The Great Debate UK

from MacroScope:

Can Greek public opinion be turned?

So we’ve got the fresh Greek elections we expected and markets, despite the inevitability that we would get here, have reacted with some alarm. European stocks have shed  around 1 percent, and the harbour of German Bunds is pushing their futures price up in early trade. The Greeks will try to form a caretaker government today to see them through to elections expected on June 17.

The key question is whether the mainstream parties can mount a convincing campaign second time around, playing on the glaring contradiction in SYRIZA’s position (no to bailout, yes to the euro) and essentially turning the vote into a referendum on euro membership, which the overwhelming majority of Greeks still support. Don’t count on that. SYRIZA remains ahead in the polls. To be able to pull it off, PASOK and New Democracy will need some help from Europe. There have already been hints from Brussels that if a pro-bailout government is formed, Athens could be given some leeway on its debt-cutting terms. But equally other voices are saying there is no more room for manoeuvre.

France's Francois Hollande used his presidential debut to frame help for Greece within his push for a European growth strategy last night, saying he hoped that could also foster a return to prosperity there. He and Germany's Angela Merkel are due in the United States for a G8 summit at the end of the week where doubtless they will come under heavy pressure to make sure Greece doesn’t bomb out of the euro zone or, if it does, that the effect is contained. Easier said than done. Given a Greek euro exit would probably require rapid concerted reaction from the EU, IMF (to shore up Spain?) and the world’s big central banks (remember the global monetary policy response after the collapse of Lehmans?), planning for that could well be bubbling below the surface at the G8.

IMF chief Christine Lagarde said last night that it was important to be technically prepared for the possibility of Greece leaving the euro zone while Finland’s prime minister said Greek euro exit would not cause the financial mayhem seen in 2008.

As we’ve said before, Greece has some leverage. The IMF, ECB and euro zone governments are holding a lot of Greek debt so have an incentive to keep the  show on the road or face heavy losses if there is a hard default. Of Greece’s 250 billion-plus euros of debt, nearly 200 billion is now held by those public bodies, most of it by the ECB, which could need recapitalizing after that sort of hit, something that would fall back on euro zone governments. It is also hard to see how Europe could avoid propping Greece up even if it did leave the currency club. The calculation for euro zone leaders is whether pouring good money after bad is more or less palatable than taking a big loss on their Greek debt holdings.

On the growth strategy, there are hints that Spain will get more time to hit its 3 percent of GDP budget target, so why not something similar for Greece? PASOK leader Venizelos, the man who negotiated the bailout and who was humiliated in the election 10 days ago, has pressed for three years rather than two to make the cuts required by Greece’s programme. If he got stronger signals from euro zone partners that something like that could happen – and persuaded the electorate that this is the only way to avoid euro exit  -- it’s possible that he and New Democracy leader Samaras could do better second time around. The problem for the markets is that while you can take a reasonable stab at how politicians might act, it’s much harder to read a battered electorate. So they are in for a rocky month.

What is undeniably true is that the piecemeal European growth measures announced so far to revive moribund economies don’t amount to a hill of beans.

from The Great Debate:

The Keynes-Hayek showdown

By Nicholas Wapshott The views expressed are his own.

Eighty years ago an anguished debate between two economists began in Britain -- and came to shape the politics of the world after World War Two. The differences between John Maynard Keynes and his nemesis Friedrich Hayek sharply described alternative approaches to addressing the ebb and flow of the business cycle, with Keynes arguing that to put the jobless back to work governments could and should intervene in the market and Hayek insisting that such actions were based on an inadequate understanding of how economics really worked and would only delay the day of reckoning.

That snarky disagreement was so vicious and ill-mannered that one old-school economics professor described it as “the method of the duello” being “conducted in the manner of Kilkenny cats.” On Tuesday, in the Asia Society on Park Avenue, New York, two teams of economists, one representing Keynes, the other Hayek, will slug it out before an audience of 250 and bring the debate to America. Seventy years ago, Keynes’s ideas were eagerly embraced by young American economists who began implementing the Cambridge economist’s ideas first in Franklin Roosevelt’s administration, then in every government until Jimmy Carter, when Hayek’s disciple Milton Friedman introduced monetarism as a guiding principle.

