis abyss. All in the name of European unity.

As one Brussels policy analyst put it somewhat delphically : “The EU is not crisis resistant, but perhaps it is crisis proof.” 

But is it any way to run a region of 27 countries and 500 million people, the world’s largest trading bloc, with a gross domestic product of more than 12 trillion euros — nearly a quarter of the world’s output?

There is a difference between crisis management and getting things done only in a crisis, and the EU sometimes appears to have a tendency towards the latter. Think of the mammoth, three-day negotiations over the Nice treaty in 2000, the running battle to get the Lisbon reform treaty approved last year, and the way the  EU President Herman Van Rompuy and foreign affairs chief Catherine Ashton were appointed after backroom dealing last November.

Greece gets help, but debt quicksand is all around

After five months of struggling to stay afloat in the quicksand of a debt crisis, Greece has finally asked the European Union and the IMF to throw it a lifeline. 

Some might think that’s the end of it — Greece now has access to up to 45 billion euros in special funds, it can finance its deficit and refinance its debts at better rates, and speculators (who have metaphorically been stepping on Greece’s head while it thrashes around in the quicksand) have to beat a retreat.

But not so fast. Greece is just one link in the chain of 16 countries using the euro single currency. As such — and under the terms of the rescue package the euro zone agreed for Greece this month — the 15 others share a part in hauling Athens out of its predicament.

While Germany, France, Sweden and the Netherlands may have the financial strength to do that, other euro participants are far weedier and are already up to their knees or ankles in quagmires of their own. In the playground-bullying that is often the driving mentality of financial markets, this is just the sort of situation where speculators start pressing down on the heads of some of the other countries wading in debt. And there are quite a few candidates to choose from.

Portugal, Spain, Italy and Ireland have all already been mentioned as potential targets for speculators/investors who are ready to short their bonds and buy debt insurance (in the expectation that credit default swap prices will rise) . Belgium now too is on the radar screen. With a government that has just collapsed, debts of more than 100 percent of gross domestic product and a deficit that more than quadrupled in 2009 from 2008, it has several ingredients that could make it susceptible.

This is not the way Germany, the linchpin of financial-crisis decision-making in the euro zone, would have wanted things to go.

When it first became clear early this year that Greece was in trouble, the European Commission and euro zone members talked boldly about how ready they were to step in and help if needed, mostly in the hope that by sounding strong and confident, it would dissuade financial market speculators from piling further pressure on Greece. Instead, the markets called their bluff and the euro zone was eventually forced to show exactly how much it was prepared to put on the line to help Greece.

If Greece’s debt dam breaks, who gets wet?

The 16 countries that share the euro single currency have agreed they will help Greece out if it needs. So far so good. But only now is the nitty-gritty of how member states will go about paying for their contributions being hammered out. And suddenly things are getting a little complicated.

Italy announced on Tuesday it would have to issue government bonds — known as BTPs –  to raise funds for its part in any Greek assistance. 

Under the agreement finalised by euro zone members on Sunday — by which they will provide about 30 billion euros to Greece if needed, and the IMF a further 15 billion euros — Italy may be called upon to disburse about 5 billion, a figure proportional to its economic weight in the euro zone. Germany, the European Union’s biggest economy, would have to provide a little over 8 billion euros. 

If Italy, which already has national debts in excess of 100 percent of GDP, issues more debt to raise money to help Greece get over its debt problems (Greece has a debt-to-GDP ratio of 120 percent),  then, in theory, the yield on Italian bonds is likely to rise as investors factor in the increased risk. And since almost all members of the euro zone have severe budget deficits (and therefore little free cash), potentially all of them are going to have to issue more debt to raise the funds to pay Greece to overcome its even more serious deficit problems. It’s spreading the risk around.

By the same token, if Greece asks for and gets the help it needs, its bond yields can be expected to fall if investors (or speculators) believe that the worst of the crisis is over and that the risk of a Greek default has now passed.

Multiply that scenario across the 16 members of the euro zone and what you get — again, in theory — is the risk profile of 15 member states increasing slightly in order to allow the 16th member, Greece, to lower its profile. It’s like the water in a vast dam being released to save the one village next to the lake, with the result that all the villages in the valley get flooded equally.

Extending the metaphor, Germany, which doesn’t get flooded very often and has taken sensible precautions against such an outcome, clearly doesn’t like the idea of getting wet at all and has promised to keep its villagers dry. Italy doesn’t mind getting a bit wet because it’s been flooded a few times before and it might need the help of the other villages in the future. France, which likes to be seen as the driving force of inter-village cooperation, thinks it’s the responsibility of everyone in the valley to take on a bit of a water to help out the village by the dam — Greece. And meanwhile Greece, which was responsible for putting most of the water behind the dam in the first place, just wants to make sure it doesn’t end up completely inundated, even if that means its neighbours taking a bit of a dousing in the process.

Markets call euro zone’s bluff on Greek aid

The surge in the spread of Greek bond yields over German ones since European leaders issued a promise of emergency loans to Greece last month indicates financial markets do not believe the pledge of euro zone support is anything more than a bluff.

And they are itching to call it.

Euro zone leaders have been betting that a promise of loans to Greece and strong words of political support will be enough to calm markets and allow Athens to borrow at more reasonable rates, therefore rendering any real aid — the dreaded bailout — unnecessary.

That seems to be the reason why the details of the support mechanism — the interest Greece would be charged, the duration of the loans, the conditions attached, the exact way the aid would be triggered — have been left undecided. A verbal intervention was supposed to be enough, with no real money committed. Keep it vague but strongly worded and hope the Greek ship of state rights itself.