The Keynes-Hayek debate has never been so topical. Today the fault line between right and left can be defined as the difference between those, like President Obama, who believe that the broken economy can be fixed by the government providing a giant fiscal stimulus, and those, like all the Republican presidential contenders, who believe government in America is too big and should be dismantled to make way for the operation of the free market. While Obama pushes his Jobs Bill, which would inject about half a trillion dollars into the economy, the GOP in the House is preventing any such manipulation of the economy from taking place.

The belated American Keynes-Hayek debate was provoked after the stock market crash of 2008 and the freezing up of the banks and Wall Street financial institutions the following year. A trillion-dollar Keynesian stimulus was quickly followed by a Hayekian wave of buyers’ remorse that deemed that the swift reduction of the national debt was more important than giving jobs to the unemployed. Congressman* Paul Ryan’s economic plans urging fiscal continence without delay were supported by the Tea Party movement that demanded that new government borrowing cease. Last summer’s debt ceiling talks continued the battle and was met by Obama’s doomed Jobs Bill by which the president is attempting to pin blame for joblessness upon his opponents.

The Reuters debate will put such practical prescriptions and counter-arguments into perspective. Four Keynesians – economist James Galbraith, son of the high priest of Keynesianism, John K. Galbraith; New Yorker columnist John Cassidy,  Sylvia Nasar, the historian of economic thought and author of Grand Pursuit; Steve Rattner, the architect of Obama’s auto company bail-out – will slug it out with four Hayekians – Economics Nobel Prize-winner Edmund Phelps; Professor Lawrence H. White of George Mason University; Diana Furchtgott-Roth, a senior fellow at the Manhattan Institute; and Stephen Moore of the Wall Street Journal. If this group of distinguished thinkers follows the spirit of the original debate, the usual academic civilities may soon make way for acerbic fireworks.

The spirit of the original debate is likely to inform Tuesday’s lively discussion, framed like an Oxford Union debate and presided over by Sir Harry Evans, Thomson Reuters’ editor-at-large. Keynes and Hayek first argued over whether deliberately creating new demand in an economy -- by cheap money lent by banks, by slashing taxes, and by governments directly investing in public works programs –- could be sustained, or whether, as Hayek argued, such measures would only in the long run delay the day of reckoning. Keynes’s famous riposte was that even temporary jobs were worth having because “in the long run we are all dead.”

from The Great Debate:

Obama at the electoral tipping point

By Cliff Young and Chris Jackson The opinions expressed are their own.

The Obama administration finds itself between a rock and a hard place.  On one side, an emboldened Republican Party smells blood, with their largely successful (politically speaking) full court press on the debt issue and dominance of the news cycle.  On the other, the economic news—both domestically and internationally—has been depressing at best, and downright scary at worst.

Given this dreary backdrop, the common wisdom among pundits and politicos is that Obama has been winged and is beatable in 2012.  Pundits offer varied reasons for this new found pessimism in Obama.

Some cite the dangers of a weakening economy on voters’ mood for “more of the same.”  Indeed, history suggests that no post-WWII president has won reelection when the unemployment rate was above 7.2 percent—bad news for Obama since unemployment looks to remain above 8.5 percent over the next year. Others stress Obama moving too far to the left with a “big government” agenda, while others say Obama has alienated his base by giving in too readily to Republican demands.  Underlining all these critiques are warnings of a Carter-esque “crisis of confidence” scenario where voters lose faith in Obama’s leadership.

However, is this pessimism warranted?  Is Obama truly on shaky ground?  To answer these questions, we base our analysis on a database of 140 elections from 25 countries used for electoral forecasting and poll validation here at Ipsos.

So what does the empirical evidence suggest?

Taken as a whole, Obama is still a favorite.  That being said, he is dangerously close to the tipping point between a clear favorite and a struggling contender.  We detail our logic below.

from MacroScope:

Give me liberty and give me cash!

Come back Mr Fukuyama, all is forgiven.

In his 1992 book "The End of History and the Last Man", American political scientist Francis Fukuyama famously argued that all states were moving inexorably towards liberal democracy. His thesis that democracy is the pinnacle of political evolution has since been challenged by the violent eruption of radical Islam as well as the economic success of authoritarian countries such as China and Russia.

Now a study by Russian investment bank Renaissance Capital into the link between economic wealth and democracy seems to back Fukuyama.

Looking at 150 countries and over 60 years of history, RenCap found that countries are likely to become more democratic as they enjoyed rising levels of income with democracy virtually 'immortal' in countries with a GDP per capita above $10,000.

" Only five democracies above the $6,000 income level have died. Even democracies above the $6,000 level have a 99 percent chance of sustaining their political system each year. The only exceptions were the military coups in Greece in 1967 ($9,800), Argentina in 1976 ($8,180) and Thailand in 2006 ($7,440), and the events in Venezuela in 2009 ($9,115), as well as Iran in 2004 ($8,475)," RenCap global chief economist Charles Robertson writes.

The $6,000 per capita GDP seems to be a crucial level, marking the point where a country is likely to shift to democracy. Tunisia, which early this year triggered the wave of uprisings against autocracy across the Arab world, recently crossed that threshold.

Conversely, democracy is most fragile at the lowest income levels and when incomes are shrinking. The world's populous democracy, India, is a notable exception as its per capita income was under $800 from 1950-1967, and only exceeded $2,000 in 2003.

from Pakistan: Now or Never?:

Pakistan’s political crisis

Never in the history of Pakistan has a democratically elected civilian government served out its full term and then been replaced by another one, also through democratic elections. It is that context that makes the latest political crisis in Pakistan so important.

Prime Minister Yusuf Raza Gilani is scrambling to save his PPP-led government after it lost its parliamentary majority when its coalition partner, the  Muttahida Qaumi Movement (MQM), announced it would go into opposition.  A smaller religious party, the Jamiat-e-Ulema-e-Islam (JUI-F), already quit the coalition last month.  If the government falls and elections are held ahead of schedule in 2013, the opportunity for Pakistan to have a government which serves its full term will be lost. 

The prevailing view among political analysts appears to be that the government is now less likely to last until 2013, even if it manages to survive in the short term. But given the peculiar nature of Pakistani politics, where the military exerts a powerful role behind the scenes, no one is predicting anything with any certainty.

The main opposition leader, former Prime Minister Nawaz Sharif, has shown little enthusiasm for forcing an early election which could propel his Pakistan Muslim League (Nawaz) into power at a time when the country faces huge economic and security problems. Better to wait it out until an election in 2013 that his PML-N is seen as likely to win. Having been ousted in a coup in 1999, Sharif also remains deeply suspicious of the army, and he has ruled out supporting any moves against the government that might be orchestrated by the military. Giving democracy time to bed down, by allowing the government led by the Pakistan People's Party (PPP) to serve its full term, could set a useful precedent for a future PML-N administration. 

The army itself has shown no inclination to run the country directly, and it already controls the issues that matter most to it - foreign and security policy.  It has barely disguised its frustration with Pakistan President Asif Ali Zardari -- who also leads the PPP -- particularly after he travelled to France and Britain last summer while the country suffered from devastating floods.  But that does not translate into wanting to see Sharif back in power. According to a U.S. embassy cable released by WikiLeaks,  army chief General Ashfaq Parvez Kayani made it clear to U.S. officials that "regardless of how much he disliked Zardari, he distrusted Nawaz (Sharif) even more".

Another option, possibly more palatable to the army, would be an alternative coalition of smaller political parties which might be able to challenge both Zardari and Sharif in the next election. But that will take time to fall into place, possibly right up to 2013, if at all.  Don't rule anybody out, however unlikely they seem now, as part of an alternative coalition. That includes former military ruler Pervez Musharraf, who set his sights very firmly on 2013 when he launched his political party in London in October.

A couple of final points. We don't actually know for sure whether there is a groundswell of popular support in favour of ditching the current government, though there is, as Nadeem Paracha argued in Dawn,  a great deal of populist sloganeering on television channels about the state of the country.  "Akin to a black comedy is the fact that most TV anchors and hosts that go on spouting all these concerns – unemployment, inflation, drone attacks, ‘good governance’, Aafia ki wapsi (jailed Pakistani scientist Aafia Siddiqui)  etc. – are sitting pretty with hefty salaries and perks, and, what some would suggest, an agenda to safeguard the interests of some of the most anti-democracy classes in this country i.e., the military, the mullah and large sections of the upper and middle-classes."

German elections bring forward a possible stalemate situation for EMU

-Jane Foley is research director at Forex.com. The opinions expressed are her own.-

Next month’s UK general election is not the only one of significance in Europe. There is the possibility that the German regional elections in North Rhine-Westphalia on May 9 could result in the end of the CDU/FDP government’s majority in the upper house of parliament.