But markets are not so easily convinced. They are not buying the rhetoric. They want to know the nitty-gritty of any aid package. As a result, the spread of Greek 10-year paper over equivalent German bonds surged to a record 463 basis points on Thursday, some 100 basis points more than when the euro zone leaders made their promise.

The vagueness of the terms the euro zone is offering is most likely the result of political differences between major states, which makes the offer even weaker. Germany, in particular, is known to have deep reservations about helping Greece out at all, and Germany has to be part of any deal.

The lack of euro zone detail could be a way of keeping markets guessing about where any intervention on the Greek bond market would come — similar to the calculated vagueness authorities employ when they verbally intervene in foreign exchange markets.

from MacroScope:

Frustrated Greeks

The Greek debt crisis appears to be entering a new phase, in which the country is no longer just waiting to get needed help but getting concerned that others -- including euro zone powerhouse Germany -- may actually be making it hard for them to recover.

First, there is Prime Minister George Papandreou (right in photo). His concern is that speculators are pushing  the cost of borrowing so high that it is undermining the plans he has put in place  for deficit reduction.  Papandreou is known for being a mild-mannered sort, so any kind of irritability is worth noting.

But Theodoros Pangalos (left), the deputy prime minister and once foreign minister, has no such reputation to hold him back.   He has launched an attack on Germany, saying that a) it is allowing its banks to mess around with Greek bonds and b) that it suits Berlin in any case to let the euro fall.

Pangalos is famous for his undiplomatic outbursts. He once referred to Germany as a giant with a child's brain. Another time he suggested that the then -French president was essentially belly-dancing in front of the Turks to get their business.

So perhaps a pinch of salt should be taken re Pangalos. But put together, the two bouts of finger-pointing do suggest that at the very least the Greeks are getting frustrated with the substance-less expressions of support they keep getting.

Cometh the hour, cometh Van Rompuy?

Three months ago, Herman van Rompuy might have struggled to be recognised on the streets of his native Belgium, let alone Paris or London. The bookish former prime minister, a fan of camping holidays and Haiku poetry, was nothing if not low-key; a studious consensus builder in the world of Belgian politics.

Three months on and Van Rompuy, 62, may not outwardly have changed much, but his title and the expectations surrounding him certainly have. In November he was chosen to be the first permanent president of the European Council, the body that represents the EU’s 27 leaders, and on Thursday he will host those heads of state and government at an economic summit in Brussels — the first such gathering he has chaired.

With Greece under extreme pressure with its mounting deficit and debt problems, and Portugal, Spain and Italy threatening to go the same way, the summit comes at a critical time. It is perhaps the most serious test of Europe’s monetary union since the euro single currency was introduced 11 years ago.

“Cometh the hour, cometh the man”, some might say, even if one wonders whether Van Rompuy would have been the first name on most European leaders’ lips at such a pressing time.  But Van Rompuy it is, and he has his work cut out if he is going to seize the moment and tackle one of the EU’s biggest problems.

First he must put Greece and debt on the agenda. As it stands the summit is only scheduled to discuss the EU’s 2020 strategy (a plan to boost growth over the next decade), Haiti, governance and climate change. And once he has put Greece firmly on the table, he must ensure that EU leaders give it serious, hard-nosed discussion, even if that means broaching super-sensitive issues such as what plans the union has to bail Greece out if it comes to it.

Van Rompuy, with his thinning grey hair and professorial air, may not look like the sort of man to squeeze decisions or commitments out of the likes of French President Nicolas Sarkozy or Germany’s Angela Merkel. But his record suggests he has hidden depth and a command of the issues that may prove handy.  

A student of philosophy as an undergraduate, Van Rompuy went on to gain a master’s in applied economics and then worked for the Belgian central bank, before going into politics. As Belgium’s budget minister in the 1990s, he was instrumental in helping to drive Belgium’s debt down from a peak of 135 percent of GDP, higher than Greece’s debt pile is right now. In his one-year stint as Belgium’s prime minister, he won plaudits for his ability to build consensus, steering Belgium’s notoriously fractious politics away from the brink on several occasions.

from Africa News blog:

All change for Nigeria?

Nigeria's central bank sliced through the hubris of the business elite with its $2.6 billion bailout out of five banks and the sacking of their heads in what looks as though it could be a new era for corporate governance in Africa’s most populous country.

Recently appointed Central Bank Governor Lamido Sanusi said lax governance had allowed the banks to become so weakly capitalised that they posed a threat to the entire system, and described the move as the beginning of a "restoration of confidence" in sub-Saharan Africa's second biggest economy.

The 1.14 trillion naira ($7.6 billion) in bad loans run up by the banks is roughly equivalent to the combined annual income of the poorest 20 million people in Africa's most populous nation, each of whom live on around $1 a day.

Yet the "Friday massacre", as one newspaper dubbed it, set Blackberries buzzing in Lagos champagne bars not because of the breathtaking scale of the money involved, but because of the might of the corporate aristocrats felled by Sanusi's axe.

"Ordinarily in Nigeria there is a sacred cow culture," said Reuben Abati, a respected leader writer and chairman of the editorial board of Nigeria's Guardian newspapers.

"Once someone is prominent in a particular industry you assume those persons are untouchable. What Sanusi has done now is to say nobody is too big to be held accountable, whether they are an Ibru or an Akingbola."

Cecilia Ibru and Erastus Akingbola -- the former chief executives of Oceanic Bank and Intercontinental Bank -- were arguably the highest-profile casualties of the cull, titans in a corporate elite dominated by egos and empire builders.