While this would not alter Angela Merkel’s status as Chancellor, lessened support would make it more difficult for her to implement planned tax cuts and health services reforms. Fear that she may lose support in NRW is currently delaying the transfer of a German loan to Greece. In turn this means the markets are bracing themselves for a possible default in Greece; an event which could change the present composition of the Economic and Monetary Union of the European Union.

German popular opinion is firmly set against the notion of providing loans to Greece; although Germany as the largest EU economy is obliged to lend around 8.4 billion euros to Greece very soon to help the latter avoid default. While the election in NRW will not be fought on the subject of Greece it does give an added edge to concerns about lack of fiscal manoeuvrability in the region.

NRW has had to issue a record 27 billion euros this year. Over the past 10 years or so the amount of debt per capita has soared. This increase in debt and the possibility that the level of local services will have to be cut to meet fiscal consolidation targets does not sit happily with the notion that German taxpayers may have to make funds available to Greece.

Andreas Pinkwart, the Deputy Leader of the government’s junior coalition partner the FDP has described the prospect of a German loan to Greece as a “slap in the face of German employees”. It is unlikely that sentiment within the cash strapped economies of Spain, Ireland and Portugal has warmed to the topic of a bailout for Greece either.

Germany’s unwillingness to put its hands in its pockets to prevent a Greece default opens EMU to yet further criticism that it is a deeply flawed system. It has been clear for some time that the Stability Pact provides inadequate fiscal controls but if German pockets prove to have limited depth, then the ability of EMU to muddle its way through this crisis is significantly lessened.

Brown must create Afghanistan war cabinet

- Col. Richard Kemp is a former commander of British Forces in Afghanistan and the author of Attack State Red, an account of British military operations in Afghanistan published by Penguin. The opinions expressed are his own. -

Disillusionment with the inability of the Kabul administration to govern fairly or to significantly reduce violence played a role in the reportedly low turnout at the polls in Helmand.

It is critical that this changes if we are to avoid another Vietnam. The South Vietnamese Army, well trained and equipped, lost heart once the U.S. withdrew, collapsing at the first push, partly because their corrupt and ineffective administration was not worth fighting for.

That an election was held at all in Afghanistan’s most violent province is an achievement. But despite a major operation to drive out the Taliban, the insurgents deterred large numbers of voters. This illustrates just how steep a mountain NATO has to climb. But it does not mean we cannot prevail against them in Helmand.

As President Obama says: “This isn’t a war of choice; it’s a war of necessity.” Home grown British terrorists have only demonstrated an ability to kill our people when they have attended serious training and had face-to-face direction from war-hardened jihadists.

The Al Qaida leadership and their camps were driven into Pakistan in 2001. U.S. pursuit across the border using unmanned aerial vehicle strikes has been remarkably effective, resulting directly in the recent reduction of the UK terrorist threat level.

Al Qaida is not just a “global franchise” but also a solid organization that needs places to meet, to plan and to train terrorists. It cannot all be done on the internet.  Substantially unable to function now in Pakistan, the leadership is actively seeking a new base – perhaps in Yemen, Somalia or North Africa. In any of these they would be much more exposed. Their real desire is to return to Afghanistan. NATO forces are preventing that.

From afar, G8 seeks a handle on Afghanistan

- Luke Baker is a political and general news correspondent at Reuters. -

The mountains and deserts of southern Afghanistan are far removed from the elegant charms of Trieste in northern Italy, but there will be a link between the two this weekend.

Foreign ministers from the Group of Eight nations meet in the Italian city on the Adriatic on Thursday for three days of talks, with the state of play in Afghanistan, as well as developments in Iran and the Middle East, front and centre of their agenda.

Nearly eight years and tens of billions of dollars on from the U.S.-led invasion that overthrew the Taliban, the United States and its allies appear no closer to bringing long-term stability to the country, with the Taliban resurgent throughout the south and west and the instability expanding across the border into Pakistan.

One of the major areas of unrest is Helmand, a vast desert and mountain province in the far south where around 8,000 British troops have been deployed for 3-1/2 years and 10,000 U.S. Marines are steadily being sent in as reinforcements.

While 18,000 troops backed by helicopters, jets, Predator drones, armoured vehicles and endless advanced weaponry may sound like more than enough of a match for bands of bearded militants who usually aren’t armed with much more than a Kalashnikov rifle, it’s not always the case.

Helmand, split down the middle by the Helmand river, is larger than Switzerland and has a daunting mix of terrain that the Taliban and their followers are far more familiar with than foreign troops sweating in heavy, cumbersome combat gear. And it’s not just the challenges of the topography, it’s the sheer size of the area that stretches any army’s capability.

Why the results of the European elections matter

- Justin Fisher is Professor of Political Science and Director of the Magna Carta Institute at Brunel University. The opinions expressed are his own. -

It’s fair to say that the results of the European elections in Britain were something of a shock. Of course, it was evident that Labour was going to do badly and the BNP’s success in winning its first European seats did not come entirely out of the blue. But the collapse of Labour’s vote exceeded what most had predicted, and the realisation that the BNP now has 2 of the UK’s 72 MEPs is more dramatic than the possibility that it might occur.

Now the dust has settled, however, it’s worth reflecting a little on what the results may tell us about the future for British politics. The first point is that performances in European elections have rarely been a solid predictor of subsequent general election performance – especially since the introduction of a proportional representation voting system in 1999 (the 1994 elections are perhaps the sole exception).

Take 1989, for example, when the new Liberal Democrat party came a distant fourth behind the Greens. In the subsequent general election, the Liberal Democrats performed reasonably well, whilst the Greens fell back. And, in 1999 and 2004, the Conservatives beat Labour into second place. Yet Labour won both subsequent elections comfortably.

European elections are very different from General Elections, then. First, despite their clear importance, voters do not take them nearly as seriously as national elections.

Second, the electoral system allows smaller parties to perform much better than they would under the system used for Westminster elections. Thirdly, and linked very much to the first two, there is a clear appeal for parties such as UKIP given that these elections are about the very things that they oppose. All in all, European elections are much more multi-party affairs than Westminster ones. And as a consequence, extrapolating clues about the next general election can be hazardous.

But these elections may matter more than previous ones for three reasons. First, the results confirm that that Britain has a very strong Euro-sceptic core amongst its electorate – nearly 27 percent of those who voted in Britain, cast their ballot for one of the several anti-European parties. And, of course, UKIP claimed second place in terms of vote share and joint second (with Labour) in terms of seats. Given the opportunity that European elections afford the voters, this Euro-sceptic support cannot simply be dismissed as protest votes.

Rise of BNP reflects voter disengagement

- James Graham is the Campaigns and Communications Manager of Unlock Democracy The opinions expressed are his own. -

The rise of the far right in Britain is not a sign that people are flirting with fascism but a signal that disengagement has reached a crisis point.

The BNP’s rise has been slow but relentless over a 20-year period. The big turning point was actually the 2001 general election when Nick Griffin got 16 percent of the vote in the Oldham West constituency following a series of riots around the north of England. In 2003, they became the second largest party in Burnley, a trick they repeated in Barking and Dagenham in 2006 and Stoke on Trent in 2008. The election of Richard Barnbrook to the Greater London Assembly last year made it clear that they were in the running to make gains in the European Elections. If anything, the big surprise is that their gains were as limited as they were.

But there are a number of things to note about this. First of all, their success under Nick Griffin has been rooted in successfully presenting themselves as a non-racist and non-fascist party. Their deep fascist and Nazi links are apparent to anyone who does a bit of research but they have become adept at presenting themselves on the doorstep as something else.

In this respect they have been helped a lot by the relentless pace of 24-hour news. All the evidence suggests that an openly fascist party would continue to get nowhere in the UK. It may not seem much, but we should be consoled at least that the extremists will have to operate by stealth for the foreseeable future if they wish to continue to make progress.

Secondly, the party’s success is rooted in naked opportunism. Wherever there is a political vacuum, the BNP have rushed in. Burnley in 2003 is an excellent example of that, with both the Conservatives and Liberal Democrats failing to field candidates in 6 out of 15 wards. Their campaigns are rooted in their ability to exploit local issues and incorporate a narrative about immigration, victimhood, fear and resentment. Often these are based on the most outrageous lies – Richard Barnbrook for example has recently been caught making up three murders in Barking and Dagenham. But of course, by the time they get found out the damage has already been done.

Thirdly, they have yet to gain a sustainable foothold of power. Burnley, seen by some as a pariah council in 2003, is now controlled by the Liberal Democrats with a rump BNP group in fourth place. The BNP saw both their total votes and share of the vote fall this year compared to the London Assembly election last year, despite a much reduced turnout which should have been helpful to them. Their record in local government is lamentable. It would seem that for whatever reason people are voting for the party, for a substantial number of them once is enough.